Opinion of Mr Advocate General Van Gerven delivered on 26 June 1991. - French Republic v Commission of the European Communities. - EAGGF - Refusal to allow expenditure - Additional levy on milk. - Case C-22/90.



European Court reports 1991 Page I-05285



Opinion of the Advocate-General

++++

Mr President,

Members of the Court,

1. By Decision 89/627/EEC of 15 November 1989 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1987 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund, (1) the Commission among other things charged expenditure of FF 10 569 874 to the French Republic. That amount corresponds to the additional levies applicable to the quantities of milk collected during the third period of application of the levy (1986/1987) and considered to exceed (by 5 192 tonnes) the guaranteed total quantity set for deliveries by Article 5c(3) of Council Regulation (EEC) No 804/68. (2)

The French Government considers that the abovementioned decision is null and void and puts forward two submissions in support of that conclusion. As its principal argument, it maintains that the decision is based on a misinterpretation of Article 6a of Council Regulation (EEC) No 857/84. (3) In the alternative, it claims that the decision is unlawful in that the Commission' s calculations do not take into account all the possibilities afforded to dairies considered in excess for calculating the average fat content of their milk.

The principal submission

2. In order to understand the principal submission, it should be borne in mind that Regulation (EEC) No 856/84 imposed an additional levy on quantities of milk delivered or sold in excess of a determined reference quantity. The levy is applicable whatever method of marketing production is used: delivery to a purchaser (dairy) or direct sale for consumption. There is, however, a clear distinction depending on the method chosen. Thus a producer who, during the reference period, marketed his production simultaneously by both methods has two individual reference quantities, one for deliveries and the other for direct sales.

That distinction also applies at the level of the guaranteed total quantities of Member States: Article 5c(3) of Regulation No 804/68 (as amended by Regulation No 856/84, see footnote 2) lays down the guaranteed total quantity for deliveries, while the annex to Regulation No 857/84 - the general implementing regulation - sets that for direct sales. The first is a multiple of the second. For the first period in which the levy was applicable, the guaranteed total quantity set for deliveries in France was 25 585 000 tonnes, while that set for direct sales was only 1 183 000 tonnes.

3. Initially, the levy system made no provision for transferring reference quantities from one sector of activity to another according to the producers' marketing requirements. It catered only for producers who cease, totally or partially, either their direct sales or their deliveries. Article 4(5) of Commission Regulation (EEC) No 1371/84, (4) applicable during the period covered by the contested decision, (5) provides that:

"Producers who have obtained a reference quantity by application of paragraph 4 and who cease direct sales totally or in part may deliver their milk and milk products to a purchaser, with formula A or B applying, provided that the Member State can grant them a reference quantity from the guaranteed quantity specified in Article 5c of Regulation (EEC) No 804/68." (6)

That provision enables producers holding a reference quantity for direct sales who, although they may continue milk production, totally or partially cease their direct sales, to obtain a corresponding reference quantity for "deliveries" within the limits of the Member State' s guaranteed total quantity for "deliveries".

4. In the light of the fluctuations in the relative proportions of the two commercial activities and in order to enable producers with two reference quantities to adapt to certain specific marketing requirements (see the fifth recital in the preamble to Regulation (EEC) No 590/85), the Council inserted in Regulation No 857/84 a provision enabling the producers concerned to transfer reference quantities from one sector of activity to another. The relevant provision is the new Article 6a, which provides that:

"Producers who have two reference quantities, one for deliveries and one for direct sales, may, on request, obtain an increase in one of the reference quantities within a twelve-month period to enable them to adapt to changes in their marketing requirements. Any such increase shall be subject to a reduction of the same amount in the other reference quantity during the same twelve-month period. This reduction and the related increase shall be entered in the corresponding reserves referred to in Articles 5 and 6.

To be admissible, the producer' s request referred to in the first paragraph must contain all the necessary items of information to assess:

- the size of the applicant' s dairy farm,

- the total volume of his milk production, deliveries and direct sales of milk and/or milk products,

- the nature and the scope of the change to his marketing requirements."

5. The parties interpret Article 6a of Regulation No 857/84 quite differently. They agree, however, on a number of points.

First, they agree that only those producers who have two reference quantities may benefit from that provision. In order to ensure that the dual reference quantity is not purely theoretical and that a fraction of the reference quantity transferred continues to be available, the French authorities have, moreover, as from the 1986/1987 marketing year covered by the decision in question, limited the transferable reference quantity to 97% (99% in mountain areas) of the basic reference quantity. However, that condition, laid down in the French legislation implementing the levy system, is hardly relevant in this case (but see footnote 8). Neither of the parties relies on that condition in support of its argument. (7)

Next, the parties accept that the transfer authorization is valid only within a twelve-month period. That authorization accordingly lapses at the end of each marketing year, but may be renewed if the producer submits a new request.

The parties also agree that Article 6a cannot be applied when the producer has definitively ceased selling his milk directly. Article 5(5) and (7) of Regulation (EEC) No 1546/88 (at the time - see paragraph 3 - Article 4(5) and (7) of Regulation No 1371/84) must apply in those circumstances. Those provisions establish a system which is significantly different from that under Article 6a. Although the latter permits temporary transfers from "direct sales" to "deliveries", with the producer recovering his basic quantity at the end of the twelve-month period during which the transfers occur, definitive cessation of direct sales leads to the abolition of the reference quantity for "direct sales" and the transfer thereof into a national reserve enabling additional or special reference quantities to be granted to other producers selling directly for consumption. Furthermore, such abolition of the reference quantity for "direct sales" does not confer entitlement to a correlative increase in the quantity for "deliveries", but solely to the possibility of such an increase if the Member State has reserve quantities for that purpose.

Finally, the parties agree that Article 6a enables Member States to grant transfers to producers who have completely, though temporarily, suspended their direct sales activities. However, they differ on the question of the time at which that suspension must be considered to be a definitive cessation of activity.

6. This dispute arises from the examination by European Agricultural Guidance and Guarantee Fund (hereafter "EAGGF") inspectors of 72 files of transfers authorized by the French authorities under Article 6a of Regulation No 857/84. The inspectors found that in 29 cases the producers had definitively ceased direct sales. (8) The Agent for the Commission stated at the hearing that that finding was based on the requests for transfer themselves, since they referred to the definitive cessation of direct sales activity, at times from the first year of the levy system. It follows - and the French Government has not disputed this - that the transfers granted to those 29 producers were not in compliance with the rules.

In my view, the Commission could have treated the 29 files in question as a significant factor in support of the allegation that the French authorities had not checked compliance with the requirement that a transfer under Article 6a of Regulation No 857/84 cannot be granted to a producer who has definitively ceased his direct sales activity, or, in any event, had not set up an effective mechanism for checking compliance with that requirement (see the judgment in Case C-8/88 Germany v Commission [1990] ECR I-2321, at paragraph 42).

7. However, that is not the approach which the Commission has chosen to take. On the basis of information obtained from the French authorities, it found that, out of a net total quantity of 72 100 tonnes transferred under Article 6a, 28 540 tonnes (39%) related to producers who had transferred the greatest possible quantity from direct sales to deliveries. (9) The proportion of those transfers to total transfers granted during the 1986/1987 marketing year (39%) was the same as the proportion of the files in which the EAGGF inspectors had found that direct sales activities had definitively ceased to all the files which they had examined (40%).

I cannot say whether that coincidence influenced the Commission' s decision. In any event, the Commission has not complained that France did not systematically check in actual fact, that is to say in the light of the information in its file, whether the producers who had requested a transfer had definitively ceased their direct sales activity. It has chosen to define the principle of "definitive cessation" in abstract terms. According to the Commission, "producers who have transferred the greatest possible quantity from direct sales to deliveries" can be considered to have "ceased direct sales". (10) The Commission bases that definition on its interpretation of Article 6a of Regulation No 857/84: in its view "Article 6a is applicable only where producers carry out two commercial activities during the same twelve-month period" (emphasis added). (11) It follows, in the Commission' s view, that the quantity of 28 540 tonnes relating to producers who have transferred the greatest possible quantity from direct sales to deliveries cannot be taken into account in determining France' s guaranteed total quantity for deliveries.

8. I agree with the French Government that that interpretation by the Commission of Article 6a of Regulation No 857/84 is not correct. That article is intended to grant some flexibility to those producers with two reference quantities who, although they may maintain the level of their milk production, must, in the words of the provision, "adapt to changes in their marketing requirements". (12) Furthermore, the increase of one of the two reference quantities "shall be subject to a reduction of the same amount in the other reference quantity during the same twelve-month period". The terms in which the first paragraph of Article 6a is couched accordingly indicate the two fundamental conditions governing transfers under that article. There must be a producer who is temporarily experiencing difficulties in marketing his production by direct sales, but who intends to take up that activity again, at the same level as before the request for transfer, once those difficulties have disappeared. Furthermore, the transfer cannot lead to an increase in the total reference quantity of the individual producer concerned. In other words, the producer is authorized not to increase but to maintain the volume of production which he can market levy free.

9. In my view, the condition for which the Commission argues, namely that the producer must not only have two reference quantities but also actually carry out the two marketing activities during the same twelve-month period, is not inherent either in the terms or in the purpose of Article 6a of Regulation No 857/84. The French Government claims, correctly, that the effects of a change in marketing requirements may extend over several marketing years. As an example of this, it posits a producer who has obtained, along with a reference quantity for deliveries, a quantity for "direct sales" because of its sales to a public body (local authority, hospital, school and so on) under a contract for which it had tendered. The producer may involuntarily lose that contract for several years, while retaining the hope - and the necessary material infrastructure for when the time comes - of regaining the contract in a subsequent tender.

10. A consequence of the interpretation advocated by the Commission would be that a producer in a situation of the kind described above would no longer be able to benefit from a transfer under Article 6a of Regulation No 857/84 if within twelve months he had not found another outlet for the milk products to be sold for direct consumption. The definitive cessation system provided for by Article 5 of Regulation No 1546/88 would therefore have to be applied to him. His reference quantity for "direct sales" would accordingly be abolished so that, in view of the dissuasive nature of the levy, he would be deprived of the "fruits of his labour and of his investments" - in the words used by the Court in Wachauf v Bundesamt fuer Ernaehrung und Forstwirtschaft (13) - in carrying on not only direct sales of his milk but also the business of milk production itself to the extent of the "direct sales" reference quantity, although he did not at any time intend to suspend or reduce such production.

It is true that the definitive cessation system envisages the possibility of a reference quantity for "deliveries" being granted to producers who cease their direct sales activity. It does not, however, in all cases guarantee to the producer concerned that such a quantity will be granted, given that the quantities granted must stay within the limit of the Member State' s guaranteed total quantity for deliveries. Accordingly, the interpretation argued for by the Commission provides no guarantee that the producer concerned will not be deprived of the "fruits of his labour and of his investments" by the grant of a reference quantity for "deliveries" corresponding to the quantity for "direct sales" that would be abolished.

In the light of the aforesaid consequences, it seems to me that if the Council had intended to exclude from the scope of Article 6a of Regulation No 857/84 producers who, without abandoning it definitively, suspend their direct sales activity for more than one marketing year, it would have inserted an express provision to that effect. I accordingly consider that the French Government is justified in taking the view that the contested decision is based on a misinterpretation of Article 6a and should be annulled.

The alternative submission

11. I will restrict myself to a brief consideration of the alternative submission, given that it is relevant only if, contrary to my proposal, the principal submission is not accepted by the Court.

I agree with the arguments put forward by the Commission against the French Government' s proposition that the EAGGF should have carried out its calculations concerning the fat content by putting the Member State in the situation in which it would have been had it construed Article 6a of Regulation No 857/84 in accordance with the Commission' s interpretation (which I consider to be incorrect).

First, that proposition is out of time, as shown by the chronology of events given by the Commission. The clearance of accounts would be impossible if the Commission were not authorized to set aside fresh issues raised after the prescribed deadline.

Furthermore, it is not for the Commission to make assumptions as to what the French authorities would have done had they interpreted Article 6a of Regulation No 857/84 differently. On the contrary, as the Commission rightly observes, it must base its decision on the information in its possession by the prescribed deadline. If at that time it appears that the Member State' s competent authorities have not used all the possibilities afforded by the rules to enable dairies to avoid the levy, the Commission cannot take them into consideration when clearing the accounts.

Accordingly, I consider that the French Government' s alternative submission, unlike its main submission, is not well founded.

Conclusion

12. I propose that the Court annul Commission Decision 89/627/EEC of 15 November 1989 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1987 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund, in so far as it imposes on France an additional levy for 1986/1987 of FF 10 569 874 on account of the refusal to accept transfers amounting to 28 540 tonnes under Article 6a of Council Regulation No 857/84. I also propose that the Court order the Commission to pay the costs.

(*) Original language: French.

(1) - OJ L 359, p. 23.

(2) - Regulation of 27 June 1968 on the common organization of the market in milk and milk products (OJ, English Special Edition 1968 (I), p. 176). Article 5c was inserted by Council Regulation (EEC) No 856/84 of 31 March 1984 amending Regulation (EEC) No 804/68 (OJ L 90, p. 10).

(3) - Regulation of 31 March 1984 adopting general rules for the application of the levy referred to in Article 5c of Regulation (EEC) No 804/68 in the milk and milk products sector (OJ L 90, p. 13). Article 6a was inserted by Council Regulation (EEC) No 590/85 of 26 February 1985 amending Regulation (EEC) No 857/84 (OJ L 68, p. 1).

(4) - Regulation of 16 May 1984 laying down detailed rules for the application of the additional levy referred to in Article 5c of Regulation (EEC) No 804/68 (OJ L 132, p. 11).

(5) - Since then, the provisions of Regulation No 1371/84 have been consolidated by Commission Regulation (EEC) No 1546/88 of 3 June 1988 (OJ L 139, p. 12). The provision corresponding to Article 4(5) of Regulation No 1371/84 is Article 5(5).

(6) - Article 4(6) of Regulation No 1371/84 (now Article 5(6) of Regulation No 1546/88) makes similar provision for the case - which is not relevant here - of producers who, having obtained a reference quantity for deliveries, cease deliveries to a purchaser.

(7) - It is true that, in its rejoinder, the Commission raised a question concerning the lawfulness of a limitation in transferable quantities. That question, however, falls outside the scope of these proceedings.

(8) - Section 4.3.11.4 of the Summary Report concerning the results of inspections for the clearance of EAGGF, Guarantee Section, accounts for the 1987 financial year (Doc VI/200/89 - FR - Add 2 Rev 1(1) of 5 October 1989) (hereinafter Summary Report ). That section of the Summary Report is attached as Annex I to the Commission' s defence. The finding is in the sixth paragraph of section 4.3.11.4(ii).

(9) - See the seventh paragraph of section 4.3.11.4(ii) of the Summary Report. The relevant criterion - producers who have transferred the greatest possible quantity from the quantities for direct sales - is explained by the limit imposed in France on the transferable quantity of 97% (99% in mountain areas) of the basic reference quantity (see paragraph 5).

(10) - See the seventh paragraph of section 4.3.11.4(ii) of the Summary Report.

(11) - See the third paragraph of section 4.3.11.4(ii) of the Summary Report.

(12) - The fifth recital in the preamble to Regulation No 590/85 states that fluctuations of the respective portions of their two economic activities must be taken into account.

(13) - Case 5/88 [1989] ECR 2609. The words quoted are take from paragraph 19 of the judgment.