Opinion of Mr Advocate General Alber delivered on 8 March 2001. - French Republic v Commission of the European Communities. - Clearance of accounts - EAGGF - 1995 financial year - Arable crops. - Case C-118/99.



European Court reports 2002 Page I-00747



Opinion of the Advocate-General

I - Introduction

1. The present action for annulment concerns the legality of a flat-rate correction in the context of the Commission decision on the clearance of the accounts in respect of the expenditure for 1995 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (hereinafter EAGGF).

II - Facts and claims

2. In Decision 1999/187/EC of 3 February 1999 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1995 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund, the Commission disallowed an amount of FRF 567 733 352 which the French Government reported among other expenditure in respect of the 1994 harvest. That decision was preceded by the following contacts between the authorities.

3. In a letter of 18 May 1994, the Commission objected to the decision taken by the French Government, when granting compensatory payments under Council Regulation (EEC) No 1765/92 of 30 June 1992 establishing a support system for producers of certain arable crops, to waive the requirement for presentation of particulars of the areas for which the compensatory payments were sought. The Commission considered that this decision infringed the requirements of Article 6(2) of Commission Regulation (EEC) No 3887/92 of 23 December 1992 laying down detailed rules for applying the integrated administration and control system for certain Community aid schemes.

4. After a number of meetings and exchanges of letters between the Commission and the French Republic, the Commission indicated in a letter of 9 July 1997 that the treatment of the incomplete applications had been the subject of criticism as early as 1993 and that it could not be offset in 1994 by doubling the number of checks, even though that measure had contributed to minimising the risk of losses to the EAGGF. Since the irregularities established were restricted to certain features of the system of control, and the risk of loss to the EAGGF could therefore be regarded as minor, the Commission was minded, for the purpose of clearance of the accounts, to exclude from Community financing expenditure declared by the French Republic at a flat-rate of 2%. However, the Commission drew attention to the fact that this correction might be even higher if any infringement relating to the major elements of the control system was found and the risk of loss was considered high. Among other matters, the poor quality of the on-the-spot checks militated in favour of that conclusion. The personnel were not adequately trained and there was not significant use of teledetection.

5. In a letter of 11 May 1998, the Commission gave the French Republic formal notice of its finding, under Commission Decision 94/442/EC of 1 July 1994 setting up a conciliation procedure in the context of the clearance of the accounts of the European Agricultural Guidance and Guarantee Fund (EAGGF) Guarantee Section. It accepted the increase in the number of on-the-spot checks, which was raised to 10% instead of the 5% laid down in Article 6(3) of Regulation No 3887/92, to offset the failure to provide particulars of area. But it criticised the shortcomings in the checks conducted on the spot. The personnel had not been properly trained, so that there was no accurate measurement of parcels, roads and field edges were not deducted from such parcels, and the minutes of on-the-spot checks were imprecise or incomplete. Nor had there been any teledetection. Because of the inadequate controls and the difficulty of extrapolating from the irregularities established in subsequent years, a flat-rate correction had to be applied in accordance with working document VI/216/93 of 3 June 1993. In the result, it was announced that on clearance of the accounts an amount would be disallowed of FRF 567 733 352 (corresponding to application of a flat-rate correction of 2%).

6. In response to that letter, the French Republic referred the Commission's proposal to the Conciliation Body. In its final report on 23 November 1998, the Conciliation Body came to the conclusion that the change of approach by the Commission in its statement of reasons had complicated consideration of the issue. From 1994 to 1997, the complaint of inadequate quality of on-the-spot checks had been made only as a secondary point, although in this matter the Commission had relied on checks carried out in 1994. Although the shortcomings established were systematic, extrapolation to the whole of France seemed problematic in as much as those shortcomings varied from one holding to another and only a limited number of holdings had been checked. Subsequent and more extensive checks had not confirmed the shortcomings established. The present case highlighted the limits of calculating the correction on a flat-rate basis. That procedure always presented the risk of an over- or under-estimate of the loss stemming from the irregularity established.

7. The contested decision was notified to the French Government on 12 February 1999. The French Republic brought an action for annulment against the decision, in an application of 5 April 1999, registered at the Court on 12 April 1999.

8. The French Government alleges a breach of the principle of proportionality. The flat-rate assessment by the Commission of the amount to be disallowed is in no way proportionate to the seriousness of the irregularity established. The return of areas had in any case been attached to most of the aid-application files and where, during checking, the return had been found to be missing, it had been systematically requested.

9. The deduction is also disproportionate in that the lack of returns of area did not frustrate the intention of Regulation 3887/92, namely the introduction of effective controls. Nor, moreover was introduction of the integrated system of management and control delayed as a result. Nor, finally, was the effectiveness of the checks carried out in 1994 undermined.

10. In the final analysis however, this question may remain open, since the contested Commission decision is based only on the complaint regarding the inadequacy of the checks conducted on the spot. On this point, the French Government notes firstly that 1994 was only the second year of application of Council Regulation No 1765/92 and Commission Regulation No 3887/92. During this initial period, inadequate checks were also established in the case of other Member States. That was a matter for the Commission to take into account in determining the flat-rate correction in accordance with the matters stated at page 12 of Document VI/5330/97 of 23 December 1997 (Guidelines for the calculation of financial consequences when preparing the decision regarding the clearance of the accounts of EAGGF Guarantee).

11. The French Government also complains that the Commission formulated its objection to the inadequate on-the-spot checks on the basis of only a limited number of checks carried out by itself. In 1994, only eight holdings situated in two Départements were verified, although a total of 11 656 holdings had received aid. That accounted for only 2.28% of the aid applications filed in France under Regulation No 1765/92, 1.79% of the areas assisted and 3.91% of the aid paid. The shortcomings established could therefore not be extrapolated to the whole of France.

12. In the present case, the deduction produced by applying a flat-rate correction is excessively high. It is equivalent to a finding that more than 12% of the area checked in 1994 was in breach of Community rules. But the breaches found in subsequent years were never more than 1% of the area checked. The hectarage in breach as a proportion of that checked was 0.54% in 1995, 0.93% in 1996 and 0.61% in 1997.

13. The French Government considers that it is in fact possible to make a specific assessment of the loss arising from the infringement in 1994 by extrapolation from the infringements found in 1995, 1996 and 1997. Using this method, the French Government calculates the financial correction at FRF 44.3 million and on that basis regards the Commission's flat-rate assessment as unlawful.

14. By order of the President of the Court, dated 18 November 1999, the Republic of Finland was granted leave to intervene in support of the French Republic's claims. In addition to breach of the principle of proportionality, the Finnish Government also alleges inadequacy of the statement of reasons, a breach of the principle of protection of legitimate expectations and of the principle of effectiveness. The Finnish Government claims that the statement of reasons is inadequate in two ways. Firstly, it is not possible in the contested decision to identify the grounds on which the financial correction has been made and, secondly, it cannot be discerned why the Commission applied a flat-rate correction and did not determine the loss actually occasioned. The principle of legitimate expectations was breached owning to the fact that during the procedure, the Commission gave different reasons for the financial correction, first alleging that the aid applications scrutinised were incomplete and then that the checks were inadequate. Lastly, the Finnish Government claims that the use of a flat-rate assessment can be justified by the principle of effectiveness only in exceptional cases for, in the long term, it tends to make cooperation between the Member States and the Commission more difficult and, thereby, hinder efficient implementation of the rules.

15. The French Republic claims that the Court should annul Decision 1999/187/EC in so far as it provides for a financial correction of 2% to the expenditure financed by the Community.

16. The Republic of Finland supports those claims.

17. The Commission contends that the Court should

(1) dismiss the action and

(2) order the French Republic to pay the costs.

18. The Commission considers that the decision appealed against is proportionate. Firstly, identification of the parcels benefiting from the system of compensatory payments is of central importance to the integrated system of management and control. Effective performance of on-the-spot checks is equally important.

19. The Commission stresses that it is necessary to use a flat-rate correction whenever, as in the present instance, the actual loss caused by the irregularities established cannot be quantified. It was not possible to quantify the actual loss to the Community budget because of the inadequate controls in 1994. Thus a flat-rate correction had to be used. In taking 2% as the applicable rate, the Commission considers that it applied the lowest rate permissible.

20. The Commission rejects the notion of extrapolating from the irregularities established in subsequent years, from 1995 to 1997. It considers such an approach to be incompatible with the principle of annual clearance of accounts, where each year has to be taken separately from the years before and after. Furthermore, the matters established in respect of irregularities in a given year cannot simply be extrapolated to other years.

21. Nor is the decision initiated by any defect in the statement of the reasons on which it is based. The Court has consistently held that, in regard to clearance of accounts for the EAGGF, it is sufficient for the State concerned to have been involved in the preparation of the decision and, as a consequence, to be aware of the reasons for that decision.

22. Nor has there been a breach of the principle of protection of legitimate expectations. The letter of 11 May 1998, which is the only one material to the present proceedings, sets out the objection based on the inadequate quality of the checks conducted on the spot, on which the contested decision is based. That objection had been expressly notified to the French Government as early as the bilateral meeting of 24 October 1997.

23. Lastly, the opinion by the Conciliation Body (see point 6 above) is not binding upon it, in accordance with the provisions of Article 1(2) of Commission Decision 94/442.

III - Applicable legislation

24. As provided in Article 5(2)(b) of Council Regulation (EEC) No 729/70 of 21 April 1970 on the financing of the common agricultural policy, the Commission makes up the accounts for the EAGGF for the budgetary year concerned. Under Article 5(2)(c) of that regulation, as modified by Council Regulation (EC) No 1287/95 of 22 May 1995, the Commission evaluates the amounts to be excluded having regard in particular to the degree of non-compliance found. It takes into account the nature and gravity of the infringement and the financial loss suffered by the Community. Under Article 2(2) of Regulation No 1287/95, refusal under Article 5(2)(c) of Regulation No 729/70 to grant financing may not relate to expenditure claimed against a financial year prior to 16 October 1992, but without prejudice to decisions regarding the clearance of the financial years preceding the entry into force of this regulation, that is to say prior to 16 October 1995 (see Article 2(1)). Therefore, Article 5(2)(c) of Regulation No 729/70 is applicable to the clearance of accounts for 1994, the year in question.

25. Under Article 1(2)(b) of Regulation No 729/70, the Guarantee Section of the EAGGF finances intervention intended to stabilise the agricultural markets. In accordance with Article 13 of Council Regulation No 1765/92 of 30 June 1992 introducing a system of support for producers of certain arable crops, compensatory payments granted under Article 2 of that regulation are also considered to be such interventions. Article 10(3) of this regulation requires the application to be accompanied by references allowing identification of the areas concerned for which compensatory payment is sought.

26. This system of aid is implemented in accordance with the detailed implementing rules laid down in Commission Regulation No 3887/92. Article 4(1) of the regulation requires area aid applications to contain in particular details to identify all the agricultural parcels on the holding, with their area, location and use. Under Article 6(1) of the regulation administrative and on-the-spot checks are to be made in such a way as to ensure effective verification of compliance with the terms under which aids and premiums are granted. Under Article 6(2), cross-checks in particular are carried out on parcels declared in order to ensure that aid is not granted twice in respect of the same calendar year without justification. And under Article 6(3) on-the-spot checks are to cover at least 5% of applications for area aid.

IV - Legal analysis

27. In the light of the facts set out above, it may first of all be stated that the parties agree that the on-the-spot checks carried out by the French authorities in 1994 were inadequate and that from that point of view there has been an infringement of Article 6 of Regulation No 3887/92. It is true that the French Government points out that in July 1994 the Commission verified only eight holdings located in two Départements, but it does not deny that a number of inadequacies were found at that time in the on-the-spot checks conducted by the French authorities. The French Government is critical of the relatively limited number of verifications made by the Commission only because it believes that the Commission has extrapolated the disputed financial correction from those verifications. Thus it challenges only the amount of the financial correction and not its justification in principle.

28. Nor has the French Government claimed that the on-the-spot checks in other Départements were free from the inadequacies observed by the Commission. According to the Commission's findings, which are not contradicted by the French Republic, the individuals who were to carry out the on-the-spot checks had not been adequately trained to perform that task. The French Government has not argued that this structural defect was not present in other regions. Therefore, even though the checks made by the Commission related only to a small number of holdings, they may reasonably be supposed to be representative of the checks carried out by the French authorities.

29. Nor is it disputed that the Commission had competence to proceed against this infringement on the basis of Article 5(2)(c) of Regulation No 729/70, by imposing a financial correction on the expenditure declared by the French Republic. The matter in dispute is only the amount of that correction, which the French Republic regards as disproportionate.

30. Under Article 5(2)(c) of Regulation No 729/70, the Commission evaluates the amount to be deducted having regard to the degree of non-compliance found. It must take into account (a) the nature and gravity of the infringement and (b) the financial loss suffered by the Community.

31. In this instance, the infringement of Community law is attributable to the inadequacy of the on-the-spot checks carried out by the French authorities. The parties disagree on whether this constitutes a serious infringement.

32. A grant of compensatory payments under Regulation No 1765/92 is a subsidy. Such expenditure by the Community must be duly checked in order to prevent or to detect abuses. In its first letter in this case, the letter of 18 May 1994, the Commission expressly drew the French Government's attention to the importance of the administrative checks, which require a return of area as well as on-the-spot checks. The infringement observed therefore relates to a fundamental aspect of the grant of compensatory payments.

33. It is also relevant that, while preparing the contested decision the Commission noted that the French Republic had infringed Article 10(3) of Regulation No 1765/92: it had failed to require the production of returns of areas. But a return of the area qualifying for subsidy is of importance in identifying the land involved and in avoiding duplicated payments. The parties agreed on making good this shortcoming - which had indeed also been noted in 1993 - by increasing the on-the-spot checks. Although the grounds stated for the contested decision no longer include that irregularity, this factor should not be forgotten for, since the aid-application files do not make it possible to identify the areas concerned, and the administrative checks are thereby made more difficult, the on-the-spot checks have a more important role to play in combating misuse of subsidies. In the light of these matters, it will have to be concluded that the inadequate on-the-spot checks constitute a serious infringement of the Community provisions.

34. It therefore remains to examine the second aspect to be taken into account by the Commission in assessing the financial correction, that is to say the financial loss caused to the Community. The French Government considers that the loss could and should have been assessed from an extrapolation of the infringements established for the years 1995, 1996 and 1997. The Commission confirms the principle whereby as a rule the loss to the EAGGF must be calculated specifically and that a flat-rate assessment should be made only when it is found impossible to quantify the true loss. But it denies that a precise assessment was possible in the present instance, which is substantiated in its view by the inadequacy of the on-the-spot checks. It must therefore be examined firstly whether it was in fact possible to ascertain the loss caused to the EAGGF as a result of the irregularities established, by extrapolating from the infringements established in regard to 1995, 1996 and 1997.

35. The infringements established in subsequent years, that is to say 1995, 1996 and 1997, enable an indication to be given of the scale on which irregularities were established in France. But it remains to be seen whether that factor can be a sufficient basis for calculating a flat-rate correction in the context of clearing the EAGGF accounts.

36. However, in the light of the case-law on the Commission's power to impose a correction of the expenditure to be reimbursed, and on apportionment of the burden of proof in calculating the loss actually caused to the Community, the abovementioned factor must be deemed insufficient. The Court has consistently held that the provisions of Articles 2 and 3 of Regulation No 729/70 only enable the Commission to charge to the EAGGF sums paid in accordance with the relevant rules. In cases where Community rules authorise payment of aid only on condition that certain formalities relating to proof or supervision are observed, aid paid in disregard of that condition is not in accordance with Community law and the expenditure incurred therein may not therefore be charged to the EAGGF. On the basis of these considerations, the case-law concludes that, in similar circumstances, the Commission has no choice but to disallow all the expenditure in question.

37. In the judgment in United Kingdom v Commission, the Court further stated that the Commission may, where it does not reject all the expenditure affected by the infringement, endeavour to establish the financial impact of the unlawful action by means of calculations based on an assessment of what the situation on the relevant market would have been if the infringement had not occurred. In such a case, the burden of proving that those calculations are not correct rests on the State seeking to have the disallowance annulled. That decision has subsequently been confirmed, in particular after the adoption of the Guidelines for the calculation of financial consequences when preparing the decision regarding the clearance of the accounts of EAGGF Guarantee, working document VI/216/93 of 3 June 1993 and working document VI/5330/97 of 23 December 1997 (hereinafter the guidelines).

38. This case-law means, firstly, that in this instance the Commission would even have been entitled to disallow all the expenditure relating to the compensatory payments. It is for the French Government to prove that the expenditure was proper. Regarding the amount of the expenditure occasioned by the inadequate checks, for 1994 the French Government puts forward figures arising from the checks that were carried out but, since those checks were inadequate, these figures cannot provide a reliable basis for calculating the financial loss caused to the Community.

39. Reference to later years likewise constitutes no reliable basis for calculation, since it only establishes a theoretical order of magnitude for the infringements established, but without providing data relating to 1994. The less serious irregularities established in subsequent years do not allow an accurate retrospective calculation for 1994, but that is what would be required to determine the loss accurately. It is entirely possible that in subsequent years no further irregularities occurred - or at least that they occurred on a much smaller scale - because, following the exchange of correspondence with the Commission, the French Republic had become aware of the inadequacy of the checks. The French Republic itself admits that the introduction of the integrated system of management and control had encountered some difficulties at the outset. But that already indicates that it was perfectly possible for the number of irregularities in 1994 to have been higher than in 1995, 1996 and 1997. In that regard, the method of calculation advocated by the French Government appears no more reliable than the flat-rate method of assessment applied by the Commission, which is moreover based only on an estimate of the loss incurred as a function of the risk of financial loss incurred by the Community as a result of the irregularities established. The method applied by the Commission is also in accordance with the provisions of Article 5(2)(c) of Regulation No 729/70, since the Commission is taking account of the gravity of the infringement established. The method proposed by the French Republic entirely disregards this aspect and is concerned only with the outcome, that is the sum of the infringements established. Thus, the French Republic has not shown that the risk of financial loss for the EAGGF could be specifically calculated.

40. If the Commission was thus entitled to make a flat-rate correction, the further question arises as to whether the sum assessed at 2% of the expenditure declared, that is FRF 567.7 million, is proportionate.

41. In the light of the case-law referred to above, under which the Commission is entitled to disallow the whole of the expenditure in respect of which checks have been found to be inadequate, its action cannot be said to have been disproportionate when it has disallowed only 2% of the expenditure instead of the entire sum. In this case, the Commission is applying a measure clearly more limited than what it is entitled to apply.

42. Under the case-law, the limit is only reached where the Member State concerned shows that the guidelines followed are arbitrary or unfair. Therefore, it must be considered whether the French Republic has shown either that, because of the inadequate checks, the costs to the EAGGF have not increased or have increased to a smaller extent than that identified by the Commission, or that the guidelines are arbitrary and unfair.

43. As I have already explained, the French Republic has not shown that the expenditure was in fact increased only to an extent smaller than assumed by the Commission. The Court has consistently held that it is for the Member States to establish that expenditure is chargeable. This is due to the fact that the Member States, who pay out the funds and account for them, are in possession of all the particulars whereby the calculation made by the Commission may be challenged. This seems an appropriate division of the burden of proof. Nor has it been questioned by the French Government.

44. Only the Finnish Government claims that the statement of reasons is defective inasmuch as the Commission should state the reasons why it made a flat-rate rather than a specific calculation.

45. This objection must be rejected, firstly because, in its letter of 11 May 1998, the Commission stated the reasons why it considered that an assessment such as that proposed by the French Government was not possible, so that a flat-rate assessment had been applied. The extent of the duty to state the reasons on which a decision is based, laid down in Article 190 of the EC Treaty (now Article 253 EC), depends on the nature of the act in question and on the context in which it was adopted. The Court has consistently held that in the particular context of the preparation of decisions relating to the clearance of accounts, the statement of reasons for a decision must be regarded as sufficient if the Member State to which the decision was addressed was sufficiently involved in the process by which the decision came about and was aware of the reasons for which the Commission took the view that it must not charge the sum in dispute to the EAGGF. The Commission's letter of 11 May 1998 meets those requirements.

46. In the light of this case-law, it is also proper to reject the Finnish Government's argument of a generally defective statement of reasons in regard to the contested decision. The exchange of letters between the Commission and the French Republic from 1994 to 1998 confirms that the French Republic was closely involved in the process by which the contested decision came about. In particular, in the letter of 11 May 1998, the Commission gives the inadequate checks as the reason for the correction. The French Republic knew of that reason. Even the subsequent abandonment of the original objection to the processing of incomplete application files is not in dispute between the parties. Since in this case no factors can be discerned which are likely to justify disregard of the case-law referred to, it must be assumed that the reasons for the contested decision are sufficient. The case-law does not require the background to a decision to be traceable by a third party.

47. In the result, the Finnish Government's view, that the Commission has to state reasons for applying the flat-rate correction, must also be rejected because that argument would lead to a reversal of the burden of proof. However, since the Member States are in possession of all the accounting particulars necessary and the Commission, in preparing the decision on clearance of the EAGGF accounts, is dependent in this respect on the communications made to it by the Member States, it would not be appropriate to transfer the burden of proof to the Commission.

48. In respect of the guidelines, the French Republic contends, with reference to the Conciliation Body's report, that the present case reveals the limits of a flat-rate assessment of the correction. However, the French Government does not demonstrate that that is reflected in the present case by a fundamental defect affecting the guidelines. In that regard, the criticism is confined to the individual case and does not show that the guidelines are fundamentally arbitrary or unfair. In the light of the case-law, therefore, this argument must also be rejected.

49. Flat-rate assessment of a correction occurs in those cases where it is impossible to determine the actual loss to the Community budget. The Commission had originally applied individual percentage deductions but in 1993, following criticisms from the Financial Controller, who regarded such a procedure as incompatible with the principle of equality, it began to apply three rates of flat-rate correction, namely 2%, 5% and 10%. At the request of the European Parliament, an additional rate of 25% was provided for. In the present procedure, the French Government regards it as disproportionate to apply the lowest rate of 2%, and maintains that this case reveals the limits of the system of flat-rate corrections. This is an expression of the French Government's conviction that the differential rules provided for in Guidelines VI/216/93 and VI/5330/97 must be revised. However, that review must be attained by political means and not in the context of a review of the legality of a Commission decision.

50. It must also be observed that the Court of Justice has consistently held that a flat-rate calculation of the financial correction is consistent with Community law. In the present case there are no grounds justifying a departure from that position. It follows that a correction at the rate of 2% of the expenditure declared must be regarded as proportionate.

51. Lastly, I will turn to the Finnish Government's complaints regarding the principle of protection of legitimate expectations and the principle of effectiveness. The contested decision does not prejudice the principle of protection of legitimate expectations. Certainly the Commission originally threatened to impose a financial correction on the basis that incomplete applications were being processed. But it also stated, as early as the letter of 9 July 1997, that the inadequacy of the on-the-spot checks might justify a financial correction higher than that threatened. After the French Republic had declared that it was prepared to increase the number of on-the-spot checks, the Commission dropped the objection concerning the incomplete applications and, thereafter, relied on the defective checks alone. The contested decision is based only on that complaint, as is confirmed by the letter of 11 May 1998, which constitutes formal notification within the meaning of Article 1(1)(a) of Commission Decision 94/442. Therefore, the argument alleging breach of the principle of protection of legitimate expectations must be rejected because the French Government's attention was drawn, both orally and in writing, to the various criticisms and there was therefore no expectation worthy of protection which could have been frustrated.

52. Similarly, the reservation inferred by the Finnish Government from the principle of effectiveness is unfounded. The Court has repeatedly held that a financial correction to the full amount of the expenditure concerned is consistent with Community law. It follows that a correction of 2% to 10% of that sum, as provided for in the guidelines, cannot impair cooperation between the national authorities and the Commission, even if that correction is assessed on a flat-rate basis. After all, this measure is less radical than the action which Community law also allows, of disallowing the entire sum. In principle therefore it is proportionate.

53. Therefore, it is only in the alternative that the second objection by the Commission needs to be discussed. To assess the financial correction on the basis of the infringements established in subsequent years is, the Commission contends, contrary to the principle that the budget is adopted annually. Under Article 1(1) of Regulation No 729/70, the EAGGF forms part of the budget of the Communities. The general rules on the budget, including the principle of the annual budget, therefore apply.

54. The principle of the annual budget is laid down in Articles 199 and 202 of the EC Treaty (now Articles 268 EC and 271 EC). This means that the budget is to be voted each year. In accordance with this principle, Article 5(1) of Regulation No 729/70 provides that Member States are required to submit to the Commission annual accounts accompanied by the supporting documents required for making up the balance sheet. It does not seem contrary to the annual principle to refer to the infringements established in 1995, 1996 and 1997 to determine the financial loss caused to the Community because of the irregularities noted and, from that, the amount of the financial correction. For that is not to attach to the financial year 1994 the shortcomings noted during following years and their consequences for the EAGGF; it is only-as the French Government advocates-to take those results as an approximation of the financial correction that also has to be applied in 1994, for the irregularities found in 1994. This approach, which relates to the expenditure incurred in 1994 as well as to the irregularities established in that year does not call in question the principle of the annual budget.

55. In the final analysis, however, it has to be observed that Commission Decision 1999/187 is proportionate in providing for a financial correction of 2%, that is to say a sum of FRF 567 733 352, to the expenditure declared by the French Republic in respect of aid granted under Regulation No 1765/92.

V - Costs

56. Under Article 69 of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs, if applied for in the successful party's pleadings. Since the French Republic has been unsuccessful, and the Commission applied for costs, the French Republic must be ordered to pay the costs.

VI - Conclusion

57. In the light of the foregoing, I propose that the Court should:

(1) dismiss the application as unfounded;

(2) order the French Republic to pay the costs.