Judgment of the Court (Fifth Chamber) of 14 July 1988. - Criminal proceedings against R. Lambert. - Reference for a preliminary ruling: Cour d'appel - Grand Duchy of Luxembourg. - Liberalization of current payments - Prohibition of reverse documentation - Two-tier foreign exchange markets. - Case 308/86.



European Court reports 1988 Page 04369



Summary

Parties

Grounds

Decision on costs

Operative part



Keywords

++++

Balance of payments - Liberalization of payments - Transfers of foreign currency connected with the movement of goods - Two-tier foreign exchange market - Exporters' s obligation to exchange foreign currency payable in respect of their sales on the regulated foreign exchange market - Permissibility - Discrimination on grounds of nationality - None

( EEC Treaty, Arts 7 and 106 )

Summary

1 . As Community law now stands, rules which require exporters to have foreign currency payable in respect of their sales paid through a bank and to exchange such currency on the regulated foreign exchange market and which as a result prohibit them from taking payments in bank notes, are not a barrier to the liberalization of payments connected with the movement of goods which is incompatible with Article 106 of the EEC Treaty;

2 . Rules such as those at issue, even if they give rise to unequal treatment vis-à-vis exporters established in other Member States, do not involve discrimination contrary to Article 7 of the Treaty since the legislation at issue applies to all persons concerned on the basis of objective criteria and without regard to their nationality .

Parties

In Case 308/86

REFERENCE to the Court under Article 177 of the EEC Treaty by the cour d' appel ( Court of Appeal ) of the Grand Duchy of Luxembourg for a preliminary ruling in the proceedings pending before that court between

Ministère Public ( Public Prosecutor )

and

R . Lambert,

on the interpretation of Article 3 ( a ) and ( b ), Articles 5, 7, 31, 32, 34, 67 ( 2 ) and 106 of the EEC Treaty,

THE COURT ( Fifth Chamber )

composed of : G . Bosco, President of Chamber, U . Everling, Y . Galmot, R . Joliet and F . Schockweiler, Judges

Advocate General : Sir Gordon Slynn

Registrar : B . Pastor, Administrator

after considering the observations submitted on behalf of

R . Lambert, the accused, at the hearing, by H . Frank, Avocat,

the Luxembourg Government, by J . Guill, Agent, accompanied by P . Le Roy, expert,

the Belgian Government, by M . Waelbroeck, Avocat,

the Italian Government, by M . Conti, Agent,

the French Government, at the hearing, by G . de Bergues, Agent,

the Commission of the European Communities, by J . Amphoux, Agent,

having regard to the Report for the Hearing and further to the hearing on 11 February 1988,

after hearing the Opinion of the Advocate General delivered at the sitting on 31 May 1988,

gives the following

Judgment

Grounds

1 By a judgment of 25 November 1986, which was received at the Court Registry on 9 December 1986, the cour d' appel of the Grand Duchy of Luxembourg referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty five questions concerning the interpretation of various provisions of the Treaty, in particular Articles 7, 67 and 106, in order to assess the compatibility with those provisions of rules which require exporters to have foreign currency payable in respect of their sales paid through a bank and to exchange such currency on the regulated foreign exchange market and which consequently prohibits them from obtaining payment in banknotes .

2 Those questions arose in proceedings brought by the Ministère Public against Mr Lambert, a Luxembourg cattle dealer . He had accepted payment in banknotes, both in foreign currency ( German marks and Dutch guilders ) and in Belgian and Luxembourg francs, for sales of cattle in Germany and the Netherlands between 1981 and 1983 . He was prosecuted before the tribunal d' arrondissement ( District Court ), Diekirch, for having infringed, on the basis of the above facts, the provisions of Article 8 ( 2 ) of Regulation I on imports and exports ( Mém . A . 1964, p . 1422, Mém . B . 1964, p . 10456 ), initially adopted in 1955 by the Institut Belgo-Luxembourgeois du Change ( Belgo-Luxembourg Exchange Institution ) ( hereinafter referred to as "the Institution ").

3 Article 8 ( 2 ) of Regulation I lays down detailed rules for payment in respect of export transactions . It is worded as follows :

( a ) (...)

( b ) Payment in foreign currency must be received, whether in the Belgo-Luxembourg Economic Union or outside it, in the form of a bank transfer or a cheque . Within eight days of the receipt of such payment, the foreign currency must be exchanged on the regulated foreign exchange market ...

( c ) Payment in Belgian or Luxembourg francs must be received by debiting a "convertible" foreign account held at an approved bank .

4 On the regulated market, the rate of exchange is fixed each day by the bankers authorized for that purpose, meeting as a clearing committee, under the supervision of the Banque nationale de Belgique . That rate is maintained within agreed limits in the context of the European Monetary System, if necessary by interventions on the part of the Banque Nationale which uses for that purpose the foreign currency reserves of the Belgo-Luxembourg Economic Union ( hereinafter referred to as "the Union "). The purpose of Article 8 ( 2 ) of Regulation I in requiring that all transfers of foreign currency in respect of the export of goods must be made on that market is to reserve that currency for the financing of imports and thereby contribute to ensuring the equilibrium of the Union' s balance of payments so as to limit interventions by the Banque Nationale and conserve the Union' s foreign currency reserves .

5 In order to ensure that foreign currency obtained from exports is actually directed to the regulated market, Article 8 ( 2 ) of Regulation I requires exporters to have foreign currency so obtained paid through a bank . Consequently, they are prohibited from obtaining payment in banknotes . Transfers of banknotes are regarded by the Institution not as current payments but as capital movements since it is impossible to establish with certainty a correlation between those transfers and the transactions to which they refer . Transfers of banknotes thus fall within the sphere of the free market, on which the rate of exchange is fixed by the law of supply and demand .

6 During part of the period at issue, the franc was weakened as a result of the economic situation in the Union . That weakness was much more marked on the free market than on the regulated market . The rates of exchange for foreign currencies on the free market thus exceeded by 5 to 10% the rates for the same currencies on the regulated market . Purchases of foreign currencies on the free market were thereby hindered . On the other hand, sales of foreign currencies on that market were advantageous .

7 By obtaininng payment in banknotes for sales of cattle abroad, Mr Lambert was able to exchange them on the free market . He was therefore able to make a profit on the exchange transaction of some LFR 5 million .

8 By judgment of 17 May 1985, the tribunal d' arrondissement, Diekirch, fined Mr Lambert and ordered the confiscation of the LFR 5 million representing the profit he had made from the offence . Both Mr Lambert and the Ministère Public appealed against that decision to the cour d' appel of the Grand Duchy . Since Mr Lambert argued that Article 8 of Regulation I was an obstacle to free trade and, for that reason, was incompatible with the Treaty, the Cour d' Appel decided to stay the proceedings and refer five questions to the Court for a preliminary ruling . Those questions are as follows :

1 . Is it contrary to the liberalization of payments connected with intra-Community trade under Article 67 ( 2 ) and Article 106 ( 1 ) of the EEC Treaty for an exporter residing in the territory of the Belgo-Luxembourg Economic Union to be required to sell on the controlled exchange market to approved banks foreign currency received in payment for goods sold in Germany and the Netherlands, it being understood that the amount ultimately received in national currency is some 5 to 10% less than what could have been obtained on the free market?

2 . Is the prohibition on receiving the price of the abovementioned exports in foreign or national banknotes an obstacle to the liberalization of payments?

3 . Does the principle of non-discrimination laid down in Article 7 of the EEC Treaty apply to inverted discrimination, that is to say to national measures which have the practical but unintended effect of penalizing exporters in the Member State concerned vis-à-vis those established in other Member States?

4 . Do the Community principles set out in Article 3 ( a ) and ( f ) of the EEC Treaty, namely the elimination of measures having an effect equivalent to customs duties on exports and the establishment of a system ensuring that competition in the common market is not distorted, preclude such inverted discrimination where, independently of the specific objective pursued by the restrictive rules, their effect is to give a substantial advantage to similar traders in other Member States and they are thereby likely directly or indirectly, in fact or potentially, to form an obstacle to trade between the Member States?

5 . Do the standstill provisions of Articles 5, 31, 32 and 34 of the EEC Treaty apply to the measures described in Questions 1 and 2 which were adopted before the Treaty entered into force but have since caused appreciable distortion where the differences between the exchange rates obtaining on the controlled and free markets reach some 5 to 10% of the value in national currency of the price charged in foreign currency, as happened in the present case in 1981, 1982 and 1983?

9 Reference is made to the Report for the Hearing for a fuller account of the legislative context and the facts in the main proceedings, the course of the procedure and the written observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court .

10 It should be pointed out in limine that as the Court observed in its judgment of 31 January 1984 ( Joined Cases 286/82 and 26/83 Luisi and Carbone v Ministero del Tesauro (( 1984 )) ECR 377 ), Article 106 covers current payments, that is to say, transfers of foreign exchange which constitute the consideration within the context of an underlying transaction, whereas Article 67 covers movements of capital, that is to say, financial operations essentially concerned with the investment of the funds in question rather than remuneration for a service .

11 The national court' s first and second questions must therefore be understood as seeking essentially to ascertain whether rules which require exporters to have foreign currency payable in respect of their sales paid through a bank and to exchange such currency on the regulated foreign exchange market and which prohibit them from taking payment in banknotes impede the liberalization of payments connected with trade in goods in a manner that is incompatible with Article 106 of the Treaty .

12 In that regard, it should first be pointed out that such rules are intended to ensure that current payments are made exclusively on the regulated foreign exchange market and that the free market is reserved for capital movements . It is therefore intended to ensure the separation of the two markets .

13 It should also be observed that the first subparagraph of Article 1 ( 2 ) of the First Directive on the liberalization of capital movements ( Official Journal, English Special Edition 1959-62, p . 49 ) provides that capital movements liberalized under the directive are in principle to be made on the basis of the exchange rate ruling for payments relating to current transactions, that is to say, at the rate of exchange applicable on the regulated foreign exchange market . However, the second subparagraph of Article 1 ( 2 ) permits Member States which also have a foreign exchange market on which the fluctuations of exchange rates are not officially restricted to maintain it and to require that capital movements liberalized under the directive are directed towards that market . That derogation applies only if the rates on the free market do not show any appreciable and lasting differences from those ruling on the regulated market .

14 In that regard, Mr Lambert emphasizes that during the period at issue, the difference between the official and free market rates exceeded the limits of that derogation . However, Mr Lambert cannot in any event rely to any useful effect on a possible infringement of the directive of which, moreover, he himself was seeking to take advantage . The transaction which he carried out did not constitute a capital movement but was a transfer of foreign currency connected with a movement of goods .

15 As can be seen from Article 5 ( 1 ) of the same directive, it is permissible for Member States which maintain a two-tier foreign exchange market to adopt the measures necessary to ensure that current payments are made exclusively on the regulated market and that the free market is reserved for capital movements . To that end, they may, in particular, require exporters to have foreign currency payable in respect of their current transactions paid through a bank .

16 Such a requirement is not contrary to Article 106 ( 1 ) of the Treaty . Under that provision, the Member State in which the importer resides must authorize him to pay the exporter in the currency of the Member State in which the latter resides . Rules such as those at issue do not raise an impediment to the possibility either for the importer to make payment in the currency of the State in which the buyer resides or for the exporter to receive that payment . Such rules deal solely with the way in which the exporter must receive payment, regardless of whether that payment is expressed in foreign or national currency .

17 It must also be pointed out that the prohibition of exporters obtaining payment in banknotes, which is the corollary of the abovementioned requirement, is also not contrary to Article 106 of the Treaty the aim of which is, as the Court pointed out in its judgment of 23 November 1978 ( Case 7/78 Regina v Thompson (( 1978 )) ECR 2247 ) to ensure that the necessary monetary transfers may be made for the free movement of goods . As the Court has already pointed in its judgment of 11 November 1981 ( Case 230/80 Casati (( 1981 )) ECR 2595 ) transfers of banknotes cannot be regarded as necessary for the free movement of goods since it is a method of payment which is not in conformity with standard practice .

18 Under those circumstances, the reply to the national court' s first and second questions should be that, as Community law now stands, rules which require exporters to have foreign currency payable in respect of their sales paid through a bank and to exchange such currency on the regulated foreign exchange market and which prohibit them as a result from taking payment in banknotes, are not a barrier to the liberalization of payments connected with the movement of goods which is incompatible with Article 106 of the Treaty .

19 The national court' s third and fourth questions seek to ascertain whether rules such as those at issue involve discrimination incompatible with Article 7 of the Treaty .

20 The national court referred those questions because it considered that such rules could place exporters subject to them at a disadvantage vis-à-vis their competitors established in other Member States in which different rules apply .

21 It is sufficient to observe that any inequality of treatment between exporters established in the Union and their competitors established in other Member States is merely the result of differences in legislation between the Member States in question .

22 As the Court has consistently held, such inequality of treatment does not involve discrimination contrary to Article 7 of the Treaty, since the legislation in question applies to all persons concerned on the basis of objective criteria and without regard to their nationality .

23 In those circumstances, the reply to the national court' s third and fourth questions should be that rules such as those at issue do not entail discrimination incompatible with Article 7 of the Treaty .

24 The national Court' s fifth question seeks essentially to ascertain whether a two-tier foreign exchange market system, set up before the Treaty entered into force but producing distorting effects during a period subsequent to its entry into force is incompatible with certain standstill provisions of the Treaty concerning the free movement of goods .

25 Since the rules contested before the national court did not give rise to any impediment to the liberalization of current payments guaranteed by Article 106 of the Treaty, the movement of goods has not been hindered by those rules . Consequently, the fifth question does not call for an answer .

Decision on costs

Costs

26 The costs incurred by the Belgian, Luxembourg and Italian Governments and by the Commission, which have submitted observations to the Court, are not recoverable . Since these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the proceedings pending before the national court, the decision as to costs is a matter for that court .

Operative part

On those grounds,

THE COURT ( Fifth Chamber )

in answer to the questions referred to it by the cour d' appel du Grand-Duché de Luxembourg, by judgment of 25 November 1986, hereby rules :

( 1 ) As Community law now stands, rules which require exporters to have foreign currency payable in respect of their sales paid through a bank and to exchange such currency on the regulated foreign exchange market and which as a result prohibit them from taking payments in banknotes, are not a barrier to the liberalization of payments connected with the movement of goods which is incompatible with Article 106 of the EEC Treaty;

( 2 ) Rules such as those at issue do not entail discrimination incompatible with Article 7 of the EEC Treaty .