OPINION OF MR ADVOCATE GENERAL MISCHO

delivered on 7 October 1986 ( *1 )

Mr President,

Members of the Court,

Since 1936 flour mills in France have been subject to trade legislation which allocates to each mill an annual milling quota for common wheat to be processed into flour intended for domestic human consumption.

That quota may be increased, within certain limits, either by merging mills or by buying milling rights.

If a mill exceeds its quota, it incurs a fine calculated according to the number of quintals of wheat unlawfully milled and the resulting flour is confiscated.

In 1982 and 1983 SA Minoterie Forest exceeded its wheat-milling quota; that company and its managing director Mrs M. L. Forest were therefore prosecuted, before the tribunal de grande instance, Macon, by the direction générale des impôts [general tax directorate].

The defendants argued that the French legislation was contrary to certain provisions of the Treaty of Rome or to Community regulations adopted in application of the Treaty; the tribunal de grande instance agreed that the matter was debatable and therefore referred the following question to the Court:

‘Must the French legislation enacted by the decree of 24 April 1936, as amended in particular by Decree No 61/1033 of 11 September 1961, introducing wheat-milling quotas and limiting the production capacity of mills, be judged contrary to Regulation (EEC) No 2727/75 of the Council on the common organization of the market in cereals or to Articles 30 to 37 of the Treaty of Rome?’

Since the Court of Justice of the European Communities has no jurisdiction under Article 177 to rule on the compatibility of national measures with Community law, the question referred by the tribunal de grande instance, Macon, must be rephrased. The substance of the question is whether Regulation No 2727/75 of the Council of 29 October 1975 on the common organization of the market in cereals or Articles 30 to 37 of the Treaty must be interpreted as prohibiting the adoption of measures such as those laid down by the national regulations in question.

In the course of the written and oral procedures it was not disputed that the object of the French legislation is to encourage the reduction of production capacity in the milling industry, since a decrease in bread consumption has led to overcapacity. It is intended in particular to avoid the abrupt and unjustified closing of undertakings, even small or medium-sized undertakings, which may be regarded as viable or desirable from the point of view of the public interest.

As Mr Advocate General Mayras emphasized in the van Haaster case, with regard to the same legislation, ‘the purpose of such measures was to improve the situation in a processing industry for agricultural products, not to limit the production of those products’. ( 1 )

Furthermore, it is not disputed that:

(a) the legislation restricts only the capacity of mills for the milling of wheat intended for domestic human consumption, whatever the origin of that wheat;

(b) the quota thus does not apply to wheat intended for export or re-export after processing;

(c) imports into France of wheat or flour are not restricted; French millers are thus free, if they so wish, to buy from other countries all the wheat which they intend to process.

Although the provisions of the Treaty regarding the abolition of tariff and commercial barriers to intra-Community trade are to be regarded as an integral part of the common organization of the market, ( 2 ) I prefer, for reasons of clarity and because of the wording of the question referred to the Court, to analyse separately the question of the compatibility of regulations such as those in issue before the national court with Article 30 et seq. of the Treaty.

I shall therefore deal in turn with the rules governing such legislation to be found in;

— Article 3,0 et seq. of the Treaty establishing the European Economic Community;

— Regulation No 2727/75 of the Council on the common organization of the market in cereals;

— the combined provisions of Articles 5 and 85 of the EEC Treaty.

A — Articles 30 to 37 of the Treaty

The defendants in the main proceedings argue that ‘inasmuch as it prevents French mills from freely purchasing wheat, in particular wheat produced in other Member States and offered for sale on the French market, in so far as the flour produced from that wheat is intended for sale on the French market, the French legislation imposing quotas on milling capacity affects intra-Community trade, at least potentially, and therefore must be regarded as a measure having equivalent effect to a quantitative restriction within the meaning of Article 30 of the EEC Treaty’.

The Commission, on the other hand, considers that: ‘no restriction on the importation or exportation of flour which might contravene Articles 30 and 34 of the Treaty (which are an integral part of the common organization of the market) appears to result directly or indirectly from such measures ... ’. The Commission goes on to analyse the effects of the regulations with regard to wheat, and concludes that ‘according to the information in the possession of the Commission the French legislation is not restrictive in object or effect’.

The Government of the French Republic observes that: ‘there is no interference with intra-Community trade..., since the system establishes no quantitative restriction on imports or exports of flour or wheat. Nor can it be asserted that there is any indirect or potential restrictive effect on imports from other Member States’.

I should point out first of all that Article 34 (restrictions on exports) and Article 37 (national monopolies) are not relevant to this case.

Let me also observe that it appears from the above analysis of the legislation in question that it ‘does not have the purpose of regulating trade patterns’. ( 3 ) Nor does it result in formal discrimination. It is applicable without distinction to French and imported wheat.

Having established that, I must now consider whether the legislation in question is nevertheless ‘capable of hindering, directly or indirectly, actually or potentially, intra-Community trade’ ( 4 ) and, if so, whether any resulting obstacles to trade must be accepted on the ground that the legislation is necessary on ‘imperative grounds’.

In that regard it must be stated once again that any miller or dealer is free to import wheat or flour into France in unlimited quantities.

There is therefore no actual and direct obstacle to intra-Community trade.

It remains to be seen whether the milling quota system is nevertheless capable indirectly or potentially of preventing imports which might take place if that system did not exist or of makingthem more difficult or more expensive.

Supposing that all French millers should wish to buy wheat from other Community Member States to the extent of their quotas, a decision which is left to their entire discretion, it is clear that all the imports of wheat necessary to cover domestic human consumption of flour could take place without difficulty, since the total of all milling quotas considerably exceeds that consumption. ( 5 )

Turning to the individual circumstances of each miller one is led to the following conclusions.

Each mill has a well-defined annual capacity which is a function of its equipment.

It is not unreasonable to accept that the milling quota of many mills must for some time have been identical to their annual flour production capacity.

The decree of 27 June 1938 setting the quotas provides that ‘the number of quintals of wheat which each mill is authorized to mill each year for domestic consumption is equal to the arithmetic mean of its actual maximum milling (not including wheat imported under the temporary importation system) during the years 1927 to 1935 and the annual milling capacity of the mill calculated over 300 days per year, the latter figure being in any event a maximum’.

A considerable number of mills whose original quota did not reach their annual milling capacity must since then have acquired the milling rights necessary to attain that level.

Those mills which, by way of modernization, have increased their production capacity since 1938 have also had the possibility of acquiring supplementary milling rights.

As appears from the statistics attached to the French Government's replies to the questions put by the Court, between 1968 and 1984 alone the number of mills decreased by 1528, which led to the placing on the market of a substantial quantity of milling rights.

Between 1981 and 1984, 492 mills bought milling rights amounting to a total of 550982 tonnes of wheat.

Furthermore, it is not always necessary for a mill to have a milling quota corresponding to its total production capacity. Undertakings of every sort frequently operate at a level below their maximum capacity. The important point is that the milling quota must be sufficient to cover the orders obtained by the mill.

Milling rights may even be purchased after the event, at the end of the year, at a price which does not seem prohibitive. ( 6 ) They remain the property of the mill.

It is true of course that if during any given year a particular miller decided not to accept all the orders which he received, for fear that at the end of the year his milling quota would not be sufficient, he would be obliged to refrain from purchasing the quantitites of wheat corresponding to those orders.

That partial limitation of purchases might affect French wheat or imported wheat according to whether the miller intended to buy wheat in France or abroad.

This risk that no purchases will be made thus weighs no more heavily on products which may be imported than on products which may be bought on the French domestic market.

Or, to paraphrase the words of Advocate General Sir Gordon Slynn in Joined Cases 60 and 61/84 (Opinion of 20 March 1985 [1985] ECR 2605), the factor which would lead a French miller not to buy wheat from à French producer is the same as that which would lead him not to buy wheat from a producer in another Member State. Both categories of wheat producers are thus in the same situation.

The system complained of thus does not have the effect of favouring national production as against the production of other Member States (to use the words of the Court in Joined Cases 60 and 61/84, at paragraph 21) or, conversely, of placing products imported from other Member States at a disadvantage compared to national products (see the judgment of 10 July 1980 in Case 152/78 Commission v France (advertizing of alcoholic beverages) [1980] ECR 2299, at paragraph 14).

However, as I have just shown, the application of the system may in certain specific circumstances lead a particular miller to refrain from purchasing wheat on the national market or from importing wheat. It may therefore potentially create an obstacle to some trade.

Consequently, the restriction of the right to mill wheat provided for by the system is compatible with the principle of free movement of goods laid down in the Treaty only if the possible obstacles which it creates to intra-Community trade do not exceed what is necessary in order to ensure the attainment of the objective in view and that objective is justified from the point of view of Community law (see paragraph 22 of the judgment in Joined Cases 60 and 61/84, referred to above).

In my view a system which imposes quotas on the milling of wheat intended for domestic consumption of flour in a Member State must be regarded as justified where the total of all milling quotas exceeds the volume of domestic consumption and the objective of the system is to permit the orderly restructuring of the milling sector and to ensure the continued existence of mills in all regions of the Member State in question.

It is a ‘legitimate choice of economic and social policy consistent with the objectives of public interest pursued by the Treaty’. ( 7 )

B — The common organization of the market in cereals

1. The principle of residual competence

It must first be determined whether a Member State is entitled to maintain legislation of this type in force after the entry into force of the regulation on the common organization of the market in cereals and in products of first-stage processing.

The defendants in the main proceedings accept that the Member States have such a residual competence but they consider that the legislation in question goes beyond such competence since, in their view, it is not necessary for the achievement of the objectives of Article 39 and is contrary to the principles governing the common organization of the market and the provisions of Regulation No 2727/75.

The Commission considers that ‘so long as the Community has not adopted common measures, a Member State cannot be prevented from maintaining national legislation for the orderly restructuring of flour milling in so far as it is not incompatible with the common organization of the market in cereals and does not apply to imports or exports of flour’. ( 8 )

Since Regulation No 2727/75 does not contain any provision referring directly or indirectly to the activity of flour mills and the Commission's proposal for a regulador ‘on the stabilization of the market foi products of the milling of cereals suitable for bread-making’ has not yet been adoptee by the Council, I am also of the view that ir principle the Member States retain the right to legislate in this area.

It remains, however, to be determined whether legislation having the characteristics of the French legislation in question is of such a nature as to interfere with the objectives of Article 39 of the EEC Treaty or the provisions of the common organization of the market in the relevant sector.

2. The exercise of residual competence

(a) The objectives of Article 39 of the EEC Treaty

On this point I may be extremely brief. It has not been shown in what way legislation such as that in force in France might work against increased agricultural productivity and the optimum utilization of the factors of production, endanger the standard of living of the agricultural community, the stabilization of markets or the availability of supplies or prevent supplies from reaching customers at reasonable prices.

On the contrary, it might be thought that by making possible the orderly reduction of overcapacity in the flour-milling sector legislation of this kind contributes to the optimum utilization of the factors of production and thus help to lower processing costs. By ensuring the continued existence of mills of small or medium capacity ( 9 ) close to producers of wheat and consumers of flour, it also helps to ensure the availability of supplies.

(b) The principles of the common organization of the market in cereals

In the introduction to this Opinion I stated that the French system did not entail any quantitative restriction on trade in flour or wheat between France and the other Member States or non-Member countries, whether on imports or on exports.

In part A I explained why I think a system such as that in force in France cannot be considered to fall within the scope of Article 30 of the EEC Treaty, which must be regarded as an integral part of the common organization of the market.

The system must therefore also be considered compatible with Article 18 (2) of Regulation No 2727/75, which extends the principles of Article 30 to trade with nonmember countries.

Nor does such legislation result in restriction of flour or wheat production.

The defendants in the main proceedings are wrong to rely on the judgments of the Court in the van Haaster and van den Hazel cases.

In his Opinion delivered on 2 October 1974 in Case 190/73 Officier van Justitie v van Haaster, referred to above, Mr Advocate General Mayras pointed out that there was no analogy between legislation subjecting the cultivation of hyacinths to quantitative restrictions and the French legislation governing flour mills.

The same reasoning applies with regard to the quota on the slaughtering of poultry at issue in the van den Hazel case (judgment of18 May 1977 in Case 111/76 [1977] ECR 901).

It is undeniable that French flour production may vary freely so long as the total amount of milling rights is greater than French domestic consumption and at the same time the manufacture of flour for export is not subject to any restrictions.

In that regard it has not been argued that the total of all milling quotas has ever been less than the quantity of wheat necessary to cover French domestic consumption of flour, or that the French Government has any intention of altering the situation in the future. (In 1984 milling quotas came to a total of 55 million quintals of wheat, and domestic human consumption of flour amounted to 43 million quintals.)

Nor does the quota system restrict the production of wheat. Wheat is planted not only on the basis of domestic flour consumption or of milling quotas but also, more importantly, in the light of the arable land suitable for wheat production and the likelihood, in the estimation of farmers, that they will be able to export wheat either unprocessed (165 million quintals in 1984) or in the form of flour (18 million quintals of wheat), or sell it for livestock feeding (45 million quintals).

In spite of the fact that domestic human consumption accounted for only 43 million quintals of wheat, therefore, in the crop year 1983-84 France produced 313 million quintals of wheat.

(c) The price system established in the framework of the common organization of the market

The common organization of the market in cereals has not established any common price system for wheat flour.

On the other hand, I am unable to see in what way the legislation in question might affect wheat prices.

In 1984 the quota system authorized the processing into flour for domestic consumption of a quantity of 55 million quintals of wheat. In fact the demand for flour justified the processing of only 43 million quintals. It may therefore be presumed that even in the absence of the legislation not a single extra quintal of wheat would have been processed into flour.

The legislation in force thus could not have any disruptive effect at all on the free operation of supply and demand for wheat, or on the price mechanism and intervention system established under the common organization of the market.

Indeed, it is quite clear that in a country such as France where wheat used for domestic flour consumption amounts to only about 14% of total production it is the volume of total production which determines the price of wheat.

C — The competition rules laid down in the Treaty

Although the national court did not raise any question with regard to the compatibility of legislation such as that in issue with the provisions of the Treaty on competition, the defendants in the main proceedings discussed that point at some length. Their observations are summarized in detail in the Report for the Hearing, and there is therefore no need for me to repeat them here.

Only Article 85 of the Treaty may be pertinent in this case. That article concerns agreements between undertakings, decisions by associations of undertakings and concerted practices, and not the legislation of Member States. As the Court has stated on several occasions, however, ‘Member States are none the less obliged under the second paragraph of Article 5 of the Treaty not to detract, by means of national legislation, from the full and uniform application of Community law or from the effectiveness of its implementing measures; nor may they introduce or maintain in force measures, even of a legislative nature, which may render ineffective the competition rules applicable to undertakings’. ( 10 )

I think that the Commission and the French Government have convincingly shown that the legislation in question does not require milling undertakings to behave in a manner prohibited by Article 85; nor does it encourage or authorize such conduct.

The fact that by establishing milling quotas the legislation made it possible as a matter of fact to enter into agreements or engage in practices in regard to them does not seem to me to amount to interference with the operation of the competition rules. I share the view of the Commission that only if it made such agreements or practices legally possible, that is to say lawful, would the French legislation give rise to criticism from the point of view of Article 3 (f), the second paragraph of Article 5 and Article 85 of the Treaty.

There is a second reason for which Article 85 cannot apply in this case: the legislation is not capable of affecting trade between Member States.

In its judgment of 5 April 1984 in Joined Cases 177 and 178/82 {van de Haar and Kaveka de Meern [1984] ECR 1797), the Court pointed out that ‘that provision only comes into consideration with regard to agreements, decisions or practices restricting competition which appreciably affect Community trade’ (paragraph 11), whereas ‘Article 30 of the Treaty does not distinguish between measures having an effect equivalent to quantitative restrictions according to the degree to which trade between Member States is affected’ (paragraph 13).

I do not think it possible to conclude that the French system of milling quotas can appreciably affect intra-Community trade.

I have already stated that if all millers decided to buy from abroad the wheat necessary to supply domestic consumption of flour they could do so without difficulty.

Furthermore, the ;fact that in certain circumstances an individual miller might be obliged to forego the (purchase of an additional quantity of wheat, be it from a French supplier or a foreign supplier, is not such as to constitute a threat to ‘freedom of trade between Member States in a manner which might harm the attainment of the objectives of a single market between States’. ( 11 )

If a number of millers were to enter into an arrangement to refrain from placing on the market unused milling rights which they possessed, it would be for the French competent authorities to assess that arrangement in the light of national legislation.

Community law could apply only if such substantial quantities were removed from the market that the total of usable milling rights was lower than the level of domestic consumption, a possibility which seems entirely academic.

In conclusion, I therefore propose that the Court reply in the following manner to the question referred by the tribunal de grande instance, Macon:

Article 30 of the Treaty establishing the European Economic Community and Regulation No 2727/75 of the Council of 29 October 1975 on the common organization of the market in cereals should not be interpreted as standing in the way of national legislation restricting the production capacity of mills with regard to flour intended for domestic human consumption in the Member State in question when the total amount of milling rights for wheat under that legislation exceeds the quantity of wheat necessary to supply domestic human consumption of flour and any obstacles to intra-Community trade which the application of that legislation may entail do not go beyond what is necessary in order to ensure the orderly restructuring of the flour-milling sector in that Member State.

( *1 ) Translated from the French.

( 1 ) Case 190/73 Officier van Justitie v J. W. J. van Haaster [1974] ECR 1129, at 1143.

( 2 ) See the judgment of the Court of 29 November 1978 in Case 83/78, Pigs Marketing Board v Redmond [1978] ECR 2347, at paragraphs 52 to 55.

( 3 ) Sec judgment of 11 July 1985 in the ‘Videocassettes’ Case, in Joined Cases 60 and 61/84 Cinélbèque SA and Others [1985] ECR 2605 at paragraph 21.

( 4 ) See for example Case 8/74 Procureur du Koi v Dassonvìlle [1974] ECR 837, or Case 35/76 Simmtnthal v Italian Minister for Finance [1976] ECR 1871 at paragraphs 11 and 12.

( 5 ) It should be added moreover, that the importation of wheat intended for re-export in the form of flour is not covered by the legislation in question.

( 6 ) 13% of the value of the finished product according to the Commission, 16% according to the defendants in the main proceedings.

( 7 ) Sec the judgment in Case 155/80 Oeie/[1981] ECR 1993, at paragraph 12.

( 8 ) Sec the observations of the Commission at p. 8, paragraph 1.

The Commission arrives at this conclusion on the basis of the judgment of the Court of 7 February 1984 in Case 237/83 jongeneel Kaas v State of the Netherlands [1984] ECR 483, at paragraph 13: ‘In the absence of any rule of Community law on the quality of cheese products the Court considers that the Member States retain the power to apply rules of that kind to cheese producers established within their territory That power extends not only to rules considered necessary for the protection of the consumer or public health but also to rules which a Member State may wish to enact for the purpose of promoting the quality of domestic production. Such rules cannot however discriminate against imported products or hinder the importation of products from other Member States’.

( 9 ) In 1984 there remained 238 mills with a milling quota of less than 500 tonnes and 491 mills with a quota of less than 1000 tonnes, out of a total of i 267 mills.

( 10 ) See the judgment of 10 January 1985 in Case 229/83 Centre Lederci Au Blé Vert [1985] ECR 1 ; of 13 February 1969 in Case 14/68 Wilhelm v Bundeskartellamt [1969] ECR 1; and of 16 November 1977 in Case 13/77 ÍNNOv ATAB [1977] ECR 2115.

( 11 ) Judgment of 13 July 1966 in Joined Cases 56 and 58/64 Consten and Gnmdig vCommission [1966] ECR 299.