Judgment — ECLI:EU:C:2006:521
Date: 2006-09-07
Language of the case: Spanish
Court formation: Second Chamber
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Agriculture and Fisheries;General provisions;European Agricultural Guidance and Guarantee Fund (EAGGF);Cotton
Concepts: Statement of reasons;General provisions;Pleas in law;Structural reform of agriculture: joint action;Principle of the protection of legitimate expectations;Effects of a declaration that a measure is void;Court of Justice
Procedure: Action for annulment - successful
Origin: Spain

summary of the general situation which led the Community legislature to adopt that act and the general objectives pursued. 61 Recitals 1 and 2 in the preamble to that regulation show that the changes made by the regulation are intended to bring the support schemes in certain sectors of the common agricultural policy, including cotton, into line with the objectives of the reform introduced for the other sectors of that policy by Regulation No 1782/2003. 62 Recital 2 states that those objectives involve, for the sectors concerned, moving away from a policy of price and production support to a policy of income support for farmers, and hence decoupling a large part of the support and integrating it into the single payment scheme. 63 Recitals 5 and 6 in the preamble to Regulation No 864/2004 then set out the reasons for which support for cotton cannot be completely decoupled. They also explain the bases on which the amount of support to remain coupled is to be fixed, and state that that amount corresponds to 35% of the total existing indirect aid and that the remaining 65% of that total is to be available for the single payment scheme. 64 It must be concluded that those recitals together disclose the essence of the objective pursued by the institution in adopting Regulation No 864/2004 in so far as it introduces the new cotton support scheme. 65 The Community legislature was not therefore required additionally to give specific reasons for the various technical choices made, such as the choice to make the grant of the specific aid for cotton conditional on the maintenance of cultivation of the cotton up to the boll opening stage. 66 It follows that the second plea must also be rejected. Third plea: misuse of powers Arguments of the parties 67 The Spanish Government submits that, in so far as Regulation No 864/2004 establishes the new cotton support scheme, it is vitiated by the misuse of powers, since it was adopted on the basis of paragraph 6 of Protocol 4, but for a different purpose from that referred to there, and with the essential aim of circumventing the specific procedure provided for by the EC Treaty for amending the provisions of primary law in that protocol. 68 The Council replies that the introduction of the new cotton support scheme by the contested provisions of Regulation No 1782/2003 as amended corresponds perfectly to the concept of ‘necessary adjustment’ mentioned in paragraph 6 of Protocol 4, so that there can be no question of a misuse of powers. Findings of the Court 69 As the Court has repeatedly held, an act is vitiated by misuse of powers only if it appears, on the basis of objective, relevant and consistent evidence, to have been taken with the exclusive or main purpose of achieving an end other than that stated or evading a procedure specifically prescribed by the Treaty for dealing with the circumstances of the case (see, to that effect, inter alia, Case C‑342/03 Spain v Council, paragraph 64 and the case-law cited). 70 The Spanish Government has not adduced any such evidence. 71 As regards the aims pursued by the Council when adopting Regulation No 864/2004, in so far as it established the new cotton support scheme, there is nothing in the case-file to support the conclusion that the Council pursued an exclusive or main aim other than that stated in recitals 1 and 2 in the preamble to that regulation, namely adjusting the support scheme in the cotton sector to bring it into line with the objectives of the reform that had already been introduced for other sectors of the common agricultural policy by Regulation No 1782/2003. 72 Nor has the Spanish Government shown that, by adopting Regulation No 864/2004 on the basis of paragraph 6 of Protocol 4, the Council pursued the exclusive or main aim of evading the procedure prescribed for the revision of provisions of primary law. 73 In this respect, it must be noted that the legal basis constituted by paragraph 6 of Protocol 4 confers a wide discretion on the Council to decide on the necessary adjustments to the cotton support scheme provided for by the protocol. 74 The Spanish Government has not produced any evidence to show that the Council in fact pursued an aim other than that of making such adjustments and thus followed the procedure laid down in paragraph 6 of Protocol 4 for making those adjustments with the exclusive or main aim of evading the procedure prescribed for the revision of provisions of primary law. 75 Finally, it is apparent from recital 5 in the preamble to Regulation No 864/2004 that, in adopting that act in so far as it amends the cotton support scheme, the Council intended to comply with the objectives laid down in paragraph 2 of Protocol 4, namely to support the production of cotton in regions of the Community where it is important for the agricultural economy, to permit the producers concerned to earn a fair income, and to stabilise the market by structural improvements at the level of supply and marketing. 76 Whether those objectives were achieved is the subject of the second part of the fourth plea, alleging breach of the principle of proportionality. There is no need therefore to consider the point in connection with the present plea. 77 In the light of the foregoing, the third plea must also be rejected. Fourth plea: breach of the general principles of Community law of proportionality and protection of legitimate expectations 78 The second part of this plea, relating to the principle of the protection of legitimate expectations, should be examined first, followed by the first part, relating to the principle of proportionality. Breach of the principle of the protection of legitimate expectations – Arguments of the parties 79 The Spanish Government submits that the adoption of Regulation No 864/2004 establishing the new cotton support scheme infringed the legitimate expectations of operators in the cotton sector, who could expect to continue to benefit from a support scheme complying in any case with the objectives stated in paragraph 2 of Protocol 4, in particular the maintenance of cotton production in certain regions of the Community, and the requirement of a system of aid to production as provided for in paragraph 3 of the protocol. 80 The Council submits that the adoption of that regulation did not infringe the legitimate expectations of operators in the cotton sector in the maintenance of an aid system compatible with Protocol 4, as the new cotton support scheme is fully compatible with the objectives of that protocol and does not cause them the considerable loss alleged by the Spanish Government, their income remaining stable. – Findings of the Court 81 According to the Court’s settled case-law, any economic operator on whose part an institution has promoted reasonable expectations may rely on the principle of the protection of legitimate expectations. However, if a prudent and circumspect operator could have foreseen that the adoption of a Community measure is likely to affect his interests, he cannot plead that principle if the measure is adopted. Furthermore, while the principle of the protection of legitimate expectations is one of the fundamental principles of the Community, economic operators are not justified in having a legitimate expectation that an existing situation which is capable of being altered by the Community institutions in the exercise of their discretionary power will be maintained, particularly in an area such as that of the common organisation of the markets, the objective of which involves constant adjustment to reflect changes in economic circumstances (Joined Cases C‑37/02 and C‑38/02 Di Lenardo and Dilexport [2004] ECR I‑6911, paragraph 70 and the case-law cited). 82 In the present case, the Spanish Government has not produced any evidence to show that the operators concerned could have entertained any reasonable expectation promoted by the Community institutions that the rules applicable to aid in the cotton sector before their amendment by Regulation No 864/2004 would be maintained. 83 Moreover, in the present case, the principle of the protection of legitimate expectations cannot be relied on, since a prudent and circumspect operator could have foreseen the adoption of Regulation No 864/2004 and that regulation’s reform of the cotton support scheme. 84 As the Advocate General observed in point 70 of her Opinion, that reform was part of a more extensive fundamental reform that had been discussed at political level since 1992 and was moreover specifically envisaged in point 2 of Commission Communication COM(2003) 698 final, adopted on 20 November 2003, which contained a proposal for amendment to Regulation No 1782/2003 and was the subject of a notice published in the Official Journal (OJ 2004 C 96, p. 5). Furthermore, the support scheme in the cotton sector had already been the subject of several substantial reforms in the past. 85 Finally, in so far as the Spanish Government alleges that the principle of the protection of legitimate expectations was infringed because the new cotton support scheme does not comply with the objectives of Protocol 4, that argument merges with the argument put forward in support of the first part of the fourth plea, so that it need not be examined in the context of this part. 86 Consequently, the second part of the fourth plea, alleging breach of the principle of protection of legitimate expectations, must be rejected. Breach of the principle of proportionality – Arguments of the parties 87 The Spanish Government submits essentially that the measures adopted in the context of the new cotton support scheme, in particular fixing the amount of the specific aid for cotton at the level of 35% of the aid available under the previous support scheme and making eligibility for the aid conditional only on the maintenance of cultivation until the boll opening, are manifestly inappropriate to the objective as set out in recital 5 in the preamble to the regulation, an objective that reflects the aim laid down in paragraph 2 of Protocol 4. The principle of proportionality has therefore been infringed. 88 Two studies produced by the Spanish Government show that the foreseeable consequence of those measures will be that the profitability of cotton production in the Spanish regions concerned will not be ensured. 89 The probable result of that will be, in particular, the abandoning of a considerable part of Spanish production of raw cotton, or even its replacement by other crops, and a substantial decrease in the degree of utilisation of the processing capacity of the ginning plants in the production regions, threatening their economic viability and possibly even leading to their definitive closure. 90 That latter development would be likely to bring about a further fall in cotton production, since production is not possible without the presence, and hence the economic viability, of such plants in the vicinity of the production regions concerned, as cotton has scarcely any commercial value before it is processed, and it cannot be transported over long distances. 91 The Council and the Commission submit that the disputed measures are not manifestly inappropriate in relation to their objectives as set out in paragraph 2 of Protocol 4 and recital 5 in the preamble to Regulation No 864/2004. 92 The income of producers under the new cotton support scheme, namely the total of the single payment, the specific aid per hectare and the selling price of the harvest, remains substantially the same as under the previous system, so that the profitability of cotton producing undertakings is not affected by the introduction of the new scheme. 93 Moreover, a comparative study of the foreseeable profitability of cotton growing under the new support scheme compared to that of other crops shows that the amount of the specific aid per hectare was fixed at a level which allows producers to achieve for cotton a gross margin excluding the single payment comparable to that produced by other crops such as durum wheat or maize. 94 Consequently, since cotton growing remains viable according to the forecasts, it is not probable that it will be driven out by other crops. – Findings of the Court 95 The Court’s settled case-law on the principle of proportionality should first be recalled, as it applies in particular in the context of the common agricultural policy. 96 The Community legislature has a wide discretion where the common agricultural policy is concerned, corresponding to the political responsibilities given to it by Articles 34 EC to 37 EC. Consequently, judicial review by the Community Court must be limited to verifying that the measure in question is not vitiated by any manifest error or misuse of powers and that the authority concerned has not manifestly exceeded the limits of its discretion (Case C‑189/01 Jippes and Others [2001] ECR I‑5689, paragraph 80 and the case-law cited). 97 As to review of proportionality, it should be recalled that the principle of proportionality, which is one of the general principles of Community law, requires that acts adopted by Community institutions do not exceed the limits of what is appropriate and necessary in order to attain the legitimate objectives pursued by the legislation in question; where there is a choice between several appropriate measures, recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued (Jippes, paragraph 81 and the case-law cited). 98 As regards judicial review of the implementation of that principle, bearing in mind the wide discretion enjoyed by the Community legislature where the common agricultural policy is concerned, the lawfulness of a measure adopted in that sphere can be affected only if the measure is manifestly inappropriate in terms of the objective which the competent institution is seeking to pursue (Jippes, paragraph 82 and the case-law cited). 99 What must be ascertained is therefore not whether the measure adopted by the legislature was the only one or the best one possible but whether it was manifestly inappropriate (see, to that effect, Jippes, paragraph 83). 100 As to the new cotton support scheme established by Regulation No 864/2004, it is apparent from recital 5 in the preamble to that regulation that the amount of the specific aid for cotton was determined in such a way as to ensure economic conditions which, in regions which lend themselves to that crop, enable activity in that sector of agriculture to continue and thus prevent cotton from being driven out by other crops. 101 That objective reflects, and defines more precisely, those stated in paragraph 2 of Protocol 4, according to which the system of production aid in the cotton sector is intended in particular to support the production of cotton in regions of the Community where it is important for the agricultural economy, to permit the producers concerned to earn a fair income, and to stabilise the market by structural improvements at the level of supply and marketing. 102 As follows from the case-law cited in paragraphs 98 and 99 above, this part of the plea put forward by the Spanish Government implies an examination of whether the contested measures of the new cotton support scheme are manifestly inappropriate in terms of that objective, which consists essentially in fixing the amount of the specific aid for cotton at a level such that it ensures adequate profitability and hence the continuation of cotton production in regions which lend themselves to that crop, thus avoiding its being driven out by other crops. 103 It is common ground that the adoption of Regulation No 864/2004 was not preceded by a Commission study assessing the probable socio-economic effects of the proposed reform in the cotton sector, whereas such studies had been carried out in connection with the reform of support schemes in some other sectors, such as the tobacco sector. 104 The question therefore arises of the bases on which the amount of the specific aid for cotton was determined, and consequently of whether, on those bases, the Community legislature was able, without exceeding its broad discretion, to reach the conclusion that, if set at 35% of the total existing aid in the previous support scheme, that amount would suffice for attaining the objective pursued of ensuring the profitability and hence the continuation of that crop. 105 In this respect, the Council points to a table drawn up by the Commission containing a comparative study of the foreseeable profitability of cotton growing under the new support scheme in comparison with that of other crops. The Council observes that those figures were submitted to it so that they could be taken into account in the adoption of Regulation No 864/2004. 106 According to the study, the gross margin per hectare excluding the single payment is EUR 744 for cotton, and is thus between the margin for durum wheat, EUR 334, and that for maize, EUR 914. The Commission asserted at the hearing that those figures demonstrate that cotton growing will remain profitable and possible after the entry into application of the reform. 107 The margin in question is calculated according to a formula consisting essentially in subtracting from income per hectare – made up of the selling price of raw cotton, corresponding to EUR 750, and the specific aid of EUR 1 039, giving a total of EUR 1 789 – the production costs, those being the sum of the specific costs and overheads, which, according to the Commission, are to be assessed at EUR 1 045 per hectare. 108 The Council submits, however, that for the purposes of that study of the future profitability of cotton growing account should also be taken of the income deriving from the single payment equivalent to 65% of the existing aid in that sector. 109 It submits that, since the sum of the coupled and decoupled aid under the new cotton support scheme is equivalent to the total amount of the indirect aid granted under the previous support scheme, there is no reason to doubt the future profitability of cotton growing. The reform of aid for that crop is based on its budgetary neutrality. 110 That point of view must be rejected. As the Spanish Government observed without being contradicted by the Commission, in the case of a comparative study of the profitability of alternative crops, the single payment should not be taken into account, as it is granted independently of the crop chosen and even if the farmer decides not to produce anything. 111 That payment therefore has no influence on the farmer’s decision to choose one crop rather than another. The budgetary neutrality of the reform is of no relevance in itself for assessing whether in future farmers will choose to abandon cotton growing or, if so, to replace it by other crops. 112 Relying on two studies, the Spanish Government moreover challenges certain figures used in the calculation of the profitability of cotton growing put forward by the Commission, in particular that relating to production costs. 113 According to those studies, it submits, those costs in fact amount to a minimum of EUR 1 861.81 per hectare. That amount includes labour costs, whereas the corresponding amount used by the Commission wrongly excludes them. Adding the labour costs to the figure of EUR 1 045 per hectare put forward by the Commission reduces to 10% the difference between the Commission’s figure and that adduced by the Spanish Government as regards total production costs. 114 It submits that, since cotton growing requires a much larger workforce than other crops, it is essential that such costs are taken into account in a study of the future profitability of cotton growing. 115 If, then, the Commission’s calculation included labour costs and also took into consideration a selling price consistent with the present level of the market, production costs would be higher than producers’ income under the new support scheme, and the gross margin to be expected for cotton would be zero or even negative, with farmers therefore liable to be working at a loss if they continue to produce cotton. 116 On being questioned on this point at the hearing, the Commission explained that the amount of EUR 1 045 per hectare it took as overheads included in the production costs covers certain labour costs, including those of temporary or seasonal workers and persons performing specific work. 117 However, submits the Commission, a study of the comparative profitability of crops should take account only of specific costs, that is, those linked to the crops concerned, and not of fixed costs, that is, those linked to the operation. The Commission therefore did not include the labour costs of a fixed nature, such as the costs of the farmers’ workforces and their families. 118 The Commission adds that the latter costs could not in any case have been included in the calculation of profitability. First, great – and moreover inexplicable – differences had been observed between the figures for the various regions relating to those costs, so that those figures were not reliable. Second, it is very difficult to divide those costs among the different crops and other activities carried on in each farming operation. 119 In the light of those explanations, the Court must consider whether, by fixing the amount of the specific aid for cotton on the basis of the comparative study referred to in paragraph 105 above, the Community institutions infringed the principle of proportionality. 120 It is true that where, as in the present case, the Community legislature has to assess the future effects of legislation to be enacted although those effects cannot be accurately foreseen, its assessment is open to criticism only if it appears manifestly incorrect in the light of the information available to it at the time of the adoption of the legislation in question (Jippes, paragraph 84 and the case-law cited). 121 It is also true that the Community legislature’s broad discretion, which implies limited judicial review of its exercise, applies not only to the nature and scope of the measures to be taken but also, to some extent, to the finding of the basic facts (see, inter alia, Case C‑120/99 Italy v Council [2001] ECR I‑7997, paragraph 44). 122 However, even though such judicial review is of limited scope, it requires that the Community institutions which have adopted the act in question must be able to show before the Court that in adopting the act they actually exercised their discretion, which presupposes the taking into consideration of all the relevant factors and circumstances of the situation the act was intended to regulate. 123 It follows that the institutions must at the very least be able to produce and set out clearly and unequivocally the basic facts which had to be taken into account as the basis of the contested measures of the act and on which the exercise of their discretion depended. 124 As was noted in paragraphs 116 to 118 above, it is apparent from the information provided by the Commission at the hearing that certain labour costs were not included and were thus not taken into consideration in the comparative study of the foreseeable profitability of cotton growing under the new support scheme which was used as the basis of the determination of the amount of the specific aid for cotton. 125 The Spanish Government submits, however, relying on studies giving figures, that those costs can be calculated, that they are significant, and that taking them into account creates serious doubts as to the profitability of cotton growing under the new support scheme. 126 Without it being necessary to take a decision on the correctness of the figures produced by the various parties, it must be said that the relevance of the labour costs in question for the purposes of calculating the production costs of cotton and the foreseeable profitability of that crop appears in itself to be scarcely deniable. The circumstance relied on by the Commission that obtaining that information would have raised certain technical problems cannot call into question its relevance. 127 Moreover, it must be observed that the Council and the Commission have not put forward specific arguments to disprove the Spanish Government’s assertion that the inclusion of those costs entails an increase in the production costs of cotton such that adequate profitability of that crop under the new support scheme is not ensured, so that that crop, or at least a substantial part of it, is liable to be given up or in some cases driven out by other crops. 128 It is also common ground that the potential effects of the reform of the cotton support scheme on the economic situation of the ginning undertakings were not examined. 129 Admittedly, as the Council observes, the requirement which follows from paragraph 2 of Protocol 4 of maintaining the profitability of cotton production applies as such to cotton producers and not to ginning undertakings. 130 However, a proper study of the effects of that reform on the profitability of cotton production requires an examination of the consequences the reform is liable to produce for ginning undertakings situated in the production regions. 131 As the Spanish Government pointed out without being contradicted, cotton production is not economically possible without the presence in the vicinity of the production regions of such undertakings operating under economically sustainable conditions, since cotton has little commercial value before being processed and it cannot be transported over long distances. 132 The production of cotton and its processing by the ginning undertakings thus appear to be inextricably linked. The potential effects of the reform of the cotton support scheme on the economic viability of the ginning undertakings therefore constitute a basic factor to be taken into account in order to assess the profitability of cotton growing. 133 In those circumstances, the conclusion must be that the Council, the author of Regulation No 864/2004, has not shown before the Court that in adopting the new cotton support scheme established by that regulation it actually exercised its discretion, involving the taking into consideration of all the relevant factors and circumstances of the case, including all the labour costs linked to cotton growing and the viability of the ginning undertakings, which it was necessary to take into account for assessing the profitability of that crop. 134 It follows that the information submitted by the Community institutions does not enable the Court to ascertain whether the Community legislature was able, without exceeding the bounds of the broad discretion it enjoys in the matter, to reach the conclusion that fixing the amount of the specific aid for cotton at 35% of the total existing aid under the previous support scheme would suffice to guarantee the objective set out in recital 5 in the preamble to Regulation No 864/2004, namely to ensure the profitability and hence the continuation of that crop, an objective reflecting that laid down in paragraph 2 of Protocol 4. 135 Consequently, it must be concluded that the principle of proportionality was infringed. 136 It follows that the fourth plea, in so far as it alleges that that principle was infringed, is well founded, and the application must be allowed. 137 In the light of all the foregoing, Chapter 10a of Title IV of Regulation No 1782/2003 as amended must be annulled. Limitation of the effects of the annulment 138 Under the second paragraph of Article 231 EC, the Court may, if it considers it necessary to do so, state which of the effects of the regulation that it has declared void are to be considered as definitive. 139 In the present case, it should be noted that under Article 156(2)(g) of Regulation No 1782/2003 as amended the new cotton support scheme is to apply as from 1 January 2006 for the cotton sown as from that date. 140 Farmers in the Member States concerned may consequently already have taken steps to adapt to that scheme so as to be able to benefit from the support it provides for, or at least will have to take such steps shortly. Moreover, the competent authorities of those Member States may already have taken the necessary measures for implementing the scheme, or will soon have to take such measures. 141 In the light of those factors, and in particular in order to avoid any legal uncertainty as to the scheme applicable to aid in the cotton sector following the annulment of Chapter 10a of Title IV of Regulation No 1782/2003 as amended, the effects of the annulment must be suspended until the adoption, within a reasonable time, of a new regulation. Costs 142 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs, if they have been applied for in the successful party’s pleadings. Since the Kingdom of Spain has applied for costs and the Council has been unsuccessful, the Council must be ordered to pay the costs. In accordance with Article 69(4) of the Rules of Procedure, the institutions which have intervened in the proceedings are to bear their own costs. On those grounds, the Court (Second Chamber) hereby: 1. Annuls Chapter 10a of Title IV of Council Regulation (EC) No 1782/2003 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers and amending Regulations (EEC) No 2019/93, (EC) No 1452/2001, (EC) No 1453/2001, (EC) No 1454/2001, (EC) No 1868/94, (EC) No 1251/1999, (EC) No 1254/1999, (EC) No 1673/2000, (EEC) No 2358/71 and (EC) No 2529/2001, inserted by Article 1(20) of Council Regulation (EC) No 864/2004 of 29 April 2004; 2. Orders the effects of that annulment to be suspended until the adoption, within a reasonable time, of a new regulation; 3. Orders the Council of the European Union to pay the costs; 4. Orders the Commission of the European Communities to bear its own costs. [Signatures] * Language of the case: Spanish.