Opinion of Mr Advocate General Vilaça delivered on 2 June 1987. - Italian Republic v Commission of the European Communities. - EAGGF - Standard amounts for the colouring of cereals. - Case 256/85.



European Court reports 1988 Page 00521



Opinion of the Advocate-General

++++

Mr President,

Members of the Court,

1 . In this action the Italian Government asks the Court to declare void the Commission Decision of 7 June 1985 - C(85 ) 839 final - fixing a standard amount for the repayment of expenditure resulting from the treatment of denatured or coloured cereals with a view to their use in animal feeds .

I - Legal background

2 . The decision at issue was adopted within the sphere of the common agricultural policy ( CAP ), and more specificially in the area of the financing by the European Agricultural Guidance and Guarantee Fund ( EAGGF ) of intervention expenditure involved in the purchase, storage and disposal of agricultural products .

3 . It is unnecessary to give details here of the legislation forming the legal basis of the contested decision - I refer, where necessary, to the Report for the Hearing, where that legislation is adequately described .

4 . On the other hand, I think it is appropriate to summarize the interrelationship between the measures in question so that the scope of each of them will be better understood . They can be divided into two large groups : one comprises the basic regulations, that is to say those which lay down measures of a general character and apply as a whole to several years; the other group comprises those which are intended to cover specific situations and ultimately form the basis of the day-to-day and case-by-case implementation of the principles laid down by the first group . As we shall

see, the present case may be resolved by verifying the relationship established between the two groups of measures and deciding whether or not that relationship was respected .

5 . Thus, in the first group we may include Regulation No 729/70 of the Council of 21 April 1970 ( 1 ) ( on the financing of the CAP in general ), Council Regulation No 1883/78 of 2 August 1978 ( 2 ) ( laying down general rules on the financing of interventions by the EAGGF and repealing Regulation No 2824/72 of the Council of 28 December 1972, ( 3 ) which was extended on a number of occasions ) and Council Regulation No 3247/81 of 9 November 1981 ( 4 ) ( adopted pursuant to Article 4 ( 3 ) of Regulation No 1883/78, in which there are laid down, in particular, the rules and conditions applicable to the accounts of the intervention agencies as regards the purchase, storage and disposal of products ).

6 . In the second group of measures we may include Council Regulation No 1322/83 of 26 May 1985 ( 5 ) ( which, inter alia, provided for the transfer of 450 000 tonnes of common wheat from the French intervention agency to the Italian intervention agency for use in animal feed ), Commission Regulation No 2794/83 of 6 October 1983 ( 6 ) ( adopted pursuant to Article 1 ( 6 ) of Regulation No 1322/83, which in particular strengthens the surveillance of the use made of the cereals by requiring colouring - Article 5 ) and, finally, the Commission Decisions of 15 November 1982 and 7 June 1985 ( laying down the standard amounts for calculating the losses of the intervention agencies, adopted on the basis of Regulation No 1883/78 ).

II - The dispute between the parties

7 . Having identified the subject-matter of the action and having regard to its legislative background, let us now consider the points on which the parties disagree .

8 . The dispute turns on a single question . The Italian Government maintains that the expenses which the intervention agency ( AIMA - Azienda di Stato per gli interventi nel mercato agricolo ) incurred in respect of the colouring operation required by Regulation No 2794/83 should be repaid in full; the Commission, on the other hand, considers the colouring expenses to be reimbursable by means of standard amounts . Thus, Italy takes the view that it has suffered a loss since its administration estimated the cost of the operation as ECU 6.15 per tonne whereas the standard amount allocated by the Commission was ECU 1.17 per tonne .

9 . Let us consider the merits of the arguments put forward by the parties .

III - Analysis of the arguments of the parties

10 . A - Let us start with the argument which seems easiest to deal with : Italy' s claim that there has been a misuse of powers .

11 . According to the Italian Government, the Commission, by including colouring among the "material operations arising from ... storage" mentioned in Article 6 of Regulation No 1883/78 and by increasing by the fixed amount of ECU 1.17 per tonne the "expenses of withdrawal from stock" ( apparently purporting to supplement the content of the decision of 15 November 1982 ) misinterpreted and misapplied Article 6 of Regulation No 1883/78, disregarding Annex I to Regulation No 3247/81 and arrogating to itself the power to calculate the costs in question on a flat-rate basis .

12 . However, I believe that the argument regarding that defect is unfounded . It should be remembered that a misuse of powers arises where there is "a divergence between the aim being pursued by the legislature in conferring on a body or institution the powers needed for the adoption of a measure and the aim pursued by that body or institution in adopting the measure ( subjective misuse of powers ), or between the lawful aim of the measure and the result objectively achieved by the inexcusably negligent exercise of the powers conferred ( objective misuse of powers )". ( 7 )

13 . In the present case, neither of those situations can be regarded as having arisen .

14 . In implementing Regulations Nos 1883/78 and 3247/81, it is incumbent on the Commission to adopt the proper measures for fixing the amounts to be financed and to determine, in each case, what classification is to be accorded to each type of expenditure which should be financed by the EAGGF, having regard to the rules laid down and the principles and general conditions for financing established at an earlier stage .

15 . In the process of allocating each type of expenses to each of the groups of accounts concerned, it may happen that the Commission made a mistake in taking the view that a particular expense was to be reimbursed by means of a standard amount .

16 . However, the Italian Government does not even produce prima - facie evidence to supports its allegation of misuse of powers .

17 . In fact, it does not even claim that, if an error exists, it was brought about by the Commission' s taking a course departing from the straightforward application of the general rules for financing or by "inexcusably negligent" conduct on its part . Moreover, it was a cost not specifically classified in the regulations, in respect of which the Commission did not fail, as required, to refer the matter to the Management Committee ( see Article 6 of Regulation No 1883/78 and Article 26 of Regulation No 2727/75 of 29 October 1975 ).

18 . The allegation of misuse of powers must thus be regarded as totally unfounded, and it is therefore necessary to determine whether there has been any infringement of a legal provision .

19 . B - ( 1 ) According to the Italian Government, Articles 4 and 6 of Regulation No 1883/78 and Annex I to Regulation No 3247/81 have been infringed and misapplied . The Italian Government bases that view on a number of considerations :

( a ) Pursuant to Article 6 of Regulation No 1883/78 "material operations arising from the storage and, where appropriate, processing of intervention products shall be financed by the EAGGF, Guarantee Section, by means of standard amounts uniform throughout the Community, to be laid down in accordance with the procedure provided for in Article 13 of Regulation ( EEC ) No 729/70 and, when necessary, after examination of the matter by the Management Committee concerned ". In the Italian Government' s view, the operation of colouring prescribed by the Commission for the purposes of sale, to facilitate surveillance of the use of the product transferred from one intervention agency to another, is not included among the operations mentioned in Article 6, which does not extend to all the material operations relating to the Community intervention measure, but only the material operations arising from the storage and processing of intervention products .

( b ) In support of that view, Italy relies on the wording of Article 4 ( 1 ) of Regulation No 1883/78 - "... the amount financed shall be determined by the annual accounts ... in which the various items of expenditure and revenue have been respectively debited and credited" - together with Annex I to Regulation No 3247/81 ( adopted under Article 4 ( 3 ) of the first-mentioned regulation ). In that annex, a list is given of six categories of expenditure which are subject to a system of standard amounts ( point I-1 ), non-standard amounts being envisaged for transport expenses ( point I-2 ) without any provision being made for the reimbursement of other expenses ( point I-3 ). For the Italian Government, the expenses of colouring, which do not fall within any of the specified categories, must be covered by point I-3 (" other expenses ") which are to be reimbursed in full;

( c ) In the applicant' s view, it is also significant that the Commission itself laid down in Article 5 of Regulation No 2794/83 that the colouring should be "carried out at minimum expense ": if reimbursement were on a flat-rate basis, those words would be devoid of purpose .

Similarly, the Italian Government relies upon Article 1 ( 3 ) of Regulation No 1463/83, which lays down detailed arrangements for the application of Regulation No 1322/82 ( transfer of common wheat of

bread-making quality to Italy ) and in which there is a similar recommendation (" keep transport costs to a minimum "), and no standard amount was fixed for the reimbursement of such expenses .

20 . ( 2 ) As regards the considerations set out in paragraph ( c ), the Commission' s observations appear to me to negate their persuasive effects .

21 . As the Commission points out, even where reimbursement is effected by means of standard amounts which are uniform throughout the Community, they are based on the real costs, adjusted by an appropriate weighting; it is thus wholly logical for the Member States to be required to incur the lowest possible costs, since the burden of reimbursement will be correspondingly smaller .

22 . It is not therefore surprising that the Commission should ask the Member States to provide the information necessary to enable it to determine the standard amounts, including information on the real cost of the operations ( see the "working document" of 28 September 1982 and the questionnaire which are annexed to the application ) and that, accordingly, it should only be possible for those standard amounts to be determined, for each period, after the real costs of the operations are established . In the case of new operations - such as colouring - it is not therefore surprising that the amounts should be determined after the first operations are carried out, so that the costs involved can be determined; as regards the more usual operations, the amounts are determined by reference to previous information, and are merely adjusted .

23 . In those circumstances, it is likewise not surprising that Article 5 of Regulation No 2794/83 should contain, with respect to the expenses of colouring, a requirement identical to that laid down in Article 1 of Regulation No 1463/83 regarding the transport expenses mentioned therein, for which Regulation No 3247/81 ( Article 5 and Annex I, 1, 2 ) expressly allows full reimbursement .

24 . For the latter category of expenses, standard amounts moreover could not easily be fixed, since they relate to an activity carried out in two Member States .

25 . That does not occur in the case of the expenses of colouring and accordingly the argument based on the wording of the provision does not stand up .

26 . ( 3 ) As regards the argument set out in paragraphs ( a ) and ( b ), it may be accepted that the Italian Government is partly right, but not wholly so .

27 . It is difficult to conclude that expenses in respect of colouring fall within any of the categories listed in point I-1 .

28 . It seems clear that, both from the standpoint of timing and from the functional point of view, they differ from the category in which the Commission purports, initially, to place them (" withdrawal from stock ").

29 . Indeed, in order to take the view that colouring is caused by withdrawal from stock - or, even, that there is a logical or functional relationship between the two operations which enables them to be placed in the same group - requires some violence to be done to the meaning of the words .

30 . It is true that, in so far as colouring is required by the Community rules, it is logical that the products should not be permitted to leave the warehouse until the operation has been carried out .

31 . The sole justification for colouring is the need to verify the final use made of the product; for that purpose other solutions might possibly have been adopted and the choice between one method or another need not bear any relation to the withdrawal from stock .

32 . Moreover, the Commission itself - in the questionnaire and in the instructions for determining the standard amounts referred to earlier - specifies the expenses which it considers to be included in the costs of entry into and withdrawal from stock and does not include among them those in respect of colouring or any others which, by their nature, are regarded as equivalent ( the reference to "supervision expenses" would appear to cover direct checks of the quantity and physical condition of the goods and not the operations intended to enable the subsequent use made of the goods to be verified ). The categories of expenditure mentioned by the Commission all relate, moreover, to operations which are clearly connected with withdrawal from or entry into stock and with storage, which cannot be said of colouring operations .

33 . At least, it cannot be said of the latter operations any more than it can of those of "processing", "preparation", "drying", "special cooling" or "homogenization", which point I-1 of Annex I to Regulation No 3247/81 clearly distinguishes from costs incurred by entry into and withdrawal from stock .

34 . In addition, there is no good reason for assimilating colouring to a "processing" operation so as to include it in paragraph ( d ) of point I-1 of Annex I . Not only does colouring not alter the intrinsic characteristics of the product, it does not even affect its economic value in relation to its possible uses, since rather than preventing it from being put to other final uses, it merely facilitates verification of such use . In any event, it is significant that the Commission, in its Decision of 7 June 1985, linked the costs at issue not with the operations of "processing" but rather with those of "withdrawal from stock ".

35 . ( 4 ) In those circumstances, since the cost at issue does not relate to withdrawal from stock or processing expenses, the material operation of colouring must necessarily be covered by point I-3 of Annex I (" Other costs deriving from operations provided for in Community regulations ").

36 . As the Commission explained, that is a residual heading intended to cover, when the accounts are submitted, costs incurred in connection with operations arising from the evolution of the CAP which could not be specificially foreseen .

37 . There is nothing to exclude colouring costs from that category .

38 . But the deduction which the Italian Government seeks to draw from that conclusion - namely that the reimbursement should be total - does not seem to me to be tenable .

39 . In fact, by contrast with headings 1 and 2 which expressly refer to the appropriate methods of financing ( standard amounts or full reimbursement ), paragraph 3 of point 1 does not indicate which method of financing is to apply . No preference on the part of the legislature for one or other type of reimbursement can be inferred from its wording or position in the scheme of Annex I .

40 . That preference must therefore be sought elsewhere .

41 . Article 5 of Regulation No 2794/83, which laid down the colouring requirement, gives no clarification as to the appropriate method of financing since, as we have seen, the last reference made in it to colouring "at minimum cost" is compatible both with reimbursement by standard amounts and with full reimbursement .

42 . We must therefore have recourse to other elements of interpretation .

43 . It should be borne in mind that Regulation No 3247/81, of which the Annex I which we are reviewing forms part, was adopted by the Council pursuant to Article 4 ( 3 ) of Regulation No 1883/78 . That means that, even if those regulations are regarded as being of equal rank, the first cannot be interpreted otherwise than in conjunction with the second, which it is intended to implement and develop .

44 . Article 2 of Regulation No 1883/78 provides that the expenditure incurred within the framework of a common organization of the market where a sum per unit is determined for an intervention measure is to be met entirely by Community funds .

45 . Since that does not apply to the measures with which we are concerned here, the matter comes within Article 3 of the same regulation, which refers to Articles 4 to 8 .

46 . Article 6 refers to the "material operations arising from the storage and, where appropriate, processing of intervention products" which are to be financed by means of standard amounts uniform throughout the Community .

47 . It is true that Article 4 ( 1 ) refers to intervention measures which involve "the buying and storage of products" and not "storage" and "processing", as in the case of Article 6 .

48 . It is, however, irrefutable that Regulation No 3247/81, adopted pursuant to Article 4 ( 3 ) of Regulation No 1883/78, covers a wide range of matters, including, in addition to expenses incurred in respect of storage, those resulting from processing and other operations, both of which are reimbursed by means of standard amounts .

49 . In other words, the mere fact that a category of expenditure is not mentioned expressly in Article 4 ( 1 ) does not bring that category within Article 4 ( 2 ) ( financing in full of net expenditure ). Everything depends, therefore, upon the provision which covers it or upon the nature of the expenditure .

50 . As the Commission contends, it is beyond doubt that the costs of colouring are very similar to the costs in respect of which financing by means of standard amounts was expressly prescribed; both types of costs raise the same kind of problems which led to the inclusion of that method of reimbursement in the proposal for Regulation No 2824/72 and its definitive adoption in Article 6 of Regulation No 1883/78 .

51 . In fact, they are operations which form part of complex intervention systems, extending from purchase to disposal, with the intermediate stage of storage, and possibly processing and other related operations .

52 . In such cases, the problem lies in the fact that - as the Commission emphasized in the explanatory memorandum for its 1972 proposal - when carrying out most of their operations, the intervention agencies incur costs whose extent depends not only on the objective economic circumstances ( technical characteristics, storage capacity, wage levels, commercial practices, insurance costs, and so forth ) but also on the choices made by the authorities in the Member States ( intervention measures taken direct by the public authorities as to the type of agreement or contract to be concluded with semi-public or private bodies, domestic administrative provisions, administrative and commercial usage, and so forth ). In the result, situations vary widely as between the Member States and the sectors involved, leading to significant differences in the costs of the same operation ( the difference may be as much as threefold ) and, at times, it is difficult to determine the full cost ( for example, certain expenses in respect of technical controls are incurred by administrations in certain countries, without separate accounts being kept of the costs ).

53 . It is not therefore surprising that, for expenditure of that kind, the rules previously applicable in each sector, which were confirmed by Article 3 of Regulation No 2824/72, should provide in general that Community financing is to be effected by means of standard amounts, representative of the various costs, determined by the Commission .

54 . The system of standard amounts displays, moreover, clear advantages as regards the control of expenditure and provides a disincentive to the increasing of costs . It also ensures that large discrepancies between the actual costs from one country to another do not yield large profits for some intervention agencies and give rise to heavy losses for others, calling for national financing .

55 . The methods of determining the standard amounts were, moreover, perfected over the years and thus it was possible to apply that system of reimbursement definitively, in Article 6 of Regulation No 1883/78, to "material operations arising from storage and, where appropriate, processing ".

56 . Both the wording of Article 6 and the whole legislative approach adopted in the various regulations defining the operations concerned and determining the methods by which they are to be financed are far from perfect .

57 . It must, however, be concluded that the legislature wished to adopt - for the material operations arising from storage, processing and related operations - a general rule that financing should be by means of standard amounts .

58 . The exceptions to that general rule must, therefore, be laid down clearly . This was done in the case of the costs of transport between two intervention agencies, referred to in Article 5 ( 3 ) of Regulation No 3247/81 .

59 . It was not done, however, in the case of the costs of colouring, which there is no apparent reason to treat differently from costs in respect of material operations of a similar nature provided for in Annex I to Regulation No 3247/81, to which the system of financing by means of standard amounts applies . As the Commission states, the actual costs incurred by the Member States in respect of colouring operations vary between ECU 6.15 per tonne for Italy and ECU 0.18 per tonne for Ireland . That indeed is the situation which prompted the Commission to propose, and the Council to direct, that the system of financing by means of standard amounts should be extended to include operations of that type .

60 . It has not therefore been shown that, in the contested decision, the Commission misapplied the regulations in force .

61 . C - A few words are called for regarding the Italian Government' s reference to the "retroactive nature" of the Commission Decision of 7 June 1983, in so far as it introduced the standard amount for colouring costs after the operation had actually been carried out . For that reason, Italy concluded its submissions by calling for the annulment of the contested decision "at least in so far as it applies with retroactive effect to the colouring operation provided for in Commission Regulation ( EEC ) No 2794/83 ".

62 . Some clarification of this aspect of the matter is called for .

63 . It is true that the colouring operation was carried out in the second half of 1983, whilst the decision at issue was adopted in mid-1985 .

64 . However, it was adopted pursuant to legislation previously published by the Council and the Commission - either the general Regulations of 1978 ( No 1883/78 ) and 1981 ( No 3247/81 ), or those of 1983 ( Nos 1322/83, 1463/83 and 2794/83 ), concerning the transfer operation which gave rise to the dispute .

65 . The explanations given by the Commission concerning the method of determining the standard amounts are sufficient to clarify the reasons for which - it being the first occasion on which wheat was subjected to the colouring process - those amounts would normally have to be determined after the operation was carried out, that being the only way of getting an idea of the real costs .

66 . By choosing standard amounts rather than full reimbursement, the Commission elected to interpret the existing law ( although, as demonstrated by Italy' s action, it is open to challenge ), without taking it upon itself to make innovations within the sphere of the applicable regulations .

67 . But does the Italian Republic not have grounds for claiming legitimate expectations, so that it might be concluded that the Commission, by applying its Decision of 7 June 1983 to the operation in question, infringed the principle that such expectations should be protected?

68 . In particular, could Italy not maintain, with success, that the last sentence of Article 5 of Regulation No 2794/83 (" colouring must be carried out at minimum expense ") led it into error, by creating the impression that the operation would be financed in full?

69.In my view ( stated earlier ) it cannot necessarily be inferred from that sentence that a particular system of reimbursement had been chosen, since it fits in with either of the two systems .

70 . Nor does it seem to me that that sentence, taken together with the other relevant factors, can constitute a sufficient basis for expectations such as to justify non-application of the contested decision - notwithstanding the fact that it correctly interprets the law as it stands - to the operation concerned .

71 . The following circumstances should be borne in mind :

( a ) Since the operation was the first of its kind, there was no previous practice to be upset by the decision at issue;

( b ) Since at least 15 December 1983, the Commission had announced ( Annex 3 to the application ) that adjustment of the standard amounts for colouring expenses would be considered, with retroactive effect, at the next review of the standard amounts, which was envisaged for the beginning of 1984 . According to the Commission, the adjustment would, as in the case of the previous determinations, be based on inquiries made of the intervention agencies concerning the various cost components and, in the case of the colouring, by means of a circular ( the method already used for special cooling and homogenization expenses ) indicating that, for the quantities subjected to colouring, there would be an increase in the standard amount;

( c ) On the basis of the information obtained from the Member States, the Commission prepared a working document which took account of the costs submitted by the various Member States for operations of that kind and determined the additional amount to be allocated for reimbursement of the expenses of colouring;

( d ) The Commission submitted a draft to that effect to the Management Committee; it received a favourable vote, but without the necessary majority . The minutes of the meeting at which it was considered showed that only the Italian delegation opposed it, considering that the colouring of cereals did not come within the system of standard amounts; Greece voted against only because it took the view that the amount decided upon did not cover the costs incurred in Greece, whilst the United Kingdom objected to the operation being financed in any way . Thus, no other Member State voted against the payment of a standard amount in the event of the costs being repaid .

It should be noted in that connection that the Management Committees, whose purpose is to involve the Member States in the process of implementing the common agriculture policy, do not have any decision-making powers in any circumstances; such powers, as the Court has emphasized, ( 7 ) are vested in the in the Commission - which has considerable executive powers available for use in harmony with the general objectives of each market organization ( 8 ) - and, where appropriate, in the Council .

The Commission can adopt measures which are immediately applicable, and in doing so may even go against the opinion of the Committee; in those circumstances, the Council may, by a qualified majority, adopt a different decision within a period of one month .

In those cases where the Management Committee does not issue an opinion, the Court has stated that the absence of an opinion "in no way affects the validity of the measures adopted by the Commission", since "it is only if the Commission adopts measures which are not in accordance with the opinion of the committee that those measures must be communicated to the Council ". ( 9 )

72 . It thus appears that, from the outset, the Commission' s conduct was not such as to give the authorities in the Italian Republic grounds for reaching the erroneous conclusion that the expenses of the colouring operation would be financed in their entirety .

73 . Naturally - also from the outset - Italy expressed its opposition to the Commission' s view; but that differing view was not shared by any of the other parties concerned and the whole procedure concerning the application of standard amounts appears to have been conducted in an open manner .

74 . As regards determination of the amount to be paid, it was at all times open to Italy to lodge an objection, as was done by Greece during the discussions within the Management Committee .

75 . I thus consider that there is insufficient evidence of any basis for legitimate expectations which might have been frustrated by the contested decision .

IV - Conclusion

In view of all the foregoing considerations, I am of the opinion that the action brought by the Italian Republic must be held to be unfounded and the applicant should be ordered to pay the costs .

(*) Translated from the Portugese .

( 1 )

Official Journal, English Special Edition 1970 ( I ), p . 218 .

( 2 )

Official Journal 1979, L 216, p . 1 .

( 3 )

Official Journal, English Special Edition 1972 ( 30/31.12.1972 ), p . 28 .

( 4 )

Official Journal 1981, L 327, p . 1 .

( 5 )

Official Journal 1983, L 138, p . 63 .

( 6 )

Official Journal 1983, L 274, p . 18 .

( 7 ) See my Opinion in Joined Cases 351 and 360/85 Fabrique de fer de Charleroi v Commission, and the case-law referred to therein .

( 7 )

Judgments of 17 December 1970 in Case 25/70 Einfuhr-und Vorratsstelle and 30/70 Scheer (( 1970 )) ECR 1161 and 1183; judgment of 14 March 1973 in Case 57/72 Westzucker (( 1973 )) ECR 321 .

( 8 )

Judgment of 30 October 1975 in Case 23/75 Rey Soda (( 1975 )) ECR 1279, at p . 1302 .

( 9 )

Judgment of 5 April 1979 in Case 95/78 Dulciora (( 1979 )) ECR 1549, at p . 1568 .