OPINION OF ADVOCATE GENERAL

SIR GORDON SLYNN

DELIVERED ON 5 APRIL 1984

My Lords,

This is an action brought by a French steel producer; which I shall call “Usinor”, for the annulment of a decision of the Commission, dated 17 April 1983, whereby the Commission notified to Usinor the reference production and quantities, production quotas and the parts of the quotas which could be delivered on the common market for the second quarter of 1983. In essence, Usinor raises two complaints about the decision:

(1) it wrongly fixed quotas for Category V products because, in respect of these, the decision should have been addressed to a separate undertaking, a steel company which I shall call “Alpa”; in the alternative, if the Commission was right to have addressed this part of the decision to Usinor, the- Category V quota should have been adjusted pursuant to Article 14 of Commission Decision No 1696/82 of 30 June 1982 (OJ 1982, L 191, p. 1);

(2) due to the fixing of the abatement rates in Commission Decision No 950/83 of 20 April 1983 (OJ 1983, L 104, p. 19), the Category Id quota was insufficient to enable Usinor to deal with an increase in demand arising from a radical change in the market.

Decision No 1696/82 sets out the quota system in force between 1 July 1982 and 30 June 1983. Article 5 provides that the Commission shall fix each quarter, for each undertaking, the production quotas and the parts of such quotas which may be delivered on the common market on the basis set out in the decision. Article 9 (1), as amended successively by Commission Decisions Nos 3324/82 of 8 December 1982 (OJ 1982, L 351, p. 31) and 87/83 of 12 January 1983 (OJ 1983, L 13 p. 9) provides:

“The Commission shall fix each quarter, approximately six weeks before the quarter begins, the abatement rates for establishing the production quotas and the part of these quotas which may be delivered in the common market. The Commission may, not later than the first week of the second month of the quarter in question, modify these abatement rates in the light of the development of the market situation.”

The abatement rates for the second quarter of 1983 were first fixed by Commission Decision No 379/83 of 16 February 1983 (OJ 1983, L 45 p. 19) and, by letter dated 28 February 1983, the Commission informed Usinor of the reference productions and quantities and the production and delivery quotas for that quarter. The abatement rates were amended by Decision No 950/83 pursuant to Article 9 (1) of Decision No 1696/82, as amended. In consequence, by the letter of 27 April challenged in these proceedings, the Commission notified Usinor of the new reference productions and quotas for the second quarter.

Usinor comprises a group of undertakings one of which, Alpa, is a separate legal person under French law. Alpa is the only member of the group which produces Category V products. Usinor takes the view that any decision fixing quotas for Category V products should therefore be addressed to Alpa alone. The Commission relies on Article 2 (4) of Decision No 1696/82 which provides:

“For the purposes of this Decision, any group of concentrated undertakings within the meaning of Article 66 of the Treaty shall be regarded as a single undertaking even if such undertakings are located in different Member States.”

Usinor's contention is that Article 2 (4) is unlawful, in brief, on the grounds that the Commission was not entitled to adopt the definition of concentrated undertakings in Article 66 of the Treaty and that the assimilation of Alpa to the rest of the group constitutes discrimination between Alpa and other similar steel producers, i.e. those who produce Category V products, and nothing else, from scrap.

Usinor does not deny that it controls Alpa within the meaning of Article 66 and Decision No 24/54 of 6 May 1954 (OJ 1954, p. 345, English Special Edition 1952-1958, p. 16). Indeed, it seems that Usinor holds all Alpa's issued share capital. It is true that Article 66 forms part of the competition rules in the ECSC Treaty and does not apply by express reference to a system of production quotas adopted under Article 58. However, the Commission does not seek to apply Article 66 in its entirety to the quota system, but only to use the definition of concentrated undertakings to be found there. The Commission's use of the criterion of control for the purposes of the quota system by reference to the definition in Article 66 of the Treaty does not seem to me to be unlawful. It cannot be said in the context of the quota system that to use it was unlawful because it was not objectively justified nor does its effect appear to be arbitrary or discriminatory. It seems to me that it was within the Commission's discretion to adopt this test in the way that it did.

The object of Article 2 (4) is to simplify the administration of the quota system. It enables the controlling undertaking in a group to be the nominal addressee of decisions intended for the undertakings comprising the group. Quotas are fixed for the group as a whole, not the individual undertakings, and are calculated on the basis of the reference production and quantities of the group. This system of administration is justified because the controlling undertaking in a group is in a position to determine the production and delivery policy of each member of the group. In addition, as counsel for the Commission pointed out, it lends greater flexibility to the quota system because it enables groups to organize production as they wish without suffering a reduction in the quotas. For example, so far as Category V products are concerned, Usinor has rationalized production by ceasing production in its other steel plants and concentrating it on Alpa. For the calculation of the quota for Category V products, reference is, nonetheless, made to the position of the group as a whole, not Alpa by itself. In consequence, account is taken, for Alpa's benefit, of the production of Category V products of other members of the Usinor group which have since ceased production in that Category.

Article 2 (4) could, however, be unlawful if it purported to abolish the separate corporate identity of different undertakings, as defined in Article 80 of the Treaty and in the Court's case law (notably Cases 42 and 49/59 SNUPATv High Authority [1961] ECR 53 at p. 80, Cases 17 and 20/61 Klóckner and Hoesch v High Authority [1962] ECR 325 at pp. 341-342 and Case 19/61 Mannesmann v High Authority [1962] ECR 357 at pp. 371-372), or if, by treating different undertakings as one undertaking, it affected their rights under the Treaty. Neither consequence, in my view, flows from Article 2 (4). It provides that a group of concentrated undertakings “shall be regarded” as a single undertaking. This means that, although the undertakings retain their separate identity as a matter of law, they are to be treated as one undertaking. Counsel for the Commission, on the other hand, as I understand it, suggests that Article 2 (4) makes the controlling undertaking in a group the sole undertaking subject to the quota system. That, in my view, goes too far. In substance, it would mean that the Commission had legislated so as to deprive an undertaking in a group of its right under, for example, Article 33 of the Treaty to bring proceedings against a decision concerning it which is individual in character. The only rights of action would be held by the controlling undertaking. In my opinion, the Commission does not have power to do this. In any event, I do not think that Article 2 (4) can, or should, be interpreted to bring about this result. It is a purely administrative arrangement. In consequence, it cannot be taken to affect rights under the Treaty. When a decision is addressed to a controlling undertaking, it binds all the undertakings in the group through the nominal addressee. However, each undertaking may, in my view, challenge the decision so far as the decision concerns it.

However, it is my opinion that the quota for Category V products was properly notified to Usinor. This part of the Commission's letter of 27 April 1983 concerned both Usinor, as the controlling undertaking, and_ Alpa, as the actual producer of Category V products in the group. Either undertaking could, therefore, challenge this part of the decision under Article 33 of the Treaty.

Article 14 of Decision No 1696/82, as amended by Commission Decision No 2751/82 of 6 October 1982 (OJ 1982, L 291, p. 8) provides as follows:

“If, by virtue of the scale of the abatement rates set in respect of a given quarter, the quota system creates exceptional difficulties for an undertaking, the Commission shall make suitable adjustments to its reference production and/or reference quantities for the Category in question, provided that the undertaking makes an application to this effect during the first two months of the relevant quarter, in the following instances :

...

— in the case of Category V: — total production of the products listed in Article 1 did not exceed 700000 tonnes in 1981, and — production of Categories IV, V and VI comprises at least 90% of the total production of the undertaking in 1981, and — production of Category V represents at least 30% of the production of Categories IV, V and VI in 1981, and — the abatement rate for Category V exceeds 40%.”

By letter dated 23 February 1983, Alpa requested an adjustment under Article 14. The letter does not state expressly that the adjustment is requested for the first quarter of 1983 but this seems to follow implicitly from the letter because it refers to the position in that quarter. The letter was addressed to Viscount Davignon, the Commissioner with responsibility for, inter alia, the steel quota system. He replied by letter dated 5 April 1983. So far as can be seen, this letter was not received by Alpa. By letter dated 26 May, Alpa submitted a request for the adjustment 26 May, Alpa submitted a request for the adjustment of the reference quantities for Category V products in the second quarter of 1983. This letter was also addressed to Viscount Davignon. By letter dated 22 June (i.e. after proceedings in this action had been commenced) one of the Directors in Directorate E of Directorate General III, which is the Directorate concerned with steel matters, wrote to Alpa enclosing Viscount Davignon's letter of 5 April which, it was said, replied to all the points raised in Alpa's previous letters. Viscount Davignon's letter states that only Usinor could submit a request under the provisions of Decision No 1696/82 and that Usinor did not fulfil the conditions for benefiting from Article 14 because of its size.

These proceedings do not concern the Commission decision rejecting Alpa's request to benefit from Article 14. They concern the decision of 27 April 1983. At the time that decision of 27 April 1-983. At the time that decision was adopted, the Commission had not received an application, whether emanating from Usinor or Alpa, for an adjustment to the reference production or quantities for. the second quarter of 1983. That, in my view, is sufficient to dispose of the second limb of Usinor's first line ofargument since such an application is a precondition of the Commission's obligation to act under Article 14. It is not, therefore, necessary to consider, in this case, what is the proper construction of Article 14 and the argument raised by Usinor in the reply, to the effect that Article 14 may be unlawful. This argument is, in any event, inadmissible because it was raised for the first time in the Reply (see Article 42 (2) of the Rules of Procedure). In the application commencing proceedings, Usinor claimed that it was entitled to benefit from Article 14, the only obstacle preventing it being Article 2 (4). The variation introduced in the Reply, which is based partly on the allegation that Article 14 itself wrongly excludes from its application undertakings like Alpa and partly on the allegation that Article 14 wrongly causes the quotas available to undertakings excluded from its scope to be reduced, is clearly a fresh issue which is not based on any matter of law or of fact which has come to light in the course of the proceedings.

Usinor's case in relation to the Category Id quota is that there has been a radical change in the steel market. Category Id products are used in the construction and motor car industries. Building construction is now still or decreasing. On the other hand, demand from the motor car industry for Category Id products has increased due to a shift in demand from cold sheet falling within Category lb to dipped sheet falling within Category Id. Usinor attributes this shift in demand to the development of Monogal, a type of galvanized steel sheet which is a Category Id product. Since it was first put on the market in 1978, demand for Monogal has risen from 500 tonnes per year to 84000 tonnes in 1983. It emerges from the papers in Case 78/83 Usinor v Commission, an action in which Usinor challenges the fine imposed by the Commission in respect of a failure to respect the quotas in the fourth quarter of 1981, that the Category Id products in question are produced from Category lb products, the latter being included in the Category lb quota if the further processing required is carried out in other Community undertakings.

Article 18 (1) of Decision No 1696/82 provides: “If radical changes occur on the iron and steel market or if the application of this Decision encounters any unforeseen difficulties, the Commission shall carry out the necessary adjustments by general decision.”

Usinor says that the Commission was bound by this provision to change the abatement rates for Category Id products. It failed to do so when it adopted Decision No 950/83. In consequence, the decision is to this extent unlawful and so, by extension, is the decision of 27 April 1983.

The Commission reacted to the change in demand for Category Id products by adopting Decision No 1619/83 of 8 June 1983 (OJ 1983, L 159, p. 56). The preamble states that “the rapid growth in demand for Category Id products to replace Category lb and/or Category Ic sheet constitutes a radical change in the steel market which causes difficulties with the application of the quota system...”. In consequence, the decision amended Decision No 1696/82 by adding a new Article, Article 17a, which provides,

“Where the Commission finds as a result of an application lodged by an undertaking in the course of a quarter that this undertaking can no longer supply its customers with products included in Category Id owing to its low reference production and the consequent quotas and owing to the fact that its customers request supplies of products in Category Id instead of products in Category lb and/or Category Ic, the Commission may authorize a partial transfer to Category Id of the production quotas in respect of Category lb and/or Ic and of the part of these quotas which may be delivered in the common market to the extent that this does not interfere with the working of the system.”

This amendment came into force on 17 June 1983, the date of its publication in the Official Journal, after proceedings in this case had begun. Decision No 1696/82 expired on 30 June. Counsel for the Commission submitted that the adoption of Decision No 1619/83 rendered pointless Usinor's claim but, as counsel for Usinor pointed out, it was adopted too close to the end of the second quarter of 1983 (and, indeed, the expiry date of Decision No 1696/82) to have much practical effect.

The Commission's principal line of defence is that it would not have been appropriate to increase the abatement rates for Category Id products without also adjusting the rates for the Categories experiencing a decline in demand as a result of the shift to Category Id. In consequence, the better way of dealing with the change in the market was to allow individual undertakings to transfer part of their quotas from one Category to another. However, in Article 15 (5), of p. Decision No 2177/83 of 28 July 1983 (OJ 1983, L 208, 1), which extended the quota system after the expiry of Decision No 1696/82, the Commission used a slightly different method of dealing with the problem. Instead of authorizing a transfer of quotas, it provided for an increase in Category Id references and a decrease in Category lb or Ic references. Whatever the criticisms that may be made of Decision No 1619/83 or, indeed, Decision No 2177/83, the crucial question in this case is whether instead of doing what it did the Commission was obliged to amend the abatement rates for the second quarter of 1983 under the power vested in it under Article 18 (1) of Decision No 1696/82.

It would appear that Eurofer had drawn the Commission's attention to the increased demand for Category Id products from the motor car industry by letter dated 30 November 1981. Usinor attributed its failure to respect the quota for Category Id products in the third and fourth quarters of 1981 to this increase in demand (see its letters to the Commission dated 26. 3. and 15.7.1982, the minutes of a meeting with representatives of the Commission held on 22.6.1982 and its pleadings in Case 78/73). It should be mentioned that, at this time, the Commission was considering the exclusion of Category Id products from the quota system. In consultations prior to the adoption of Decision No 1696/82, however, the steel producers appear to have indicated a preference for the continued application of the quota system to such products. By letter dated 18 November 1982 Usinor asked the Commission to adjust the quota system to take into account the demand from the motor car industry and repeated its complaints in letters dated 22 December 1982 and 10 May 1983. The Commission replied by letter dated 26 June 1983, referring to its adoption of Decision No 1619/83. From the Commission's forward programmes for steel for every quarter of 1982 and the first two quarters of 1983 (OJ 1981, C 337, p. 3; 1982, C 78, p. 2, C 171, p. 2, C 256, p. 1 and C 332, p 2; 1983, C 105, p. 2) it is apparent that the abatement rates were fixed by reference to indications of overall demand but the Commission does not refer to any switch in demand from one Category to another. Nor is it apparent from the limited evidence available to the Court that the shift in demand made the total quotas for Category Id products unrealistically low. Most undertakings seem to have been able to accommodate the change within the existing quotas, which would suggest that the increase in demand from the motor car industry was compensated by other changes in conditions on the market.

Although it is common ground that the shift in demand was a radical change in the market, it seems equally clear that it affected undertakings in different ways, causing particular difficulties for undertakings like Usinor, whose references in Category Id were relatively low. Moreover, in a letter to the Commission, dated 7 July 1983, the president of Usinor suggested that only the transfer of references from Categories lb to Id would truly solve the problem. This, of course, was the solution eventually adopted by the Commission in Decision No 2177/83. Whether it could or should have done that earlier is a matter which is not relevant to Usinor's claim that the fixing of the abatement rates in Decision No 950/83 was unlawful. In all the circumstances it does not seem to me that Usinor has established that the only proper course open to the Commission was to amend the abatement rates for the second quarter of 1983 in pursuance of its powers under Article 18 (1) of Decision No 1696/82. In consequence, this claim should, in my view, be rejected.

For these reasons, it is my opinion that Usinor's action for the annulment of the decision contained in the letter of 27 April 1983 should be dismissed and Usinor ordered to pay the costs.