OPINION OF MR ADVOCATE GENERAL MAYRAS

DELIVERED ON 25 JANUARY 1979 ( 1 )

Mr President,

Members of the Court,

This reference for a preliminary ruling calls in question the validity of the co-responsibility levy on milk introduced by Council Regulation No 1079/77, detailed rules for the application of which were laid down in Commission Regulation No 1822/77.

In fact this is a test case. The interest at stake in the main action is indeed very slight, as it concerns the sum of DM 37.31 which the buying department of a dairy in Lübeck deducted by way of co-responsibility levy from the price of a delivery by the plaintiff's father of more than four tonnes of milk and which it forwarded to the Hauptzollamt (Principal Customs Office) Hamburg-Jonas.

The objection against the charging of the levy was rejected, and the plaintiff brought an action before the Finanzgericht (Finance Court) Hamburg arguing that the charging of the co-responsibility levy had no legal basis in the provisions of the Treaty establishing the European Economic Community.

Although it did not share this point of view, the Fourth Senate of the Finanzgericht, having regard in particular to the fact that the majority of some 500000 members of the Deutscher Bauernverband (German Farmers' Union) questioned the imposition of the levy at issue, took the view that it should refer the following questions to the Court for a preliminary ruling under Article 177 of the Treaty:

‘1. Are Council Regulation (EEC) No 1079/77 of 17 May 1977 and Commission Regulation No 1822/77 of 5 August 1977 on a co-responsibility levy on milk invalid because the EEC Treaty contains no power under which the said regulations could be adopted?

2. In the event of Question 1 being answered in the negative: Does the charging of the co-responsibility levy on milk producers infringe the prohibition on discrimination in Article 40 (3) of the EEC Treaty in that the levy is laid down in units of account and the conversion of the levy rates expressed in units of account into national currencies according to the so-called green exchange rates — provided for in the present case in Council Regulation (EEC) No 878/77 of 26 April 1977 — can lead to unequal burdens in relation to the actual monetary situations of the Member States at any given time?

3. In the event of Question 2 being answered in the affirmative, what consequences arise as regards the application of the said regulations?’

Consideration of these questions, in particular Question 1, requires a statement of the situation of the Community market in milk and milk products.

This situation is dominated by a structural surplus the causes of which are well-known to the Court and which has been apparent for a number of years.

On the one hand, milk production has not ceased to grow, owing chiefly to the increase in yield.

On the other hand, the consumption of milk and milk products has remained constant or has even slightly decreased.

For those reasons surplus deliveries of milk to dairies, that is to say quantities of milk which cannot be disposed of at the Community market price, increased by 4 % between 1975 and 1977.

Similarly, stocks of butter in storage rose to 260000 tonnes, whilst intervention stocks of skimmed-milk powder considerably exceeded one million tonnes.

In spite of specific measures adopted between 1973 and 1977 in order to absorb part of those surpluses and to stabilize the market, which proved to be of very limited effectiveness, the overloading of the market and the very high cost which it involved (nearly three thousand million units of account) demanded more radical measures.

Thus, after a proposal to introduce a charge on production in the milk sector had been rejected by the Council in 1974, there emerged the idea of introducing a co-responsibility levy to be borne specifically by milk producers. It was a more long-term measure than, for example, the compulsory purchase of skimmed-milk powder imposed by Regulation No 563/76 which was to be declared null and void by judgments of the Court delivered on 5 July 1977.

Council Regulation No 1079/77, adopted after the favourable opinion of the European Parliament had been obtained, finally introduced the co-responsibility levy for a period running until the end of the 1979/80 milk year, which period may be extended.

Three characteristics may be discerned in the system organized by that regulation:

In the first place, its generalized application to all milk producers in respect of all milk supplied to undertakings treating or processing that product, as well as milk sold directly in the form of other milk products.

Only three exceptions are made to that principle, and they all appear to be veryrestricted and perfectly justified.

The first concerns the production of milk in mountain and hill areas. The second exempts from the levy milk sold by one producer to another producer to the extent to which the latter markets it directly as milk for consumption and within a total limit of three tonnes per year. Finally, very small producers are also exempted in regions where the average quantity of milk delivered to processing undertakings by those producers in 1976 was less than ten kilograms per day per producer.

The second characteristic of the co-responsibility levy lies in the low level of the rate applicable. Initially confined between a minimum of 1.5 % and a maximum of 4 % of the target price, for the period from 16 September 1977 to 30 April 1978 the levy was fixed at the lowest rate. Then, by Regulation No 1001/78, the Council abolished this minimum rate and the amount of the levy was reduced to only 0.5 % of the target price.

The third important aspect of the system introduced consists not in the specific appropriation of the total yield of the levy, which would be contrary to the principle of budgetary universality, but in a programme of measures ‘linked to the levy’ which the Commission is bound under Article 4 of the basic regulation to propose to the Council. This programme is worked out within the ‘Advisory Committee on Milk and Milk Products’, which has been in existence since 1964, and is also discussed within a specialized so-called Co-responsibility Group which includes representatives of producers and processors of milk.

The list of the measures so far adopted within this framework is in fact very modest. They concern:

— First, the extension of the existing scheme for the disposal of milk to educational establishments by the raising of the amount of the contribution and the number of the products in question (Regulations Nos 1080/77 and 1039/78);

— Secondly, an increase in the possibilities for sales at reduced prices of butter intended for the manufacture of ice-cream and similar edible products and concentrated butter for direct consumption (Regulations Nos 2379/77 and 649/78);

— Finally, promotion, publicity and research activities in relation to milk products both within the common market and outside the Community, as well as certain measures intended to improve the quality of milk in the Member States.

However, the Commission states that other provisions at present being examined may be adopted at a future date.

According to the plaintiff, there is no decisive connexion between these various measures and the levy, the yield from which is not used to support the market in question and moreover, having regard to its extremely low rate (0.5 %), is utterly inadequate to remedy the difficulties of disposal and to achieve a structural balance.

In fact, he says, the levy is in the nature of a fiscal charge upon all milk producers and not an intervention measure designed to stabilize the market in question.

As a charge intended to serve the financing of the Community, the levy does not have any legal basis in Article 201 of the Treaty, the procedure laid down by which has not been observed in the present case.

Neither can it be lawfully adopted under the provisions of Article 43 which, although it entitles the Council to adopt the measures referred to in Article 40 (3), does not allow charges to be imposed upon producers in a particular agricultural sector. Finally, he submits that the co-responsibility levy is not one of the intervention measures intended to stabilize agricultural markets. Such a classification does not correspond to reality.

In my view this argument cannot be upheld.

1. The disputed regulation was adopted on the basis of Article 43 of the Treaty which from the procedural point of view determines the conditions for the formulation of the common agricultural policy. From the point of view of substantive law, Article 40 (2) and (3) lays down the powers of the Community. Article 40 (3) in particular provides that a common organization of agricultural markets may include ‘all measures required to attain the objectives set out in Article 39’, but shall be limited to pursuit of those objectives and shall exclude any discrimination between producers or consumers within the Community. One of the objectives set out in Article 39 is ‘to stabilize markets’ (Article 39 (1) (c)). The Community institutions must undoubtedly reconcile the different objectives of the common agricultural policy which considered separately may appear contradictory and, where necessary, give one of them such temporary precedence as is required by the economic situation in the light of which those institutions take their decisions. They have particularly wide discretion in this connexion, and apart from the usual intervention measures mentioned in Article 40 (3) they may take exceptional decisions and in particular may introduce a charge upon producers in the surplus sector itself, which is precisely the case with Regulation No 1079/77, without imposing charges on producers in other agricultural sectors, as was done by Regulation No 563/78 on the compulsory purchase of skimmed-milk powder, which had the aim of limiting the considerable stocks of that product. Thus the co-responsibility levy is a preventive measure intended to stabilize the market in milk products. For their part, the Council and the Commission took the view that the levy constitutes an effective method of attaining that objective, in that it tends in particular to restrain production, and in that connexion should be regarded as a negative price component and therefore corresponds in fact to a reduction in the intervention price. In these circumstances, the question arises as to whether a straightforward reduction in the price of milk would not have been preferable in that, by reason of its direct effect on consumption, it would have made it possible to reconcile the objective of stabilizing the market with that mentioned in Article 39 (1) (e), namely ‘to ensure that supplies reach consumers at reasonable prices’. The Council did not expressly answer this question; as for the Commission, it supplied an answer to it which was ambiguous as regards technical matters but clear as regards its conclusion: unlike a reduction in intervention prices, the reduction in the income of milk producers resulting from the levy does not benefit the consumer, who will continue to pay the same prices. This answer confirms a choice of economic policy which seems to me to be in certain respects regrettable. However, my comments only concern expediency, and it does not appear to me that the legal validity of the contested regulation can be affected by this. I would at least accept, in company with the Commission, that in most cases a reduction in the guaranteed price for milk to a lower level would have had only an indirect and certainly not very decisive influence upon the producer price, and without doubt even less upon that of derived products. It is true that the levy on the other hand weighs directly upon milk production in its entirety. As to the advantage presented by the flexibility of the measure, at first sight it does not strike me as very obvious. Doubtless the system introduced allows provision to be made for certain exceptions and differentiations with greater ease than would be possible with a policy of reduction of the intervention price. However, it would not be impossible for such a reduction to be offset by specific measures of aid to producers in mountain and hill areas and so-called deprived areas. However, it is true that the levy system is a more flexible instrument than direct action upon the price of milk inasmuch as it can allow adjustment to be spread more effectively over a period of time or the adoption of a sliding scale taking account of particularly large surpluses at certain times of year, in particular during the summer months. However, for this to be done the rate of the levy would still have had not only to have been fixed at a sufficiently high level, which so far has not been the case, but also to have been adjusted in time to changes in the economic conditions in the agricultural sector in question, which the Council has not felt able to do. However, whatever the undeniable shortcomings of the system set up by Regulation No 1079/77 may be, it is hard to deny that it is in the nature of a marketing mechanism. I consider that the decisive point in this connexion is the fact that the producers themselves bear the burden of it and thus help to mitigate — I do not say solve — the problem of the surpluses. On this ground the legal basis of the co-responsibility levy is indeed to be found in Article 43 of the Treaty, and there is no need to have recourse to other provisions such as Article 201 or Article 235. The last of those provisions is to be excluded without more ado because it can operate only in situations which fall outside all other powers already provided. As I have just said, in the present case Article 43 in itself confers such powers on the Council.

2. As the Court is aware, Article 201 concerns the creation of the Community's own resources, in particular by way of revenue accruing from the application of the Common Customs Tariff. The procedure for creating such resources implies that, after consulting the Assembly, the Council may, acting unanimously, lay down the appropriate provisions, which it shall recommend to the Member States for adoption in accordance with their respective constitutional requirements. Article 201 thus constitutes the basis of revenue which, without any distinction, is intended to cover the whole of the expenditure provided for in the budget. However, that article in no way deprives the Council of the power, within the framework of specific rules and particularly in common agricultural policy matters, to generate revenue which by its direct link with measures affecting expenditure in the sector at issue reduces the impact thereof. This emerges in the present case from the answer given by the Council on 22 September 1978 to a parliamentary written question concerning the co-responsibility levy, the charging of which implies the financial participation of producers in covering certain Community expenditure. In that connexion the Council stated that Regulation No 1079/77 ‘was intended to establish a more direct link between the production of and the outlets for milk and milk products and as a response to major public interest in the matter. In addition, it will be seen that the levy is part of a combination of measures linked together in order to stabilize the market and to supplement the existing intervention system’. The Council inferred from this that the levy is not to be regarded as a tax; therefore it was not necessary to refer to Article 201, as Article 43 of the Treaty provided a sufficient legal basis. The Commission expressed a similar opinion in its answer of 12 October 1978 to an identical written question from the same Member of Parliament, insisting on the link established by Article 4 of the regulation between the co-responsibility levy and the specific measures for expanding the markets and for seeking new outlets. It also pointed out that within the framework of measures designed to regularize agricultural markets, there already existed certain items of revenue which did not constitute ‘own resources’ the creation of which would imply use of the procedure under Article 201. This is true for example of securities and guarantees lodged in connexion with the common agricultural policy which are forfeit to the Community. I share this view, and consider that the provisions of Article 201 are not applicable to the co-responsibility levy.

3. I must now deal with the second question asked by the Finanzgericht Hamburg. As has been seen, that court calls in question the validity of the charging of the co-responsibility levy on the ground that, as its rate is fixed in units of account and the conversion into national currencies is carried out according to the representative exchange rates known as the ‘green rates’, that system could lead to unequal burdens in relation to the actual situation of the respective currencies of the Member States in relation to one another. Does this not give rise to a breach of the principle of non-discrimination between producers in the different Member States? The Council and the Commission take the view that on the contrary the alignment of the levy on the real exchange relationships between the currencies of the Member States would be incompatible with the principle of nondiscrimination.

In its written observations the Commission founds itself upon a legal basis which in my view is unchallengeable. It is Council Regulation No 878/77 on the exchange rates to be applied in agriculture. Article 1 (1) of that regulation provides that:

‘When transactions to be carried out in pursuance of instruments relating to the common agricultural policy … require the currencies referred to in Article 2 to be expressed in another currency or in units of account, the rate of exchange shall, in derogation from Article 2 (1) of Regulation No 129, be that corresponding to the representative rate for that currency.’

As I have said, the imposition of the co-responsibility levy comes within the category of instruments ‘relating to the common agricultural policy’, and must be regarded as part of the price and intervention system in the milk products sector.

Consequently, it is logical that the amount of the levy should be fixed in terms of the representative rates in each Member State. If the amount of the levy-were to be fixed on the basis of the real exchange rates, as the plaintiff in the main action maintains that it should, that would indeed lead to discrimination because producers in Member States with a strong currency would be unduly favoured in relation to those in countries with a weak currency.

The alleged inequality of treatment which has been pleaded is therefore only of a formal kind. In actual fact, only use of the ‘green rates’ allows discrimination between producers to be avoided.

Therefore I am inclined to answer the second question referred by the national court in the negative.

In these circumstances, the third question appears to me to be devoid of any purpose.

It is my opinion that the Court should rule that consideration of the questions referred to it by the Finanzgericht Hamburg has disclosed no factor of such a kind as to affect the validity of either Council Regulation No 1079/77 introducing a co-responsibility levy on milk and milk products or Commission Regulation No 1822/77 laying down detailed rules for the application of the said levy.

( 1 ) Translated from the French.