Opinion of Mr Advocate General Alber delivered on 24 March 1998. - Italian Republic v Commission of the European Communities. - EAGGF - Clearance of accounts - 1992 and 1993 - Beef and veal. - Case C-242/96.



European Court reports 1998 Page I-05863



Opinion of the Advocate-General

A - Introduction

1 The present case concerns various reductions in EAGGF (1) financing, debited against Italy and totalling ITL 108 850 076 808. The amount in question corresponds to reductions of between 2% and 10% in respect of six separate items.

2 The first two reductions both concern the public storage of beef. First, the Commission alleges that there were serious deficiencies in the organisation of buying-in of beef in Italy. The competent authority, it is alleged, delegated its supervisory function to a trade association without ascertaining whether that delegated task was being properly carried out. Responsibility for boning beef was also handed over completely to intervention centres - likewise without any supervision. According to the Commission, this gave rise to serious deficiencies.

3 The Commission justifies the further reduction in this sector by pointing out that, in the context of intervention purchasing of beef, the national authorities accepted unlawful multiple tenders (group tenders or interconnected tenders). (2)

4 A further point concerns deficiencies in the control of premiums for sheepmeat and goatmeat. According to the Commission, in many cases those deficiencies resulted in premiums being paid despite the fact that the animals in question should not have been selected for a premium payment.

5 Likewise with regard to the public storage of cereals, the Commission alleges serious deficiencies in the control procedures, which it attributes to the fact that all functions relating to public storage were delegated to outside operators.

6 In the context of the set-aside of arable land, on the other hand, the Commission alleges that Italy paid set-aside premiums in respect of land on which no crops had previously been grown.

7 With regard to the reimbursement of sugar storage expenditure, the Commission claims that in some cases no checks whatsoever were carried out by the competent authorities and the AIMA.

B - Facts and legal provisions

Public storage of beef and veal

8 In this connection, Italy seeks the annulment of Commission Decision 96/311/EC (3) in so far as it disallows expenditure of a sum of ITL 54 927 174 194. That reduction corresponds to 10% of the costs declared for 1990 and 1991.

9 To justify that reduction, the Commission refers to its Summary Report (4) according to which, during its inspections carried out in 1990 and 1991, it found serious deficiencies in the control procedures in Italy. It attributes those deficiencies to the fact that the competent intervention agency, the AIMA, had delegated its function to a trade association, the AIA. Responsibility for boning the purchased beef had likewise been handed over to private intervention centres. In both cases, there were no adequate checks to ascertain whether the tasks were carried out in accordance with the Commission's rules.

10 Moreover, the Commission submits that in many cases the supervising and supervised parties were one and the same, that is to say, the organisations which carried out the checks may also have supplied meat to the intervention agencies.

11 In the Commission's view those deficiencies in the control system are confirmed by the fact that, during its inspections, it found serious shortcomings in the conduct of the procedure and in respect of the quality of the meat put into storage. Thus, the intervention agency purchased meat which, because of its characteristics, should not have been deemed eligible for intervention. Moreover, it was found that, in some cases, inspection marks had been removed from meat, which indicated that the meat concerned was not of Community origin. Furthermore, instances of reclassification, with falsification of the original classification, were found. Other causes of complaint were, inter alia, unsuitable packaging and inadequate freezing of meat.

12 In order to highlight the deficiencies in the Italian system, moreover, the Commission refers to sales of stored meat, on the one hand in the context of food aid for Bulgaria, and on the other hand in the context of sales to the former Soviet Union and Brazil. The abovementioned deficiencies were also found to apply in those cases. For this reason, the Commission considered a 10% reduction in the costs declared for 1990 and 1991 to be justified.

13 Italy denies that the control procedures were not carried out in accordance with the regulations. If there were any defects in the meat at all, they would have been confined to isolated cases only. It maintains that a 10% reduction is thus too high in any event, and particularly in view of the improvements which Italy has introduced in the meantime.

Tendering procedures for beef and veal

14 In this connection, Italy seeks the annulment of the Commission decision in so far as it disallows expenditure of a sum of ITL 7 104 000 000. The amount disallowed corresponds to a flat-rate correction of 2% of the 1992 expenditure.

15 In its Summary Report (5) the Commission justifies that reduction on the ground that Italy allowed multiple tenders. The approach of the competent Italian authority was not compatible with the Community rules and discriminated against participants who had observed the rules.

16 The multiple tenders complained about may be of a speculative nature. If, for example, very large quantities of beef are offered for sale into intervention, it becomes necessary to reduce these quantities by application of a coefficient. (6) Since the tenderers endeavour to continue to sell the whole of their meat into intervention, inflated tenders are lodged for speculative purposes. If a tenderer speculates that a specific reduction coefficient will be laid down, he offers a correspondingly higher quantity for sale into intervention. If it then turns out that the coefficient laid down is not as high as the tenderer assumed, the tenderer must deliver into intervention more meat than he actually has available. If he is unable to perform his contract with the intervention agency as to 85% or 95%, he loses in whole or in part the security deposited in respect of the total amount. (7)

17 If, however, the tenderer splits his original tender into several smaller ones which are made in the name of nominees, the risk of losing the security payment is reduced. If he is unable to deliver the full quantity tendered for, in the case of several smaller tenders he is at least in a position to honour certain of them in such a way that he does not lose the security payment. It is true that in respect of the remaining tenders which he is then no longer in a position to honour he will lose his security payment. However, that security is not calculated on the total amount of all the tenders offered by him, but only on the smaller amount in each case. The amount of the security lost is thus smaller and is often exceeded by the profit achieved.

18 A clear consequence of this, in the Commission's view, is that the lodging of multiple tenders favours speculation because the effect of the security deposit is lessened.

19 Speculative tendering for pretended larger quantities, according to the Commission, runs counter to the purpose of intervention, which is, for example by intervention buying-in, to stabilise the market and prevent or mitigate a substantial fall in prices, (8) where market prices fall below a certain level. Regulation No 859/89 (9) introduced a tendering procedure. (10) Under that tendering procedure purchase prices and quantities are established on the basis of tenders received. (11)

20 Speculative tenders which, as demonstrated, are favoured by the lodging of multiple tenders make it difficult to operate intervention successfully. Since more meat is offfered than is actually on the market, buying-in prices and quantities determined on the basis of tenders received can no longer be established in accordance with the actual market situation. Speculative tenders thus prevent the Commission from obtaining a precise overview of the market situation. For that reason it may almost certainly be presumed that, as a result of the speculative tenders and the multiple tenders favouring them, more meat is bought in by the intervention agencies at higher prices. In that connection it must also be borne in mind that the lodging of several tenders allows speculation as to the price. The buying-in of excessive quantities causes the EAGGF to incur higher costs than is necessary in order to support the market.

21 In the applicant's view, however, all the rules concerning intervention were observed. It accepted no more than one tender per tenderer and thus contravened no requirement to carry out checks.

22 The provision which underlies this dispute is contained in Article 9 of Regulation No 859/89, paragraph 1 of which provides: `Tenderers may take part in the invitation to tender only if they undertake in writing to comply with all the provisions relating to the tender concerned.' (12)

23 Paragraph 2 provides: `Interested parties may participate in the invitation to tender issued by intervention agencies of the Member States in which this is opened either by lodging a written tender against a receipt or by any other written means of communication accepted by the intervention agency, with advice of receipt; they may submit one tender only per category in response to each invitation to tender.' (13)

24 The distinction between the concepts of `tenderer' and `interested party' is, in the Commission's view, of significance in this connection. According to the Commission, it follows from the difference in wording that interested parties are not to be equated with tenderers. `Interested parties' are not only those persons who actually take action and lodge tenders. That concept embraces a much wider class of persons. It is not therefore only the individual tenderer, that is to say the person who actually lodges the tender, who is prohibited from lodging more than one tender. The prohibition covers all persons tendering in respect of the same quantity of meat.

25 On the other hand, the applicant is of the opinion that the concepts of `tenderer' and `interested party' are interchangeable. The difference in wording is intended only to avoid a repetition of the concepts. No distinction can be made between the two. In other Community provisions as well, the concept of `interested party' means nothing more than an undertaking which participates in an invitation to tender. Accordingly, the prohibition in the last phrase of Article 9(2) merely precludes the person finally appearing as a tenderer from submitting more than one tender.

26 The requirement for the economic situation to be taken into account in connection with tenders follows, it is submitted, only from Article 11(3) of Commission Regulation (EEC) No 2456/93 of 1 September 1993 laying down detailed rules for the application of Council Regulation (EEC) No 805/68 as regards the general and special intervention measures for beef, (14) which was not yet in force at the material time. That provision is as follows:

`Interested parties may submit only one tender per category in response to each invitation to tender.

The Member States shall ensure that tenderers are independent of each other in the terms of their management, staffing and operations.

Where there are serious indications to the contrary or that tenders are not in line with economic facts, tenders shall be deemed admissible only where the tenderer presents suitable evidence of compliance with the second subparagraph.

Where it is established that a tenderer has submitted more than one tender, all the tenders from that tenderer shall be deemed inadmissible.'

27 In the Commission's opinion, there was yet a further reason for considering that the tendering procedure in Italy was not compatible with the Community rules. Undertakings on the beef and veal market in Italy are grouped together into three large producers' associations. According to the applicant, the latter comply on behalf of their members with all necessary formalities vis-à-vis public bodies. That is normal practice in Italy. Thus, those producers' associations collected their members' tenders, which, according to the applicant, had been placed in sealed envelopes, and forwarded them to the intervention agency. In the Commission's view, the confidentiality of tenders, which is required by Article 9(6) of Regulation No 859/89, is thus no longer ensured. Italy, on the other hand, is of the opinion that the associations merely fulfil the function of a postman in this connection. No infringement of Community provisions is therefore apparent.

28 In addition, such a producers' association can lodge a tender in its own name on behalf of all those of its members who have not submitted individual tenders. In that case also, in the Commission's view, confidentiality is not observed. The interests of competitors are pooled and the advantages of an invitation to tender cancelled out. In Italy's view, however, the practice in question is certainly not an infringement of the prohibition of multiple tenders, as the Commission claims, but constitutes a single tender lodged by the producers' association. It contends that this does not jeopardise intervention, but leads to a reduction in the number of tenders, which is entirely desirable.

Premiums for sheepmeat and goatmeat

29 In this connection, Italy challenges the Commission decision in so far as it disallows expenditure of a sum of ITL 34 175 522 595. That amount corresponds to a reduction of 10% of 1992 expenditure.

30 Under Article 5 of Council Regulation (EEC) No 3013/89 of 25 September 1989 on the common organisation of the market in sheepmeat and goatmeat, (15) a premium is to be granted to sheepmeat producers in order to offset an income loss. In the Commission's view, serious deficiencies in the Italian control system led, in numerous cases, to premiums being wrongly paid for animals which should not actually have been selected for that purpose.

31 Italy does not deny the deficiencies alleged by the Commission, but challenges the level of the correction made by the Commission. The applicant attributes the deficiencies in the control system to lack of training and lack of familiarity with the law on the part of the staff assigned to the checks.

Public storage of cereals

32 In this connection, Italy seeks the annulment of the Commission decision in so far as it disallows expenditure of a sum of ITL 10 082 336 246. The Commission justifies that reduction on the ground that it found serious deficiencies during its inspections. The public storage functions had been transferred without any control to outside operators. According to the Commission's submission, there were no controls either in respect of the outside operators' activities or in respect of the quality of the stored products. As a result, the Fund had incurred unnecessary costs. For that reason the Commission made a 10% reduction in the expenditure claimed as technical costs and financial charges for 1992 and a 5% reduction in the expenditure claimed as other costs for 1992.

33 Italy does not deny the alleged deficiencies, but challenges the level of the reduction.

Set-aside of arable land

34 In this sector, Italy challenges the Commission decision in so far as it disallows expenditure of a sum of ITL 2 169 762 753. According to the applicant, that amount corresponds to 10% of the expenditure allowed for Sicily in respect of 1992.

35 Regulation No 797/85 on improving the efficiency of agricultural structures, (16) as amended by Regulation No 1094/88, (17) introduced an aid scheme to encourage the set-aside of arable land. (18) That aid could be granted for all arable land, irrespective of the crops grown, provided that the land had in fact previously been cultivated for a reference period to be determined (19) - in this case the 1987/88 marketing year.

36 In the Commission's opinion, certain land in Sicily benefited under that aid scheme despite the fact that the last-mentioned condition was not satisfied, and it makes no sense to pay set-aside premiums in respect of land which has been ploughed but on which no crops have been grown. The applicant also, it is alleged, carried out no checks whatsoever in that regard.

37 Italy submits that the previous practice of `technical fallowing' has been superseded. With technical fallowing, the land lies fallow for a certain time and is only ploughed in order to improve its capacity to take in and retain water. Farmers have now gone over to planting that fallow land with autumn/spring crops for early harvesting, such as leguminous forage crops, broad beans, chickpeas, potatoes, etc., in order to prevent corrosion damage.

38 In the Commission's opinion, the traditional fallowing practice (that is to say without cultivation) has (also) continued to be employed in Sicily. However, since no checks whatsoever were carried out in this regard, it disallowed expenditure of a sum corresponding - according to it - to 5% of the relevant costs.

39 Italy disputes the justification for the reduction since, it claims, the relevant provision of the regulation is not clearly worded.

Sugar storage costs

40 In this connection, Italy challenges the Commission decision in so far as it disallows expenditure of a sum of ITL 391 281 020. That amount corresponds to 10% of the storage costs paid to specialised traders (and independent stores) in 1992.

41 The Commission justifies that reduction on the ground that none of the necessary checks was carried out.

42 Article 8 of Council Regulation (EEC) No 1785/81 of 30 June 1981 on the common organisation of the market in the sugar sector (20) instituted a system of compensation for sugar storage costs. That system comprises flat-rate reimbursement to be financed by means of a levy. Under Regulation No 1785/81, that levy is to be imposed on each importer of preferential sugar and each refiner of preferential sugar.

43 Under Article 2 of Council Regulation (EEC) No 1358/77 of 20 June 1977 laying down general rules for offsetting storage costs for sugar and repealing Regulation (EEC) No 750/68, (21) reimbursement of storage costs is to be made to: `any sugar manufacturer to whom a basic quota has been allocated; any sugar refiner; any manufacturer of powdered, ... candy sugar ...; any specialised sugar trader who has been approved by the Member State on whose territory he is established; any intervention agency'.

44 In addition, the third recital in the preamble to that regulation states: `therefore, the principle to be observed when the amounts of these levies are being fixed should be that total reimbursements made should equal total levies charged'.

45 Finally, the control of that system is regulated in Article 19 of Commission Regulation (EEC) No 1998/78 of 18 August 1978 laying down detailed rules for the offsetting of storage costs for sugar. (22) That provision states: `Member States shall take all measures necessary for the application of this Regulation and shall in particular establish all the necessary control measures.'

46 The Commission submits that the system in question is a very complex one requiring strict control arrangements, for which provision has also been made. However, it claims that since, by 31 December 1992, no checks whatsoever had been carried out at the premises of specialised traders in Italy, the 10% reduction is justified.

47 Italy concedes that, during a transitional period, (23) no on-the-spot checks were carried out at the premises of specialised traders. Only an administrative control procedure took place. However, this was very intensive and involved heavy penalties for failure to submit the requested documents in time. As soon as the AIMA was also able to carry out on-the-spot checks, these were extended to cover the preceding periods as well. In the course of those checks no irregularities were found. That was also true of the preceding periods.

48 The applicant argues that, in view of the fact that the storage costs were financed by the levies paid by the producers, rejection of the storage costs accounts conflicts with acceptance of the levy accounts of the beneficiaries.

49 With regard to the necessary checks, the applicant submits that the Community rules contained no provisions specifying the frequency and method applicable to them. On the contrary, the Community legislature has allowed the authorities of the Member States considerable freedom in applying the procedures and measures which it considers necessary in order to ensure sufficient supervision. Since, it is argued, there is no evidence of economic harm having occurred in this case, there is no basis for claiming that the checks were not sufficient.

Forms of order sought

50 On account of those six reductions, in July 1996 the Italian Republic brought an action and claimed that the Court should:

- annul Commission Decision No 417 of 10 April 1996 (24) in so far as, in clearing the accounts submitted by the Italian Republic for expenditure for 1992, it declares that the total sum of ITL 108 850 076 808 is not chargeable to the EAGGF.

51 The Commission claimed that the Court should:

- dismiss the action;

- order the applicant to pay the costs.

C - Opinion

Public storage of beef and veal

52 The Commission alleges serious deficiencies in Italy's control system, that is to say, that Italy failed to fulfil its supervisory obligation. As far as the supervision of boning operations is concerned, that obligation results from Article 20 of Regulation No 859/89 laying down detailed rules for the application of intervention measures in the beef and veal sector. (25) That article provides not only that intervention agencies are to be responsible for the supervision of the operations in question, but also specifies the forms which that supervision is to take. As far as other supervision is concerned, reference should be made to Regulation (EEC) No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy. (26) The recitals in the preamble to that regulation state, inter alia: `Whereas measures must be taken to prevent ... irregularities ...'. (27) The eighth recital states: `Whereas Community expenditure must be made subject to close supervision; whereas, in addition to supervision carried out by Member States on their own initiative, which remains essential, provision should be made for verification by officials of the Commission and for it to have the right to enlist the help of Member States'.

53 Article 8 of the regulation, which reflects those recitals, provides in paragraph 1 thereof:

`The Member States in accordance with national provisions laid down by law, regulation or administrative action shall take the measures necessary to:

- satisfy themselves that transactions financed by the Fund are actually carried out and are executed correctly;

- prevent and deal with irregularities;

- recover sums lost as a result of irregularities or negligence.

...'

54 Under the Court's case-law the national administrative authorities are responsible for ensuring that the Community rules are strictly observed. (28) The extent of this obligation on the Member States in regard to the financing of the EAGGF was decided by the Court in its judgment in Exportslachterijen van Oordegem. In that judgment it was held in regard to Article 8(1) of Regulation No 729/70:

`That provision, which expressly lays down in that specific area the obligations imposed on Member States by Article 5 of the Treaty defines, the Court has said, the principles according to which the Community and the Member States must ensure the implementation of Community decisions on agricultural intervention financed by the Fund and combat fraud and irregularities in relation to those operations (BayWa, cited above, paragraph 13).

That article thus imposes on the Member States the general obligation to take the measures necessary to satisfy themselves that the transactions financed by the Fund are actually carried out and are executed correctly, even if the specific Community act does not expressly provide for the adoption of particular supervisory measures (Case C-8/88 Germany v Commission [1990] ECR I-2321, paragraphs 16 and 17).' (29)

55 It follows that an obligation on the part of Member States to carry out checks may subsist even if such a requirement is not expressly provided for in the relevant provision.

56 Since Regulation No 859/89 contains extensive provisions on the characteristics which meat bought in is to have, how it is to be stored and how it is to be packed, the Member States must carry out the relevant checks in order to ensure that those rules are observed.

57 If they fail to comply with that obligation, their expenditure in the context of the EAGGF will not be reimbursed. As the Court has observed, `only refunds granted and intervention undertaken in accordance with the Community rules within the framework of the common organisation of agricultural markets are to be financed by the EAGGF ...'. (30) In that regard, it is for the Commission to prove that the rules of the common organisation of the agricultural markets have been infringed. (31)

58 It therefore now falls to examine whether the Commission has satisfied the burden of proof upon it. It claims that the supervisory functions and responsibility in the context of the intervention procedure were transferred by the AIMA to the AIA and private centres without appropriate supervision by the AIMA having been ensured.

59 Italy, for its part, gives details of the staff assigned to the checks and of the form which those checks took. On the one hand it names official veterinarians in this connection, but also states that checks were carried out by an organisation which was directly linked to the agency responsible for storage. No information is given about whether checks were also carried out by the AIMA and, if so, what form they took. The applicant merely states that it cannot be assumed that the AIMA delegated its function to the AIA. On the contrary, it claims, there was a reciprocal contract between the two organisations.

60 Since the AIMA has thus provided no information on whether and how it carried out its checks, it could be inferred therefrom that supervision was completely lacking at that level.

61 In the Commission's opinion, that is confirmed by the fact that in some instances the deficiencies found on the meat itself were so obvious (defective stamps, for example) that they should have been found during a proper check in any case.

62 The question is whether that is sufficient to prove an infringement on the part of the AIMA. In this connection, reference should be made to the Court's case-law under which the Commission is obliged on each occasion to give reasons for its decision finding an absence of, or defects in, inspection procedures. (32) In that case the Commission argued, inter alia, that the competent authorities were unable to provide information on the frequency of on-the-spot inspections or on the system of communication between the supervisory authorities and local officials. They were also said to have been unable to comment on the failure to draw up written reports. From the Commission's point of view, those factors constituted sufficient reasons for its decision. It was now for the applicant to show that the Commission's findings were inaccurate. It was not sufficient in this regard, the Court went on, for the applicant to contend that administrative checks as well as on-the-spot inspections were in fact carried out, but without producing any evidence for it. Since it had thus failed to show that checks had been carried out, those findings were capable of giving rise to serious doubts as to the existence of an adequate and effective series of supervisory measures and inspection procedures. (33)

63 In this connection, the Commission submits that the AIMA was unable to explain by what criteria it assessed whether the AIA carried out properly the tasks transferred to it. In other words, the AIMA was unable to show by what means it ensured that the system was functioning properly. Moreover, it is alleged, the AIMA was also unable to give any indication of instructions which it may have issued. The Italian authorities had not even made clear whether any on-the-spot checks took place and, if so, how often and according to what criteria. Much the same applied to measures concerning the storage of meat. Finally, the authorities had also been unable to produce the results of any checks.

64 In the Commission's opinion, an effective control system is all the more vital in this context since, in its view, in many cases the checker and the subject of the check are one and the same. Such a practice increases the risk of fraud. Italy says nothing about this. It merely makes observations concerning the allocation of functions in a very specific case as between AIA inspectors, official veterinarians and staff assigned to checks by the private intervention centres. It is not apparent from those submissions whether the functions were always clearly separate as between the individual agencies.

65 Furthermore, Italy makes observations only in response to individual allegations. Thus, for example, in response to the allegation that the intervention agencies had, in contravention of the rules, bought in meat which was already frozen, it states that such an infringement could not have been established retrospectively by a Commission inspection. The Commission contradicts this and submits that, in the case of meat purchased when it is already in a frozen state, the stamps are very easy to remove, in contrast to stamps applied to fresh meat. Italy does not deny the allegation that the maximum quantity which is allowed to be packed into cartons was not complied with in Italy. It merely states the reasons why that rule was not observed. The applicant does not respond in detail to the allegation that false stamps were applied. It merely submits that no loss was occasioned if a stamp was applied in the wrong place.

66 As far as the reclassifications are concerned, it at least admits that the AIA was obliged, from 1991 onwards, to pass on extensive instructions by circular letter to the competent agencies in order to ensure compliance with the rules. It thus does not deny that difficulties arose in this area.

67 In other respects, in response to many allegations it merely states that checks were carried out but that they revealed no infringements whatsoever. As has already been demonstrated, according to the Court's case-law that is not sufficient. As far as the problems with the classification of meat are concerned, it contends that this is done on the basis of subjective criteria which vary from one Member State to another. Against that it must be said that there are clear Community rules as to how meat is to be classified. (34) With regard to the allegation that veal or beef of the poor-quality conformation class P was purchased, the applicant contends that there was no reason to sell veal into intervention since the price of veal was much higher on the open market. With regard to that, it must be stated that selling veal into intervention may make sense if that meat cannot be sold on the open market. Meat of conformation class P, the applicant goes on, is very uncommon in Italy and was not encountered in the course of its own checks. As has already been demonstrated, that submission is not sufficient. With regard to the allegation of falsified classification, the applicant, in addition to asserting that no such falsification was established, refers to experts' reports which were drawn up at the request of the producers and intervention centres. No particular attention was paid to an alteration of conformation class `P' into the better-quality class `R' since the classes shown had turned out to be correct. Whether that submission is sufficient to refute the allegation is questionable. But even if it were, there are still enough other points which suggest deficiencies in the control procedures.

68 A further point which the applicant raises is that the deficiencies established are minimal; that is to say that only a minor infringement has occurred. Apart from the fact that the scale of the infringement is uncertain, such a submission can relate only to an individual problem and not to all the deficiencies alleged by the Commission.

69 Next, as far as the sales to Bulgaria, the former Soviet Union and Brazil are concerned, the applicant contends that there were no complaints on the part of the consignees. However, that absence of complaints cannot constitute a criterion in the present case. In the case of Bulgaria, the applicant claims that the meat was inspected prior to export. If deficiencies had been found on that occasion, it is argued, the meat could not have been released for export. The same applies to the sales to the former Soviet Union. Moreover, in the case of the sales to Bulgaria, the Commission is said to have stated a completely wrong quantity of meat. That claim cannot be verified. What is clear, however, is that during an inspection which was carried out it was concluded that the meat in question did not comply with the rules on intervention.

70 Italy cites a further individual instance. In that case, after no objections had been raised in the course of an inspection by the EAGGF, the AIA established considerable deficiencies. However, it cannot be inferred from that individual case of an actual inspection that the AIA's inspection criteria were in general conformity with those of the EAGGF.

71 Finally, the applicant submits that the deficiencies established by the Commission related to just a few isolated cases (the deficiencies on the meat itself and the defective packing, for example). However, those isolated cases constitute an additional factor in support of the allegation that no effective system of control existed. (35) Here, too, it may surely be assumed that the Commission has succeeded in showing that, if the AIMA carried out any checks at all, those checks, like those carried out by the AIA, were insufficient. To that extent, the isolated cases established by the Commission may corroborate that point. Moreover, the Commission has submitted that it inspected all the existing intervention centres in 1990 and 15 out of 35 in 1991. It found the same deficiencies in all of them. To that extent, it is not possible in this case to speak merely of minor isolated instances or selectively-targeted inspections. Secondly, it should be pointed out that in this case the Commission chose the flat-rate calculation method on the basis of the risk which had arisen. Since the AIMA was unable to disprove the allegation that it was no longer carrying out inspections itself, that alone supports the conclusion that there was a serious risk to the Fund. Any such conclusion does not have to be based solely on the deficiencies established during the checks.

72 The Commission has thus been able to prove that Italy failed to fulfil its supervisory obligations. It rightly assumes that such a failure constituted a risk to the Fund.

73 The remaining burden of proof now rests on Italy. As the Court has held, when the Commission refuses to charge certain expenditure to the EAGGF on the ground that it was incurred as a result of breaches of Community rules imputable to a Member State, it is for that State to show that the conditions for obtaining the financing refused by the Commission are fulfilled; (36) in other words, the applicant must prove that the conduct imputed to it did not lead to an increase in costs in the context of the EAGGF. However, the applicant makes no observations on this point.

74 It merely submits that, if the Commission had reached the correct decision when exercising its discretion, it should have made a reduction of only 5%.

75 It should be pointed out in this connection that the Court has held that where it proves impossible to establish with certainty the extent to which a national measure which is incompatible with Community law has caused an increase in the expenditure entered under a budgetary item of the EAGGF, the Commission has `no choice' but to disallow all the expenditure in question, and not only a percentage thereof. (37)

76 For the purposes of flat-rate correction, the Commission has adopted certain guidelines upon a proposal by an interservice group (Belle Group Report). Those guidelines propose a reduction in flat-rate calculations to three possible percentages:

- 2% 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;

- 5% 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;

- 10% 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.

77 Otherwise, it is sufficient to refer to the Court's case-law concerning cases in which the Commission does not disallow the total expenditure affected by the infringement but endeavours to establish the financial impact of the unlawful action by means of calculations. In such cases, the Court has held, it is for the Member State to show that the conditions for obtaining the financing refused by the Commission are fulfilled. (38) The applicant merely asserts in this regard that, in view of the Commission's unrepresentative checks, a 10% reduction is not justified. That objection cannot be upheld since the number of spot checks carried out by the Commission is not what matters. Decisive importance attaches to the checks for which the applicant bears responsibility. Since the deficiencies apply to the whole of the system - the AIMA was unable to show that it monitors the execution of the functions transferred by it - a 10% reduction is also justified under the Belle Group guidelines.

78 In addition, the applicant refers to its improvements in the system, which were also acknowledged in the Summary Report. For that reason, it argues, a reduction of 10% should not have been implemented. The guidelines provide that, where the Member State undertakes improvements in the system as soon as existing deficiences become known, this must be taken into account in the correction to be made. Those criteria should be followed when there are doubts as to which of the three categories (2%, 5% or 10%) should be applied. However, the Commission points out that the changes in question were introduced only from 1993 onwards. According to the Commission, however, the applicant was informed of the existing deficiencies as early as 1991.

79 Italy thus did not introduce the improvements immediately after the deficiencies became known. In conclusion, it should be pointed out that, in principle, Italy is favoured by the flat-rate calculation since, if the Commission had projected the results of its checks, it would have come to the conclusion that irregularities existed in 30% of cases. It could therefore even have disallowed the costs in their entirety. For that reason it may be assumed in this connection that the 10% reduction was justified.

Tendering procedure for beef and veal

Meaning and purpose of the last phrase of Article 9(2)

80 The applicant claims, firstly, that the Commission has misconstrued the last phrase of Article 9(2). That provision, it argues, merely requires every natural and legal person applying to the authority as a tenderer to submit one tender only. It is not apparent from that provision that account has to be taken of economic facts, namely possible connections between members of a company or firm and the company or firm itself as well as holding companies. Such a requirement would have to result expressly from the provision. If tenders from independent legal persons are rejected on economic grounds, that is a breach of the principle of economic freedom.

81 Under the Court's case-law, it is for the Commission to prove that the rules of the common organisation of the agricultural markets have been infringed, which results in a refusal to charge expenditure to the EAGGF. (39)

82 Moreover, in regard to the requirements which the formulation of provisions must satisfy, the Court has held: `Since a rule whose breach inevitably entails financial consequences must be sufficiently clear and precise, the Commission was not entitled to rely on the terms of subheading ... as a basis for imposing, at the time of the clearance of EAGGF accounts, an interpretation which was not dictated by the normal meaning of the words used.' (40)

83 Accordingly, it must be examined whether the terms in which the last phrase of Article 9(2) of Regulation No 859/89 is couched satisfy those requirements and whether they allow of a construction of the kind placed upon them by the Commission. In that connection it would appear appropriate to examine first the manner in which the Commission seeks to interpret the last phrase of Article 9(2). The pleadings mainly speak of `multiple' tenders. Those cannot be tenders submitted by one and the same tenderer under one name, for such tenders are not lawful in Italy either. As is also clear from the pleadings, the Commission is also not challenging every kind of connection between the individual tenders. Thus, for example, it states that where a person operates two independent slaughterhouses, both may submit a tender. As the Commission explained at the hearing, in its view only tenders relating to the same quantity of meat are unlawful under the last phrase of Article 9(2). Where an interested party offers his meat not only himself but also through the intermediary of nominees, that is in breach of Community provisions and must be prohibited by the authorities of the Member States.

84 The Commission points out that, according to the Court's case-law, a provision is not merely to be construed literally but also in accordance with its meaning and purpose. (41) Accordingly, the Commission contends that the provision at issue in these proceedings would be deprived of its purpose if it were possible to submit several tenders via nominees and thus circumvent the prohibitory provision.

85 The intervention scheme, the Commission contends, is jeopardised, as has already been demonstrated, by the practice in regard to intervention buying-in in Italy. By the buying-in of excessive quantities greater costs arise, it is submitted, than are necessary in order to support the market. Moreover, equality of access for all interested parties, which is required under Article 6(6) of Regulation No 805/68 as amended by Regulation No 571/89, is not guaranteed.

86 The last phrase of Article 9(2) of Regulation No 859/89 must therefore, the Commission contends, be interpreted according to its meaning and purpose in such a way that intervention measures cannot be frustrated. If tenders relate to the same quantity of meat, they are in reality only from a single tenderer. Such tenders are therefore unlawful.

87 In the Commission's opinion, that also follows from the wording. In this connection it should be said that a difference in wording as between paragraphs 1 and 2 of Article 9 could certainly point to a difference in meaning. It could be inferred from this that it is not sufficient to check whether the person who actually submits the tender only submits a single one, that is to say, whether in each case an independent (legal) person participates in the procedure. Thus the term `interested party' could be understood as meaning a person interested in selling his meat into intervention. As has been seen, that person must not necessarily be the same person as the tenderer, that is to say the person who actually submits the tender. If, for example, the meat is offered via nominees, in that case there is only one interested party but several tenderers. But if one looks at the way in which those two concepts are used in other regulations dealing with intervention measures for beef and veal, it may be seen that the abovementioned distinction is not always adhered to. Thus, for example, the first recital in the preamble to Regulation No 2271/90 (42) states `... that tenderers should only be allowed to submit a single tender ... for each category in response to each invitation to tender'. Moreover, the German version of Article 11(3) of Regulation No 2456/93, which replaced Article 9 of Regulation No 859/89, uses the terms `Interessent' [interested party] and `Bieter' [tenderer] in connection with the submission of tenders. (43)

88 Thus, no further conclusions may be drawn from the distinction between `tenderers' and `interested parties' in Article 9.

89 However, it is more instructive to have regard to the provisions which preceded those at issue in the present proceedings. Thus, in 1990 it was made possible to submit several tenders at different prices. Under Regulation No 1282/90 (44) the last phrase of Article 9(2) was amended to read as follows:

`they may submit more than one tender, at different prices, for each category in response to each invitation to tender.'

90 That provision was, however, repealed shortly afterwards in August 1990. Amending Regulation No 2271/90 stated in the first recital in the preamble thereto: `Experience shows that tenderers should only be allowed to submit a single tender ... for each category in response to each invitation to tender'.

91 In the applicant's view no conclusions may be drawn from that as regards the present case. Regulation No 1282/90 concerned the submission of more than one tender by the same tenderer. However, this case concerns the question whether tenders submitted by different legal persons may be rejected. That was never the intention at the outset. A different interpretation may therefore not be adopted in times of economic difficulty; particularly since the provision in Regulation No 2456/93 leads to a reversal of the burden of proof for the tenderer. He is required to produce proof of his economic independence. No corresponding provision is to be found in the last phrase of Article 9(2). However, nor is it necessary to rely on a provision corresponding to Regulation No 2456/93. At the same time, however, it is clear that after repeal of the provision in Regulation No 1282/90 the tenderer may no longer submit several tenders in respect of the same quantity of meat. The meaning and purpose of the provision here at issue in the last phrase of Article 9(2) is thus in any case that several tenders may not be submitted in respect of a specific quantity of meat. That provision would become meaningless if it could readily be circumvented by recourse to nominees.

92 The applicant must also have been aware of that fact when it received the tenders. On the one hand, it is true of any rule that it becomes meaningless if it is circumvented, for example, as is maintained in this case, by virtue of the fact that the same meat is offered by several persons. On the other hand, the applicant was aware of the meaning and purpose of intervention. To that extent it must also have been aware of the fact that it runs counter to the purpose of intervention if multiple tenders are submitted in respect of the meat available on the market.

93 Moreover, the Court has held that even in cases where, viewed objectively, Community law is incorrectly applied as a result of an interpretation adopted in good faith by the national authorities, costs incurred in that connection must, under Articles 2 and 3 of Regulation No 729/70, be borne by Member States. (45) That strict interpretation of the conditions under which expenditure is to be borne by the EAGGF is necessary, moreover, in view of the objectives of Regulation No 729/70. The management of the common agricultural policy in conditions of equality between traders in the Member States requires that the national authorities of a Member State should not, by the expedient of a wide interpretation of a given provision, favour traders in that State to the detriment of those in other States where a stricter interpretation is applied. (46)

94 The applicant points out that the last phrase of Article 9(2) is silent as to who the individual tenderers are and the manner in which they are to structure their relationships one to another. It follows from the meaning and purpose of the last phrase of Article 9(2) that it is prohibited to offer meat by way of nominees. The applicant cannot rest content with the assertion that it is under no obligation under the terms of Article 9 to examine possible connections between individual tenderers. That merely goes to the question as to the manner in which observance of a prohibitory provision such as that contained in the last phrase of Article 9(2) can be monitored.

95 Accordingly, it is necessary to concur with the Commission's submission that the last phrase of Article 9(2) also prohibits tenders which, whilst coming from different legal persons, are made in respect of the same meat, with the result that the tenders may be assumed to have been submitted by nominees.

96 Accordingly, contrary to the applicant's submission, a basis is also provided for such tenders to be rejected, namely the last phrase of Article 9(2).

Monitoring obligation on the part of the Member State

97 In the Commission's view, the disallowance made in the context of the clearance of accounts is justified on the ground that the applicant did not ensure compliance with that provision.

98 It is clear that in Italy tenders were examined only to see whether they originate from different legal persons. No further examination was undertaken. In what follows it will be a matter of examining whether on that basis the applicant may be said to have failed to observe a provision of Community law, since the Commission has mentioned no actual example where tenders were actually submitted by nominees.

99 However, the Commission is unable to adduce such proof because in this respect the applicant carried out no checks at all. The only check made was whether the tenders were from independent (legal) persons. Thus, the Commission has no information before it for examining the specific circumstances. Admittedly, the Commission may also carry out its own checks. However, under the Court's case-law the management of EAGGF finances is principally in the hands of the national administrative authorities responsible for ensuring that the Community rules are strictly observed. The Court went on to point out: `That system, based on trust, does not involve any systematic supervision by the Commission, which moreover would in practice be impossible for it to carry out ... Only the Member State is in a position to know and determine precisely the information necessary for drawing up EAGGF accounts since the Commission is not close enough to obtain the information it needs from the economic operators.' (47)

100 Thus, since in the context of the clearance of EAGGF accounts the Commission is dependent upon information provided by the Member States, it is not possible for it here to give a specific example of an infringement under the tendering procedures. The Commission is able - and required - merely to show that the applicant failed to examine all the criteria necessary for the purposes of compliance with the relevant provision. That the Commission has done.

101 With regard to the general monitoring obligation under Article 8 of Regulation No 729/70, reference is made to point 53 et seq. above. As is clear from the Court's case-law, a Member State may be obliged to carry out checks even if such a requirement is not expressly laid down in the relevant provision.

102 Thus, the question arises whether in the specific case before the Court the applicant was required to carry out further checks; that is to say, should or could the Member State have done more and, if so, what?

103 As the Commission has stated, the disadvantage for the Fund arises out of the fact that the submission of several tenders by an interested party by means of nominees encourages the submission of speculative tenders. Yet if one has regard to the Commission's action against speculative tenders as such, it might be queried whether the applicant was required to take any further steps.

104 According to the Commission, in order to prevent speculative tenders whereby, in anticipation of a specific reduction coefficient, tenders are made in respect of a greater quantity of meat than is available, a security payment was introduced. (48) That means that in that connection the Member States are merely obliged to ensure that the appropriate amount of security is deposited. They do not have to check whether the individual tenderer has offered more meat than is in his possession.

105 In the present case, however, there was a further provision to be considered which could not be circumvented. An interested party desirous of selling his meat into intervention could not submit more than one tender. That followed from the underlying rationale of intervention. It is true that that idea was only subsequently given concrete shape in Regulation No 2456/93. (49) However, that does not alter the fact that already prior thereto there must have been awareness of that idea.

106 Thus, it is clear that the applicant ought to have carried out further checks in order to establish whether the tenders submitted were in fact from the same tenderer. That is particularly the case in light of the clear indications of interconnections between individual tenderers, which resulted from a comparison of names, addresses and bank account numbers. Even if it could not with certainty be concluded from those indications that there was an infringement of the last phrase of Article 9(2), the indications were however of such a nature as to necessitate more specific checks, and that is the decisive factor.

107 Such a check could have been carried out even before the entry into force of the 1993 regulation. As has been shown, a monitoring obligation on the part of the Member States may subsist even if it is not expressly laid down in the relevant provision but derives from the spirit thereof. The important factor in that connection is that the Member State should check whether in fact tenders are being made in respect of different quantities of meat. The manner in which it carries out those checks is for it to decide. This does not need to be expressly regulated by the Commission. Accordingly, the Commission cannot be said, contrary to the applicant's submission, to be seeking to apply Regulation No 2456/93 retroactively to the facts of the present case.

108 It must therefore be held that the applicant ought to have carried out further checks but failed to do so. It thus failed to fulfil its monitoring obligations and therefore infringed Community law.

109 The question now remains as to whether that is also the case with regard to the practice of submission of tenders by producers' associations, which exists only in Italy. Since Italy has submitted that the tenders are received in sealed envelopes by the associations and merely forwarded, a fact not disputed by the Commission, formally speaking they are not multiple tenders; their confidentiality would also be safeguarded, so that it is not apparent how there could be an infringement of the last phrase of Article 9(2) or Article 9(6). However, that is not the case with the practice of submission of tenders by producers' associations on their own behalf. Since the tenders are first collected and then forwarded as a single tender, that is a breach of the confidentiality of tenders. Moreover, there is the risk of infringing Article 9(4)(a) under which a tender must relate to a quantity of at least 10 tonnes. That provision becomes completely ineffective if the tenders collected include small ones which are then submitted as part of a large collective tender. In that connection at least there has been an infringement of the Community rules.

Proof of loss occasioned to the EAGGF - burden of proof

110 It now falls to examine whether a reduction in the context of the clearance of accounts, as applied by the Commission, was justified on the facts. Since the Commission has proved that there was an infringement of the rules governing the common organisation of the agricultural markets, it is now for the applicant to show that the Commission made an error with regard to the financial consequences to be drawn from that.

111 In this connection the Commission has not merely submitted that the EAGGF suffered a loss. Rather it has shown that the applicant infringed Community law and the manner in which it did so. The Commission has, furthermore, set out how that may have favoured speculative bids by tenderers. It has explained, finally, how that may have led to an erroneous appraisal of the market and thus to excessive buying-in of beef, possibly at higher prices. Thus, in any event, it has adduced credible evidence that it was possible for loss to have been incurred by the EAGGF.

112 Since the applicant itself has raised no objections to the Commission's financial calculation, it merely remains to be considered whether the 2% reduction envisaged by the Commission is also justified in the light of the Commission's guidelines.

113 With regard to the rates of reduction and percentages listed in those guidelines, reference is made to point 76 above.

114 In this connection it must again be pointed out that under the Court's case-law financing of expendure can be disallowed even as to 100% if the precise financial consequences of a measure contrary to Community law cannot be established. (50)

115 The present case did not involve minor deficiencies in the control system. Rather, there was a complete absence of checks as to whether multiple tenders were being submitted in respect of one and the same quantity of meat, and that via nominees. Under those circumstances, the 2% rate of correction chosen by the Commission appears proportionate and appropriate.

116 Accordingly, the objections raised by the applicant in this connection against the Commission decision cannot succeed.

Control procedures with regard to premiums for sheepmeat and goatmeat

117 Italy does not deny that there were serious deficiencies with regard to the control procedures. However, since measures have been adopted from 1993 onwards which the Commission itself has acknowledged as effective, Italy objects to the level of the reduction. In its opinion, it should be not more than 2%.

118 The Commission, on the other hand, points out that those measures were introduced only from 1993 onwards, whereas the decision at issue concerns expenditure for 1992. The Commission further submits that a reduction of 10% is also justified on the basis of the Belle Group guidelines. It emphasises that virtually no effective monitoring took place. For that reason the Commission could even have envisaged making a higher reduction, as in the previous years. It refrained from doing so in view of the improvments made by Italy.

119 Under the Belle Group Report, the question of improvements undertaken by national authorities should be raised only when it is not entirely clear in which of the three categories (2%, 5% or 10% reduction) a particular case should be placed. Italy does not deny that before the improvements were introduced there was practically no effective monitoring. The infringements were therefore so serious that a significant financial risk existed for the Fund and a reduction of 10% is justified.

120 Moreover, the Belle Group Report then states that improvements must be introduced as soon as deficiencies came to light. That surely did not happen in this case, since the Commission had already made reductions in the previous years but the improvements came into effect only from 1993 onwards. In any case, the financial risk in respect of 1992 could no longer be lessened. Accordingly, a reduction of 10% can be regarded as justified in this case.

121 From the applicant's plea that no more premiums were paid than was lawful, it could be inferred that the existence of a loss is disputed. It should be stated in this connection that under the Court's case-law the burden of proof in this regard rests on the applicant. However, since it has adduced no further arguments, it has therefore failed to refute the allegation that a significant financial risk arose for the Fund as a consequence of the existing deficiencies in the control procedures. Under the Commission's guidelines, that is a sufficient ground for making a correction.

Public storage of cereals

122 In this connection also, Italy does not deny the deficiencies established by the Commission. However, pointing to the improvements introduced from 1994 onwards, it maintains that the reductions of 5% and 10% made for 1992 (in respect of different budgetary items in each case) are no longer justified.

123 In this connection also, the Commission refers to the indisputable seriousness of the deficiencies which, under the Belle Group Report, justifed the reductions adopted by the Commission. It points out that the improvements introduced will be assessed in the context of subsequent clearances of accounts. In Italy's opinion, however, the reforms introduced should already result in a reduction of the rate of correction.

124 In view of the seriousness of the infringements, it is not apparent in this context, as in that of premiums for sheepmeat and goatmeat, that the reduction made by the Commission is not justified, particularly since the improvements cited by Italy were, according to Italy, introduced only from 1994 onwards.

Set-aside of arable land

125 The Commission alleges that Italy failed to check whether the land said to have been withdrawn from production was land which had actually been previously cultivated or land which had been cultivated in the context of bastard fallow.

126 Italy does not dispute that, but claims that the modified form of fallow (with cultivation) has been practised in Italy since the 1987/88 marketing year. It submits that the relevant provisions are not clear, however, and a correction is therefore not justified.

127 The Commission submits that, in the light of the observations of the Conciliation Body, it is disallowing, not 10% of the expenditure, but only 5%. It is thus taking into account the otherwise very rigorous control procedures operated by the Italian authorities with regard to set-aside.

128 With regard, next, to the question whether, as Italy submits, the relevant provision of the regulation uses a technical term whose meaning is not clear, it should be pointed out that Italy is referring to the term `fallow'. (51) However, in this case it is rather a question of ascertaining under what conditions land intended to be withdrawn from production can be considered to have actually been cultivated previously.

129 In this connection, reference should be made to Commission Regulation (EEC) No 1272/88 of 29 April 1988 laying down detailed rules for applying the set-aside incentive scheme for arable land. (52) Under Article 2(1) of that regulation, arable land means the types of land listed in section D of Annex I to Regulation (EEC) No 571/88, (53) with the exception of land mentioned under point D/21. An exception also applies to land devoted to products without a market organisation. Annex I(D) mentions as crops, inter alia: cereals, dried vegetables, potatoes, sugar beet, industrial plants such as tobacco, hops, cotton, oilseeds or fibre plants, or forage plants. The exception under point 21 is worded: `Fallow land'. Accordingly, land planted with potatoes and dried vegetables in the context of fallow could also be eligible for aid.

130 On the other hand, under the third subparagraph of Article 1a(3) of Regulation No 1094/88, the use of set-aside arable land may be authorised for grazing and for growing lentils, chickpeas and vetches. Land farmed in that way may not, therefore, be regarded as actually cultivated. Whilst it is therefore not clearly apparent from the provisions in question that the land in Sicily at issue was eligible for aid, it can however be held that those provisions are not clear in that regard.

131 On the other hand, however, Italy has been unable to refute the Commission's allegation that the traditional method of fallowing is still being applied in Sicily. The mere assertion that this method has been completely superseded is not sufficient in this regard, particularly since the Commission's allegation is partly based on information provided in the context of the farm accountancy data network. (54) The checks required by the Commission would therefore have been necessary. The applicant has been unable to show that those checks were actually carried out. According to the Commission, the applicant was also unable to provide any information about its instructions regarding checks to be carried out. The proposed reduction is therefore justified.

Sugar storage expenditure

132 In the applicant's opinion, the checks which it carried out were sufficient. In its view that is also true of the period in which only administrative checks and no on-the-spot checks were made in the case of specialised traders.

133 The checks which had to be carried out are mentioned, inter alia, in Article 4 of Regulation No 1358/77. Paragraph 1 thereof provides that calculation of the reimbursement is to be based on monthly returns of quantities in store. It follows that checks on quantities stored had to be carried out monthly. However, that is not in itself sufficient to establish whether those checks had to take place on the spot.

134 Article 16 of Regulation No 1998/78 regulates the case where discrepancies are found between the actual stocks and the stocks recorded. Such discrepancies can, however, only be found if checks are carried out on the spot. It is therefore clear from the provisions on the offsetting of sugar storage costs that it was not sufficient to carry out administrative checks only.

135 Since the applicant indisputably failed to carry out any on-the-spot checks at the premises of specialised traders in the period examined by the Commission, it therefore failed to fulfil its monitoring obligation arising from the Community rules.

136 The applicant, on the other hand, claims that no such obligation results expressly from the provisions in question. That view cannot be supported. Moreover, the Court has held that monitoring obligations on the part of Member States may subsist even if they are not expressly provided for in a regulation. That follows from the spirit and purpose of the system in conjunction with the general supervisory obligation contained in Article 8 of Regulation No 729/70.

137 In other respects the applicant merely asserts that its checks were sufficient. According to the Court's case-law, however, that submission will not suffice.

138 As far as the applicant's reference to the links between compensation for storage costs and levies paid by producers is concerned, the Commission submits that the compensation system in question is based on the principle of financial neutrality. This means that the total of levies collected and compensatory amounts paid out should equal zero in respect of any financial year. The Commission refers in this regard to Article 6(2) of Regulation No 1358/77. That paragraph provides that any difference is to be carried forward to a subsequent sugar marketing year. Following that principle, the Commission states that compensatory amounts are paid only in respect of products in respect of which a levy has been paid. Conversely, levies are charged only on products in respect of which compensation for storage costs has been paid. In the Commission's opinion, however, that balance between amounts exists at Community level and not at the level of individual undertakings or Member States. It is the Commission's task to set the amounts annually for the Community as a whole.

139 Moreover, according to the Commission, the traders who pay levies are not necessarily the same as those who benefit from compensation. That follows clearly from the fact that compensation is also paid to specialised traders, whereas they are not required to pay any levies. Even in the case of a single manufacturer, the two amounts - compensatory payments and levies - would not automatically tally.

140 That argument must be upheld. It cannot be inferred from the link between compensatory payments and levies that compensatory payments must be made even when the necessary conditions for such payments are not fulfilled. Thus, for example, payment is to be made only in respect of certain types of sugar. (55) Moreover, certain forms of processing may have the consequence that the resulting product ceases to be eligible for reimbursement. (56) If those conditions are not observed, storage costs cannot be reimbursed. Levies already paid are irrelevant in that regard. It is rather the case that compensatory sums paid without justification result in a loss to the Fund.

141 Nor can its objection that no loss to the Fund has been proved avail the applicant. As has already been demonstrated, under the Court's case-law, where an infringement by a Member State is established, it is for the Member State to show that the Commission's financial considerations are erroneous. In this case the applicant has failed to do that.

142 It is thus clear that the applicant failed to carry out the necessary checks, exposing the EAGGF to a serious risk. A 10% reduction is therefore justified.

Costs

143 Under the first subparagraph of Article 69(2) of the Rules of Procedure of the Court the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings.

D - Conclusion

144 The Court should therefore:

(1) dismiss the action;

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

(1) - European Agricultural Guidance and Guarantee Fund.

(2) - This problem also forms, at least in part, the subject-matter of Cases C-209/96 United Kingdom v Commission [1998] ECR I-5655, C-232/96 France v Commission [1998] ECR I-5699, C-233/96 Denmark v Commission [1998] ECR I-5759 and C-238/96 Ireland v Commission [1998] ECR I-5801.

(3) - Commission Decision 96/311/EC of 10 April 1996 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1992 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund and in respect of certain expenditure for 1993 (OJ 1996 L 117, p. 19).

(4) - Document VI/6355/95.

(5) - See footnote 4.

(6) - The relevant provision is to be found in Article 11(3) of Commission Regulation (EEC) No 859/89 of 29 March 1989 laying down detailed rules for the application of intervention measures in the beef and veal sector (OJ 1989 L 91, p. 5).

(7) - Article 13(4) of Regulation No 859/89.

(8) - Fourth recital in the preamble to and Article 5 of Regulation (EEC) No 805/68 of the Council of 27 June 1968 on the common organisation of the market in beef and veal (OJ, English Special Edition 1968 (I), p. 187).

(9) - Cited in footnote 6.

(10) - Third recital in the preamble to and Article 7 et seq. of Regulation No 859/89.

(11) - Second recital in the preamble to Council Regulation (EEC) No 571/89 of 2 March 1989 amending Regulation (EEC) No 805/68 on the common organisation of the market in beef and veal, repealing Regulation (EEC) No 1302/73 and extending Regulation (EEC) No 4132/88 (OJ 1989 L 61, p. 43).

(12) - Emphasis added.

(13) - Emphasis added.

(14) - OJ 1993 L 225, p. 4.

(15) - OJ 1989 L 289, p. 1.

(16) - Council Regulation (EEC) No 797/85 of 12 March 1985 on improving the efficiency of agricultural structures (OJ 1985 L 93, p. 1).

(17) - Council Regulation (EEC) No 1094/88 of 25 April 1988 amending Regulations (EEC) No 797/85 and (EEC) No 1760/87 as regards the set-aside of arable land and the extensification and conversion of production (OJ 1988 L 106, p. 28).

(18) - Article 1a(1).

(19) - Article 1a(2) of Regulation No 1094/88.

(20) - OJ 1981 L 177, p. 4.

(21) - OJ 1977 L 156, p. 4.

(22) - OJ 1978 L 231, p. 5.

(23) - In the period examined by the Commission the AIMA had just taken over the functions of the former Cassa Conguaglio Zucchero.

(24) - Published under No 96/311/EC (OJ 1996 L 117, p. 19).

(25) - Cited in footnote 6.

(26) - OJ, English Special Edition 1970 (I), p. 218.

(27) - Seventh recital in the preamble to Regulation No 729/70.

(28) - Judgments in Case C-48/91 Netherlands v Commission [1993] ECR I-5611, at paragraph 11, Case C-366/88 France v Commission [1990] ECR I-3571, at paragraph 20, Case C-8/88 Germany v Commission [1990] ECR I-2321, at paragraph 17, and Joined Cases 146/81, 192/81 and 193/81 BayWa [1982] ECR 1503, at paragraph 26.

(29) - Judgment in Case C-2/93 Exportslachterijen van Oordegem [1994] ECR I-2283, at paragraphs 17 and 18.

(30) - Judgment in Netherlands v Commission, cited in footnote 28, at paragraphs 13 and 14, with further references.

(31) - Judgment in Netherlands v Commission, cited in footnote 28, at paragraph 18, with further references; judgments in Case C-281/89 Italy v Commission [1991] ECR I-347, at paragraph 19, with further references; Case 347/85 United Kingdom v Commission [1988] ECR 1749, at paragraph 16, and Case C-55/91 Italy v Commission [1993] ECR I-4813, at paragraph 13, with further references.

(32) - Judgment in Germany v Commission, cited in footnote 28, at paragraph 23.

(33) - Judgment in Germany v Commission, cited in footnote 28, at paragraph 26 et seq.

(34) - Council Regulation (EEC) No 1208/81 of 28 April 1981 determining the Community scale for the classification of carcases of adult bovine animals (OJ 1981 L 123, p. 3).

(35) - See also judgment in Germany v Commission, cited in footnote 28, at paragraph 42.

(36) - Judgment in Netherlands v Commission, cited in footnote 28, at paragraph 16, and judgment in United Kingdom v Commission, cited in footnote 31, at paragraph 14.

(37) - Judgments in Case C-50/94 Greece v Commission [1996] ECR I-3331, at paragraph 26, in Joined Cases 15/76 and 16/76 France v Commission [1979] ECR 321, at paragraph 32 et seq., and in United Kingdom v Commission, cited in footnote 31, at paragraph 13.

(38) - Judgment in United Kingdom v Commission, cited in footnote 31, at paragraphs 14 and 15.

(39) - See footnotes 30 and 31.

(40) - Judgment in Case 349/85 Denmark v Commission [1988] ECR 169, at paragraph 16.

(41) - Judgments in Case C-283/91 Contarini [1992] ECR I-6359, at paragraph 14, and in Joined Cases C-296/93 and C-307/93 France and Ireland v Commission [1996] ECR I-795, at paragraph 21.

(42) - Commission Regulation (EEC) No 2271/90 of 1 August 1990 amending Regulation (EEC) No 859/89 laying down detailed rules for the application of intervention measures in the beef and veal sector (OJ 1990 L 204, p. 45).

(43) - This distinction is also reflected in the English version, which speaks of `interested parties' and `tenderer'.

(44) - Commission Regulation (EEC) No 1282/90 of 15 May 1990 amending Regulation (EEC) No 859/89 laying down detailed rules for the application of intervention measures in the beef and veal sector (OJ 1990 L 126, p. 31).

(45) - Article 3(1) of Regulation 729/70 provides:

`Intervention intended to stabilise the agricultural markets, undertaken according to Community rules within the framework of the common organisation of agricultural markets, shall be financed under Article 1(2)(b).'

(46) - Judgment in Case 11/76 Netherlands v Commission [1979] ECR 245, at paragraphs 8 and 9.

(47) - Judgment in Netherlands v Commission, cited in footnote 28, at paragraph 11.

(48) - Article 10 of Regulation No 859/89.

(49) - Third recital in the preamble to Regulation No 2456/93.

(50) - See footnote 37.

(51) - In the French text `jachère', in the Italian text `maggese'.

(52) - OJ 1988 L 121, p. 36.

(53) - Council Regulation (EEC) No 571/88 of 29 February 1988 on the organisation of Community surveys on the structure of agricultural holdings between 1988 and 1997 (OJ 1988 L 56, p. 1).

(54) - Regulation No 79/65/EEC of the Council of 15 June 1965 setting up a network for the collection of accountancy data on the incomes and business operation of agricultural holdings in the European Economic Community (OJ, English Special Edition 1965-1966, p. 70).

(55) - Article 3 of Regulation No 1358/77.

(56) - Article 9 of Regulation No 1998/78.