OPINION OF MR ADVOCATE-GENERAL REISCHL

DELIVERED ON 14 MAY 1975 ( 1 )

Mr President,

Members of the Court,

The proceedings for a preliminary ruling in which I am today giving my opinion, relate to problems of monetary compensation at frontiers, that is an area which was of importance in a series of other cases, inter alia in Case 34/74 (Société Roquette Frères v French State, judgment of 12 November 1974, [ECR] 1217).

For that reason I do not first need to go into the basic structure of these rules which are laid down in Regulation No 974/71 of the Council of 12 May 1971 (OJ, Special Edition 1971 (I), p. 257) and amended by Council Regulation No 509/73 of 22 February 1973 (OJ L 50 of 23. 2. 1973) inter alia in respect of Member States whose currencies decrease beyond the margin permitted by international rules in force on 12 May 1971.

The following are all the observations I have to make as to the facts of the main proceedings.

The plaintiff in the main action, an Italian pasta manufacturer, exported pasta produced from durum wheat meal to the Federal Republic of Germany on 6 August 1973. A compensatory amount of Lit. 3365 per 100 kg was levied on this pursuant to Article 2 (2) of Regulation No 974/71 as was determined by Annex I Part 8 of Regulation No 2102/73 of the Commission of 31 July 1973 which came into force on 1 August 1973 (OJ L 213 of 1. 8. 1973).

The plaintiff in the main action regards this export levy as unjustified. Therefore on 3 December 1974, after paying the abovementioned charge under protest in order to enable the export to take place, it applied to the Pretore in Trieste for a repayment order against the Amministrazione delle Finanze dello Stato for reimbursement of the compensatory amounts. It relies upon the fact that, as is clear from Regulation No 2134/73 (OJ L 216 of 4. 8. 1973), at the relevant time, between 4 and 7 August 1973, no levies were imposed on imports of durum wheat from third States because of the level of prices on the world market and that therefore no monetary compensatory amounts were due on the export of this product to other Member States. This follows from Article 4 a (2) which was inserted into Regulation No 974/71 by Regulation No 509/73 and which provides:

‘In trade between the Member States and with third countries, the compensatory amounts applicable due to the decrease in value of the currency concerned may not be higher than the charge on products imported from third countries.’

However the import of pasta was not completely free from levy because of the particular scheme for agricultural products which provides for a fixing of the levy for a period of three months (cf. Articles 5 and 6 of Regulation No 1059/69 (OJ, Special Edition 1969 (I), p. 240). At the relevant time a variable component was levied on these goods which was determined according to the proportion of processed basic products, of Lit. 3612 per 100 kg. This results from Annex I to Regulation No 2210/73 of the Commission (OJ L 231 of 20. 8. 1973) which came into force on 21 August 1973, in conjunction with Regulation No 3085/73 of the Commission (OJ L 314 of 15. 11. 1973) which, at the request of those concerned, provided for the application of the variable components set out in Regulation No 2210/73 to imports which occurred between 2 and 20 August 1973.

The plaintiff however takes the view that according to the scheme of the basic regulation on monetary compensation it is not permissible to take into consideration this import charge on processed products. Rather it is necessary to concentrate on the ultimate aim to which the basic product is to be put and therefore to have in mind, also as regards the application of Article 4 (a) (2), solely the import charge applicable for basic products. On this basis too, it was not permissible to impose the compensatory charge on the export of pasta at the relevant time.

By an order of 7 December 1974 the ‘Pretore’ stayed the proceedings and referred the following two questions to the Court:

1. Must the charge on imported pasta for the purposes of the application of Article 4 a (2) of Regulation No 509/73 be considered as constituted solely by the variable component, or by the variable component plus the fixed component, both prescribed by Regulation No 160/66?

2. If the charge on imports under Question (1) above is constituted solely by the variable component, could Italy legitimately apply the monetary compensatory amount, prescribed by Regulations Nos 974/71, 648/73 and 1463/73 and consisting in a charge of Lit. 3365 per 100 kgs of the product concerned (See Regulation (EEC) No 2102/73 Part 8, Common Customs Tariff Heading No 19.03) to the export of pasta to the Member States and to third countries effected during the time when the levies on the basic agricultural product — durum wheat (representing the variable component relating to pasta) were zero and, in any case, if the levy on the importation of the basic agricultural product were greater than zero, could the monetary compensatory amount on exportation be higher than that levy?

My opinion on these questions is as follows:

1. The first question

This question is explained by the fact that Regulation No 1059/69 (OJ L 141 of 12. 6. 1969, English Special Edition 1969 (I), p. 240) which replaced Regulation No 160/66 (OJ 195 of 28. 10. 1966, p. 3361) named in the question, provides that on the import of agricultural processed products from third countries a fixed component is imposed to protect the processing industry and also a variable component corresponding to the levy charge on the basic products contained in the processed products. The linking of the monetary compensation at the frontier to the import charge on imports from third countries, as was provided for exports from Member States with weak currencies, could make it appear doubtful whether the import charge refers to the whole charge or only that part of the charge which is calculated according to the levy on the basic products.

However, with regard to this question, in its preliminary ruling in Case 34/74 in respect of the export of products derived from maize from France the Court stated quite clearly that the charge mentioned in Article 4a (2) of Regulation No 974/71 on the import of products, for which intervention measures were provided in the sphere of the common organization of the agricultural markets, consisted solely of the variable component which was intended to take into account the prices of the basic products. Both the Commission and the plaintiff in the main action simply make reference to this ruling. Accordingly nothing further needs to be added to it in the present proceedings especially as no new considerations for the judgment have come to light.

2. The second question

As the Commission rightly emphasized the second question before us consists of several parts.

On the one hand, it apparently seeks clarification on whether, in the case that the import charge only consists of the variable component, a Member State has the right to levy monetary compensatory payments in excess of this. On the other hand it calls for an examination of whether Article 4 (a) of Regulation No 974/71 permits a compensatory amount to be levied on exports of processed products which is in excess of the levy in force on the same day for the relevant basic product. Thus it seeks an exmination on whether, under the abovementioned provisions, processed products may be made subject to any compensatory amount if the levy for the basic product on the day of the export is nil.

The answer to the first part of the question also appears to me to present no particular difficulties.

The Commission gave the illuminating explanation that the introduction of the rules of Article 4 a (2) of Regulation No 974/71 made necessary a division of work between the Community authorities and those of the Member States. It was necessary because the fixing of both relevant amounts, the monetary compensatory amount on the one hand and on the other the import charge could not be done in one and the same measure. In fact the amounts are governed by different factors; the compensatory amount is based on alterations in the currency rates whilst the import charge is calculated according to the alterations in the world market price in relation to the Community prices. The two factors do not develop in the same way and this exludes their being taken into account comprehensively in one measure. Because of the constant alterations in the import charge a daily fixing would have been necessary and that would have rendered the already extraordinarily complex system of monetary compensation even more difficult to administer.

In view of this situation an implementing regulation relating to the monetary compensation provided that the Member States should compare the compensatory amounts fixed by the Commission with the import charges and should ensure the operation of the rules of Article 4 a (2) of Regulation No 974/71. (cf. Article 5 (1) of Regulation No 1463/73 of the Commission of 30 May 1973 (OJ L 146 of 4. 6. 1973) which provides:

‘The Member States shall take the measures necessary to assure that the provisions of Article 4 a (2) of Regulation (EEC) No 974/71 are observed.)’

The preamble to Regulation No 1463/73 states quite clearly on this point:

‘It is advisable to provide that its observance of this measure (that is, Article 4 a (2) of Regulation No 974/71) normally concerns the importing Member State.’

On the other hand, however, it is also quite clear that the Member States have no margin of discretion in this respect. This results from the wording of Article 4 a (2) according to which the compensatory amounts which are applicable because of a lower exchange rate for the relevant currency in trade between Member States and with third countries may not be greater than the charge on imports from third States.

It can therefore be said with certainty that the Member States may not levy a higher compensatory amount than is permitted by rhe rules of Article 4 a (2) of Regulation No 974/71 and therefore, in accordance with the opinion of the Commission and of the plaintiff, the first part of the second question can only be answered in the negative.

The treatment of the second part of the second question however proves to be more difficult. As we know, it relates to deciding what, in the case of agricultural processed products, is to be regarded as a charge on imports from third countries in the abovementioned Article 4 a (2) of Regulation No 974/71.

The Commission's view on this is that what is in question cannot be the charge on basic products but only that charge which applies for the processed products which are in fact exported. On the other hand the plaintiff in the main action desires to make everything turn on the ultimate aim to which the basic products are to be put. It relies on the basic structure of the rules relating to monetary compensation as they appear in Article 2 of Regulation No 974/71 and contends that the basic products are used as the criteria in other spheres of agriculture such as the rules relating to export refunds and the compensatory rules in, relation to the new Member States. Otherwise distortions of competition and discrimination would become apparent which the compensatory rules are precisely designed to prevent. In other words the rules under Article 4 a (2) would have to be regarded as illegal if only the interpretation recommended by the Commission came into consideration.

As regards this point of dispute it must certainly be accepted that the influence that the currency measures referred to have on the agricultural basic products and their prices is the starting point for the calculation of the monetary compensation under the basic provision of Article 2 of Regulation No 974/71. For processed products whose prices are dependent on those in force for basic products, monetary compensation can only be considered to the extent of the incidence the application of the compensatory amounts applicable to the basic product has on the price of the derived products. Thus it can properly be said that under the abovementioned provision the ultimate aim to which the basic product is to be put is the crucial factor.

In this case we are not primarily concerned with the meaning of the abovementioned Article 2 but with the interpretation of Article 4 a (2) of Regulation No 974/71.

It is important that by this provision a special relation was established between the monetary compensatory amounts and the charge on imports from third countries, that is the levies. The latter were intended to have a limiting function, if I have understood it correctly, for particular reasons of economic policy: it was intended in the interest of maintaining Community preference imports from third countries were not to be excessively encouraged. Bearing in mind that this involved correlating essentially different rules which, as the Commission said, made a breach in the logic of monetary compensation, and further having regard to the fact that the Council itself brought about this correlation and that therefore there is no order of precedence as regards Article 2, then it is in no way axiomatic that the provision should be interpreted according to the principles governing Article 2, at least in the way that the plaintiff interprets these principles. Rather it is more obvious and more appropriate to proceed on the basis of the interpretation of the whole system of the rules and since what are concerned are rules in the agricultural sector, to consider the basic structures applicable there. Moreover, in my opinion it should not be forgotten that a practiable solution must be sought and that where possible we must avoid an interpretation which would produce intolerable legal uncertainty in the application of the rules.

In view of these fundamental findings, however, substantial doubts must immediately arise as to the correctness of the view put forward by the plaintiff, since it merely refers to the logic of a comparatively simple situation (zero levy for the basic products) and then draws the conclusion that on the export of processed products it is not justified to take into account the import charges relating to them and thus to impose the compensatory payments for the processed products. It is immediately evident that the matter is not in fact so simple if one looks at other possible situations. A closer examination further reveals that the plaintiff was only able to reach the interpretation it advocates by leaving out of account important economic factors.

It becomes apparent how dubious it is merely to rely on the charge on the basic products at the time of the export of the processed products if one presupposes a situation where the processed basic product is subject to a certain rate of levy, or if one takes a situation where several basic products with different levies are necessary for the production of the processed product. If in the first example reference were only made to the amount of the levy on the basic product the results would always be inaccurate and therefore unacceptable if for the production of a certain amount of the processed product a larger amount of the basic product is needed. The situation would be still more difficult if several basic products were used with varying rates of levy since one would be faced with the question what rate of levy one should refer to or in what proportions the levies should be considered. It is evident therefore that the charges imposed on the basic product may be used as the basis for the application of Article 4 a (2) but not simply by applying the rates of levy applicable to the basic products but solely according to the system of calculating the levies for processed products under which, as we know, the proportions of basic products contained in a processed product are taken into consideration.

It is further evident — and here I am returning to my observation that in developing its argument the plaintiff left important economic factors out of consideration — that it is not possible to regard the charge on basic products on the day of the export of the processed products as decisive. For the decisive conditions of the production of the exported processed product are not determined by reference to this time but to a point of time in the past. The plaintiff itself admitted that a period of three to four days elapse between the arrival of the raw material, flour, in the pasta factory and the sale of the finished product. In all probability one must take as a starting point an even longer period, even in regard to pasta, since the production factors are not to be decided according to the time of the arrival of the raw material but at least from the date of its acquisition. It is indeed conceivable that in so far as the period between the acquisition of the raw material and the sale of the finished product is decisive, the peculiarities of each individual processed product would be considered in calculating the compensatory charge. However, in my opinion, such differentiation appears completely impossible for practical purposes in view of the great number of processed products of completely different nature, composition and duration of production. In other words for practical reasons and in order to simplify the administration it is not possible to avoid a certain degree of flat-rate assessment, which is moreover quite commonplace in the organizations of the agricultural markets. However in the final analysis that means in fact that for the purposes of application of Article 4 a (2), in as far as it applies to processed products, recourse must be had to the relevant rules relating to levies, as the Commission suggested. According to those rules, apart from the fixed component which is not relevant in the present case, the variable component, in which the relevant levy for the basic products is expressed, is fixed for every three months. It is calculated on the basis of the average threshold price for this period and the average cif prices which applied during a certain period in the past (cf. Article 6 of Regulation No 1059/69).

I would take the view therefore that Article 4 a (2) of Regulation No 974/71, so far as processed products are concerned, can only be interpreted as meaning that the charge on imports is to be regarded as that on the processed product itself and it therefore depends on the corresponding variable component calculated according to the general rules for processed products.

As against this solution, which is supported by certain passages in the judgment in Case 34/74, although it must not be ignored that the problems which are relevant here were not the essential ones in that case, the plaintiff admittedly objects that it leads to discrimination and distortions of the market and must therefore be regarded as dubious. Indeed it must be recognized that its argument has some persuasive force since, as the plaintiff did not fail to point out, the relatively simple facts in this case make it possible to point to examples of detriment to Italian exporters which must give pause for thought. They result from the fact that a levy is fixed daily where necessary for the basic product, durum wheat, according to the difference between the cif prices and the threshold prices, while the levy for processed products is only calculated quarterly. It is thus possible that durum wheat could have been imported from third countries as from 28 July 1973 without attracting levy, whereas the variable components applicable to pasta remained in force until 8 October 1973.

I can see no possibility of remedying this situation by means of an appropriate interpretation of Article 4 a (2). It would theoretically be conceivable to leave the levy rules for processed products in Regulation No 1059/69 out of account and instead to consider a differential application of this provision by a Member State for each product. An obstacle to this however is the fact that the question of the validity and the suitability of Regulation No 1059/69 in relation to the currency compensatory rules was not a issue in the proceedings and therefore was not examined in the necessary depth. An additional deterrent would be the considerable legal uncertainty involved in such a consideration and the danger that the compensatory rules would thus not be applied uniformly. It also does not appear to me to be possible to cast doubts on the validity of the rules contained in Article 4 a (2) on the abovementioned grounds and thus to assume a breach of the overriding prohibition against discrimination and with which of course Council regulations have to comply as well. Apart from the fact that such a result would have no effect on the main proceedings because it would leave the compensatory rules in essence untouched, it is enough at the present stage to state that such a question of validity was not properly put to the Court and it could hardly express a reliable opinion on it in the absence of sufficient depth of study of the relevant problems. Furthermore, I have the impression, that in view of the explanations concerning economic policy which were put forward in connexion with the introduction of the rules contained in Article 4 a (2), and in view of the economic situation existing at the time of the adoption of the rules, it would not be possible to justify a finding that the rules were unlawful, bearing in mind the powers held by the Council in this respect. The fact that the Council itself suspended the operation of the rules at a later time alters nothing. It can be explained by a alteration in economic conditions, in particular the increase in world market prices, but obviously it does not justify the conclusion that the rules were inappropriate when they were introduced. For these reasons I think that the second part of the second question referred by the national court should be answered in accordance with the interpretation of Article 4 a (2) of Regulation No 974/71 advocated by the Commission.

3. The questions referred for a preliminary ruling by the Pretore in Trieste can therefore be answered as follows:

(a) There are not grounds for departing from the interpretation of Article 4a of Regulation No 974/71 given in the judgment in Case 34/74. Thus it should be held that the charge on products imported mentioned in that article, whose price depends on the price of the products covered by intervention arrangements under the common organization of agricultural markets, consists solely of the variable component intended to take account of the price of basic products.

(b) Article 4a (2) of Regulation No 974/71, with Article 5 (1) of Regulation No 1463/73 does not permit the Member States to apply for the products set out in Article 1 (2) (b) of Regulation No 974/71 compensatory amounts which are higher than the variable components to which the products are subject on their import from third countries.

(c) In applying Article 4 a of Regulation No 974/71 to products which are listed in Article 1 (2) (b) of this Regulation, the Member States are only to take into consideration those charges on imports in the sense of the answer given under (a) above, which apply to the relevant product but not charges on imports which were fixed for the basic products.

( 1 ) Translated from the German.