4.

The second question the concept of ‘products of first-stage processing’ which have a direct connexion with products of the soil, of stockfarming and of fisheries. This concept assumes decisive importance in the definition of the limits of the power conferred on the Council to supplement that list, according to the provision of Article 38 (3). If one starts with the idea that two different definitions of agricultural products cannot exist, but that only one emerges from the conceptual definition of paragraph (1) and from the list contained in Annex II which determines its detailed scope, and if therefore all the products enumerated in the list in Annex II must be considered as corresponding to the definition in paragraph (1), or one admits at least that the list of products comprised in Annex II, according to the enumeration made by the authors of the Treaty themselves, provides factors for defining the content and scope of the concept to which the provision of paragraph (1) refers, one must admit, however, in connexion with the examination of the products listed in Annex II, that the definition of agricultural products set out in paragraph (1) is quite wide. One may note, in fact, that Annex II contains goods which, in addition to not being products of the soil, of stockfarming and of fisheries, could not even be considered as products of first-stage processing if one were to adopt a rigid attitude on this point. Let us take by way of example starches, gluten, hydrogenated or refined fats, margarine, imitation lard, preparations of meat, of fish, of vegetables and fruit and prepared animal fodder. These are products which, although extracted from an agricultural product, require in their manufacture more or less complex procedures which in general are not limited to a single operation. If, therefore, the concept of the products to which Article 38 (1) refers must be interpreted in the light of the list of products contained in Annex II, it will be necessary to keep to a wide concept of ‘products of first-stage processing’, with the result that there would be no difficulty in including therein the product in question. The doubt of the German court arises simply from the fact that, in adding ethyl alcohol to the list contained in Annex II, the Council did not take its strength into account, considering the alcohol in question therefore as a product of first-stage processing even when the distilled product has been diluted by the addition of water. On the other hand, the two intervening governments fundamentally contest that the Council, acting on the basis of Article 38 (3), may add alcohol to the list in question. They have maintained that the provision of Article 38 (3) should be placed in relation only to the provision of paragraph (1) and to the concept of agricultural products expressed therein, considered by itself, without its being permitted to interpret the concept of ‘products of first-stage processing’ by taking by way of example the list of products inserted in Annex II by the authors of the Treaty, since those authors, unlike the Council, were not obliged to restrict themselves within the limits of the concept laid down in paragraph (1). The intervening governments maintain a rigid interpretation of the concept of ‘first-stage processing’, which they identify with a single operation of a productive process starting from a primary agricultural product. Thus, for example, in the case of alcohol derived from cereals, the representative of the British Government sees therein two distinct operations, fermentation of the primary agricultural product and distillation, with the result that the product thus obtained is one of second-stage processing; whereas the representative of the Irish Government sees again two further preliminary operations, one the blending of various types of cereals and the other their fermentation, which precludes the view that the alcohol is ‘directly related’, as it must be, to the primary agricultural product, inducing one to see therein a product of fourth-stage processing! In analysing the properties or a product the good anatomist does not neglect to arrange them in proper order in the whole which they serve to comprise and in which they assume their true significance. I have the impression that, in carrying out a detailed analysis of the manufacturing process of alcohol, the submission of the intervening governments has lost sight of the unitary nature of the process itself and has arrived at a result the arbitrary nature of which is exhibited by the Irish representative in the fragmentation of a single productive process which he obtained by the consistent application of the method which also forms the basis of the British argument. In reality, what results from the maceration or fermentation of cereals is not a product of second or third-stage processing; it is simply a material, normally unusable as such, which merely constitutes a point in its passage to becoming the actual processed product to which these operations relate, that is to say, alcohol. The concept of first-stage processing is undoubtedly difficult to define. It belongs to a category of concepts of which every legal system avails itself, to allow the executive power a certain elasticity in the face of different factual situations, when it is a matter of defining the distinguishing criteria in an imprecisely delimited economic field. We see also in the individual national legislations that when reference is made to agricultural activity, in order to differentiate it from the system for other types of productive processes, the legislature always takes the wider view than that of a narrow field of products in the first phase of their harvesting in order to include therein as well those processes and activities directed to the commercial presentation of the product, which are traditionally bound to that activity of production according to the criterion of normal agricultural practice. In our case, also certainly bearing in mind the traditional criteria distinguishing agriculture from other productive activities, the Community legislature refers to the criterion of ‘first-stage processing’ which allows — I repeat — a certain margin of interpretation. But this is a definition which is not left to individual judgment for direct application by the persons concerned; there must be specification . and precise clarification made either in the Treaty itself, in Annex II, or by the Council within the two-year period laid down by Article 38 (3). What is this power conferred on the Council? It certainly is of a declaratory nature and applies a criterion; but, in order to see just what the criterion stated in paragraph (1) is, it is necessary to interpret its content-. The intervening States — as we have seen — make a clear distinction between the powers of implementation already exercised in Annex II and the powers recognized for completing the list within the two-year period by an implementing act of the Council. And it is correct. But it is not correct to stop at this purely evident distinction. It is a basic rule of interpretation that an act immediately applying a rule made at the same time by the same author who formulated the principle is endowed with an interpretative significance of prime importance. Interpretation as a rational act is based upon the basic criterion of consistency, and for this very reason it is established that the search for the meaning of an act may be undertaken from observation of the concomitant conduct of the author of the act itself. If the authors of the Treaty contemporaneously adopted a rule and fixed some facets of its application, these tell us also what system is desired by the authors of the Treaty itself. Therefore the criterion of breadth demonstrated in the lists in Annex II is also a criterion allowing the determination of the scope within which the Council was authorized to fill the inevitable lacunae which the first examples of the application of the Treaty brought into relief. In this sense it appears certain that the concept of ‘first-stage processing’ cannot be identified purely and simply with either the first change of form to which a basic product is subjected or to any chemical change which alters the original characteristics of such product. Otherwise one would have to exclude typical agricultural products (such as, for example, olive oil, to obtain which one must crush the olives, press the pulp, filter it and perhaps carry out further operations to correct the taste, or cheese, because in order to turn into cheese, the milk must undergo various operations and changes) which, on the purely abstract plane of the definition of agricultural products maintained by the intervening governments, would appear unsatisfactory. There would remain a fortiori excluded from the category of agricultural products, and with effects which would not be limited to the theoretical plane alone, sugars, syrups and molasses, flavoured and coloured, which Regulation No 7a, in order to satisfy the obvious requirements of the functioning of the common organization of the market in sugar, included in Annex II by reason of their interchangeability with corresponding products in a pure state. Since sugars, syrups and molasses are already processed products, it would be sufficient to have recourse to the simple expedient of adding a flavour or colour in order to withdraw those products from the category of agricultural products, according to the interpretation proposed to us by Article 38 (1), which could create serious difficulties for the functioning of the common system of the market in sugars. These examples are sufficient to confirm, on both the conceptual and the practical plane, the unacceptability of the interpretation advanced by the intervening governments. If the existence of various operations in production and the occurrence of external and structural alterations of a raw material cannot therefore by itself deprive the result of a production process of the character of . a product of first-stage processing, we must look for other criteria to delimit the concept in question by reverting to the ratio of the rule which lays it down. If the goods resulting from the processing of agricultural products to which the Community agricultural system applies are expressly limited by Article 38 (1) to those of first-stage processing having a direct connexion with the primary agricultural product, this indicates without doubt the desire of the authors of the Treaty to limit the field of products which may be subject to the special agricultural rules: it would certainly not be a case of turning to the principle of the Physiocrats! Therefore there are excluded in principle processed products which require a production process which by its production cost is such as to cause the price of the basic agricultural product to have a wholly marginal position. As has been observed in fact in legal writing (Olmi, Commentario al Trattato CEE di Quadri-Monaco-Trabucchi, Vol. I p. 244), in such cases the level and the oscillations of such a price do not have a decisive bearing on the cost of production and it is not therefore a case of discriminating in favour of such products as opposed to other industrial products. On the other hand, if this is the ratio of the limitation placed by the authors of the Treaty on the admission of processed products to the agricultural rules, one must also admit that the products for which the cost of the primary agricultural product remains a relevant factor with regard to the price must in principle be capable of being admitted to benefit from the agricultural system; and this all the more so in the case of processed products which constitute an important form of utilization of the primary agricultural product, as is for example the case of bread in relation to wheat. In fact, as the abovementioned author observes, ‘the dependence on the primary agricultural product extends to the cost of production of the processed product the characteristics of instability and unpredictability of agricultural prices, which necessitates stabilizing measures at the frontier and inside the market. Furthermore, if the primary agricultural product is the object of a market organization which maintains its price at a high level, whilst the processed product is the object of a free system, the processing industry will not withstand the industrial competition of other countries which use primary agricultural products at low prices; and, in the long run, the crisis in the processing industry will extend to the very production of the primary agricultural product used by it’. If the criterion of cost can be of great importance (and it is not possible for it not to be so in matters of economic classification), it will not however be the only criterion, and we shall in addition have to consider decisive another criterion consisting in the fact that a processed agricultural product constitutes a normal means of economically valid presentation of the product itself, which thus takes on an essential importance for its marketing, even if the cost of the processing must prevail over the sale price of the agricultural product taken stricto sensu. Such considerations explain why the authors of the Treaty have been liberal in inserting processed products in the list in Annex II. Analogous considerations should lead us to adopt the broad concept, thus discernible, of ‘products of first-stage processing’, adopted as a delimiting criterion for defining the power of the Council referred to in Article 38 (3), not so much the greater or lesser complexity of the operations necessary to obtain the processed product but rather the incidence of the cost of the primary agricultural product on the price of the processed product or the importance of the latter product for the marketing of the basic agricultural product. In such cases, when the said cost remains the predominant factor in the price of the processed product, or when in any event the processed product plays an important economic role in enabling the basic product to be marketed, the function and the objectives pursued by the common organization of the markets in agriculture allow the insertion of the product under consideration in an extension of Annex II, on the basis of Article 38 (3). On the basis of this criterion one should be able to reach the same conclusion even if it had to be excluded — quod non — that the list of products inserted by the authors of the Treaty in Annex II can serve to define the scope of the concept of agricultural products in Article 38 (1). In such a perspective, even if one admits that the Council did not have the power to add all processed products to the list in Annex II to the same extent and with the same freedom as the authors of the Treaty were able to do, it appears difficult however to deny the Council the possibility of admitting products to the list for the sole reason that their processing required more than one stage of work, when their insertion in Annex II meets real necessities of the common agricultural policy, in pursuing the objectives of the Treaty and consistently with inferences drawn from the contents of Annex II. Even starting from a restrictive concept of agricultural products, within the meaning of Article 38 (1), it would not be reasonable to base oneself solely on a rigidly literal exegesis of the rule in order to deny the Council any possibility of taking account of the traditional conceptions of agricultural activity and of attaching importance to the above-mentioned criterion of the predominant nature of the cost of the primary agricultural product on the price of the processed product, or of a single presentation on the market in an appropriate economic form, and therefore of taking account of the objective requirements which result therefrom in terms of the protection desired by the authors of the Treaty themselves for basic agricultural products. If one admits the power of the Council to add alcohol to the list in Annex II, one will certainly not exclude alcohol the original strength of which was lessened by simple dilution with water, since such addition does not change the nature and the chemical properties of the alcohol, or the direct agricultural derivation of the product.