Opinion of Mr Advocate General Mischo delivered on 28 April 1998. - Italian Republic v Council of the European Union. - Action for annulment - Regulation (EC) No 1522/96 - Introduction and administration of certain tariff quotas for imports of rice and broken rice. - Case C-352/96.



European Court reports 1998 Page I-06937



Opinion of the Advocate-General

1 The Italian Government's action seeks the annulment of Council Regulation (EC) No 1522/96 of 24 July 1996 opening and providing for the administration of certain tariff quotas for imports of rice and broken rice (1) (hereinafter `the regulation' ) and in particular Articles 3, 4 and 9.

2 The regulation was adopted as part of the implementation by the Community of the results of negotiations conducted pursuant to Article XXIV, paragraph 6, of the General Agreement on Tariffs and Trade (GATT) following the accession of the Austrian Republic, the Finnish Republic and the Kingdom of Sweden to the European Community.

3 The new members' application of the common customs tariff involved increasing some of their customs duty rates. It was necessary, therefore, to agree adjustments with certain non-member countries which were signatories of GATT, pursuant to Article XXIV, paragraph 6, and in particular point 5 of the memorandum of understanding regarding the derogation from obligations under GATT 1994 (2) (hereinafter `the agreement').

4 The Community has negotiated with various non-member countries and has concluded agreements with the Commonwealth of Australia and the Kingdom of Thailand in this context. They were approved in Council Decision 95/592/EC of 22 December 1995 concerning the conclusion of the results of negotiations with certain third countries under GATT Article XXIV:6 and other related matters; (3) on the same day the Council adopted Regulation (EC) No 3093/95 laying down the rates of duty to be applied by the Community resulting from negotiations under GATT Article XXIV:6 consequent upon the accession of Austria, Finland and Sweden to the European Union. (4)

5 The Council then, on 24 July 1996, adopted Regulation No 1522/96, which is the subject of the application. Under Article 1(1)(a) of the regulation, an annual tariff quota was opened for imports of 63 000 tonnes of semi-milled or wholly milled rice into the Community at zero duty.

6 Article 1(3) allocates 1 019 tonnes of this quota to Australia and 21 455 tonnes to Thailand. The agreement concluded with Thailand expressly specifies this quantity allocated to that country but there is no reference to a specific quantity in the agreement concluded with Australia.

7 The Italian Government asks the Court to declare the regulation, in particular Articles 3, 4 and 9, null and void.

8 Articles 3 and 4 set out the conditions for obtaining import licences and Article 3(1) specifies in particular:

`Where import licence applications are submitted in respect of rice and broken rice originating in Thailand and rice originating in Australia under the arrangements laid down in Article 1, they shall be accompanied by export licences completed in accordance with the model set out in Annexes I and II respectively and issued by the competent body in the countries as indicated therein.'

9 Article 9 provides that:

`1. The Commission shall monitor the quantities of goods imported under this Regulation, with a view in particular to establishing:

- the extent to which traditional trade flows, in terms of volume and presentation, to the enlarged Community are significantly changed, and

- whether there is subsidisation between exports benefiting directly from this Regulation and exports subject to the normal import charge.

2. If either of the criteria set out in the indents in paragraph 1 is met, and in particular if the imports of rice in packages of five kilograms or less exceed the figure of 33 428 tonnes, and in any event on an annual basis, the Commission shall submit a report to the Council accompanied, if necessary, by appropriate proposals to avoid disruption of the Community rice sector.'

Grounds for annulment of Articles 3 and 4

10 The Italian Government believes that Articles 3 and 4 should be declared null and void because they infringe:

- Article XXIV, paragraph 6, of GATT;

- Article 43 of the EC Treaty;

- the general principle of proportionality.

11 In this connection, the Italian Government makes the following observations. Articles 3 and 4 specify that import licences will only be granted to applicants holding an export licence from the country of origin, which must accompany the import licence application.

12 It therefore contends that `as a consequence of this provision, the actual management of annual tariff quotas is put in the hands of the exporting State's authorities, which grant licences to exporters of their own choosing and which can therefore restrict imports of the product into the Community to their chosen candidates.'

13 As far as Australia is concerned, the provision is certainly not justified; unlike the agreement concluded with the Kingdom of Thailand, the agreement on the conclusion of the negotiations under Article XXIV, paragraph 6, of GATT and approved by Decision 95/592 contains no clause providing for the automatic grant of import licences on the basis of export licences issued by that State. For this reason, the provision is also contrary to the decision approving the agreement with Australia.

14 The fact that effective control of the quota has been left to that country also gives it an undue advantage; this is contrary to the object of Article XXIV, paragraph 6, of GATT, to which the contested regulation expressly refers and for the application of which it was adopted.

15 The contested provision introduces no adjustment for a non-EC exporter which would re-establish the situation prior to the accession of the three new Member States (Austria, Finland and Sweden) to the European Community. On the contrary, exporters from countries outside the EC - already allowed under the aforementioned agreements to export the specified rice quota at zero duty into a large-scale customs union, instead of into three small and isolated markets, which is in itself a reasonable balance of the interests of both parties to the negotiations - will be in a position to control the export of the agreed tariff quota; this does not appear to be a `mutually satisfactory' solution within the meaning of Article XXIV, paragraph 6, of GATT.

16 The Italian Government adds that allowing these countries the undue advantage mentioned above also appears to infringe the general principal of proportionality and is evidence that the Council has manifestly failed to seek to take a measure which would meet the requirements of the common agricultural policy.

17 In reply to these arguments the Council first draws attention to the Court's case-law, from which it is clear that a Member State cannot rely on the provisions of GATT to contest the legality of a regulation in an action for annulment.

18 In support of this contention it cites the judgment in Case C-280/93 Germany v Council, (5) in which the Court drew attention to its consistent case-law, according to which `GATT, which according to its preamble is based on the principle of negotiations undertaken on "the basis of reciprocity and mutually advantageous arrangements", is characterised by the great flexibility of its provisions ...'.

19 The Court inferred from this that: `Those features of GATT, from which the Court concluded that an individual within the Community cannot invoke it in a court to challenge the lawfulness of a Community act, also preclude the Court from taking provisions of GATT into consideration to assess the lawfulness of a regulation in an action brought by a Member State under the first paragraph of Article 173 of the Treaty.'

20 However, the applicant points out, rightly, that in the same judgment the Court explained that:

`... it is only if the Community intended to implement a particular obligation entered into within the framework of GATT or if the Community act expressly refers to specific provisions of GATT, that the Court can review the lawfulness of the Community act in question from the point of view of the GATT rules ...'.

21 The Council objects that this is not the case here. The contested act contains no reference to GATT rules in the strict sense; the regulation was not adopted in application of GATT rules but of a Community agreement in accordance with them.

22 Nevertheless I consider that the Community intended to give effect to `a particular obligation entered into within the framework of GATT', namely its obligations arising under agreements with other parties to GATT following negotiations concluded on the basis of Article XXIV, paragraph 6, of GATT.

23 I therefore consider that in principle there is no reason why the Court should not examine the legality of the contested regulation in the light of GATT 1994. It must be said, however, that the applicant alleges only infringement of Article XXIV, paragraph 6, of GATT and in particular of the memorandum of understanding cited above. The Council is correct, therefore, in pointing out that the sole obligation imposed on the contracting parties under these provisions is that of reaching mutually satisfactory adjustments. This is not an objective criterion but a reference to the intentions of the parties - this is implied by the use of the word `mutually'. The terms of Article XXIV, paragraph 6, are therefore fulfilled where, as in the present case, the parties to the negotiations have reached agreement.

24 The applicant states in its reply that if the Council's contention is accepted, it will be impossible to evaluate agreements concluded in the context of GATT. This is not the case. There is nothing to prevent a contracting party from deciding that an agreement reached after negotiations under Article XXIV, paragraph 6, of GATT infringes another of its provisions and bringing proceedings to settle disputes.

25 By the same token, and subject to the conditions imposed by the Court's case-law, an applicant may allege infringement of other GATT provisions in the context of such an agreement. As the applicant has not alleged infringement of any GATT rule other than Article XXIV, paragraph 6, this argument must be rejected.

26 Finally, the Italian Government argues that the regulation goes beyond the agreements reached following negotiations within the GATT framework. It criticises the fact that the authorities in exporting States can issue export licences to suppliers of their own choosing; it points out that this provision is not included in the agreement with Australia and is certainly unjustified in that case.

27 It must be pointed out, however, that the agreement with Australia specifies that `the tariff quota management system includes allocation to traditional suppliers'.

28 The exporting country's authorities are in the best position to determine which were Australia's traditional suppliers to Austria, Finland and Sweden and to ensure that they receive the export licences they need to maintain the traditional flow of trade. This cannot be regarded as creating an undue advantage.

29 Even if the agreement with Australia did not oblige the Council to establish a system of export licences, it likewise did not preclude it from doing this - the only condition being that the quota management system should `... include(s) allocation to established traditional suppliers based on their exports to Austria, Sweden and Finland'. This being so, there has been no infringement either of the agreement or of the decision approving it.

30 The applicant also states that the Council has not taken `an appropriate measure to meet the requirements of the common agricultural policy' and is thus in breach of Article 43 of the Treaty. Although the burden of proof is on the applicant, it offers no evidence in support of this argument. In any event, with regard to Article 43, it is hard to see why a system under which export certificates are used to maintain traditional trade flows - an aim which, moreover, is not contested - would in principle be inappropriate in relation to Article 43.

31 Thirdly, I do not consider that the Council has infringed the principle of proportionality in extending to Australia the system granted to Thailand. Given the Council's wide discretionary powers which under the Court's case-law the Council has in relation to the common agricultural policy, the granting to Australia, whose quota was in any case only 5% of the Thai quota, of the same management regime imposed by the agreement with Thailand cannot be regarded as disproportionate.

32 Objectively, the advantage cannot be regarded as being so significant that Articles 3 and 4 of the regulation would be disproportionate to the aim in view, which was to regulate the management of quotas granted under agreements concluded with the non-member countries concerned.

33 For all these reasons I am of the opinion that the applicant has not established that Articles 3 and 4 of Regulation No 1522/96 infringe Community law.

Arguments advanced against Article 9

34 According to the Italian Government, Article 9 entails the breach of:

- essential procedural requirements, in particular for lack of reasoning;

- Article XXIV, paragraph 6, of GATT;

- Article 43 of the Treaty;

- the general principle of proportionality.

Finally, it entails a misuse of power.

35 The applicant argues in the first place that the Council has infringed essential procedural requirements because it has not given adequate reasons for the content of the aforementioned Article 9 of the regulation. It takes the view that:

`The Council should have determined the quantity of rice in packets of 5 kilograms or less imported into the new Member States before their accession and should have used this to establish the maximum quantity (not exceeding the above-mentioned quantity) beyond which the Commission would be obliged to intervene to avoid disturbances.

In any event, the Council should have given appropriate justification for the threshold of 33 428 tonnes with regard to the requirement to maintain the traditional flow of trade in the enlarged Community expressly set out in the antepenultimate recital of the regulation.'

36 This argument rests on the applicant's assumption that the 33 428 tonnes fixed by the Council is considerably in excess of the traditional flows which the regulation aims to protect.

37 It appears from the documents provided by the Council at the Court's request that the figure in question represents the average total imports into the three new Member States, namely 30 389 tonnes, increased by 10%.

38 It should also be noted that figures for two of the three Member States relate solely to packets of less than 5 kilograms and not to packets of 5 kilograms or less, so the total amount of imports was probably even higher. In any event, the Council established a reasonable `alert threshold' by taking account of the fact that there was a change in the traditional flow as soon as the previous average level of imports was exceeded by 10%.

39 It was not obliged to explain, in the recitals, how the figure of 33 428 tonnes in Article 9 was calculated. Had this been so, it would also have been required to provide the breakdown of the 63 000-tonne quota between the USA, Thailand, Australia and the other regions as well as for other quotas provided for by the regulation, namely 20 000 tonnes of husked rice and 80 000 tonnes of broken rice. This would go beyond the reasoning requirements laid down by the Court. (6)

40 In Article 9 of the regulation the Council has therefore laid down a provision in accordance with the reasoning set out in the eighth and ninth recitals of the regulation.

41 Those recitals express both the Council's expectation that traditional trade flows will be protected and the need to avoid possible increased subsidisation between imports benefiting from the regulation and others subject to the normal import charge.

42 The decision, which obliges the Commission to act if the existing trade flow is exceeded by 10%, is therefore the logical result of this reasoning.

43 The applicant also alleges infringement of Article XXIV, paragraph 6, of GATT, of Article 43 of the Treaty and of the principle of proportionality. In fact, on the assumption that the threshold of 33 428 tonnes does not correspond to traditional imports, the Italian Government argues that `specifying such a quantity therefore gives an undue competitive advantage to customary exporters to the Community in some third countries and therefore appears to be manifestly abnormal and unjustified, as compared with the "mutually satisfactory" solution sought by agreements with third countries under Article XXIV, paragraph 6, of GATT and, furthermore, is an obvious infringement of the general principle of proportionality. From this standpoint, too, the contested regulation is the result of a failure to consider whether the measure is sufficient to meet the requirements of the common agricultural policy.'

44 The applicant's argument is based on a premiss which has been proved erroneous by the documents provided by the Council and for this reason alone it must be rejected.

45 However, I should like to add a few comments on the principle of proportionality.

46 The Council is correct in pointing out that, in order to establish whether a Community rule meets the principle of proportionality, it is necessary to determine whether the methods envisaged are apt for attaining the aim in view without going further than is necessary for achieving that aim.

47 In the Council's view, the aim of the regulation is to implement agreements concluded with non-member countries and its provisions are apt for achieving this aim regardless of the contents of Article 9. This article provides a guarantee for Community operators in order to avoid any disruption in the Community rice sector. The Council, exercising its discretionary power, decided to include this guarantee in the regulation but it would be apt to fulfil its object of implementing agreements with third countries even without the guarantee.

48 I agree with this analysis. It is abundantly clear from a reading of the visas and the recitals that the object of the regulation is to implement the agreements concluded in the context of negotiations under Article XXIV, paragraph 6, of GATT, opening the quotas required and regulating their management.

49 However, it could be argued that as the Council has chosen to establish a guarantee such as that in Article 9, it must comply with the principle of proportionality and therefore it may not be subject to a fixed threshold which is disproportionate with regard to the aim pursued.

50 Even if this argument were to be accepted, the applicant's arguments would still be factually unfounded, as the threshold in question corresponds to the sum of the existing imports plus 10%. The level at which it has been fixed is not therefore disproportionate in relation to traditional trade flows.

51 Besides, Article 9 places no restriction on Community intervention if this threshold is reached. Paragraph 2 clearly states that the Commission's obligation to monitor takes effect on the occurrence of one of the circumstances described in paragraph 1, that is to say a substantial change in traditional flows and the existence of cross-subsidisation between imports benefiting directly from the regulation and those subject to the normal import charge and in particular when the threshold of 33 428 tonnes is reached. Article 9 thus allows the Commission to monitor imports even when the quantities imported remain below this threshold.

52 It also follows that the argument that the Council has not taken account of quantities imported into the new Member States under the inward processing arrangements is not one which can establish an infringement of the principle of proportionality.

53 Finally, as regards the claim of misuse of power, the applicant states that in fixing a threshold which does not correspond to the aim of maintaining traditional trade flows the Council is pursuing an aim other than that indicated in the regulation's recitals.

54 The Council correctly points out that the applicant has offered no evidence as to what other aims it pursued in this case, although the burden of proof is on the applicant.

55 I do not find the applicant's pleas convincing and accordingly propose that the Court should reject the application and order the applicant to pay the costs.

(1) - OJ 1996 L 190, p. 1.

(2) - OJ 1994 L 336, p. 16.

(3) - OJ 1995 L 334, p. 38.

(4) - OJ 1995 L 334, p. 1.

(5) - Case C-280/93 Germany v Council [1994] ECR I-4973.

(6) - For example, see the judgments in Case C-122/94 Commission v Council [1996] ECR I-881, paragraph 29, Case C-446/93 Atlanta Fruchthandelsgesellschaft [1995] ECR I-3799, paragraph 16, and Case 250/84 Eridania [1986] ECR 117, paragraph 37 and 38.