OPINION OF MR ADVOCATE-GENERAL WARNER

DELIVERED ON 5 JULY 1973

Mr President,

Members of the Court,

This case comes to the Court by way of a reference for a preliminary ruling by the Hessisches Finanzgericht. It relates to two importations into the Federal Republic, one of French wheat and the other of French barley, effected by the Plaintiff company in the autumn of 1963. Why the proceedings in the case have been so protracted, the Court is not told, but it is not surprising to find, in the circumstances, that the Community regulations applicable to those importations have long since been superseded. That is not to say that the questions raised by the reference are, from the point of view of the development of Community law, wholly obsolete, for similar questions (albeit not in all respects identical ones) can arise on the regulations now in force.

Your Lordships will remember that, before 1962, some at least of the then Member States protected their respective agricultures by means of various tarrifs, quotas and other devices. On 4 April 1962 the Council adopted Regulation No 19 of which the object was the gradual establishment of a common organization of the cereal markets in the Member States, with a view to the eventual creation of a single Community market. That Regulation and most of the provisions adopted in implementation of it were superseded, as from 1 July 1967, by Regulation No 120/67/EEC of the Council, which established the common organization of the Community market in cereals, essentially as we know it today.

This case belongs to the transitional period from 1962 to 1967 when Regulation No 19 was in force. It was a feature of that Regulation that it permitted each Member State to continue to protect its own agriculture, even against imports from other Member States (though to a lesser extent than against imports from non-Member States), but permitted it to do so only, so far as cereals were concerned, by means of the system of levies instituted by the Regulation.

That system was, in the briefest outline, and so far as relevant, as follows. Each Member State fixed annually for each type of goods to which the Regulation applied, and within limits laid down by the Council, certain ‘target prices’, being the prices which that State wished to see ruling at the stage of purchase in the wholesale market in the area within its territory with the greatest deficit of those goods. In the Federal Republic this key area was that of Duisburg. Each Member State then fixed, again annually, corresponding ‘threshold prices’, being the prices at which the goods in question would have to be imported into that State if they were to reach not less than their target price in the key area. Lastly, so far as regarded imports from other Member States, the Commission fixed ‘free-at-frontier prices’, based on the prices ruling on the most appropriate market of each exporting State. Each Member State was then entitled to charge on such imports a levy equal to the difference between the relevant free-at-frontier price and the relevant threshold price, subject to a discount designed to give preference to imports from Member States over those from non-Member States. In the case of imports from non-Member States, the Commission was required to fix, and the levy was related to, c.i.f. prices, instead of f.a.f. prices, but I do not think that this has any bearing on the issues that Your Lordships have to consider in the present case.

The dispute in this case is about the method adopted by the Federal Republic in fixing threshold prices for the year 1963-64.

The principles to be applied in fixing threshold prices under Regulation 19 were the subject of Case 76/70 Ludwig Wünsche & Co v Hauptzollamt Ludwizshafen/Rhein (Rec. 1971, p. 393). In the light of what was there said in the Judgment of the Court (in particular at pages 399-400) and by Mr Advocate-General Roemer (in particular at pages 404-407) it seems to me that the following propositions are beyond doubt:

1. It was implicit in the system designed by Regulation 19 that in determining threshold prices there must be deducted from the corresponding target prices the estimated costs to be incurred by an importer between the point of purchase by him free-at-frontier from the exporter and the point at which the target prices were applicable (i.e. the point of assumed sale by the importer to the wholesale market in the key area) together with a margin of gross profit for the importer.

2. If only because threshold prices were to be fixed annually in advance and to be applicable to all relevant importations, by whomsoever made, the costs to be taken into account in computing them must be estimated by reference to the factors affecting importers generally and not ascertained by reference to the costs actually incurred by any particular importer in connexion with any particular importation.

3. There were only to be taken into account costs that would inevitably have to be incurred by any importer effecting his importation in the most economical way. This involved among other things adopting as the statutory measure, as it were, a hypothetical importation taking place at whatever point on the frontiers of the State concerned would be the most advantageous in relation to the key area. That point, in the Federal Republic, was determined to be (in relation to Duisburg) Emmerich.

The Plaintiff's complaint in this case is that, in fixing tbreshold prices for 1963-64, the Federal Republic failed to take into account, or failed to take sufficiently into account, certain costs incurred by importers, with the consequence that it fixed those prices too high, and the further consequence that the levies with which the Plaintiff was charged on the two importations to which I have referred were also too high.

In the Order of the Hessisches Finanzgericht referring the case to this Court, the question for the Court is formulated as follows:

‘Are Articles 2 and 4 of Regulation No 19/1962 of the Council of the European Economic Community (OJ EEC 1962, p. 933) to be interpreted in such a way that, in calculating the levy, the costs referred to by the Plaintiff, in particular . . .’

and here follows an enumeration of certain of the costs in question

‘are to be deducted from the threshold price, or is such a deduction not required?’

That formulation — which follows that adopted by the Finanzgericht Rhein-land-Pfalz. in the Wiinsche case — is in a sense inapt, because, strictly, the relevant costs were to be deducted from the target price in calculating the threshold price, not from the threshold price in calculating the levy. I imagine however that what the Hessisches Finanzgericht had in mind in adopting it was the indication given by this Court in the Wüntsche case that, where a Member State had failed, in fixing threshold prices, to make an appropriate deduction, it was open to the Courts of that State to put matters right by ordering a corresponding deduction from the levy.

My Lords, it is apparent from a perusal of the written observations of the Plaintiff, of the Commission and of the Government of the Federal Republic that it is common ground between them that certain of the costs in question were of such a kind as inevitably to be incurred by any importer and were accordingly deductible. These costs come under five headings, as follows:

1. The cost of furnishing the security required by Article 16 (2) of Regulation 19 itself, a security which could take the form either of a deposit or of a bank guarantee.

2. The cost of the examination of the goods for plant diseases and pests required by German law in the case of all imports of, among other things, cereals; but not the cost of any measures, for instance fumigation, ordered as a result of such examination — for, say the Commission and the Federal Government, such measures would not necessarily be ordered in the case of every importation.

3. The cost of obtaining customs clearance (Zollabfertigungskosten) taking, usually, the form of agent's charges. This does not include a charge (Zollüberwachungsgebühren) that was leviable by the German customs authorities themselves, but which the Commission and the Federal Government say was levied only if the importer required the goods to be cleared elsewhere than at the official custom-house or outside its normal hours of opening.

Parenthetically, my Lords, it is submitted by the Plaintiff that this last charge, and also the cost of the examination of the goods diseases and pests, were in the nature of charges having equivalent effect to customs duties and, for that reason, unlawful. But, whether or not that is so, is not a question that the Court is asked by the Hessisches Finanzgericht to answer. I therefore say nothing about it.

The last two heads of costs which it is common ground were deductible are:

4. The German turnover equalization tax, which was the actual subject-matter of the Wünsche case and which this Court there held to be deductible.

5. Freight from Emmerich to Duisburg. The only dispute about this is as to quantum. This is a dispute which it lies within the province of the Hessisches Finanzgericht — not, at all events at this stage, of this Court — to resolve.

My Lords, it is also common ground that, in addition to those five heads of costs, there should be deducted a margin to cover an appropriate proportion of the importer's overheads and also an element of profit for him. In my opinion, my Lords, it is clear, on the strength of the principles to be deduced from the Wünsche case that those five heads of costs that margin were properly deductible in computing threshold prices.

The dispute as to the cost of measures ordered as a result of the examination of the goods for diseases and pests and the dispute as to the charge leviable by the German customs must, it seems to me, be resolved by the Hessisches Finanzgericht, for in each case the question is whether expenditure under that head must inevitably be incurred in connexion with every importation. To answer that question involves applying Community law, not just interpreting it. It may be that, on the first of those two questions, the Hessisches Finanzgericht will think it right to follow its own decision of the 19 December 1972 in Case VII 4/67 before it, where, I understand, it held that costs of fumigation could not be taken into account in the calculation of threshold prices because they were not inevitable for all importers.

There are next in issue in this case certain costs which it is convenient to group under the heading of bank charges. These include costs referable to the process of taking up contract documents. Both the Commission and the Government of the Federal Republic concede that some of these costs were properly deductible, but say that some were not, because they were not inevitable. The Federal Government also argues that the costs of financing the purchase of the goods should not be deducted in so far as they were attributable to the period up to the moment when the goods crossed the frontier, because costs incurred up to that point should be reflected in the free-at-frontier prices fixed by the Commission.

My Lords, here again I do not think that it is for this Court to seek to resolve in detail the issues that are thus raised, for to do so would be to leave the field of interpretation of the Community Regulation and to enter that of its application. In my opinion it would be enough for Your Lordships to say that the costs that were deductible in comput-in threshold prices were those that would inevitably be incurred by any importer, effecting his importation in the most economical way, and those only.

I must however say a word about the particular argument of the Federal Government relating to financing costs. As to this, it must, I think, be borne in mind from the outset that the question to which it is directed can only arise if it is found as a fact by the Hessisches Finanzgericht that, in the period with which the case is concerned, market conditions were such that every importer into the Federal Republic inevitably had to pay for the goods before their arrival at the frontier. In the absence of such a finding, there can, on principle, be no question of any costs of financing the purchase of the goods before that time being deductible.

The starting point of the Federal Government's argument is the proposition that the Commission was bound, in fixing the free-at-frontier prices, to take account of all costs incurred up to the time of the arrival of the goods at the frontier. As authority for that proposition the Federal Government cites Case 17/72 Gesellschaft fur Getreidehandel AG v Einfuhr- und Vorratsstelle für Getreide und Futtermit-tel (Rec. 1972, p. 1071). But what this Court held in that case, so far as relevant, was that, in fixing free-at-frontier prices, the Commission must take account of the costs to be incurred by the exporter. The Court said nothing about any costs to be incurred by the importer. Moreover, the sheer commercial logic of the matter is that, if, under the terms of an f.a.f. contract, payment for the goods is to be made by the importer before their arrival at the frontier, the effect, if any, must be to lower the price that would otherwise be payable by him, because the burden of financing the capital costs of the goods is transferred sooner from the shoulders of the exporter to those of the importer. I think that really the misconception that underlies the Federal Government's argument is that which consists in seeing the system created by Regulation 19 as requiring that threshold prices should be computed by reference to the costs to be incurred by the importer between the moment of time when the goods arrived at the frontier and the moment of time when he placed them on the wholesale market. To my mind, the position of the goods at any particular moment of time was not the crux. The essentials of the system were that the target price was the price at which it was desired that a hypothetical importer should sell to a hypothetical wholesaler at Duisburg and that the threshold price was the price at which that importer would have to buy from an exporter abroad in order to be precluded, commercially, from undercutting the target price. Thus the difference between the target price and the threshold price must reflect all the costs that the importer must incur in connection with the hypothetical importation, regardless of the time or place at which he must incur them, as well as (as the Federal Government concedes) a margin for his overheads and net profit. It follows that in my opinion, if it be the fact that, in 1963, German importers were uniformly obliged to pay for goods before their arrival at the frontier, a deduction must be made, in computing threshold prices, for the consequent cost. Otherwise, not.

I come lastly to the point on which there was the most marked divergence of view between the Commission and the Federal Government in their written observations and on which, Your Lordships will remember, I pressed Counsel for the Commission at the hearing. This related to the cost of weighing and sampling the goods on arrival, on behalf of the importer, to check whether they conformed to contract.

It appears to be common ground between the Plaintiff, the Commission and the Federal Government that such an examination of the goods (which differed from the examination required by German law for plant diseases and pests) was essential and that the cost of it must inevitably be borne by the importer. It is not entirely clear, on the material before the Court, precisely where or when that examination would have taken place in the case of the hypothetical importation which, as I have suggested, afforded the relevant criterion. But this does not matter if I am right in the view that I have already espressed that all costs inevitably to be incurred by the hypothetical importer must be deducted in computing threshold prices, wherever and whenever those costs were to be incurred. Consistently with this view, the Plaintiff and the Commission were at one in saying that the costs of this examination were deductible. The Federal Government differed, on the ground that the hypothetical sale to the wholesaler in Duisburg was a sale on the terms that the goods should be ‘delivered to warehouse, not unloaded’ and that the examination in question would take place when they were unloaded.

It is interesting to observe that no provision was contained in Regulation 19 to the effect that the hypothetical sale should be taken to be on such terms, though there is now such a provision in Regulation No 120/67/EEC of the Council, Article 2 (3) of which provides:

‘The target price and the basic intervention price shall be fixed for Duisburg at the wholsesale stage, goods delivered to warehouse, not unloaded.’

Nonetheless, Counsel for the Commission expressly accepted at the hearing that a similar provision was to be implied in Regulation 19 and the Plaintiff must be taken implicitly to have accepted the same view since it has refrained from claiming that the costs of unloading at Duisburg should be included among those to be taken into account in computing threshold prices.

Be that as it may, it seems to me that the same fallacy underlies the argument of the Federal Governnment on this point as underlies its argument on the question of the costs of financing the purchase of the goods. The crux is not at what stage an importer must incur particular costs, but whether he must inevitably incur them. If he must inevitably incur them, they must be reflected in his selling price on the wholesale market in Duisburg, and so must be taken into account in computing the corresponding threshold price.

I should perhaps add, my Lords, that there are references in the written observations both of the Commission and of the Federal Government, to other costs, such as those of drying the grain and of its eosinization or other denaturing. I can find no reference to these in the observations of the Plaintiff, so I infer that they are no longer in issue, whatever the position may have been at an earlier stage of the case. But, if that inference is wrong, no special point arises in relation to these costs; the same principles apply to them as to the other costs which I have discussed.

I am therefore of the opinion that the question referred to the Court by the Hessisches Finanzgericht should be answered as follows:

Articles 2 and 4 of Regulation No 19 of 1962 of the Council of the European Economic Community should be interpreted as having required that, in the fixing of threshold prices, there should be taken into account all the costs that an importer, effecting his importation in the most economical way, would inevitably have incurred, but no others.