Opinion of Mr Advocate General Darmon delivered on 21 April 1994. - Bundesrepublik Deutschland v Deutsches Milch-Kontor GmbH. - Reference for a preliminary ruling: Bundesverwaltungsgericht - Germany. - Aid for skimmeed-milk powder - Systematic frontier inspections - Measure having equivalent effect - Costs of inspections - Charge having equivalent effect. - Case C-426/92.



European Court reports 1994 Page I-02757



Opinion of the Advocate-General

++++

Mr President,

Members of the Court,

1. By order of 27 August 1992, the Bundesverwaltungsgericht referred to the Court for a preliminary ruling three questions on the interpretation of a number of Community regulations governing the conditions for the grant of Community aid for skimmed-milk powder produced in one Member State and intended for processing in another Member State. The questions facing the Court thus concern, first, the possibility of carrying out systematic inspections at frontiers and, second, the question whether such inspections are compatible with Articles 9, 12, 16 and 95 of the EEC Treaty where they are designed to ensure compliance with conditions relating to the composition of skimmed-milk powder.

2. Before I specify the content of the questions in the reference, it is necessary to set out the relevant rules and briefly to summarize the facts of the dispute in the main proceedings between the company Deutsches Milch-Kontor and the Federal Republic of Germany, represented by the Bundesamt fuer Ernaehrung und Forstwirtschaft (Federal Office for Food and Forestry) ("the Bundesamt").

I ° The relevant rules of Community law

3. Regulation (EEC) No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk products (1) introduced a system of rules designed to facilitate the marketing of the products to which it applied. The second subparagraph of Article 7(2) provides that

"Special measures may be taken for skimmed-milk powder which cannot be marketed on normal terms during a milk year."

4. More specifically, Article 10(1) provides for the grant of aid for skimmed-milk powder for use in feedingstuffs provided that it satisfies a number of conditions.

5. On the basis of that regulation, the Council adopted Regulation (EEC) No 986/68 of 15 July 1968 laying down general rules for granting aid for skimmed milk and skimmed-milk powder for use as feed. (2) Under that regulation, the aid was payable by the Member State in which the skimmed milk or skimmed-milk powder was processed or denatured. However, Article 3(1) made it possible, for a certain period, to derogate from that system by authorizing payment of aid by the State of production rather than by the State in which the product was processed.

6. Since the Member States had notified the Commission of their intention to have this latter arrangement renewed with regard to Italy, the Commission adopted Regulation (EEC) No 1624/76 of 2 July 1976 (3) allowing the Member State of export to pay aid in respect of skimmed-milk powder produced within its territory but intended for denaturing or processing in Italy.

7. That regulation was amended by Regulation (EEC) No 1726/79, (4) which makes the payment of aid by the Member State of export subject to a number of conditions.

8. Article 2(1) of Regulation No 1624/76 now reads as follows:

"The aid shall be paid by the consignor Member State only:

(a) if the skimmed-milk powder, whether as such or incorporated in a mixture, satisfies the requirements specified in Article 1(2), (3) and (4) of Regulation (EEC) No 1725/79 and has in the consignor Member State been the subject of the inspection relating thereto referred to in Article 10 of the said regulation;

(b) in accordance with the detailed rules relating to compliance with the moisture content specified in Articles 1(4) and 10(1) of Regulation (EEC) No 1725/79;

...".

9. Article 2(4) was also redrafted as follows:

"The control copy shall be issued only on production of a certificate issued by the competent authority stating that it has verified that the provisions of paragraph 1(a) and (b) have been complied with.

...".

10. Article 1 of Regulation (EEC) No 1725/79, (5) to which Regulation No 1726/79 refers, requires that the quality and composition of skimmed-milk powder should satisfy the conditions there laid down. Article 10 of Regulation No 1725/79, for its part, first states that

"In order to ensure compliance with the provisions of this regulation the Member States shall take the following inspection measures"

and then provides, in substance, for checks on the quality of the skimmed-milk powder and on its processing into compound feedingstuffs.

11. With regard to quality, the check is normally carried out during denaturing or processing, although the second subparagraph of Article 10(1) provides that

"However, where the skimmed-milk powder used, whether as such or in the form of a mixture, comes directly from the factory premises in which it is produced, the check ... may be made before the skimmed-milk powder leaves the said factory premises."

12. In that case, a number of conditions must be complied with in order to ensure that the products thus checked are those which will later be processed.

13. With regard to checks on denaturing, the regulation provides simply for "inspections [which are] frequent and unannounced [and] made at least once in every 14 days ...". (6)

II ° The facts of the dispute in the main proceedings

14. Deutsches Milch-Kontor purchases skimmed-milk powder in the Federal Republic of Germany and exports it to Italy for processing into compound feedingstuffs. Transport is by lorry; each lorry carries a load of approximately 25 tonnes and is subject, when crossing the frontier, to systematic inspections by the Bundesamt in which samples are taken from certain parts of each lorry-load. The purpose of these inspections is to ensure that the goods comply with the conditions laid down in the relevant Community regulations. The costs of the analyses carried out pursuant to these inspections are passed on to the trader in question and amount to DM 112 per sample. Between 29 April 1980 and 8 September 1980 payment notices amounting to DM 17 081.28 were issued, reflecting the costs of the analyses carried out. Deutsches Milch-Kontor questioned the propriety of this in legal proceedings on the ground that the imposition of such costs was tantamount to a charge having an effect equivalent to a quantitative restriction on exports.

15. Although the action was dismissed at first instance by the Verwaltungsgericht (Administrative Court) Frankfurt, the appellate court annulled the payment notices on the ground that the Community rules authorized only random inspections.

16. The Bundesamt appealed on a point of law to the Bundesverwaltungsgericht, which has referred to the Court a number of questions on the frequency of the inspections provided for under the Community rules (7) and on the compatibility with Articles 9, 12, 16 and 95 of the EEC Treaty of the charging of the costs of such inspections to the exporter in question. (8)

17. In the first two questions, which I shall examine together, the national court is asking essentially whether the first subparagraph of Article 2(4) of Regulation No 1624/76 of 2 July 1976, as amended by Article 1 of Regulation No 1726/79 of 26 July 1979, requires that the inspection should relate to each lorry-load of skimmed-milk powder intended for processing in Italy and, if not, how frequently such inspections may be carried out.

III ° Discussion

18. In order to summarize in outline the observations submitted to the Court, I would point out that both the Commission and the German Government take the view that the issue of the certificate requires that the inspection be carried out at the time when the goods cross the frontier in order to guarantee compliance with the Community-law requirements. That certificate, they argue, can be issued only after prior inspection of the export consignments at the frontier in order to obviate any risk of fraud in connection with the receipt of Community aid.

19. For its part, Deutsches Milch-Kontor submits that Article 10(2) of Regulation No 1725/79 authorizes only inspections which are "frequent and unannounced" and thus carried out on a random basis.

20. Let me make it clear at the outset: none of the Community regulations provides for any frontier inspection whatever of the composition of skimmed-milk powder, whether carried out on a systematic or random basis; provision exists only for inspections either in the undertaking where the skimmed-milk powder is produced (Article 10(1)) or when it is being denatured or processed into compound feed (Article 10(2)).

21. Likewise, no provision exists for systematic inspections in the undertaking of manufacture in so far as, while "proof of control by the Member State of destination and of provision of the security ... may be provided only by production of the control copy ...", (9) that copy is issued only if the competent authority of the consignor Member State guarantees that it has "verified that the provisions of paragraphs 1(a) and (b) have been complied with", (10) the provisions in question being those relating to the quality and composition of the skimmed-milk powder and the checks carried out thereon. Verification of compliance, however, is not the same thing as prior inspection, at the place of production, of all consignments intended for export.

22. It should be borne in mind that Article 10 of Regulation No 1725/79 requires Member States to ensure that its requirements are complied with and that in this connection "frequent and unannounced" inspections are regarded as satisfying that obligation.

23. It would for that reason appear that systematic inspections are not required under the Community rules in question.

24. Moreover, in referring to the whole of Article 10 of Regulation No 1725/79 regarding the inspection to be carried out, Article 2(1) of Regulation No 1624/76, as amended, is necessarily referring, in respect of frequency, to Article 10(2), even though that provision deals with the processing or denaturing of skimmed-milk powder.

25. In its judgment in Denkavit Futtermittel, (11) in which it was called on to interpret Article 10 of Regulation No 1725/79, the Court stated that that provision

"... describes the inspection measures which are to be taken by the Member States as regards, in particular, the maximum moisture content of skimmed-milk powder and the use of the product, whether as such or in the form of a mixture, in the manufacture of compound feedingstuffs within the meaning of the regulation. As to that last point, Article 10(2) provides that the control measures to be determined by the Member State concerned are to fulfil at least the conditions laid down therein". (12)

26. That article provides for "frequent and unannounced" inspections. However, it appears that, since we are dealing with minimum guarantees, Member States might well be entitled to introduce, in production undertakings, regular inspections as to the quality and composition of skimmed-milk powder in order to guarantee that the product satisfies the conditions of entitlement to Community aid.

27. Additional inspections of this kind would, in this context, be compatible with Community law since they would have the purpose of preventing the all too frequent instances of fraud involving aid which have in any case been the subject of regular criticism by the Court of Auditors. (13)

28. As Advocate General Capotorti wrote in his Opinion in BayWa and Others: (14)

"Instead, there are sound reasons for the view that any other check which is, of course, additional and not a substitute is quite compatible with Community law. It should not be forgotten that the purpose of supervision is to prevent abuses by recipients of the premium and to ensure that the policy of providing incentives for denaturing is properly implemented in all the Member States. The imposition of checks to supplement those actually prescribed by the provisions of Community law is in keeping with, rather than contrary to, those provisions ...". (15)

29. The questions before the Court in this case concern the compatibility with Community law of the substitute inspections carried out on a systematic basis when goods cross a frontier, rather than that of the additional inspections which the Federal Republic of Germany has imposed within production undertakings.

30. It would certainly appear that inspections during production are infrequent, since, although the German Government' s expert mentioned such inspections during the oral procedure, neither the national court nor the parties to the main proceedings made any reference to them. If we proceed on the assumption that they are carried out, supplementary inspections may be implemented by the Member States, although the question of their compatibility must be determined according to Community law.

31. In his Opinion in Denkavit Futtermittel, Advocate General Capotorti expressed himself very clearly on this point in the following terms:

"Since, however, those supervisory powers imply activity on the part of the national administrative authorities, it is clear that each Member State must be acknowledged as having the power to adopt the provisions necessary to regulate the formal and procedural aspects of that activity (without of course conflicting with any rule of Community law)". (16)

32. Thus, in its judgment in Hessische Mehlindustrie Karl Schoettler, (17) in which it was faced with the question whether national measures were compatible with Community rules, the Court ruled that

"Different methods of supervision such as sampling, audit, or recognition of denaturing plants can, individually or in combination, be equally effective even though none of them constitutes an absolute guarantee". (18)

33. Systematic frontier inspections of all lorries transporting skimmed-milk powder intended for processing in Italy, however, cannot be regarded as compatible with Community law or, more specifically, with the principle of proportionality.

34. In its judgment in Commission v Italy (19) concerning customs agents, the Court pointed out that

"Frontier controls remain justified only in so far as they are necessary either for the implementation of the exceptions to free movement referred to in Article 36 of the Treaty; or for the levying of internal taxation within the meaning of Article 95 of the Treaty when the crossing of the frontier may legitimately be assimilated to the situation which, in the case of domestic goods, gives rise to the levying of the tax; or for transit controls; or finally when they are essential in order to obtain reasonably complete and accurate information on movement of goods within the Community. These residuary controls must nevertheless be reduced as far as possible so that trade between Member States can take place in conditions as close as possible to those prevalent on a domestic market". (20)

35. Nor can systematic frontier inspections be justified by Community rules inasmuch as the Court has ruled, particularly in its judgment in Denkavit Nederland, (21) that

"The prohibition of quantitative restrictions on exports and of all measures having equivalent effect applies, as the Court has repeatedly held, not only to national measures but also to measures adopted by the Community institutions ...". (22)

36. It should, however, be noted that the Community institutions, as the custodians of the common interest, have been recognized by the Court as possessing, within the context of the common market, a wider discretion than that of the Member States, whose interests, considered in isolation, do not necessarily coincide with the common interest.

37. In this connection, the Court ruled in its judgment in Van Luipen (23) that national rules could not justify compulsory affiliation of fruit and vegetable producers to a quality-control body with exclusive authority to assess the quality of agricultural products and, consequently, to determine whether those products complied with the requirements set out in the Community rules in cases where those rules did not make such affiliation compulsory. The Court ruled that

"... effective control can be established without an obligation of that kind and the Court has consistently held that considerations of an administrative nature cannot justify derogation by a Member State from the rules of Community law". (24)

38. Without underestimating the undeniable risk of fraud in connection with Community aid, I take the view in the present case that although the effectiveness of the inspection system may justify a distinction, as in the Denkavit Nederland case, according to whether the goods in question are processed in the Member State of production or in another Member State, a risk of fraud cannot be treated as objective justification for systematic frontier inspections.

39. Thus, the written observations of the German Government make it clear that, far from being necessary to secure the declared objective of preventing the risk of fraud, such inspections address, at that particular stage, considerations of an "economic" (25) and "practical" nature. (26)

40. So far as the first ground relied on is concerned, it should be borne in mind that only measures of a non-economic nature can override the principle of the free movement of goods, (27) while, with regard to the second, the Court has in its case-law never accepted justification of an administrative nature. (28)

41. In addition, an inspection in the actual undertaking where the goods are produced would certainly make it possible to guarantee such an objective, without thereby being contrary to Community law, given that random frontier inspections could be carried out in order to ensure, in the event of doubt or suspicion, that no fraud has been committed between the time when the skimmed-milk powder was produced and the time when it was dispatched for export.

42. Moreover, a decision by the Court justifying the measures adopted by the Federal Republic of Germany would have significant ramifications in other areas in which quality standards for goods have been fixed by Community regulations. Would it for instance be possible, on grounds of public health, to conduct systematic inspections at the frontiers of the Member State in which the goods are produced?

43. In its judgment in Commission v United Kingdom, (29) concerning UHT milk, the Court considered the question whether inspections carried out by the Member State of importation on grounds of the protection of public health were compatible with Community law and reached the conclusion that measures existed which were less restrictive of trade.

44. According to Advocate General VerLoren van Themaat in his Opinion in Joined Cases 2/82 to 4/82 Delhaize Frères, (30)

"... even if no harmonization directive concerning public health is in force within the Community, Article 36 of the EEC Treaty by no means unconditionally allows systematic national inspections to be carried out in the importing country. Apart from the principle of proportionality and the duty in such circumstances to take account of equivalent inspections carried out in the exporting country, the prohibition of arbitrary discrimination and of disguised restrictions on trade is also relevant". (31)

45. Inspection arrangements, such as those at issue in the main proceedings, are liable to deter some traders from exporting by reason of the severity of the measures introduced and the delays involved in any frontier inspection, with the result that a barrier is created which obstructs trade between Member States.

46. In order to reply to the first two questions in the reference, I take the view that Regulation No 1726/79 precludes national rules from imposing, in the case of exports of skimmed-milk powder intended for processing in another Member State, systematic frontier inspections of all lorries transporting that product which are carried out in order to ensure compliance with the conditions laid down in Regulation No 1725/79.

47. I now wish to address the third question in the reference, which asks whether it is compatible with Community law for traders to be required to pay the costs of the analyses carried out in connection with systematic frontier inspections.

48. That question previously came before the Court in Case 233/81 Denkavit Futtermittel, (32) where the Court pointed out in its judgment that

"Article 10 of Regulation No 1725/79 reveals on examination that no provision is made as to the costs of the inspections which are to be carried out. However, inasmuch as Article 10 states that the control measures are to fulfil 'at least' the conditions laid down therein, and provides that they are to be determined by the Member States, it indicates that the Community rules concerning such inspections are not exhaustive." (33)

"The wording of the regulation does not, therefore, prevent Member States either from carrying out such inspections free of charge or from requiring the undertakings in question to reimburse the expenditure which such inspections entail." (34)

49. However, taking the view that the freedom thus granted could not be used in such a way as to jeopardize the objectives of the rules, the Court left it to the national court to ensure that

"... the charges which the undertaking is asked to pay represent the normal cost of inspections of that nature and are not so great as to be liable to deter undertakings from carrying on the activities which the aid is intended to encourage." (35)

50. The reasoning behind that justification, however, was quite different from the situation before the Court in the present case, as the legal argument revolved only around the charging of costs and not around the question whether the inspections in respect of which those costs were charged were themselves consonant with Community law.

51. If, therefore, the Court should take the view which I propose, to the effect that the inspections in this case are incompatible with Community law, that incompatibility will necessarily render unlawful the charging to traders of the costs involved.

IV ° Conclusion

52. I therefore propose that the Court rule as follows:

Commission Regulation (EEC) No 1624/76 of 2 July 1976 concerning special arrangements for the payment of aid for skimmed-milk powder denatured or processed into compound feedingstuffs in the territory of another Member State, as amended by Commission Regulation (EEC) No 1726/79 of 26 July 1979, precludes national rules from imposing, in the case of exports of skimmed-milk powder intended for processing in another Member State, and with a view to ensuring compliance with the rules governing the composition of that product, systematic frontier inspections of the loads of all lorries transporting it and consequently from charging to the traders concerned the costs relating to such inspections.

(*) Original language: French.

(1) ° OJ, English Special Edition 1968 (I), p. 176.

(2) ° OJ, English Special Edition 1968 (I), p. 260.

(3) ° Commission Regulation (EEC) No 1624/76 of 2 July 1976 concerning special arrangements for the payment of aid for skimmed-milk powder denatured or processed into compound feedingstuffs in the territory of another Member State (OJ 1976 L 180, p. 9).

(4) ° Commission Regulation (EEC) No 1726/79 of 26 July 1979 amending Regulations (EEC) No 1624/76, (EEC) No 368/77, (EEC) No 443/77 and (EEC) No 1844/77 on aid measures and special sales operations for skimmed-milk powder for use in feed (OJ 1979 L 199, p. 10).

(5) ° Commission Regulation (EEC) No 1725/79 of 26 July 1979 on the rules for granting aid to skimmed milk processed into compound feedingstuffs and skimmed-milk powder intended for feed for calves (OJ 1979 L 199, p. 1).

(6) ° Article 10(2)(c).

(7) ° First and second questions.

(8) ° Third question.

(9) ° Article 2(2) of Regulation No 1624/76.

(10) ° Article 2(4) of Regulation No 1624/76, as amended.

(11) ° Case 233/81 Denkavit Futtermittel v Germany [1982] ECR 2933.

(12) ° Paragraph 6.

(13) ° See, most recently, Special Report No 7/93 concerning controls of irregularities and frauds in the agricultural area (OJ 1994 C 53, p. 1).

(14) ° Joined Cases 146/81, 192/81 and 193/81 BayWa and Others v Bundesanstalt fuer landwirtschaftliche Marktordnung [1982] ECR 1503.

(15) ° Ibid., p. 1542.

(16) ° Page 2947, emphasis added.

(17) ° Case 3/73 Hessische Mehlindustrie Karl Schoettler v Einfuhr- und Vorratsstelle fuer Getreide und Futtermittel [1973] ECR 745.

(18) ° Paragraph 5.

(19) ° Case 159/78 Commission v Italy [1979] ECR 3247.

(20) ° Paragraph 7.

(21) ° Case 15/83 Denkavit Nederland v Hoofdproduktschaap voor Akkerbouwprodukten [1984] ECR 2171.

(22) ° Paragraph 15.

(23) ° Case 29/82 Van Luipen [1983] ECR 151.

(24) ° Paragraph 12.

(25) ° Page 3 of the French translation.

(26) ° Ibid., page 16.

(27) ° Judgment in Case 238/82 Duphar and Others v Netherlands [1984] ECR 523, paragraph 23.

(28) ° Judgment in Case 29/82 Van Luipen, cited above in footnote 23.

(29) ° Case 124/81 Commission v United Kingdom [1983] ECR 203.

(30) ° Joined Cases 2/82 to 4/82 Delhaize Frères Le Lion and Others v Belgium [1983] ECR 2973.

(31) ° Pages 2991 and 2992.

(32) ° Cited above in footnote 11.

(33) ° Paragraph 7.

(34) ° Paragraph 8.

(35) ° Paragraph 10.