A —

On 5 September 1978 the plaintiff in these preliminary ruling proceedings, on which I am to give my Opinion today, applied for the release into free circulation of a consignment of whole-milk powder with a fat content of 24.5% imported from France (and classified under subheading 04.02 A II (b) 2 of the Common Customs Tariff). Monetary compensatory amounts were payable on that consignment at the rate laid down in Annex 1 to Regulation (EEC) No 1036/78 (Official Journal 1978, L 133, p. 1), namely DM 16, plus DM 0.65 for each 1% of fat content, per 100 kg. It should immediately be stated that, as whole-milk powder is not a product covered by intervention arrangements within the meaning of Article 1 (2) (a) of Regulation (EEC) No 974/71 (Official Journal, English Special Edition, 1971 (I), p. 257) adopted in connection with the common organization of the agricultural markets, those charges were determined on the basis of the assumption that the price of whole-milk powder depends, according to Article 1 (2) (b) of Regulation No 974/71, on the price of skimmed-milk powder and butter (products which, in addition to certain types of cheese, are not covered by intervention arrangements. under the organization of the market for milk and milk products). In such cases, Article 2 (2) of Regulation No.974/71 provides that the compensatory amounts are to be equal to the incidence, on the prices of the product concerned, of the application of the compensatory amount to the prices of the product referred to in paragraph 1 (that is to say, products covered by intervention arrangements) on which they depend. Moreover, it should be mentioned in that connection that, as a result of the adoption of Regulation (EEC) No 1824/77, 50% of the processing costs incurred in the manufacture of skimmed-milk powder and butter were to be taken into account (in proportion in the case of each product to the fat content and other components of the whole-milk powder); those costs were originally taken into account in full but the proportion was subsequently reduced to 25% by Regulation No 1245/83 and, since the adoption of Regulation (EEC) No 900/84, they have not been taken into account at all. The plaintiff considers that the fixing of monetary compensatory amounts for whole-milk powder is fundamentally incompatible with the abovementioned provisions of Regulation No 974/71 (namely Article 1 (2) (b) and Article 2 (2)) and also with Article 1 (3) of that regulation (as amended by Regulation (EEC) No 2746/72, Official Journal, English Special Edition 1972 (28-30 December), p. 64) which reads as follows: ‘Paragraph 1 shall not apply where application of the monetary measures referred to in that paragraph would lead to disturbances in trade in agricultural products.’ In the plaintiffs view, there is no competitive relationship between whole-milk powder and skimmed-milk powder and that is the decisive factor according to the rules and the relevant case-law. The price of whole-milk powder does not in fact depend on the price of skimmed-milk powder, just as, in the case of the milk-fat content of whole-milk powder, there is no price dependence on butter. Instead, it should properly be recognized, according to the plaintiff, that whole-milk powder and its components (skimmed-milk powder and fat) have different markets and that their respective prices are determined by different factors. Alternatively, the plaintiff argues that it is on no account permissible in calculating the monetary compensatory amounts for whole-milk powder to take into account the processing costs arising in the manufacture of skimmed-milk powder and butter. It maintains that since, as is clear from the sixth recital in the preamble to Regulation No 974/71, the compensatory amounts should be limited to the amounts strictly necessary to compensate for the incidence of the monetary measures on the prices of basic products coverd by intervention arrangements, the incidence within the meaning of Article 2 (2) of that regulation can be measured only by reference to the effects of the compensatory amount on the price of the raw material. However, those arguments did not prevail in the proceedings instituted by the plaintiff before the Finanzgericht [Finance Court] Baden-Württemberg. Accordingly, it lodged an appeal on a point of law to the Bundesfinanzhof [Federal Finance Court] against the lower court's decision. The Bundesfinanzhof considers that doubts may legitimately be raised with regard to the validity of Regulation No 1036/78, particularly because in its view it is questionable whether the price of whole-milk powder is actually dependent on the price of skimmed-milk powder and butter (the only two products which are relevant in this connection and which are covered by intervention arrangements under the common organization of the market in milk and milk products — Regulation (EEC) No 804/68, Official Journal, English Special Edition, 1968 (I), p. 176). Therefore, by order of 11 December 1984, the Bundesfinanzhof stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling under Article 177 of the EEC Treaty: ‘(1) Was the Commission of the European Communities empowered by virtue of Article 1 of Regulation (EEC) No 974/71 to fix monetary compensatory amounts in the manner in which this was done in Part 5 of Annex I to Regulation (EEC) No 1036/78 in respect of whole-milk powder classified under subheading 04.02 A II (b) 2 of the Common Customs Tariff which was imported into the Federal Republic of Germany from France in 1978? (2) If so, was the Commission empowered by virtue of Article 2 (2) of Regulation (EEC) No 974/71 to take into account, in calculating the incidence on the price of whole-milk powder, the processing costs for skimmed-milk powder and butter, in the manner in which this was done in Commission Regulation (EEC) No 1036/78?’