1.

As regards the inclusion in the compensatory amounts system of products which are ‘the subject of a specific arrangement under Article 235 of the Treaty’, the Italian Government and the plaintiffs maintain that the Commission did not assess the risk, and even less establish the existence, of disturbances in trade in basic agricultural products (sugar, cereals and so on), but did so only in trade in non-agricultural processed products containing those basic products. They submit that the Commission's power to assess the existence of a risk of disturbances in trade can be exercised only at the level of basic agricultural products and not also at the level of processed products. The power to include processed products is expressly provided in Article 1 (2) of Regulation No 974/71 of the Council, but it can be used only if there is a risk of disturbances in trade in the basic products. Because of the small incidence of the agricultural component in the production costs, trade in the processed products in question (confectionery and so on) can in no way give rise to disturbances in trade in the basic agricultural products. It is clear, however, that the differences which the Commission mentions in its observations entailed a risk of disturbances in trade in the basic products since all the basic agricultural products used in the processed goods were already subject to the application of compensatory amounts. In this connexion, paragraph 17 of the Decision in Case 29/77 Roquette [1977] ECR 1835, at p. 1842, may be cited literally: ‘Although it is true that the Commission did not expressly state that in the absence of monetary compensatory amounts there would be reason to fear disturbances in trade in agricultural products, it is clear that the insertion of such a recital would have been of a purely formal nature.’ However, the Commission expressly admits that its regulation is based on Article 1 (2) (b) and (3) of Regulation No 974/71, that is to say on the risk of disturbances in trade in ‘agricultural’ products. It stated (in the third recital) that since trade in unprocessed basic products was subject to the compensatory amounts system, the difference in prices of the basic products would inevitably have a considerable effect on the conditions of competition of certain ‘sensitive’ processed products if the ‘basic products’ component of the processed products were not brought within the compensatory amounts system. The processed products at issue in these cases were not subject to the compensatory amounts system deriving from Commission Regulation No 652/76 of 24 March 1976. However, other ‘goods’ covered by Regulation No 1059/69 coming under closely related tariff headings (for example 18.06 D and 21.07 C) were so subject. Since the Court has held that consideration of the questions raised in the aforementioned Roquette case (one of which concerned the precise issue of whether it was open to the Commission to assess the risks of disturbances both at the level of basic products and at the level of processed products) disclosed no factor of such a kind as to affect the validity of Regulation No 652/76, it might be thought that on this point the matter is already settled. However, the aforementioned case concerned processed products appearing in Annex II and coming within the common organization of markets (starch products derived from maize). Thus, apart from Cases 12/78 and 84/78, this is the first time that the Court has had to deal directly with the extension of the monetary compensatory amounts system to derived products not appearing in Annex II but subject to a specific arrangement under Article 235 of the Treaty owing to a risk of disturbances in trade in those products. As the Court is aware, Annex II lists in a limitative manner the products which come within the particular provisions of the title ‘Agriculture’. As the Court held on 29 May 1974, ‘in this list appear, not only the principal agricultural products, but also a certain number of foodstuffs, the remoteness of which in industrial terms from the basic agricultural product goes beyond the point of first-stage processing as understood in a restricted sense’ (paragraph 12 of the Decision in Case 185/73 König [1974] ECR 607, at p. 618). The list could have been supplemented within two years of the entry into force of the Treaty; however, with the exception of ethyl alcohol, no use was made of this possibility. Thus on 4 April 1962 the Council, acting according to the procedure under Article 235, adopted special trade arrangements for certain goods resulting from the processing of agricultural products which were not included in Annex II. Those arrangements were not replaced until 1 November 1966 by Regulation No 160/66, although they had been laid down only for a period of three years. In order to resolve the difficulty resulting from the fact that Annex II could no longer be supplemented after 1 January 1960, the Council used Article 235 in order to adopt rules similar to the system of common organization of the markets in the agricultural sector, without however resorting to the fixing of a common price level. Such is the purpose of Regulation No 160/66. The trade arrangements thus introduced between Member States were organized by analogy with the provisions governing trade in basic products as such which appear in the regulations relating to the common organization of markets. Upon importation from non-member countries, the products in question are subject to taxation comprising a fixed component intended to ensure the protection of the Community processing industry and a variable component intended to compensate for the difference between Community prices and world market prices for the agricultural products used in making them. The list of goods appearing in the annex to Regulation No 160/66 corresponds in essence to the list already appearing in the Council Decision of 4 April 1962. That list covers all goods of which a large proportion consists of agricultural products and in which that proportion constitutes a decisive component of the price. During the preparatory stages of Regulation No 160/66, various Member States had opposed the integration of all or part of the countervailing charge in the Community budget. They argued that it was a charge on industrial products. However, since the end of the transitional period, that charge automatically goes to the European Agricultural Guidance and Guarantee Fund [EAGGF], which is a sign of the ‘agricultural’ nature of the products in question, and this extension of the agricultural sector was confirmed during the Kennedy Round. The arrangements introduced by Regulation No 160/66 were replaced ‘from 1 July 1969’ by Regulation No 1059/69 of the Council of 28 May 1969. In order to settle this question of pure Community law, it is therefore necessary to interpret Article 1 (3) of Regulation No 974/71 of the Council. The Italian Government maintains that in order to remedy disturbances in trade in non-Annex II products it is possible to make use of Article 14 (4) of Regulation No 1059/69 of the Council, according to which: ‘The Council, acting unani mously on a proposal from the Commission, may take appropriate measures to deal with a special situation which may arise in respect of certain goods. The period of validity of these provisions shall not, however, exceed six months.’ The Italian Government states that this power was used, for example, in Regulation No 2831/71 of the Council of 24 December 1971, in a case similar to the situation which Regulation No 800/77 was intended to remedy. The Commission maintains that, although Regulation No 974/71 is intended to neutralize the effects of the monetary measures in force in the agricultural sector when they affect the basic products used in making the various processed agricultural products, the trade in ‘agricultural products’ which that regulation is intended to protect from disturbances also covers processed agricultural products. A correct interpretation of Article 1 (3) of that regulation must comprise products subject to a common organization of the agricultural market as well as those covered by Regulation No 1059/69. The Commission states that the implementation of Article 14 (4) of Regulation No 1059/69 requires the unanimity of the Council, a condition which is difficult to fulfil. For this reason, in view of the particular responsibility incumbent upon the Commission in the management of the compensatory amounts system and of the difficulties of such management, the Council intended by Article 1 (3) of Regulation No 974/71 to allow the Commission to intervene also in respect of products subject to ‘a specific arrangement under Article 235’. Regulation No 974/71 dos not expressly refer to Regulation No 1059/69, but the expression ‘specific arrangement’ covers inter alia that regulation; moreover, Part 8 of the annex to the Commission regulations fixing the compensatory amounts expressly refers to ‘Products to which Regulation No 1059/69 Relates’, and Regulation No 974/71 itself refers to Article 235 of the Treaty, which constitutes a ‘sufficient basis’. Finally, Article 14 of Regulation No 1059/69, which in the Italian Government's submission should be resorted to, covers cases other than the floating of currencies. In the absence of observations by the Council, the institution which enacted Regulation No 974/71, I think that the Commission's argument is correct. The expression ‘agricultural products’ within the meaning of Article 1 (3) refers not only to ‘products covered by intervention arrangements under the common organization of agricultural markets’ but also to ‘derived’ products which are not basic agricultural products but nevertheless come within the common organization of agricultural markets (agricultural products of first-stage processing) as well as to products which are not processed agricultural products listed in Annex II but are processed products in which the agricultural component is such that it allows them to be classified as ‘agricultural’: to use the words of Article 97 in Pan Four, Title II (‘Agriculture’), Chapter 2 (‘Provisions relating to Certain Common Organizations of Markets’), Section 16 of the Act of Accession, they are ‘agricultural products imported or exported in the form of goods not covered by Annex II to the EEC Treaty’. Therefore there is indeed a common organization of markets for non-Annex II products, and those products come within the agricultural sector within the meaning of Regulation No 974/71 and of the Act of Accession. Thus the products exported to non-member countries by the plaintiff in Case 95/78 (Dulciora) were eligible to receive refunds, from which the compensatory amounts were deducted since the relevant Member State had a weak currency. However the Italian Government and the plaintiffs argue that, even assuming that the products in this case could theoretically be covered by the compensatory amounts system, their subjection thereto did not state the reasons on which it was based sufficiently for the purposes of Article 190 of the EEC Treaty, or at least did not do so accurately. They maintain that the incidence of the application of compensatory amounts upon certain basic agricultural products does not substantially alter the situation in so far as the advantages which processed products not subject to such amounts may derive therefrom are largely offset by higher production costs for other ingredients. It is true that the Commission had justified the abolition of compensatory amounts for certain of the products in this case (coming under tariff subheadings 18.06 B, 18.06 C and 21.07 CI and II) by its Regulation No 722/75 of 19 March 1975 on the grounds that the price of the non-Annex II goods covered by Regulation No 1059/69 is ‘determined largely by their value as processed products and by the cost of processing and very little by the value of the basic agricultural products’ and also that ‘such products can be assimilated to a considerable extent to those of the industrial sector, for which there are no compensatory amounts’. However, in my opinion, it cannot be accepted a priori that all non-Annex II processed products covered by Regulation No 1059/69 en bloc escape the monetary compensatory amounts system. That would be contrary to the very wording of Article 1 (2) (b) of Regulation No 974/71. Ultimately everything depends on the incidence of the value of the basic products upon the value of the end product; disturbances due to that incidence can be effectively measured only at the stage of trade in the processed products themselves and not at the stage of trade in unprocessed basic products. The consideration that, ‘in the case of the processed products not subject to monetary compensatory amounts, the difference in prices of the basic products has become so marked as to have a considerable effect on the conditions of competition of the processed products, having regard to the characteristics of the market in certain sensitive products’, although abstract and concise, does not appear to me to exceed the Commission's margin of discretion. The Commission could legitimately take the view, without contradicting itself, that the fluctuations in the currencies of the Member States which had occurred between March 1975 and April 1977, then November 1977, had brought about a corresponding alteration in the compensatory amounts applicable to the basic products and that, having regard to the proportions of those products used in the manufacture of the processed products in question, those alterations necessarily had an effect on the conditions of competition of the latter products. The Commission also explains that it had adopted a threshold of 5 % as the criterion for the application of Regulation No 974/71, instead of the figure of 2.5 % laid down in Article 4 of that regulation. None of the plaintiffs criticizes it for this; but then the Commission was entitled to take the view that, if the withdrawal of certain of the products in question from the compensatory amounts system was justified in 1975 having regard to that threshold, their re-introduction was justified in 1977 if not before once that threshold had been crossed. In its judgment of 20 October 1977 the Court held that, ‘the possibilities of disturbances in trade in agricultural products are so numerous and so diverse that it would be difficult, if not impossible, for the Commission to list all those possibilities in a regulation. Consequently, the Commission may find that there is a risk of disturbances merely on the basis of an appreciable fall in the rate of exchange of a currency’ (paragraphs 13 and 14 of the Decision in Case 29/77 Roquette [1977] ECR 1835, at p. 1842). It is also true that the contested regulations mention not a risk of ‘disturbances’ in trade in the processed products but a risk of ‘distortion of competition’, an expression taken from the decision concerning Ireland whose Government itself mentioned ‘distortion in trade between Ireland and the United Kingdom arising from existing agricultural monetary arrangements’, which is invoked as evidence that the monetary compensatory amounts are rather a‘charge’ or ‘subsidy’ than a factor neutralizing monetary fluctuations, thus favouring producers and exporters in countries with a strong currency. However this variant of vocabulary does not appear to me to be of any consequence. As the Commission explains, ‘distortion of competition’ between producers in the various Member States necessarily implies disturbances in trade. In the absence of compensatory amounts, production of the ‘food preparations’ in question would have continued to be favoured in the countries in which the prices of the basic agricultural products were lowest owing to the application of compensatory amounts. In these circumstances, even if the introduction of compensatory amounts benefited industries in the Federal Republic of Germany exporting such food preparations, it was not carried out under pressure from them, and the misuse of powers alleged against Regulations Nos 800/77 and 2657/77 does not appear to me to have been made out to the extent required by law. From the point of view of the material scope of these regulations, certain of the plaintiffs also submit that they are vitiated by discrimination because they do not refer to certain ‘food preparations’ comparable to the products at issue in this case, essentially gingerbread (heading 19.08 A) and white chocolate (heading 17.04 C). However, although these goods are covered by Regulation No 1059/69, they would also have to constitute similar products in competition with the ‘sensitive’ products at which the contested regulations are directed. Even if this were so, it would entail not the invalidity of the regulations but at most an obligation to bring those products as well within the compensatory amounts system, and I do not see what the plaintiffs stand to gain from this. In its judgment of 24 October 1973 the Court held that the Commission is not obliged to fix compensatory amounts for each of the products referred to in Regulation No 974/71: ‘The last sentence of Article 1 (2) [old version] of Regulation No 974/71 obliged the Commission to avoid fixing a compensatory amount whenever this did not appear necessary for the prevention of disturbances, irrespective of the proportion of the amount to the average value of the relevant product’ (paragraph 16 of the Decision in Case 43/72 Merkur [1973] ECR 1055, at p. 1072). It remains for me to examine a submission which was made only by the plaintiffs in Cases 151/77 and 157/78 and which is based on the low rate of the compensatory amounts charged on imports, which is alleged to deprive their charging of any dissuasive character. This line of argument appears invalid to me. This Court cannot decide on the dissuasiveness or otherwise of that rate, even in respect of traditional trends of trade in which the provenance or the trade-mark of the goods plays a certain rôle. If traders intended to maintain their imports for reasons of their own, that would indicate at most that the contested regulations do not really give them ground for complaint. It must also not be forgotten that besides the charging of compensatory amounts on imports there may also operate the charging of compensatory amounts on exports, which means that the effect of the system is greater than it appears. The calculation of the rate of the compensatory amounts results directly from the provisions of Article 2 (2) of Regulation No 974/71, and provision for the de minimis exception is made in Article 4 (2).