OPINION OF ADVOCATE GENERAL

LEGER

delivered on on 21 February 2002 ( )

Case C-349/97

Kingdom of Spain

v

Commission of the European Communities

(EAGGF ─ Clearance of accounts ─ 1993)

Table of contents





I – Facts

II – General legal background

A – Rules on verification of operations financed by the EAGGF

B – Establishment of a supervisory agency for the olive oil sector

III – Olive oil production aid

A – Legal background

1. General provisions

2. System of controls

3. Register of olive cultivation and computerised files

B – Financial corrections applied to olive oil production aid

1. Individual financial correction of the aid paid to two producer organisations

a) Arguments of the parties

b) Assessment

i) Conditions for withdrawing recognition from RPGs

ii) Irregularities justifying withdrawal of recognition

iii) The extent of the individual correction applied to the Kingdom of Spain

2. The 10% flat-rate correction of the production aid paid during marketing year 1992/93.

a) Conditions leading to application of the 10% flat-rate correction

i) Arguments of the parties

ii) Assessment

b) Relations between the AAO and the autonomous communities

i) Arguments of the parties

ii) Assessment

c) Lack of a register of olive cultivation

i) Arguments of the parties

ii) Assessment

d) Lack of computerised files of olive and olive oil production data

i) Arguments of the parties

ii) Assessment

e) Inadequacy of checks on mills

i) Arguments of the parties

ii) Assessment

f) Legal propriety of the Spanish practice of using flat-rate yields

i) Arguments of the parties

ii) Assessment

g) Payment of aid not due to producers marketing part of their production as table olives

i) Arguments of the parties

ii) Assessment

h) Whether there is a loss to the Community budget

i) Arguments of the parties

ii) Assessment

C – Financial corrections owing to the fact that certain expenditure for the olive cultivation register is not to be charged to the EAGGF

1. Arguments of the parties

2. Assessment

a) Introductory remarks

b) The legal form of Tragsa

c) The 10% flat-rate correction of eligible expenditure on the ground that the works were awarded without a call for tenders

d) The refusal to finance all of the overhead expenses

e) The refusal to finance the profits of Tragsa

IV – Olive oil consumption aid

A – Legal background

B – Individual financial correction of the aid paid to two approved oil-packaging undertakings

1. The undertaking F. Fernández

a) Arguments of the parties

b) Assessment

2. The undertaking N. Sevillano

a) Arguments of the parties

b) Assessment

C – Flat-rate financial correction of 2% of the total expenditure declared by the Kingdom of Spain for olive oil consumption aid during marketing year 1992/93

1. Arguments of the parties

2. Assessment

V – Production aid for dried fodder

A – Legal background

a) keep stock accounts which include at least details:

b) supply, where necessary, other supporting documents required for checking their entitlement to aid.’

B – The flat-rate correction in respect of production aid for dried fodder

1. Arguments of the parties

2. Assessment

VI – Infringement of certain principles of Community law

A – Arguments of the parties

B – Assessment

1. Lack of evidence

2. The principles of a fair hearing and good administration

3. The principle of legality of the penalty.

4. The principle of proportionality

VII – Costs

Conclusion





1. Under the first paragraph of Article 173 of the EC Treaty (now, after amendment, the first paragraph of Article 230 EC), the Kingdom of Spain has applied for the annulment of that part of Commission Decision 97/608/EC of 30 July 1997 amending Decision 97/333/EC on the clearance of the accounts presented by the Member States in respect of the expenditure for 1993 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) ( ) which concerns it.

I – Facts

2. Commission Decision 97/333/EC of 23 April 1997 ( ) was adopted before the end of the conciliation procedure to which certain Member States, including the Kingdom of Spain, had recourse 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. ( ) The contested decision relates to clearance of the accounts for expenditure on which the conciliation procedure has been completed. The Commission established the expenditure charged to the EAGGF for financial year 1993.

3. In the case of the Kingdom of Spain, the Commission found that part of the expenditure declared did not meet the conditions imposed by the Community rules and therefore could not be financed by the EAGGF Guarantee Section. The relevant expenditure is that relating to aid for the production and consumption of olive oil and for the production of dried fodder. The following financial corrections were imposed:

(1) Production aid for olive oil:

– ?a flat-rate financial correction of 10% of the aid paid by Spain during marketing year 1992/93, or ESP 5 939 261 511;

– ?a financial correction of ESP 224 414 161, corresponding to the amount of aid granted to two approved producer organisations and their members;

– a financial correction of ESP 217 007 368 of the expenditure relating to the register of olive cultivation.

(2) Consumption aid for olive oil:

? a financial correction of ESP 26 849 245, corresponding to the amount of aid granted to two approved oil-packaging plants;

– a flat-rate financial correction of 2% of the aid paid by Spain during marketing year 1992/93, or ESP 811 514 867.

(3) Dried-fodder production aid:

– a flat-rate financial correction of 2% of the expenditure declared by Spain, or ESP 384 545 035.

4. The grounds for these corrections to the expenditure are summarised in the Summary Report on the outcome of the verifications for clearance of the accounts of the EAGGF Guarantee Section for 1993. ( )

II – General legal background

A – Rules on verification of operations financed by the EAGGF

5. Regulation (EEC) No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy( ) provides, in Article 3(1), that through the Guarantee Section of the EAGGF the Community is to finance intervention intended to stabilise the agricultural markets, undertaken according to Community rules within the framework of the common organisation of agricultural markets.

6. Article 4(2) of Regulation No 729/70 requires the Commission to make available to Member States the necessary credits so that the authorities and bodies designated by the Member States may, in accordance with Community rules and national legislation, make such intervention payments. Under Article 5(2)(b) of the regulation, the Commission is to clear the accounts of the authorities and bodies of the Member States before the end of the following year, on the basis of the annual accounts accompanied by the documents required for their clearance.

7. Article 8(1) of Regulation No 729/70 provides that the Member States, in accordance with national provisions laid down by law, regulation or administrative action, are to take the measures necessary to satisfy themselves that transactions financed by the EAGGF are actually carried out and are executed correctly, to prevent and deal with irregularities and to recover sums lost as a result of irregularities or negligence.

8. Article 8(2) provides that, in the absence of total recovery, the financial consequences of irregularities or negligence are to be borne by the Community, with the exception of the consequences of irregularities or negligence attributable to administrative authorities or other bodies of the Member States. The sums recovered are to be paid to the paying authorities or bodies and deducted by them from the expenditure financed by the EAGGF.

9. Article 9(1) of Regulation No 729/70 requires the Member States to make available to the Commission all the information required for the proper working of the EAGGF and to take all suitable measures to facilitate the supervision which the Commission may consider it necessary to undertake within the framework of the management of Community financing, including inspections on the spot. Member States are to communicate to the Commission any provisions laid down by law, regulation or administrative action which they have adopted for the application of legal acts of the Community relating to the common agricultural policy, in so far as those acts have financial consequences for the EAGGF.

10. Under Article 9(2), officials appointed by the Commission to carry out inspections on the spot are to have access to the books and all other documents relating to expenditure financed by the EAGGF. At the request of the Commission and with the agreement of the Member State, inspections or inquiries concerning the transactions referred to in the regulation are to be carried out by the competent authorities of that Member State. Officials of the Commission may also participate.

11. Council Regulation (EEC) No 4045/89 of 21 December 1989 on scrutiny by Member States of transactions forming part of the system of financing by the Guarantee Section of the European Agricultural Guidance and Guarantee Fund( ) and repealing Directive 77/435/EEC( ) relates ─ as set out in Article 1(1) ─ to scrutiny of the commercial documents of entities receiving or making payments, referred to as ‘undertakings’, in order to ascertain whether transactions relating directly or indirectly to the system of financing by the Guarantee Section of the EAGGF have actually been carried out and have been executed correctly. Article 2(1) of Regulation No 4045/89 requires Member States to carry out systematic scrutiny of the commercial documents of undertakings, taking account of the nature of the transactions to be scrutinised. The detailed rules for such scrutiny are governed by paragraph 2 et seq. of this article.

12. As regards the financial consequences for clearance of the accounts of the EAGGF Guarantee Section of deficiencies in the verifications effected by Member States, a Commission interdepartmental working party has adopted criteria ( ) which have been approved by the Commission and communicated to all Member States at the EAGGF Management Committee, where they were received favourably. These criteria lay down three categories of flat-rate correction:

‘A. 2% of expenditure where the deficiency is limited to parts of the control system of lesser importance, or to the operation of controls which are not essential to the assurance of the regularity of the expenditure, such that it can reasonably be concluded that the risk of loss to the EAGGF was minor.

B. 5% of expenditure where the deficiency relates to important elements of the control system or to the operation of controls which play an important part in the assurance of the regularity of the expenditure, such that it can reasonably be concluded that the risk of loss to the EAGGF was significant.

C. 10% of expenditure where the deficiency relates to the whole of or fundamental elements of the control system or to the operation of controls essential to assuring the regularity of the expenditure, such that it can reasonably be concluded that there was a high risk of widespread loss to the EAGGF.’

13. The Belle Report points out that the entire expenditure can be disallowed, and that therefore a higher level of correction may be considered appropriate in exceptional circumstances.

14. The Commission adopted Decision 94/442 on 1 July 1994. Article 1(1)(b) and (c) thereof provides that the Conciliation Body is to try to reconcile the divergent positions of the Commission and the Member State concerned, and, at the end of its investigations, draw up a report on the outcome of its efforts at reconciliation. Article 1(2)(a) provides that, for the purposes of the subsequent stages of the accounts clearance procedure, the position of the Body is to be without prejudice to the Commission's final decision on the clearance of the accounts and is not to affect the Member State's right under Article 173 of the Treaty to institute proceedings to challenge that decision.

B – Establishment of a supervisory agency for the olive oil sector

15. Experience had shown that, despite the existence of rules providing for numerous specific controls, there were problems in ensuring timely and effective performance of those controls, that this could lead to unwarranted expenditure for Community funds and that administrative structures in the producer Member States were not adequate to implement the controls provided for in the Community rules. On 17 July 1984, therefore, the Council adopted Regulation (EEC) No 2262/84 laying down special measures in respect of olive oil.( ) The first subparagraph of Article 1(1) thereof, as amended by Council Regulation (EEC) No 593/92 of 3 March 1992( ), provides that each producer Member State is to set up, in accordance with its legal structure, a specific agency for the purpose of carrying out certain activities and checks in connection with Community aid for olive oil, except for export refunds. Article 1(2) provides among other things that, in order to ensure that the production-aid arrangements are correctly applied, the agency shall:

– check that the work of the producer organisations and associations complies with Council Regulation (EEC) No 2261/84 of 17 July 1984 laying down general rules on the granting of aid for the production of olive oil and of aid to olive oil producer organisations;( )

– verify the accuracy of the data set out in the crop declarations and aid applications, without prejudice to the checks carried out by the Member State pursuant to Article 14 of Regulation No 2261/84;

– conduct checks of approved mills; and

– monitor the approved packaging plants, in accordance with Article 7 of Council Regulation (EEC) No 3089/78 of 19 December 1978 laying down general rules in respect of aid for the consumption of olive oil( ) and, where necessary, the professional bodies recognised under Article 11(3) of Regulation No 136/66/EEC( ). Lastly, under the fourth subparagraph of Article 1(4) of Regulation No 2262/84, as amended by Regulation No 593/92, Member States shall act upon the agency's findings as promptly as possible and, under the fifth subparagraph, they shall regularly communicate to the Commission details of the action taken and the sanctions applied as a result of the agency's findings on the basis of its checks.

16. By Law No 28/1987 of 11 December 1987, ( )the Kingdom of Spain created the olive oil agency( ), whose functions include checking that the activities of the producer organisations comply with Community legislation.

17. The Servicio Nacional de Productos Agrarios (SENPA) (now the Fondo Español de Garantía Agraria( ), by contrast, is the body responsible for approving beneficiary undertakings, making direct aid payments and advances against the deposit required, and imposing penalties.

18. The pleas relied on by the Spanish Government relate to three different categories of Community aid: olive oil production aid, olive oil consumption aid and aid for the production of dried fodder. The Spanish Government also alleges that the Commission has infringed certain principles of Community law. Below I shall examine the pleas relied on, arranged under these subjects.

III – Olive oil production aid

A – Legal background

1. General provisions

19. Regulation No 136/66 establishes a common organisation of the market in oils and fats.

20. Article 5(1) of that regulation, as amended by Regulation (EEC) No 1915/87,( ) introduced a system of aid for the production of olive oil in order to contribute towards the establishment of a fair income for producers. Article 5(2), as amended by Regulation (EEC) No 3499/90,( ) provides that the aid shall be granted (a) to growers who produce on average at least 500 kg of olive oil in a given marketing year, on the basis of the quantity of olive oil actually produced, and (b) to other growers, on the basis of the number and production potential of the olive trees which they grow and of the yields of those trees as fixed according to a flat rate and provided that the olives produced have been pressed.

21. Following the adoption of Council Regulation (EEC) No 1413/82 of 18 May 1982 amending Regulation No 136/66( ), a special system was introduced based on olive-grower groups or associations thereof, which would be responsible for carrying out certain operations relating to the implementation of the aid system.( ) The eighth recital in the preamble to that regulation states that, since the associations are to make more rigorous checks on production in the case of growers who are members of the groups belonging to such associations, the latter are to be paid the advance on the amount of the aid.

22. Under Article 20c(1)(b) of Regulation No 136/66, as amended by Regulation No 1413/82, the recognised producer groups ( ) must be capable of verifying the olive and olive oil production of their members. Under paragraph 2(b) of the same article, associations of RPGs must also be able to coordinate and to verify the activities of the groups which make up the associations. Article 20c(3) provides that recognition is to be withdrawn from a group or association where the conditions for recognition have not been fulfilled or are no longer fulfilled.

23. In that context Article 5(3) of Regulation No 2261/84 provides that all RPGs must by 30 June of each year declare to the competent authority any changes made in their structure since their recognition or last annual declaration and report any notices of withdrawal of or application for membership received. The competent authority must ascertain, on the basis of this statement and of any appropriate enquiries, whether the conditions for recognition are still met. If they are no longer met or if the structure of an organisation does not allow for its members' production to be verified, the competent authority must, without delay and at the latest before the beginning of the following marketing year, withdraw recognition and notify its decision to do so to the Commission.

24. Finally, in accordance with Article 11(2) of Regulation No 2261/84, Member States are to ensure that the sums made over to the associations and to producer organisations in application of Article 11(1) are used by them only for financing the activities for which they are responsible under that regulation. Article 11(3) provides that if sums withheld by a producer group are not used, in whole or in part, for financing the activities for which they are responsible they are to be deducted from the expenditure financed by the EAGGF.

25. Under Article 2(3) of Regulation No 2261/84, aid is to be granted on application by the parties concerned to the Member State in which the oil has been produced. The first subparagraph of Article 2(4) of that regulation, as amended by Council Regulation (EEC) No 3500/90 of 27 November 1990, ( ) provides that in the case of olive growers whose average production is at least 500 kg of oil per marketing year the aid is to be granted in respect of the quantity of oil actually produced at an approved mill. Article 5(1) of Commission Regulation (EEC) No 3061/84 of 31 October 1984 laying down detailed rules for the application of the system of production aid for olive oil ( ) requires applications for aid submitted by each olive grower to include certain particulars, including the approved mill or mills at which the oil was produced, together with details for each mill of the quantity of olives used and the quantity of oil produced. The application must be accompanied by a declaration from the mill to corroborate the particulars supplied by the olive grower.

26. For the purposes of approval, participating mills must comply with certain conditions listed in Article 13 of Regulation No 2261/84 and in Article 9 of Regulation No 3061/84. In Regulation No 2261/84, Article 13(4) provides that if one of the conditions for approval is no longer fulfilled approval is to be withdrawn for a period in keeping with the gravity of infringement, but Article 13(6) provides that, should the withdrawal of a mill's approval have serious consequences on the pressing capacity in a given production zone, it may be decided to approve the mill under special control arrangements. For this purpose Article 9(4) of Regulation No 3061/84 requires the Member State to submit a reasoned request to the Commission specifying the type of control which it undertakes to exercise over the mill in question.

2. System of controls

27. Article 14(1) of Regulation No 2261/84 requires each producer Member State to introduce a system of checks to ensure that the product in respect of which aid is granted is eligible for such aid.

28. In that connection, Article 1(2)(d) of Regulation No 3061/84 requires the crop declaration to state the number of olive trees producing olives for the manufacture of oil, and Article 1(5) requires the aid to be paid in proportion to the olives intended for the production of olive oil, where some of the olives have been used for purposes other than the production of olive oil.

29. Article 14(3) of Regulation No 2261/84 requires producer Member States to carry out on-the-spot checks on the activities and stock records of a percentage of approved mills. Paragraph 3a of Article 14 (added by Regulation No 3500/90) provides that, for the purposes of paying aid to olive growers whose average production is at least 500 kg of olive oil per marketing year, the producer Member States are to check the accuracy of the crop declarations on the basis of criteria to be determined, the correspondence between the quantity of oil entered in the aid application and that stated in the stock records of approved mills, and the compatibility between the olive production declared by each olive grower as having been pressed in an approved mill and the particulars given in his crop declaration on the basis of criteria to be determined. For olive growers whose average production is less than 500 kg of olive oil per marketing year, Article 14(4) of Regulation No 2261/84, as amended by Regulation No 3500/90, provides that the checks should verify the accuracy of the crop declarations on the basis of criteria to be determined and the existence of evidence of the olives having been pressed in an approved mill.

30. Under Article 10(1) of Regulation No 3061/84, as amended by Commission Regulation (EEC) No 928/91 of 15 April 1991, ( ) the checks provided for in Article 14(3) of Regulation No 2261/84 are to cover at least 10% of the approved mills operating during the marketing year concerned. Article 10(3) provides that, in checking the accuracy of crop declarations as indicated in Article 14(3a) and (4) of Regulation No 2261/84, as amended by Regulation No 3500/90, producer Member States are to make use inter alia of data in the register of olive cultivation and the computerised files, the figures from on-the-spot checks made on the grower and the yields of olives and oil set for the zone in which the holding or holdings are located.

31. Article 15(3) of Regulation No 2261/84, as amended by Regulation No 3500/90, provides that where the checks specified in Articles 13 and 14 do not confirm the figures in the stock records of an approved mill the Member State concerned must determine, without prejudice to any sanctions which may be imposed on the mill, for each producer whose average production is at least 500 kg of olive oil per marketing year and who has had his olive crop pressed in the mill in question, the quantity of oil for which aid is to be given. Under Article 15(4), for the purpose of determining the quantity eligible for aid, the Member State must use in particular the olive yields and oil yields fixed in accordance with the standard method of Article 18, which provides that these shall be fixed by homogeneous production zones.

3. Register of olive cultivation and computerised files

32. In order to obtain the information needed to determine the Community's potential production of olives and olive oil and to improve the operation of the Community aid system for the latter product, the Council adopted Regulation (EEC) No 154/75 of 21 January 1975 on the establishment of a register of olive cultivation in the Member States producing olive oil.( )

33. Article 1(1) of Regulation No 154/75 provides that the Member States producing olive oil are to establish a register of olive cultivation to cover all olive-growing holdings within their territory. For Spain, the time allowed for establishing this register expired on 1 November 1988, in accordance with Article 1(2) of that regulation, as amended by Council Regulation (EEC) No 3788/85 of 20 December 1985 amending, on account of the accession of Spain and Portugal, certain regulations in the oils and fats sector.( )

34. In Regulation (EEC) No 2276/79 of 16 October 1979, the Commission laid down the detailed rules for drawing up a register of olive cultivation in the Member States producing olive oil.( ) Commission Regulation (EEC) No 586/88 of 2 March 1988, amending Regulation No 2276/79,( ) added Articles 6a and 6b. Under Article 6a, Member States producing olives must undertake, in accordance with the procedure laid down in Article 6(1), an annual updating of the register of olive cultivation, taking account in particular of any changes in cultivation declarations submitted by olive growers. Article 6b(1) provides that the olive-producing Member States which acceded to the Community after the entry into force of the regulation may carry out trials to determine what method for obtaining information is best suited to olive cultivation as practised in those Member States. To that end, the Member States concerned must submit a programme of trials to the Commission for approval. Under Article 6b(2), the Commission must notify the Member State of its decision on the programme submitted, with any changes which it considers desirable. After approval by the Commission, the programme is to be carried out with all speed under the responsibility of the Member State concerned.

35. Regulation No 154/75 was amended by Council Regulation (EEC) No 1794/79 of 9 August 1979 as regards the financing of the register of olive cultivation.( ) In accordance with the second subparagraph of the new Article 3(3), the procedure to be used for financing, by means of a deduction from production aid, is the same as is specified for the expenditure referred to in Articles 2 and 3 of Regulation No 729/70. Under Article 3(5), eligible expenditure is that incurred under contracts between the competent authority of the producer Member State and natural or legal persons entrusted with the relevant work, or, where the Member State has the work done by its own official departments, the costs incurred other than administrative and supervision costs. The Member State must notify the Commission beforehand of the terms of the contracts or the estimated cost of the work.

36. Article 16(1) of Regulation No 2261/84 also requires each producer Member State to draw up and keep up to date permanent computerised files of olive and olive oil production data. Under Article 17(2), the information files set up and the processing systems used in checking them must be compatible with the computerised systems used by each producer Member State for the register of olive cultivation.

37. The first subparagraph of Article 14(5) of Regulation No 2261/84 requires Member States to use these data files for the checks and verifications specified in the regulation. Article 16(2) of the same regulation requires that they contain all the information needed to facilitate checking and the prompt detection of irregularities, including information on the production of oil mills. In addition, the second subparagraph of Article 11(1) of Regulation No 3061/84, as amended by Commission Regulation (EEC) No 98/89 of 17 January 1989, ( ) provides that Member States are to enter in the files the basic data contained in the register of olive cultivation as soon as such data become available.

38. The first subparagraph of Article 11(2) of Regulation No 3061/84, as amended by Regulation No 98/89, provides that all the components of the computerised files must be operational before 31 October 1990.

B – Financial corrections applied to olive oil production aid

1. Individual financial correction of the aid paid to two producer organisations

a) Arguments of the parties

39. The Spanish Government challenges the correction of ESP 224 414 161 imposed on it in respect of the aid paid to the RPGs OPROL (Toledo) and APROL-JJAA (Badajoz).

40. It claims that there are no reasons for refusing aid to a Member State where it shows that its system of controls is acceptable.

41. Responding to the Commission's argument that communication between the autonomous communities and FEGA is inadequate, the Spanish Government states that the control exercised over the RPGs is in fact exhaustive and that there are reasons for the formal notices to the AAO not always leading to automatic withdrawal of recognition of the RPG, as the Commission would wish. Firstly, the procedures for the application of penalties are governed by the laws of the Member States, in accordance with Article 2(4) of Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities' financial interests,( ) which, in the case of the Kingdom of Spain, requires the initiation of a lengthy and complicated procedure between the parties. Thus no speedy penalty can be imposed forthwith. Secondly, withdrawal of recognition is quite a serious measure and should not occur where the infringement is minor.

42. It points out that recognition was withdrawn from OPROL by an order of 25 April 1995 of the Consejería de Agricultura de la Junta de Comunidades de Castilla-La Mancha, upon a proposal from the AAO. In the case of APROL-JJAA, it acknowledges that the proposal for withdrawal made by the AAO was not acted upon but adds that this proposal was based on mere suspicion or doubt and not on adequate grounds.

43. The Spanish Government denies that it failed to notify to the Commission the information which the latter had asked it for and which it claims it did not receive.

44. It also notes that the only instance in which Community legislation has provided that sums are to be deducted from the expenditure financed by the EAGGF is where it has been confirmed that the sums withheld by the RPG have not been used, in whole or in part, for financing the activities for which they are responsible, in accordance with Article 11(3) of Regulation No 2261/84.

45. The Spanish Government adds that the contested decision would still be illegal even if it were shown that certain RPGs operated incorrectly. The correction must be applied in any event to the aid withheld by the RPG for its own operation, and not to all its member olive growers. That is required by the principle that a penalty is an ad personam measure, and above all by the principle of proportionality. The Spanish Government also points out that the Commission's decisions do not always relate to the aid paid to all olive growers, and that raises the question of the criteria used by the Commission and of the potentially arbitrary nature of its decisions.

46. It alleges that the Commission has created significant legal uncertainty by failing to identify the conditions that justify the withdrawal of recognition. Since that is a measure which restricts individual rights, it is important for it to be taken where evidence of irregularities has been assembled under the applicable procedure. The Spanish Government denies the existence of any infringement, considering that the matters identified are individual deficiencies which justify monitoring the RPGs.

47. The Spanish Government considers that it is disproportionate for the consequences of an irregularity attributable to an RPG to be extended to the aid received by all members of an RPG, especially since the majority of those members have committed no infringement.

48. The Commission explains that the individual financial correction applied represents both the aid granted to OPROL and to APROL-JJAA and the aid granted through those two organisations to olive oil producers in 1993.

49. It notes that this correction, like the other corrections applied in the contested decision, is the result of the information ─ or the lack of information ─ from the various Spanish authorities, of the inspections by the AAO and of the various checks carried out on the spot by EAGGF inspection officers.( )

50. These verification procedures revealed serious and persistent irregularities in the management and operation of six RPGs, including the two specified in the disputed correction. The latter RPGs are the only ones acted against here, as it was possible to gather the data needed to quantify the correction in respect of them.

51. The Commission stresses that the RPGs are an essential component of management and supervision of the common market organisation because, in return for the financial compensation and aid that they receive, actual obligations and specific tasks are assigned to them by the Community rules as regards the management and supervision of the Community aid received by their member producers.

52. In order to be recognised, these organisations must fulfil all the requirements and conditions laid down by Community legislation; these are set out primarily in Article 20c of Regulation No 136/66, as amended by Regulation No 1413/82, and in Regulation No 2261/84, particularly in Article 5(3) of the latter. The Commission adds that it is essential for all these organisations to fulfil all the obligations, conditions and tasks imposed by Community legislation, not only when they are established but throughout their existence.

53. The Commission maintains that these provisions show that, where the conditions for recognition are no longer observed, the competent authority must withdraw recognition without delay, and it is allowed no discretion. Such a measure is not a penalty but is the outcome of failure to observe the conditions necessary for remaining an RPG. Recognition must be withdrawn without prejudice to any penalties incurred. The Spanish autonomous communities refused to withdraw recognition from the RPGs concerned, as proposed by the AAO, although they essentially acknowledged that the irregularities detected did exist.

54. According to the Commission, the Kingdom of Spain failed to communicate most of the information relating to the RPGs proceeded against, which had been asked for several times.

b) Assessment

55. The arguments submitted by the Spanish Government relate to the legal conditions for withdrawing recognition from RPGs, to the evidence for the irregularities committed and to the scale of the correction imposed on the Kingdom of Spain because of those irregularities.

56. I shall examine each of those points in turn.

i) Conditions for withdrawing recognition from RPGs

57. Regulation No 1413/82, as I said, established a special system based on the activity of olive-grower groups or associations thereof, responsible for carrying out more rigorous checks on the production of growers who are members of the groups belonging to such associations.

58. Article 20c(1)(b) of Regulation No 136/66, as amended by Regulation No 1413/82, lays down the conditions governing recognition of producer groups. In particular, RPGs must be capable of verifying the olive and olive oil production of their members.

59. Article 20c(2)(b) of the same regulation states unambiguously the consequence that must follow when the conditions for recognition are no longer fulfilled: in such a case, the RPG or association of RPGs must forfeit recognition.

60. Article 5(3) of Regulation No 2261/84 lays down detailed rules for the withdrawal of recognition. It provides that, on the basis of the annual declaration required from RPGs, reporting to the competent authority any changes made in their structure since their recognition, and of the results of any enquiries, the competent authority is to ascertain whether the conditions for recognition continue to be met. If not, ‘the competent authority must, without delay and at the latest before the beginning of the following marketing year, withdraw recognition ...’.

61. It seems to me that four conclusions are to be drawn from this requirement.

62. First, it is easy to identify the conditions for recognition of an RPG. They include the ability to verify the olive and olive oil production of their members, and it is precisely that shortcoming of the RPGs concerned which is complained of.

63. The conditions which must lead to withdrawal of recognition are laid down explicitly by the Community legislation. I therefore think it improper to complain, as the Spanish Government does, that the Commission has created legal uncertainty by not stating those conditions. Furthermore, we shall see that the reason for the financial corrections applied by the Commission, that is, the inability of the RPGs to verify production, was clearly explained by the Commission.( )

64. Next, the RPG's recognised status must be withdrawn as soon as one of the conditions for recognition is not met. Article 20c of Regulation No 136/66, as amended by Regulation No 1413/82, lists the conditions upon which recognition depends, so that the absence of any one of them is sufficient to compromise it. In this instance, verification of production by the RPGs must be effective and consistent for the RPG to retain its original status.

65. Thus, if it is shown that the verification operations required of the RPG are not carried out or that the organisation or operation of the RPG does not allow it to carry them out, the organisation's RPG status is compromised.

66. Furthermore, in the provisions cited above there is no limit relating to the scale of the facts giving rise to derecognition. The provisions of Article 20c of Regulation No 136/66, as amended by Regulation No 1413/82, show that if it is established that the RPG is not sufficiently able to conduct verification operations, that is enough to justify withdrawing recognition. That reading is confirmed by the object of the Community legislation applicable, which is to introduce, for the purpose of ensuring effective management of the aid system, more rigorous checks on the production of growers who are members of the groups belonging to professional associations ( ) and to make the latter responsible for those checks.( ) Where it has been established, I believe that the inability to verify production cannot be regarded as a minor ground which allows national authorities not to order derecognition.

The Spanish Government cannot maintain therefore that the matters complained of in respect of the RPGs concerned are not important enough to justify a measure withdrawing recognition.

67. Lastly, derecognition must be effected speedily. The latest time provided for in Article 5(3) of Regulation No 2261/84 is the beginning of the following marketing year.( )

68. Member States' powers as regards the derecognition procedure are thus subject to a very precise temporal limit. Although, when irregularities have been established but before any adverse decision such as derecognition has been taken, there must unquestionably be an exchange of views between the competent authority and the RPG concerned, there is nothing to justify that decision being taken after the legal time-limit. The Kingdom of Spain is subject, like all the other Member States, to the obligation to observe the timing prescribed in Article 5(3) of Regulation No 2261/84: it must adapt its internal procedures to comply with that provision and apply them in such a manner that they do not exceed the limit so established.

69. The Spanish Government admits that formal notices from the AAO did not always lead to automatic withdrawal of recognition from the RPG. It also states that recognition was withdrawn from OPROL on 25 April 1995, after a year of observation had failed to establish an improvement.

70. The time-limit in Article 5(3) of Regulation No 2261/84 was therefore clearly not observed.

71. In the case of APROL-JJAA, the Spanish Government does not deny that the AAO's proposal to withdraw recognition, dated 24 January 1994, was not acted upon.

72. However, the Spanish Government maintains that the original request for derecognition was based upon mere suspicion or doubt and not on adequate grounds.

73. We therefore need to examine the argument set out by the applicant government regarding APROL-JJAA and OPROL that the irregularities established were not serious enough to justify derecognition.

ii) Irregularities justifying withdrawal of recognition

74. We have seen that withdrawal of the recognition enjoyed by these two RPGs was either not carried out or decided upon out of time. But derecognition was mandatory, since the conditions enabling them to retain their original status had not been observed.

75. In fact, a number of documents in the case refute the Spanish Government's assertion that there was not sufficient evidence to support the original request to withdraw recognition from APROL-JJAA.

76. In the letter of 14 June 1994 to the AAO, the competent authorities of the Autonomous Community of Extremadura stated that they had carried out two inspections at APROL-JJAA, on 3 March and 10 March 1994. The letter shows that the AAO had carried out an inspection at the same RPG on 23 September 1993, and the outcome of that had served to justify the derecognition proposal of 24 January 1994. The inspections in March 1994 showed certain improvements compared with the position described by the AAO, and that led the officers of the Autonomous Community of Extremadura, although certain shortcomings persisted, to propose ‘monitoring of the management of APROL Jovenes Agricultores de Badajoz until it is established that all the conditions which justified recognition are again met and that the provisions of the legislation applying to this type of organisation are complied with’.( ) The letter states that the AAO's inspection took place at a time when the RPG was without its manager, who had not yet been replaced, so that staff at APROL-JJAA had not been in a position to take account of the warnings notified by the AAO.

77. The letter of 14 June 1994 confirms that there were shortcomings at the time of the AAO's inspection, and also that some of these persisted at the time of the inspections by the officers of the Autonomous Community of Extremadura. On the date of the latter inspections inadequacies were found regarding the specific management records, there were no copies of titles of ownership, there were gaps in the quarterly reports of operations and, for certain marketing years, it was not possible to verify compliance with the deadlines prescribed for transferring aid.

78. But recognition was not withdrawn at that stage, nor had it been after the inspection carried out by the AAO, although more serious and more numerous irregularities had been recorded.( )

79. Furthermore, the lack of a manager at that date does not seem sufficient on its own to justify these shortcomings, as is shown by the checks by the EAGGF officers: the report written by them following an inspection mission carried out from 20 to 24 June 1994 shows that a number of RPGs visited by the AAO were not complying with the most basic conditions prescribed by Regulation No 2261/84 for continued recognition. Among them is APROL-JJAA. ( ) The EAGGF inspectors state that this RPG had been the subject of a number of inspections by the AAO since 1989 and that the various recommendations formulated and the proposed penalties had never been taken into account by the authorities of the Autonomous Community of Extremadura. ( )

80. Thus the irregularities reported by the AAO pre-dated the inspection of September 1993 and therefore the absence of a manager at APROL-JJAA.

81. Clearly, therefore, the failure to derecognise after these long-standing shortcomings were established is a fact that justifies the contested individual correction in respect of APROL-JJAA.

82. As regards the existence of irregularities justifying the withdrawal of recognition, the position of OPROL is even clearer. The order of 25 April 1995, cited above, for withdrawal of recognition from that producer organisation is proof that OPROL had failed to fulfil its obligations as an RPG. The year of observation which the competent national authorities granted to it, in vain, as we have seen, shows that the complaints made against the organisation were genuine and of long standing. In any case those points are not disputed.

83. Sections (i) and (ii) above show that the Kingdom of Spain did not withdraw the recognition granted to OPROL and APROL-JJAA in the manner prescribed by the Community legislation, notwithstanding the irregularities recorded. These considerations are sufficient to justify the financial correction applied by the Commission.

84. However, the Spanish Government denies that the Commission is entitled, on the basis of those facts, to make a correction other than where it is shown that the sums withheld by the RPGs have not been used, in whole or in part, for financing the activities for which they are responsible, in accordance with Article 11(3) of Regulation No 2261/84.

85. In adopting this position, the Spanish Government is restricting the Commission's right to disallow all or part of the expenditure incurred by the Member State to a single situation, contrary to the settled case-law of the Court of Justice on this matter.

86. The provision invoked by the Spanish Government is very specific. Regulation No 2261/84 shows that RPGs are entitled to withhold a contribution from the amount of production aid made over to them, to contribute towards the expenditure resulting from the checking operations for which they are responsible.( ) Article 11(3) of that regulation provides for a deduction from the expenditure financed by the EAGGF where the sums withheld are not used for that purpose.

87. There is no doubt that that is but one of the situations in which the Community is authorised to disallow expenditure improperly incurred by a Member State. As the Court has often ruled, the EAGGF finances only intervention undertaken in accordance with the Community rules in the framework of the common organisation of agricultural markets( ). That is how we must construe Articles 2 and 3(1) of Regulation No 729/70( ), the scope of which also includes situations other than misallocation of the contribution withheld by an RPG.

88. As the Commission has rightly noted, it follows from these provisions that if a Member State continues to recognise a producer organisation and grants it aid after the competent authorities have established that that RPG is not or is no longer fulfilling the conditions needed for it to be recognised, then, to the failure to fulfil obligations consisting of a failure to withdraw approval, it is adding the failure of paying aid which is not due. Such is the position here of the Kingdom of Spain.

iii) The extent of the individual correction applied to the Kingdom of Spain

89. We now have to define the extent of the financial correction in dispute. For that, we need to examine the Spanish Government's argument that, in any event, this correction should be restricted to the aid withheld by the RPG for its operations and should not be extended to all its member olive growers. After invoking the principle that penalties are ad personam, the government has relied on the principle of proportionality, considering that extending the consequences of an irregularity attributable to an RPG, at the cost of the producers themselves, disregards that principle. It also complains of the arbitrary nature of the corrections made by the Commission.

90. In order to determine whether a provision of Community law, in particular in the sphere of the common organisations of agricultural markets, is in conformity with the principle of proportionality, it is necessary to consider whether the measures introduced by that provision exceed the limit of what is appropriate and necessary in order to attain the objective pursued by the rules at issue. More particularly, it is necessary to ascertain whether the means which the provision applies in order to achieve its aim correspond to the importance of that aim and whether they are necessary in order to achieve it.( )

91. The rule which has to be considered as regards the principle of proportionality is the rule ─ drawn from the consistent case-law of the Court ─ which I referred to earlier:( ) the Commission may charge to the EAGGF only sums paid in accordance with the rules laid down in the various sectors of agricultural production, leaving the Member States to bear any other sum paid, and in particular any amounts which the national authorities wrongly believed themselves authorised to pay in the context of the common organisation of the markets. ( ) As I said, the failure by the competent Spanish authorities to apply the relevant rules gives rise to application of the financial correction in dispute and the immediate consequence of that is to require the Kingdom of Spain to exclude from Community financing the whole of the sums paid to the RPGs concerned, including the amount of aid intended for the producers themselves.

92. According to the seventh recital in the preamble, the intention of Regulation No 729/70 is that measures are to be taken to prevent and deal with any irregularities and to recover the amounts lost as a result of such irregularities.

93. The measures introduced in the oils and fats sector include the financing of producers through RPGs and also the supervision of producers by those organisations. Where supervision is defective, the Community is deprived of the means of ensuring that the conditions for financing of the relevant agricultural sector are fulfilled. Exclusion from financing represents the most appropriate measure to prevent aid being used for purposes other than those for which it was granted, except where it is shown that the olive-grower members of the RPGs are not the source of any irregularity likely to compromise all or part of the Community financing.

94. On this, the Spanish Government maintains that the breach of the principle of proportionality is established by the checks carried out on the member olive growers, which showed that the payments were made in accordance with Community legislation, with 22 olive growers out of 26 having committed no irregularity.

95. Like the Commission, I feel that these are not conclusive points, chiefly because the checks described in the reports produced by the Spanish Government were carried out during 1995. In the contested decision, the Commission's complaint concerns the operation of the RPGs and their member producers as established during the year for which the accounts in dispute were cleared. The failures noted within the organisations themselves create a strong presumption of irregular operation on the part of the member producers during the 1993 marketing year. The reports in the case-file do not remove those presumptions since the observations which they describe may reflect improvements that came about after the period in dispute.

96. We should also recall that the RPGs' task is to check production, so that where serious shortcomings in carrying out those checks are observed there is a high probability of substantial irregularity in the activity of the producers.

97. We may indeed accept that it has been shown that certain producers did not commit any irregularity. Under the system of financing that has been established for oils and fats, aid may be paid by means other than through the RPGs( ).If the RPGs had been derecognised within the proper time, that would probably have enabled those olive growers to obtain aid through some other legal route without suffering the negative consequences of the failures by the RPGs to which they belonged.

98. It should be pointed out here that the financing wrongly paid to these two RPGs arises from the indulgence shown them by the Spanish authorities, who refused to withdraw recognition from APROL-JJAA and took over a full marketing year to derecognise OPROL. They therefore took the step of financing them on the same basis as the other RPGs in the full knowledge that these RPGs were continuing to enjoy recognition that was no longer justified by their operation. The proof of the existence of the irregularities complained of, in combination with the failure to withdraw recognition as prescribed by law, justifies the inclusion of the sums paid in respect of 1993, for the Community cannot be held liable for losses to the olive-growing members of either RPG when action by the Spanish authorities might have prevented them.

99. For all of the above reasons, it is my view that the financial correction concerned in no way disregards the principle of proportionality.

100. Similarly, the Spanish Government has claimed that applying the consequences of an irregularity detected within an organisation to the aid received by all its members is also not in accordance with Article 7 of Regulation No 2988/95. The Commission denies that this regulation is applicable to financial year 1993.

101. Article 7 of Regulation No 2988/95 provides that Community administrative measures and penalties may be applied to the natural or legal persons who have committed the irregularity, to those who have participated in committing the irregularity and to those who are under a duty to take responsibility for the irregularity or to ensure that it is not committed.

102. It should be remembered that proceedings in respect of the clearance of Member States' accounts for the expenditure financed by the EAGGF are proceedings for annulment, between the Member States and the Community. They are not intended to apportion liability among national economic operators except to the extent that such liability serves to identify the irregularities attributable to the competent national authorities, for the origin of any financial measures ordered against a Member State is to be found in the deficiencies of the systems of supervision introduced by each Member State ( ) and those measures do not prejudge the allocation of ultimate liability among the operators concerned which, in any event, must be in accordance with the principle of Article 7 of Regulation No 2988/95 to the extent that it applies at the date of the facts at issue.

103. Lastly, according to the Spanish Government, the corrections made by the Commission are arbitrary because they were not extended to olive oil producers in the previous year, unlike in the year in dispute.

104. We should be mindful of the consistent case-law of the Court stating that if the Commission does not take financial action in one year on deficiencies established, that does not preclude it from doing so in subsequent years, particularly if those deficiencies have persisted, and that, in addition, newly established deficiencies can also be taken into account in determining the level of the flat-rate correction( ).

105. It should be emphasised that, as the Commission has stated, the seriousness and the extent of the irregularities established in the operation and management of the RPGs are capable of justifying extending the financial correction to all of the expenditure incurred through those organisations.

106. It follows from the above that the plea based on the irregularity of the individual financial correction to the aid paid to OPROL and APROL-JJAA must be rejected.

2. The 10% flat-rate correction of the production aid paid during marketing year 1992/93.

107. According to the Summary Report, the EAGGF officers carried out two checks at the AAO, relating in particular to olive oil production aid, in September and October 1993 and in March 1994.( )

108. The real focus of those checks was the work of the AAO but they were supplemented by the mission conducted from 20 to 24 June 1994 in the Autonomous Communities of Andalusia and Extremadura, and also by a second EAGGF mission, from 30 January to 3 February 1995, with the object of analysing the checks conducted by the AAO, in particular at the mills.

109. On a subsequent mission, from 17 to 21 June 1996, in respect of 1993 and the years following, it was possible to supplement the earlier findings.

110. All these operations, together with the explanations provided by the Spanish authorities, enabled the EAGGF to demonstrate the existence of a number of shortcomings or irregularities.

111. According to the EAGGF, ‘in the system of management and control of olive oil production aids in Spain there are very many deficiencies as regards its general effectiveness (the part played by FEGA, application of penalties proposed by the AAO, payment on trees used for table olives), and the most important checks involved (register of olive cultivation, computerised files, flat-rate yield attributed to producers, checks at mills and RPGs).

In particular, in Spain the lack of basic regulatory instruments (the register and the files) and the weakness of all the checking procedures in force make it impossible to prevent systematically the risk of misuse in a particularly sensitive sector.’( )

112. On the basis of the details in the Summary Report, the Commission complains in respect of the Kingdom of Spain that relations between the AAO and the autonomous communities were too limited, that there was no register of olive cultivation and there were no computerised files of olive cultivation data, that the checks on oil mills and yields were inadequate and that aid had been wrongly paid to producers who had marketed part of their production as table olives.

113. The Kingdom of Spain challenges the correction of ESP 5 939 261 511 which was applied to it in consequence.

a) Conditions leading to application of the 10% flat-rate correction

i) Arguments of the parties

114. The Spanish Government argues that it is only possible to concede that the checks on the expenditure giving rise to the contested financial correction applied by the Commission were inadequate if three conditions are met: it must be shown that the general operation of the Member State's system of control is defective, that serious shortcomings have been established and that there are sufficient grounds to claim that the deficiency in the control system has caused the misappropriation of substantial sums for purposes other than those provided for by the Community legislature.

115. According to the Commission, responsibility for the checking of expenditure lies primarily with the Member States. Consequently, failure to apply the checking mechanisms prescribed by Community legislation is an infringement obliging the Commission to make the requisite financial corrections.

ii) Assessment

116. The conditions relied upon by the Spanish Government disregard the relevant case-law of the Court, according to which the EAGGF finances only interventions undertaken in accordance with the Community rules in the framework of the common organisation of agricultural markets.( ) Where the Commission refuses to charge certain expenditure to the EAGGF on the ground that it was incurred as a result of a breach of Community rules for which a Member State can be held responsible, it is for that State to show that the conditions for obtaining the financing refused are fulfilled.( )

117. The reason for this mitigation of the burden of proof on the Commission is that it is the State which is best placed to collect and check the data required for the clearance of EAGGF accounts, and which is consequently required to adduce the most detailed and comprehensive evidence that its figures are accurate and, if appropriate, that the Commission's calculations are incorrect( ). In the event of a dispute, it is for the Commission to prove that the rules of the common organisation of the agricultural markets have been infringed, and once it has established such an infringement the Member State concerned must then, if appropriate, demonstrate that the Commission made an error as to the financial consequences to be inferred from that infringement( ).

118. We see that for the EAGGF to refuse, in the context of the procedure for clearing accounts, to accept certain expenditure incurred by the Member State concerned it is by no means necessary to show that the infringement is serious. It is sufficient that the expenditure has been incurred in breach of the Community rules and for the Community budget thereby to be exposed to the risk of loss.

119. On the question whether the shortcomings found were sufficient to justify application of a flat-rate correction of 10%, we should recall that the relevant criterion is that set out in Section C of the Belle Report, which states that the rate of 10% of the expenditure is to be used where the deficiency relates to the whole of, or fundamental elements of, the control system or to the operation of controls essential for ensuring the regularity of the expenditure, so that it can reasonably be concluded that there was a high risk of widespread loss to the EAGGF.

120. It is in the light of these considerations that the evidence provided by the Spanish Government to challenge the findings upon which the Commission based the contested decision must be examined.

b) Relations between the AAO and the autonomous communities

i) Arguments of the parties

121. According to the Commission, the Summary Report shows that relations between the AAO, one of whose functions is to supervise production aid, and the autonomous communities, responsible for managing the aid, are too limited. That creates the risk of management decisions being taken without access to the outcome of the checks conducted by the AAO. In addition, there is a risk that checks may not be effective, as the AAO is not informed of certain fundamental details of management, and, according to the Summary Report, in respect of both mills and RPGs the AAO does not receive systematic information regarding action taken on its proposal to withdraw recognition and does not intervene during the process of further verification undertaken by the inspectors of the autonomous communities( )

122. The Spanish Government denies that communication between the AAO and the autonomous communities is inadequate. It considers that those relations are constant and easy.

123. The Commission replies that the AAO does not have those facilities necessary for performing tasks which, in accordance with the Community rules, are needed by the olive oil agencies set up in the Member States. It complains that information is not adequately forwarded by the autonomous communities to the AAO, and also that the former adopt decisions unilaterally without prior consultation with the AAO. According to the Commission, all of the AAO's proposals for derecognition are founded on the existence of serious irregularities and on disregard of the legal conditions for the grant of aid. However, whilst the autonomous communities do not dispute the majority of the irregularities, they do not withdraw recognition, simply for reasons of convenience.

ii) Assessment

124. The complaints made by the Commission are borne out both by the Summary Report and by the reports made by the EAGGF inspection officers following the mission carried out on the spot from 20 to 24 June 1994( ) and the documentary checks prior to clearance for 1993. ( )

125. Thus, according to the Summary Report, the AAO does not have knowledge of the criteria used by the autonomous communities to identify producers whose yield is abnormal, or of the method for and extent of the verifications conducted by the autonomous communities at mills to confirm the findings which gave rise to the proposal made by the AAO to withdraw recognition.( ) The EAGGF inspection officers noted ‘a strong spirit of rivalry between [the AAO and the autonomous communities], which greatly weakens collaboration and the exchange of information between the two organisations’. ( )SENPA, the central organisation in charge of the payment of production aid, does not seem to be able to resolve the disagreements between the AAO and the autonomous communities. The EAGGF's officers recommend that the conclusions to be drawn from the results be made centrally.( ) That communication is inadequate and is shown by the fact that, for example, ‘they do not refer to the outcome of the documentary checks on producers with an abnormal yield’ ( ) or to the discrepancies established as between the tree count shown in the application for aid and that shown in the crop declaration.

126. These findings point to the existence of malfunctioning and inadequate cooperation between the principal national authorities responsible within the olive oil production sector which, I believe, the explanations offered by the Spanish Government are not sufficient to refute.

127. The Spanish Government describes the various items of information communicated to the AAO by the autonomous communities for 1993. They include information on the holdings suspected of excessive yields and on progress on the cases opened by the autonomous communities receiving proposals to withdraw recognition. But it produces no evidence at all that these collaborative relations among the various institutions were genuine and permanent.

128. The Spanish Government refers to the letter of 13 September 1995 in which the Autonomous Community of Andalusia gives the AAO the names of olive growers obtaining yields higher than those generally accepted within the production zone.( ) Apart from the limited scope of the document, which relates only to olive growers counted by just one autonomous community, the letter of 13 September 1995 relates to a financial year later than that in dispute, being for 1994/95.

129. Furthermore, the fact that the Spanish competent authorities took action during 1995 to improve cooperation between the AAO and the autonomous communities shows that there was an earlier significant structural problem.

Thus, FEGA letter 18759, sent in response to EAGGF letter 14826, of 3 April 1996, shows that a coordinating working group was set up on 10 July 1995, consisting of representatives from the various national institutions, including the AAO and the autonomous communities, to carry out management, supervision and coordination of production aid.( ) Its objective is ‘to ensure smooth relations between all the organisations involved in any way in aid for olive oil, by coordinating their activity and by means of regular monitoring of their management’.( ) It is relevant to note that the preliminary draft agreement on cooperation between the Spanish Ministry of Agriculture, Fisheries and Food and the autonomous communities on application of the system of control of olive oil production aid was to be signed on 1 June 1996, well after the year in dispute. In association with the other findings by the EAGGF officers, reported in the documents cited above, this reform confirms that there were difficulties affecting coordination of the various national competent authorities.

130. The Commission also points out that, according to the Summary Report, the autonomous communities do not follow all the recommendations to withdraw approval from oil mills and RPGs of the AAO after serious operating irregularities have been found. As regards the RPGs, more than 50% of the recommendations were not followed; 10% of the proposals made by the AAO to withdraw approval from mills were not implemented by the various autonomous communities.

131. The Spanish Government maintains that the complaint made by the Commission was already raised in support of the previous financial correction; thus a single argument is being used to justify the application of a double penalty.

132. As noted previously, the Spanish Government does not deny that RPGs were not automatically derecognised. ( ) I therefore refer back to my discussion of this subject, noting the obligation on the Member States to effect immediate withdrawal of recognition when one of the conditions for derecognition is fulfilled.( )

133. As regards the inference made by the applicant government that a double penalty is being applied for the same conduct, we must recall that the lack of systematic derecognition gives rise to two financial corrections not in respect of a single series of irregularities, but in respect of two types of irregularities. The irregularities found at OPROL and APROL-JJAA are grounds for an individual financial correction. The irregularities alleged against four other RPGs are counted as an additional matter, relating to the inadequacies of the national system of control, when making the present flat-rate correction. The Commission is therefore not applying two financial correction measures by way of penalties for the same conduct.

c) Lack of a register of olive cultivation

134. According to the Summary Report, the Spanish register of olive cultivation (registro oléicola español)( ) fails to achieve the purpose of the establishment of an olive cultivation register, which is the systematic identification of all mistaken or fraudulent declarations and, thereby, of all aid which is not due. The exhaustive administrative check on aid applications which a register of olive cultivation affords is not carried out, and that creates a high risk of irregularities. In addition, the mission carried out in 1996 noted difficulties in operating the ROE which cast doubt on its use. The land-registry references for the parcels enumerated in the crop declarations and in the ROE do not always match, following the revisions of the land register which occurred between the date of filing of the initial crop declaration and the date of the work on the olive cultivation register. Furthermore, it is not known whether the declarations of changes filed for each marketing year are to supplement or to replace the earlier declarations. Lastly, the data in the ROE had not been validated by the date of the Summary Report, and therefore could not be relied upon as against producers.

i) Arguments of the parties

135. The Spanish Government maintains that the Commission's complaint that the ROE does not permit systematic identification of every mistaken or fraudulent declaration is unreasonable: a Member State cannot be penalised for failing to achieve perfection in the exercise of its function of supervising aid, particularly if account is taken of the complexity of the matter.

136. The Spanish Government argues that the Commission relies on the need to check the aid granted as a function of the tree count, whereas under Community legislation that type of aid is restricted to small growers. In Spain, 90% of aid is granted to olive growers producing more than 500 kg of oil, so that the criterion on which aid is granted should be the oil produced and not the tree count.

137. The Spanish Government adds that the lack of or imperfect operation of the register of olive cultivation is not enough to show that there are no checks. The fact that the ROE was not completed for the 1992/93 marketing year cannot be grounds for a financial correction. Furthermore, the ROE was not required to be operational by that time.

138. Nor does the doubt expressed by the EAGGF as to the possibility of using the ROE justify the correction applied: the Spanish Government maintains that no register is able to reflect the position systematically. It is necessarily an approximation and is primarily an aid to checking, and does not have the absolute effectiveness which the Commission attaches to it.

139. Lastly, the Spanish Government considers that the complaint based on interpretation of the amending declarations submitted for each marketing year is exaggerated. It explains that crop declarations are not modified for each marketing year and that supplementary declarations are submitted only when changes have taken place on the holding. It is not inconceivable that errors may be found in these declarations, but it considers that such occurrences cannot be regarded as creating serious difficulties.

140. The Commission replies that Article 1 of Regulation No 154/75 requires the ROE to be established by 1 November 1992, and it should have been usable during the marketing year corresponding to financial year 1993. The infringement of Community legislation is therefore proved, since it was not so at that date. The lack of an olive cultivation register of itself constitutes an essential shortcoming in the system for checking aid to olive oil production, requiring the Commission to adopt the financial corrections.

141. The Commission adds that, contrary to what the Spanish Government maintains, the controls conducted in Spain are inadequate and reveal substantial deficiencies, so that they do not make it possible to offset the absence and the poor operation of the ROE.

142. It also points out that the operational difficulties of the ROE described in the Summary Report compromise its ability to fulfil its task of verification.

143. The Spanish Government replies that, in seeking to rely on the existence of a deadline for implementation of the ROE, the Commission is flouting the procedure for establishing the ROE which it undertook itself together with the Kingdom of Spain, subject to a detailed timetable and in accordance with Article 6b of Regulation No 2276/79 as amended by Regulation No 586/88. The Commission was fully aware of the deadline set for final completion of the work, that is, 1998.

144. According to the Spanish Government, there is no such thing as a fully effective register, capable of systematically identifying every mistaken or fraudulent crop declaration and thus any aid not due. Furthermore, the Commission's observations reveal implicit acknowledgement that the ROE was being used. Lastly, the recent completion of the process of establishment of the ROE is not compatible with updating it immediately.

145. The Commission argues that Regulation No 2276/79, as amended by Regulation No 586/88, relates to a pilot programme of method trials which in no way reduces the need to establish the ROE within the time-limit provided for by Community legislation. It considers that the Spanish Government has not shown that the delay in establishing the ROE was due to absolute impossibility. It adds that the fact that it assisted the Spanish Government to perform its obligations after the end of the period allowed for establishing the ROE does not nullify the infringement complained of, nor does it prove that it was absolutely impossible for the Kingdom of Spain to meet the deadline at issue. Even less should that situation be read as implicit acceptance of the delay and its consequences for the system of supervision of aid.

146. According to the Commission, the lack of an olive cultivation register is itself an essential deficiency in the system for checking olive oil production aid, giving further justification for the financial correction, because, in terms of both quality and quantity, the checks conducted by the Kingdom of Spain were below the level necessary to remedy that lack. The risk of fraud is thus substantial. The Commission adds that under Article 6a of Regulation No 2276/79, as amended by Regulation No 586/88, Member States must undertake an annual updating of the register of olive cultivation. That requirement cannot be regarded as the cause of the present difficulties in operating the ROE.

ii) Assessment

147. Article 1(1) of Regulation No 154/75 requires Member States producing olive oil to establish a register of olive cultivation relating to all olive-growing holdings within their territory. Article 1(2)(b) of that regulation, as amended by Regulation No 3788/85, shows that the olive cultivation register ─ the function of which is to provide the necessary data on potential production and to improve the operation of the aid system ─ was to have been fully established in the Kingdom of Spain by 1 November 1992.

148. The Spanish Government admits that the ROE was not completed by that date( ). It refers to the right acknowledged by the Court to rely on the absolute impossibility of executing a Community decision correctly, but it does not produce evidence of such impossibility. Furthermore, the technical assistance given by the Commission cannot be interpreted as relieving the Spanish Government of the obligation to comply with the legal time-limit, for no provision in the applicable Community legislation gives the Commission such a power. Nor has it been shown that the Commission implied that it had the power to derogate from the applicable rules.

149. We must reject the argument submitted by the Spanish Government that the olive cultivation register is less usable in Spain as a means of supervision because of the average profile of Spanish olive growers. It maintains that because most are large-scale producers, who therefore receive aid according to the quantity of oil produced and not according to the number of olive trees and their yield, priority should be given to checking the mills, in accordance with the applicable Community legislation.

150. As the Commission observes, checks on the oil mills, regardless of their extent, cannot make up for failure to complete the register of olive cultivation. Since Community aid is paid to the olive growers and not to the mills, it is not sufficient to direct the controls chiefly to the latter. The data in the olive cultivation register are of real importance, particularly for the tree count, because the determination of the quantity of olive oil produced and eligible for aid depends on the olive yield and the oil yield; these are set on a flat-rate basis, which requires an accurate knowledge of the number of trees.

151. I would add that the operational difficulties with the ROE are not disputed by the Spanish Government, which states that the reason for the lack of the annual update prescribed by Article 6a of Regulation No 2276/79, as amended by Regulation No 586/88, is the process of installing the ROE.

152. The Spanish Government has therefore not shown that the data collected by the EAGGF inspection officers were inaccurate.

d) Lack of computerised files of olive and olive oil production data

153. The Summary Report shows that there was no central computerised file at the time of the inspections carried out by the EAGGF officers. Because of the large number of beneficiaries, therefore, no effective verification was reasonably possible. According to the EAGGF officers, certain improvements presented by the competent national authorities in 1996 and certain supplementary checks could only have had effect in marketing year 1995/96 and not in marketing year 1992/93, the time at issue here.

i) Arguments of the parties

154. The Commission stresses that the absence of central computerised files, in breach of Article 16 of Regulation No 2261/84 and Article 11 of Regulation No 3061/84, as amended by Regulation No 98/89, prevents systematic advance checking of all crop declarations and all applications for aid. According to Article 11 of Regulation No 3061/84, as amended by Regulation No 98/89, all the components of the computerised files should have been operational by 31 October 1990, but that did not happen. This serious infringement is a major shortcoming of the control system, since it affects one of its essential resources, and a flat-rate financial correction is therefore justified.

155. For the Spanish Government, the computerised files were only partly lacking. The file content provided for in Article 16 of Regulation No 2261/84 was already included within the part-files giving the outcome of the checks conducted, the data relating to crop declarations, and the data contained in the homogeneous-zone programmes. Furthermore, the autonomous communities were in a position to detect abnormal yields from their computerised files. Since Regulation No 3061/84 allowed six years for the installation of the computerised files, it is reasonable that the Kingdom of Spain should have an equivalent period, counting from the date of its accession to the Community. Lastly, for financial year 1993, the autonomous communities were in possession of all the details that had to be shown in the computerised files referred to in Regulation No 2261/84.

156. The Commission maintains that the computer records of the reports on checks carried out in marketing years 1992/93 and 1993/94, provided by the Kingdom of Spain to support this latter point, cannot serve to refute existence of infringements found. It cannot be confirmed from those records that all the information which must be collected under the applicable Community legislation is actually there. The tolerance thresholds in the files of the autonomous communities are too high and were set without consulting FEGA or the AAO, although that body was responsible for checking the yields obtained.

ii) Assessment

157. Under Article 16 of Regulation No 2261/84, each producer Member State is required to draw up and keep up to date permanent computerised files of olive and olive oil production data. Under Article 11 of Regulation No 3061/84, as amended by Regulation No 98/89, all the components of the computerised files had to be operational before 31 October 1990.

158. The Spanish Government has admitted that the computerised files were incomplete on expiry of the legal time-limit. It should be said that the time-limit applies to all Member States, regardless of when they joined the European Community. The Kingdom of Spain, like the other Member States, is therefore bound by this. The computerised records produced by the Spanish Government relate to only a part of the information that should be held on the computerised files prescribed by the Community legislation. As the Commission notes, there is no information relating to stock-keeping. Consequently, their incomplete nature means that they cannot be used to refute the details set out in the Summary Report regarding the lack of central computerised records complying with the applicable Community legislation.

e) Inadequacy of checks on mills

159. According to the Summary Report, because mills belonging to cooperatives have a number of interests and activities within the olive oil sector, they present prima facie a higher level of risk than single-activity mills. The EAGGF officers noted that checks on mills were defective as regards determination of the sample to be checked, because the computerised files were not available. The same shortcomings occurred in preparing for the checks, which were prepared only from earlier checks conducted by the AAO. The EAGGF officers also consider that there are not enough cross-checks, although the use of an outside source of evidence is a basic principle of audits and of checks generally. According to the Summary Report, in the absence of an olive cultivation register and computerised files, the Kingdom of Spain should have conducted more detailed checks at the mills.

i) Arguments of the parties

160. The Spanish Government argues that the risk of irregularities is not higher at cooperative mills, and argues that, on the contrary, this legal form gives protection against the risks of fraud. As regards the choice of which mills are to be checked, it maintains that the criteria for selecting mills are shown in each year's operational programmes, which are sent to the Commission. It considers that the criteria adopted are secondary when, as here, the total number of mills checked is substantial and leads to all mills being checked every two or three years. The concern expressed by the Commission to link the quantity of olives pressed at a mill and the number of trees declared by the producers is scarcely relevant because most producers take their olives to more than one mill for pressing, and they change mills each marketing year. The Spanish Government points out that all mills have had at least one on-the-spot inspection and that the checks are meticulously prepared.

161. Regarding cross-checks, the Spanish Government maintains that there are physical obstacles to making them, such as (with reference to electricity consumption at mills) the fact that electricity is used for purposes other than pressing olives. It does acknowledge the importance of cross-checks, however, in particular those on the intended use of the oil obtained and, where there is doubt, the accounts.

162. The Commission replies that the absence of an olive cultivation register and of computerised files meant that more complete checks were required of oil mills and, in particular, certain cross-checks that were not carried out. It explains that mills organised as cooperatives create more risk because the producer and the mill-owner are one and the same person, which assumes an identity of interest that makes it easier to overestimate the quantity of oil.

163. The lack of computerised files means that the Spanish authorities do not have information on the production of each oil mill and prevents an effective selection of the mills requiring a check. The criteria referred to by the Spanish Government were set for marketing year 1995/96 and therefore cannot be used to refute the Commission's position regarding financial year 1993. With reference to the Spanish Government's argument on sample size, the Commission explains that it has not been shown that a substantial number of the mills checked each year are not the same as those checked already. The Commission reiterates the need for a check that uses an external source of evidence. Cross-checks are required by Community legislation. The fact that it is difficult to do them does not alter the need to carry them out. It cannot be denied that no list was produced of the cross-checks carried out by the AAO on the spot as from marketing year 1992/93.

164. The Spanish Government replies that the absence of part of the register and of certain files was compensated for by increased checks on parcels of olive trees and on mills in respect of both quality and quantity. It cannot be claimed that there are serious gaps in the checks on mills, nor can it be assumed that the oil mills checked annually are always the same.

165. The Spanish Government challenges the Commission's argument that checking the mills is of secondary importance because the olive growers and not the mills receive the aid. It maintains that, for an olive grower to be able to receive aid fraudulently, he must necessarily collude with the mill and get it to supply him with an attestation for oil which has not been produced. Thus, the main purpose of checking the mill is not to detect fraud there but to inquire into possible fraud by the olive grower.

166. Regarding the supposed greater risk of irregularities inherent in the status of cooperative mill, the Spanish Government states that it is not accurate to claim that the producer and the mill-owner are the same person, for the mill is owned by an association of producers, not one producer. For fraud to exist there is an absolute requirement of confidentiality and secrecy, which is unlikely within a cooperative. If fraud occurs, it will be public and widespread. According to the Spanish Government, although cooperatives are the rule in Andalusia, the proposals to withdraw approval in this autonomous community relate to only a minority of them.

167. The Commission considers that increasing the number of checks cannot be a substitute for an improvement in quality, in the absence of an olive cultivation register and computerised files. It recalls that the Community rules on the procedure for clearance of accounts are not intended to restrict refusals to charge expenditure by the EAGGF to cases where the existence of fraud has been clearly demonstrated.

ii) Assessment

168. Where no register of olive cultivation has been finally established and computerised files are not complete, it is undeniably necessary to carry out a greater number of controls and to make them highly effective.

169. The register of olive cultivation and the computerised files in fact bring together a great many particulars relating both to the olive-growing holdings themselves and to the quantity of olives and olive oil produced and for which aid is sought, and also to the checks already carried out. The range and the extent of the information brought together here, all computer-processed, help to make checking and detection of fraudulent practices anywhere in the national territory very effective. Without such resources, it becomes necessary to ensure that checks are more thorough.

170. This is required particularly because ─ as the Commission states ─ the chiefly cooperative structure of Spanish oil mills increases the risk of fraud. Although the Spanish Government disputes this point, FEGA admits that the specific purpose of a cooperative mill, within the olive and olive oil sector, is generally to press the olives of the members and to sell the oil in bulk on a joint basis. ( ) That confirms the Commission's view that the operations of growing the olives, and of production and sale of the olive oil, are in the hands of a single operator or group of operators. Because self-inspection by the members is strictly internal to the economic unit itself, I do not think that it can entirely offset the increased risk of fraud which must arise where activities are combined. Therefore I believe that this situation is likely to encourage fraud by declarations of quantities greater than they really are.

171. It has to be noted that the lack of an olive cultivation register and of computerised files cannot be entirely offset by a significant increase in the number of checks.

172. The various documents drawn up by the EAGGF officers following inspections on the spot show that the absence of these resources makes it impossible to specify exactly the sample mills to be checked. The plausibility check on the data used by those responsible for checking to identify suspect mills cannot be carried out satisfactorily because the data on holdings and on the production declared is not complete.( )

173. The EAGGF officers considered that the AAO's preparation of checks was likewise inadequate. Without central computerised files, using only the particulars from previous checks reduces the effectiveness of the procedure for inspecting mills considerably.( )

174. Even if the increase in the number of checks leads, as the Spanish Government claims, to all mills having been inspected after two or three years, the most flagrant irregularities that would have been detected already in the first marketing year, using centralised data, might not be identified, particularly since the checks which it is claimed have been augmented are not as detailed as desired, as is shown by the acknowledgement of impotence made by the Spanish Government itself in respect of cross-checks, which it regards as pointless or impracticable.

175. But these controls, which enable the plausibility of the declarations which serve as a basis for aid applications to be verified by comparing data of different types, are required by the Community legislation itself. Article 13 of Regulation No 2261/84 and Article 9 of Regulation No 3061/84 prescribe the data which oil mills must forward to the Member State to obtain approval.( )

176. It follows from the above that the applicant government has not shown that the checks on mills reached a satisfactory level.

f) Legal propriety of the Spanish practice of using flat-rate yields

177. In the Summary Report, the EAGGF officers consider that the approach adopted by the Spanish authorities, allowing the quantity of olive oil produced by each olive grower to be assigned on a flat-rate basis at the end of the marketing year, does not comply with Article 9(2) and the last subparagraph of Article 5(1) of Regulation No 3061/84. That practice, in combination with the absence of an olive cultivation register and of computerised files, prevents an effective, systematic check of the data specific to each producer and cross-checking of the actual data from the site with that from the daily records of the mills, creating a substantial risk of fraud.

i) Arguments of the parties

178. The Spanish Government points out that flat-rate assignment of the quantity of oil produced by each olive grower happens only in very few cases and that, even in those cases, Article 9(2) of Regulation No 3061/84 authorises it. It states that most mills do not assign the same yields to the producers and adds that for technical reasons the yield cannot be assigned in such a way as to make it possible to isolate each batch of olives and weigh the oil produced by that batch. The physical impossibility of finding the quantity of oil in each batch of olives by weighing does not mean that the overall yield obtained at the mill is assigned to all producers. There is a method for determining very accurately the oil corresponding to each batch and finding a separate yield for each producer. It asserts that the autonomous communities notify abnormal yields to the AAO.

179. The Commission states that it has established that the administrative checks on yields were inadequate. It criticises the fact that most oil mills issue all pressing certificates only at the end of the marketing year, on the basis of the total oil produced during the entire period, which leads to the same yield being assigned to each producer. These facts were established by the EAGGF inspection officers during a number of inspections. It maintains that it does not have evidence enabling it to estimate the extent of this practice but notes that on all occasions when a Community unit inspected the records of a Spanish oil mill it found that this was the position.

180. The Spanish Government denies that most mills assign the same yield to all producers. It maintains that at most producer mills the yield is taken from the laboratory yield for each input, corrected by a coefficient. The Spanish Government regrets that the documents referred to by the Commission in support of its argument were not communicated to it, and concludes that the Commission has infringed the right to a fair hearing.

181. The Commission repeats its assertion that in the marketing year corresponding to financial year 1993 some Spanish oil mills assigned the same yield to all producers. It claims that no evidence has been produced to the contrary. The financial correction was based on no information or finding that was not officially and formally communicated to the Spanish authorities during the procedure between the parties, and the most important items in the reports of inquiries were communicated to them.

ii) Assessment

182. It must be observed, first, that in accordance with Articles 5(1)(d) and 9(2) of Regulation No 3061/84, as amended by Regulation (EEC) No 828/90, ( ) the quantities of olives entering an approved mill and the quantities of oil obtained from those olives must be accurately identified and recorded, so that for each batch of olives there is the corresponding batch of oil. That must enable the yields for each of the producers concerned to be quantified.

183. Article 9(2)(e) of Regulation No 3061/84, as amended by Regulation No 828/90, restricts the exceptions to that principle to cases in which the quantity of olives crushed comprises several batches of less than the minimum quantity required to make up a pressing in the case of both mills with a traditional production cycle and mills with a continuous production cycle. In such circumstances, the stock records must include the overall quantity of oil leaving the mill, broken down between the consignees in proportion to the quantities of olives crushed by each of them.

184. It must be noted that the Spanish Government submits two, apparently conflicting, types of arguments.

First it maintains that ‘the yield cannot ... be allotted, interpreting the Community legislation literally, in a way that makes it possible to isolate ... each batch of olives and to weigh the oil produced by that batch’.( ) It had also replied to the Commission that ‘such a system would ... add no substantial item of information to the current procedure’( ) and that, in certain cases, ‘it is no longer possible to discover the extraction line in which each olive grower's olives are, nor which batch of the oil obtained at a given time derives from a given batch of olives’.( )

At the same time, the Spanish Government maintains that the physical impossibility of finding the quantity of oil in each batch of olives by weighing does not mean that the overall yield obtained at the mill is assigned to all producers. It describes the method for determining the oil corresponding to each batch.

185. As I have said, these arguments are only apparently incompatible. The first must be read as reflecting the difficulty for the Spanish authorities to apply Community legislation, because of what they regard as the special nature of the Spanish olive and olive oil sector. The technique described next seems to have been the content of a response from FEGA to the EAGGF officers in which ─ even assuming that the technique worked ─ it was not in any way alleged that the Spanish authorities actually applied it.( ) In any event, it must be noted that the Spanish Government produces no evidence to show that the global yields noted by the EAGGF inspection officers are not applied in the majority of cases. The report of the visit to the Pedro Valera Garía mill does not provide such evidence: first, it contains data for marketing year 1993/94 and not for 1992/93, and secondly, that item is restricted to the data for one mill and is not wide enough to counter the broader observations made by the EAGGF officers.

186. It should be added that the documents, written by the EAGGF officers and which the Spanish Government maintains were not sent to it, add nothing of consequence to the Summary Report or to letter 23271, in which the Commission explained to the Spanish authorities in detail the principal objections that might be made against them. We may therefore disregard these in assessing the well-foundedness of the complaint made by the Commission against the Spanish authorities.

g) Payment of aid not due to producers marketing part of their production as table olives

187. In the Summary Report and in letter 23271, the EAGGF inspection officers found that the Autonomous Community of Andalusia allows the payment of olive oil production aid to small producers who have marketed part of their harvest as table olives. No check was made of the documentation relating to the possible marketing of table olives. Furthermore, the Spanish authorities did not make any recalculation for the Autonomous Community of Andalusia and all other autonomous communities acting in the same manner of the aid paid to small producers during 1992, 1993 and 1994, to make it possible to recover the amounts paid when not due, on the basis of the crop declarations and the pressing declarations from