OPINION OF MR ADVOCATE GENERAL WARNER

DELIVERED ON 28 JUNE 1979

Contents

Introductory The first question The second question The third question The fourth question The fifth question The sixth question The seventh question Conclusions

My Lords,

Introductory

This case comes to the Court by way of a reference for a preliminary ruling by the Tribunale Amministrativo Regionale of Latium.

The plaintiffs in the proceedings before the Tribunale are the two biggest Italian manufacturers of sugar, namely the S.p.A. Eridania-Zuccherifici nazionali, of Genoa, and the S.p.A. Societa Italiana per l'lndustria degli Zuccheri, of Rome. They challenge in those proceedings the validity of an Italian Ministerial Decree of 7 December 1977 (Gazzetta ufficiale No 341 of 15 December 1977) which reduced or purported to reduce the ‘basic quotas’ allotted to them under the provisions of the common organization of the market in sugar, and increased (or purported to increase) the ‘basic quota’ of another Italian manufacturer, namely the S.p.A. Zuccherifici Meridionali, of Policoro in the province of Matera. The first two defendants in the proceedings are the Ministers who were responsible for the decree, the Minister of Agriculture and Forests (‘Ministro per l'aggricoltura e le foreste’) and the Minister of Industry, Commerce and Crafts (‘Ministro per l'industria, il commercio e l'artigianato’). The third defendant is the S.p.A. Zuccherifici Meridionali (which I shall henceforth call for short ‘ZM’).

In this Court we have had the benefit of submissions made on behalf of the plaintiffs, of ZM, of the Italian Government, of the Council and of the Commission.

Your Lordships are familiar with the common organization of the market in sugar, which was instituted by Council Regulation No 1009/67/EEC of 18 December 1967 and now rests on Council Regulation (EEC) No 3330/74 of 19 December 1974 (OJ L 359 of 31 December 1974, and in particular with the quota arrangements prescribed by Article 23 et seq. of the latter regulation.

Article 23 provides that those arrangements are to apply in the marketing years 1975/76 to 1979/80 inclusive.

Article 24 (1) provides that Member States are to allot a basic quota to each undertaking which used its basic quota during the marketing year 1974/75.

Article 24 (2) prescribes the manner in which the Member States are to make the allocation provided for by Article 24 (1). The method, shortly stated, is this. There is allotted to each Member State, by the fourth (and last) subparagraph of Article 24 (2), a ‘basic quantity’. In the case of Italy the basic quantity is 1230000 tonnes. The first subparagraph of Article 24 (2) lays down a formula by which each Member State is to divide its basic quantity between the undertakings situate in that State by reference to the output of each of them during the marketing years 1968/69 to 1972/73. That formula is such as to confer no discretion at all on a Member State. Its operation is however expressed to be without prejudice to certain subsequent provisions, which are these.

Firstly, the second subparagraph of Article 24 (2) provides that where the reference output of an undertaking is less than its basic quota for 1974/75, the latter shall be used instead of the former in operating the formula.

Secondly, the third subparagraph of Article 24 (2) gives a Member State a limited discretion to depart form the formula if the total reference output of all undertakings in that State is less than the basic quantity allocated to it under Regulation No 1009/67 (which in the case of Italy was the same: 1230000 tonnes). In such circumstances the Member State concerned may allocate to each undertaking a basic quota ‘justified by’ the trend in the output figures of that undertaking during the years 1968/69 to 1974/75, and not lower than the volume of its output in 1974/75. We were told that those circumstances prevailed in Italy and that it was in fact the only Member State where they prevailed.

Thirdly Article 24 (3) — which is of crucial importance in this case — provides that:

‘The Council, acting by a qualified majority on a proposal from the Commission, shall adopt the general rules for the application of this Article and any derogations therefrom.’

Finally, Article 24 (4) provides that any detailed rules necessary for the application of Article 24 may be adopted in accordance with the Management Committee procedure.

I need hardly remind Your Lordships that sugar produced within an undertaking's basic quota, commonly called ‘A’ sugar, is entitled to the full benefit of the price support mechanisms provided for by the regulation, notably reimbursement of storage costs (Article 8), intervention buying (Article 9) and export refunds (Article 19).

By virtue of Article 25, each undertaking for which a basic quota has been fixed may be allotted a ‘maximum quota’ equal to its basic quota multiplied by a coefficient which is fixed annually by the Council. Sugar produced by an undertaking beyond its basic quota but within its maximum quota, ‘B’ sugar, is also entitled to the full benefit of the price support mechanisms, but is, by virtue of Article 27, subject to a production levy.

By virtue of Article 26, sugar produced by an undertaking beyond its maximum quota, ‘C’ sugar, is entitled to no price support and may not be disposed of on the internal market. It must be exported from the Community without benefit of refund.

On the same day as it adopted Regulation No 3330/74 the Council adopted also Regulation (EEC) No 3331/74 ‘on the allocation and alteration of the basic quotas for sugar’ (OJ L 359 of 31 December 1974). This the Council did or purported to do under Article 24 (3) of Regulation No 3330/74.

Article 2 of Regulation No 3331/74 provides:

‘1. Notwithstanding the first, second and third subparagraphs of Article 24 (2) of Regulation (EEC) No 3330/74, Member States may reduce the basic quota of each undertaking by a total amount which does not exceed, for the whole period from 1 July 1975 to 30 June 1980, 5 % of the original basic quota allocated to each of them for the 1975/76 marketing year.

Member States shall allocate the quantity deducted to one or more other undertakings.

2. Notwithstanding the first, second and third subparagraphs of Article 24 (2) of Regulation (EEC) No 3330/74 and the preceding paragraph, the Republic of Italy may alter the basic quotas of undertakings within its territory in so far as is necessary for the implementation of restructuring plans for the beet and sugar sectors. These plans shall be submitted to the Commission for its opinion before 1 July 1978.’

Your Lordships will remember that the Court had to consider that Article, and in particular the addition made thereto concerning the French overseas departments by Council Regulation (EEC) No 298/78, in Cases 103-109/78 Société des Usines de Beauport v Council [1979] ECR 17.

It was in exercise or purported exercise of the discretion conferred on Italy by paragraph 2 of Article 2 of Regulation No 3331/74 that the defendant Ministers made the decree dated 7 December 1977 of which the validity is challenged by the plaintiffs.

There exists in Italy legislation providing generally for the restructuring, reorganization and conversion of industry. It appears to consist essentially of four statutes, No 1115 of 5 November 1968, No 1101 of 1 December 1971, No 464 of 8 August 1972 and No 230 of 7 June 1975.

Pursuant to that legislation ZM, in February 1976, submitted a restructuring plan to the Ministry of Industry, Commerce and Crafts. There is no copy of that plan among the papers before the Court. It seems however to have related only to ZM's own factory at Policoro.

After examination by the Inter-ministerial Committee for Economic Planning (“Comitato interministeriale per la programmazione economica”) the plan was finally approved by a Ministerial Decree of 13 December 1976. The Ministers who joined in making that decree were not quite the same as those who are defendants in the present proceedings. They were the Minister of Industry, Commerce and Crafts, the Minister of Labour and Social Security (“Ministro per il Lavoro e la Previdenza Sociale”) and the Minister of State Participation (“Ministro per le Partecipazioni Statali”). A summary of the essentia! features of the restructuring plan (“prospetto reassuntivo degli elementi fondamentali del piano”) was annexed to the decree. There is no copy of that annex among the papers before the Court, either (but we do have, in the file sent to the Court by the Tribunale, a letter dated 9 December 1976 from ZM to the Minister of Industry, Commerce and Crafts which contains such a summary). The decree authorized a contribution of LIT 6800 million out of Italian public funds towards the total cost of the plan, which was to be LIT 13500 million: LIT 8000 million for plant (“investimenti tecnici”), LIT 2500 million for the reduction of debt (“dimissioni di passirità”) and LIT 3000 million for stocks (“scorte”). The deadline for the implementation of the plan was set at 31 December 1977.

On 1 August 1977 the Minister of Agriculture and Forests wrote to the Commission submitting “for its opinion” the draft of what was to become the decree of 7 December 1977. The Minister's letter was headed “Restructuring plan for the beet and sugar sectors within the meaning of Article 2 (2) of EEC Council Regulation No 3331/74” (“Progetto di ristrutturazione bieticolesaccarifero ai sensi dell'articolo 2, par. 2 del reg. CEE del Consiglio n. 3331/74”). It explained that the purpose of the proposed decree was to increase ZM's basic quota in order to permit the effective restructuring of the beet and sugar sectors in the zone of the Metapontino, where ZM's only factory was situate; that there had been, in the marketing years 1976/77 and 1977/78, a notable increase in the acreage devoted to beet in that zone, owing in particular to the completion by the State of works for the irrigation of land which had thereby become fit to grow beet; that, among other factors, the realization of an industrial restructuring plan which had substantially increased the capacity of the factory in question necessitated official intervention to consolidate and reinforce what had been achieved; and that such consolidation was, among other things, within the policy of the Italian authorities to encourage a shift of beet cultivation towards zones better suited to it. The recitals in the draft decree made it clear that this meant a shift from the north to the south of Italy.

On 5 October 1977 Mr Gundelach wrote on behalf of the Commission to the Minister of Agriculture and Forests, referring to his letter of 1 August 1977; and saying that the Commission took note of the contents of that letter and that it seemed that the proposed decree would constitute the only actual use made of the provisions of Article 2 (2) of Regulation No 3331/74.

It does not appear that any restructuring plan of any kind was ever, as such, submitted to the Commission for its opinion. Nor does it appear that the Commission ever expressed any opinion about the draft decree.

The Decree of 7 December 1977 referred in its recitals to a number of earlier Decrees dealing with the allocation of basic quotas to sugar undertakings in Italy for the marketing year 1975/76 to 1979/80. It is not necessary for present purposes to go into the details of those earlier Decrees. We were told that the validity of each one of them had been challenged, in one way or another, before the Tribunale. But it is only in relation to the latest in the series (that of 7 December 1977) that the Tribunale has referred questions to this Court. The effect of this Decree was, briefly stated, to reduce the basic quotas of the plaintiffs and of two other undertakings in the north of Italy, in each case by less than 1 %, and to increase ZM's basic quota by 60000 tonnes, or some 27 %.

Seven questions are referred to the Court by the Tribunale. Of those questions, four, contained in paragraphs 2 (1), 2 (2), 2 (3) and 2 (4) respectively of the Order for Reference, relate to the validity of Article 2 (2) of Regulation No 3331/74. The other three, contained in paragraphs 3 (1), 3 (2) and 3 (3) respectively of the Order, relate to the interpretation of that provision, assuming it to be valid. The first, third and fourth questions were suggested to the Tribunale by the plaintiffs. The second question and the three questions on interpretation are referred by the Tribunale of its own motion.

The first question

The first question is in these terms:

“In the procedure followed for approving the provision in question, was the prior consultation of the Assembly prescribed in the third paragraph of Article 43 (2) of the Treaty improperly omitted ?”

In order to understand that question it is necessary to go back to the “parliamentary history” of the Commission Proposals that became Regulation No 3330/74 and Regulation No 3331/74. But before I do that, I must refer to the relevant provisions of the Treaty.

The last subparagraph of Article 43 (2) provides that the Council is to make regulations, issue directives or take decisions “on a proposal from the Commission and after consulting the Assembly, acting unanimously during the first two stages and by a qualified majority thereafter”.

It was argued on behalf of ZM that, having regard to the terms of the first subparagraph of Article 43 (2), the procedure prescribed by its last subparagraph must be taken to apply only to proposals of the Commission submitted within two years of the entry into force of the Treaty. That, in my opinion, cannot be right in view of the express reference in the latter subparagraph to the adoption of acts during the first two stages of the transitional period and thereafter. Moreover, it would seem that, if ZM were right, the Council had long since been bereft of any power to legislate for agriculture.

Article 149 provides:

“Where, in pursuance of this Treaty, the Council acts on a proposal from the Commission, unanimity shall be required for an act constituting an amendment to that proposal.

So long as the Council has not acted, the Commission may alter its original proposal, in particular where the Assembly has been consulted on that proposal.”

Lastly, Article 155 provides:

“In order to ensure the proper functioning and development of the common market, the Commission shall:

…

— exercise the powers conferred on it by the Council for the implementation of the rules laid down by the latter.”

The Commission's proposals for what became Regulation No 3330/74 and Regulation No 3331/74 were submitted to the Council together on 18 October 1974 (see OJ C 145 of 22 November 1974). The proposal for Regulation No 3330/74 envisaged that basic quotas for undertakings throughout the Community would be fixed by the Council. That would have been a departure from the system operating under Regulation No 1009/67 of allocation by the Member States from a basic quantity allotted to each of them, which was the system to which, in the events, the Council adhered in the final version of Regulation No 3330/74. In the proposal for Regulation No 3331/74, Article 2 had three paragraphs. The first paragraph would have enabled any undertaking's basic quota to be reduced by not more than 10 % for the entire period from 1 July 1975 to 30 June 1980. The second and third paragraphs would have placed certain fetters on the exercise of that power. In particular the power was to be exercised only if “the structure of the sugar economy of the regions concerned is thereby improved”.

The Council sent both proposals to the European Parliament for its opinion. We were told on behalf of the Council that, in the case of the proposal for what became Regulation No 3330/74, that was done because Article 43 (2) of the Treaty required it, but that, in the case of the proposal for Regulation No 3331/74, it was done voluntarily. That proposal already envisaged that the Regulation would be made, not under Article 43 (2), but under the power contained in what became Article 24 (3) of Regulation No 3330/74.

The Council first discussed the proposals on 21 October 1974, without awaiting the opinion of the Parliament. It was explained to us on behalf of the Council that the matter was urgent. The new Regulations were to enter into force in time for the 1975/76 marketing year, so that according to the normal time-table they should have been adopted by 1 July 1974. The Commission's proposals for them had however been delayed by negotiations with Caribbean and Pacific States necessitated by a Protocol to the Act of Accession.

It was at its meeting on 21 October 1974 that the Council agreed to adhere to the existing system of allocating basic quotas and agreed upon the basic quantity to be allotted to each Member State. The press release issued by the Council after the meeting (Annex I to the Council's Observations) also records that:

“In addition the Council undertook to make special provisions in the context of the new arrangements in favour of Italy, comprising authorizations:

— to adapt the basic quotas of Italy's undertakings on the basis of plans for reorganizing the sugar-beet and sugar sector, to be submitted to the Commission for its opinion by 1 July 1978, and as far as is necessary to enable these plans to be implemented;

— to grant national aid from the 1975/76 sugar marketing year onwards until the 1979/80 marketing year.”

The Parliament debated the proposals on 14 November 1974. It is apparent from what was said during the debate that the Members of the Parliament knew about the meeting of the Council of 21 October. Presumably they knew the contents of the Council's press release.

The Council discussed the proposals again at a meeting on 18 to 20 November 1974.

The Parliament's opinion was embodied in a Resolution which it passed on 9 December 1974. That Resolution recorded the Parliament's strong objection to the course adopted by the Council in reaching decisions without awaiting the Parliament's opinion. On the substance of the proposals the opinion went into great detail, but, on the provisions that are in question in this case, the only significant comment consisted in a suggestion that the margin of 10 % by which an undertaking's basic quota could be reduced should be reconsidered.

The Council discussed the proposals again on 10 December 1974 before finally adopting the Regulations on 19 December 1974. By that time the Council had also the benefit of an Opinion of the Economic and Social Committee.

On behalf of the plaintiffs it was submitted that Article 2 (2) of Regulation No 3331/74 was of such importance that it could not validly be adopted by the Council without the Parliament having been formally consulted on it. It affected the very nature of the quota system, because it derogated from the strict rules as to the allocation of quotas laid down in Article 24 (2) of Regulation No 3330/74 to the extent of empowering the Italian State to reduce the quotas allotted under those rules without any quantitative limit. A provision of that kind could only, it was submitted, be adopted under the procedure prescribed by Article 43 (2) of the Treaty itself. It could not be adopted under Article 24 (3) of Regulation No 3330/74. Alternatively, in so far as Article 24 (3) purported to authorize its adoption, that provision must be held void.

Force is, I think, added to those submissions by the Court's dictum in Société des Usines de Beauport v Council (already cited) that the derogations provided for by Article 2 of Regulation No 3331/74 “do not constitute general or special exceptions to the rules governing the distribution of the basic quotas but are an integral part of those very rules so as to form a legislative whole”.

Those submissions of the plaintiffs are not in my opinion adequately met by the argument put forward on behalf of the Council that the requisite consultation did in fact take place since, as the Parliament's Resolution itself recorded, the Parliament was aware of the “decisions” taken by the Council at its meeting on 21 October 1974. In my opinion, Article 43 (2) of the Treaty, where it applies, requires that the Parliament should be officially notified of the contents of the proposal under consideration, and does not envisage that the Parliament should proceed on the basis of what its Members may have read in their newspapers or may have learnt through informal contacts.

I would on the other hand accept the argument that was put forward on behalf of the Italian Government in reliance on Article 149 of the Treaty. The Italian Government pointed out that the proposal that led to Regulation No 3331/74 was in fact submitted to the Parliament, and that Article 2 in that proposal, already envisaged the possibility of basic quotas being reduced for structural reasons. The amendment made to that Article by the Council was thus well within its powers under Article 149. The safeguard afforded by that Article is that, in order to amend a proposal of the Commission, the Council must be unanimous. The Council does not have, in addition, to submit its proposed amendment to the Parliament. Analysis of the second paragraph of Article 149 confirms that interpretation. The wording of that paragraph is inconsistent with the view that, where the Commission alters its original proposal after the Parliament has given an opinion on it, the Commission's altered proposal must be re-submitted to the Parliament before the Council can act. It is different of course where an amendment to a proposal made by the Commission is mooted that would affect the very substance of that proposal considered as a whole — see Case 41/69 ACF Chemiefarma v Commission [1970] 2 ECR 661 (paragraphs 177 and 178 of the Judgment).

Acceptance of that argument would be sufficient to dispose, in this case, of the question whether the Parliament was adequately consulted. It would not however be right for me to sidestep altogether the question whether Article 24 (3) of Regulation No 3330/74 is valid in so far as it purports to empower the Council, without consulting the Parliament, to enact derogations from the rules in Article 24 (2). On the answer to that question may depend the validity of Regulation No 298/78, the proposal for which was never submitted to the Parliament, as well as the validity of any other Regulation derogating from those rules that may be enacted by the Council under Article 24 (3). It is a question that was not argued in Société des Usines de Beauport v Council, where (rather rashly perhaps) I expressed in passing the view that the Council could have adopted Regulation No 3331/74 on the basis simply of a proposal from the Commission without consulting the Parliament.

Your Lordships will have it in mind that Article 24 (3) purports to empower the Council, acting by a qualified majority on a proposal from the Commission, to do two distinct things. One is to enact “general rules for the application of” Article 24. The other is to enact “any derogations” therefrom.

As regards the power to enact general rules for the application of Article 24, no problem arises. Article 155 of the Treaty expressly enables the Council to confer such a power on the Commission, and no provision of the Treaty requires the Commission to consult the Parliament before exercising a power so conferred on it. A fortiori may the Council reserve such a power to itself without having to consult the Parliament on its exercise. Indeed the Court so held in Case 25/70 EVst Getreide v Roster [1970] 2 ECR 1161.

There is however a clear distinction between a power to enact subordinate legislation in implementation of a basic regulation and a power to enact legislation derogating from it. In the former case, however wide the power may be, the legislation enacted in exercise of it must be consistent with the provisions of the basic regulation. In the case of a power to derogate, on the other hand, the legislation enacted thereunder may contradict provisions of the basic regulation. What was said by the Court in the Koster case about the powers of the Council to delegate, or to reserve to itself, authority to enact subordinate legislation was expressly confined to implementing legislation.

It is therefore a question whether, and if so to what extent, the Council may reserve to itself power, simply on a proposal from the Commission, to derogate from rules contained in a basic regulation adopted after mandatory consultation of the Parliament. There is no express provision of the Treaty, nor any obvious principle, that authorizes it to do so. Yet every one of the basic regulations establishing the common organizations of agricultural markets confers or purports to confer such powers of derogation on the Council in specified circumstances. Indeed in Regulation No 3330/74 itself Article 24 (3) is not the only provision that does so: see Article 21 (2). The question is therefore one of far-reaching importance.

I have, after considerable hesitation, come to the conclusion that it is not a question that admits of a single simple answer.

The answer in the present case appears to me to be that it would have been open to the Council, instead of laying down detailed rules for the allocation of basic quotas by Member States in Article 24 (2), to have reserved to itself power to prescribe such rules by an implementing regulation. Had it done so, the principle in the Köster case would have applied. Therefore the Council cannot have acted ultra vires in laying down basic rules in Article 24 (2) and reserving to itself power to derogate from them.

In the result I do not think that there was any flaw in the procedure whereby Article 2 (2) of Regulation No 3331/74 was adopted.

The second question

The second question referred to the Court by the Tribunale is in these terms:

“Has the duty contained in Article 190 of the Treaty requiring reasons to be stated, and indeed sufficiently stated, been fulfilled?”

To answer that question one must first look at the preamble to Regulation No 3331/74. It states the reasons for Article 2 on the following terms:

“Whereas, in order to take account of any changes in the structure of the sugar industry or beet-growing sector, Member States should be enabled to reduce the basic quota of an undertaking by a quantity not exceeding, for the whole period from 1 July 1975 to 30 June 1980, 5 % of the basic quota originally allocated; whereas, moreover, in view of its special situation in this sector, the Republic of Italy must also alter the basic quotas of the undertakings situated within its territory on the basis of restructuring plans submitted to the Commission for its opinion.”

It was submitted to us that regard should be had also to the preamble to Regulation No 3330/74, which (repeating similar recitals in Regulation No 1109/67) states:

“Whereas the establishment of a single market based on a common price system would be jeopardized by the granting of certain aids;…

Whereas, however, Italian beet and sugar production is adversely affected owing to climatic reasons and, more particularly as regards beet production, by difficulties arising from the application of modern production techniques; whereas, therefore, provision should be made for the temporary granting by Italy of adaptation aid to the producers concerned.”

There can be no doubt that the latter recitals were designed to state the reasons for Article 38 of Regulation No 3330/74, which authorizes Italy, exceptionally and within prescribed limits, to grant “adaptation aid” to its beet growers and processors. But one can see that those recitals are also of some relevance in the present context. Having regard to the close nexus between Regulation No 3330/74 and Regulation No 3331/74, I think that they may be taken into account, so far as they go.

It is well established by decisions of this Court that the requirement of Article 190 of the Treaty that regulations, directives and decisions of the Council and of the Commission should state the reasons on which they are based is no mere formality. On those authorities, the main purpose of that requirement is to enable persons affected by such an act to challenge, in a proper case, the lawfulness of those reasons, and thereby the validity of the act itself; and, by the same token, to enable this Court to exercise its jurisdiction to review the legality of the act. There is some authority (see for instance Case 24/62 Germany v Commission [1963] ECR 63, at p. 69, Rec. 1963, p. 129 at p. 143) that an additional purpose is to inform others interested, such as Member States, of the circumstances in which a Community institution has exercised its powers.

Consistently with those principles it has been held that the extent of the requirement depends on the nature of the act in question. In the case of a regulation, the preamble may confine itself to indicating the general situation that led to its adoption and the general objectives that it is intended to achieve (see in particular Case 5/67 Beus v HZA München [1968] ECR 83, at pp. 94-95, Rec. 1968, p. 125, at pp. 143-144).

But a novel and important point is raised by the Tribunale in the explanation that it gives in the Order for Reference for its second question. That point is whether the vagueness of the reasons vouchsafed for Article 2 (2) does not render impossible a proper judicial review, by reference to the purposes for which the discretion thereby conferred on the Italian authorities was granted to them, of any exercise by them of that discretion.

I think that the answer must be that the Council patently intended to confer on the Italian authorities a wide discretion the only limit to which should be that it should be exercised only so far as necessary for the implementation of restructuring plans for the beet and sugar sectors submitted to the Commission for its opinion before 1 July 1978. The Council's laconism certainly gives rise to difficulties of interpretation — as is shown by some of the Tribunale's later questions — but I do not think that one can go so far as to say that it entails the invalidity of Article 2 (2).

The third question

The Tribunale's third question is:

“Does the application of the power in question to the Italian processing industry constitute an infringement of the prohibition of discrimination between producers within the Community laid down with regard to common organizations of the market in Article 40 (3) of the Treaty?”

As to that, the arguments put forward on behalf of the plaintiffs are reminiscent of an argument put forward on behalf of the applicants in Société des Usines de Beauport v Council. The applicants in that case said that Regulation No 298/78 was incompatible with Article 40 (3) of the Treaty because it singled them out as the only producers of sugar within the Community who, leaving aside the special position of Italian producers, were liable to have their basic quotas reduced by more than 5 %. Here the plaintiffs say that the discrimination against Italian producers is even more flagrant. They cannot, as can all producers in other Member States, plan ahead on the footing that their basic quotas may not be reduced by more than a prescribed percentage.

Difference in treatment cannot however be regarded as discrimination of a kind forbidden by Article 40 (3) unless it is arbitrary (see for instance Case 11/74 Union des Minotiers de la Champagne v France [1974] 1 ECR 877 — paragraphs 21 and 22 of the Judgment). It is plain that the reason why the Council enacted Article 2 (2) of Regulation No 3331/74 was that it considered that the Italian beet and sugar sectors were in particular need of restructuring. As was pointed out to us, Italy has always had special treatment in a number of respects under the common organization of the market in sugar: higher intervention prices, power to grant adaptation aids to beet growers and processors, and the fixing of a “basic quantity” higher than the total “reference output” of the undertakings on its territory. That is because the beet and sugar sectors in Italy have problems that their counterparts in other Member States do not have. In those circum stances it seems to me impossible to hold that the Council was guilty of a breach of Article 40 (3) in enacting Article 2 (2) of Regulation No 3331/74.

The fourth question

The Tribunale's fourth question is in somewhat elaborate terms, but essentially it is whether, as the plaintiffs contend, Article 2 (2) of Regulation No 3331/74 infringes the fundamental right to carry on economic activities, which was recognized by the Court in Case 4/73 Mold v Commission [1974] 1 ECR 491 and is also recognized by the Italian Constitution. The plaintiffs accept that, as the Court held in the Nold case, the protection given to fundamental rights of an economic nature can never be absolute. In that connexion they cited Articles 41 to 44 of the Italian Constitution which endeavour to balance private economic rights against the public interest. For instance Article 41, which opens with the words “Private economic enterprise is open to all”, has two provisions, one of which is to the effect that a statute may prescribe “such planning and controls as may be advisable for directing and co-ordinating public and private economic activities towards social objectives”. The plaintiffs submitted that, none the less, if the fundamental right in question was to have any reality at all, two conditions must be satisfied. First there must be secured for that right a certain minimum content; and, secondly, any limitation of that right, albeit in the public interest, must be imposed only by legislation defining and circumscribing the discretionary powers of the executive closely enough to permit of an effective judicial review of any exercise of those powers. According to the plaintiffs, Article 2 (2) of Regulation No 3331/74 fails to satisfy those conditions because it confers on the Italian authorities an unfettered discretion to alter the basic quotas of sugar undertakings.

In the first place, I do not think it right to say that Article 2 (2) confers on the Italian authorities a wholly unfettered discretion. The Council argued that decisions taken by the Italian authorities, under that provision, to alter basic quotas were subject to control by the Commission, since the restructuring plans to which they related had to be submitted to the Commission for its opinion before 1 July 1978. That, I think, overstates the position, because an opinion of the Commission has no binding force: see Article 189 of the Treaty. But a genuine restructuring plan there must in every case be, and in formulating that plan its authors must comply with the general principles of Community law, and in particular with the principle of proportionality.

Secondly, I do not think the right to carry on private economic activities can aptly be invoked by the plaintiffs in the present context. The quota arrangements under Regulation No 3330/74 restrict sugar production only in so far as they require “C” sugar to be sold outside the Community. In the main their purpose and their effect is to limit the extent to which producers may benefit from the price support mechanisms of the common organization of the market in sugar. In other words, it is not as participators in a free market but as recipients of protection in a managed market, that Italian sugar producers may find their interests adversely affected by Article 2 (2).

I would therefore hold that the enactment of Article 2 (2) did not infringe anyone's fundamental rights.

The fifth question

On the footing that Article 2 (2) is valid, the Tribunale asks by its fifth question:

“Does Regulation No 3331/74 or Community law generally contain discernible and specific criteria by which the agencies of the Italian State must be guided in appraising whether the “restructuring plans” that they intend to adopt or assist are of the kind indicated in the Regulation (so defined briefly without further particulars in Article 2 (2))?”

The main point at issue between the parties was whether (as the plaintiffs submitted) a “restructuring plan” within the meaning of that phrase in Article 2 (2) must be a plan for the whole of the beet and sugar sectors, and not merely a plan for a single undertaking, or whether (as was submitted by the other parties) the phrase was apt also to cover a plan for an individual undertaking.

For three reasons I am of the opinion that the latter is the correct interpretation :

(i) I can see nothing in the text of Regulation No 3331/74 that requires the phrase in question to be given the limited interpretation suggested by the plaintiffs, or any other limited interpretation.

(ii) If what was meant was a plan for the whole of the beet and sugar sectors, one would have expected the phrase to be in the singular rather than in the plural.

(iii) It appears that the Italian legislation in force at the time was primarily directed to the restructuring of particular undertakings rather than to the restructuring of whole sectors of agriculture or of industry.

Nor does it appear to me that a restructuring plan, in order to be within Article 2 (2), must satisfy any other specific criterion. The phrase in question is in my opinion to be interpreted straightforwardly according to the ordinary use of language.

The sixth question

The Tribunal's sixth question is:

“Are the limits to the power to alter the basic quotas of processing undertakings restricted to those limits arising from the necessity to implement the above-mentioned plans or can other limits be discerned (for example limits deriving from the protection of the right of undertakings to carry on their activities or from the inviolability of quotas that have been entirely exhausted in previous marketing years, perhaps on the view that the power to reduce quotas applies only to the part of the basic quota of each undertaking that has not been covered by its production, etc.)?”

I have to some extent already answered that question when dealing with the plaintiffs' argument that Article 2 (2) confers a wholly unfettered discretion on the Italian Government and infringes its fundamental right to carry on business.

The power to alter basic quotas conferred by Article 2 (2) is subject in my opinion to these limitations:

(i) Before it may be exercised at all, there must be a relevant restructuring plan and that plan must have been submitted to the Commission for its opinion before 1 July 1978.

(ii) The power may only be exercised to the extent necessary for the implementation of that plan.

(iii) Article 3 of Regulation No 3331/74 requires Member States to make due allowance for the interests of beet growers when allocating its basic quota to an undertaking that has more than one factory. A recital in the preamble to the Regulation makes it clear that that is intended to apply also when basic quotas are altered.

(iv) The responsible authorities must abide throughout by the general principles of Community law, in particular that of proportionality, which means that they must have regard not only to the legitimate interests of growers but also to those of processors.

(v) As the Council pointed out, those authorities are also under a general obligation to heed the provisions of the Treaty, and in particular the objectives and principles of the common agricultural policy set out in Article 39.

The Tribunale asks specifically whether the power in Article 2 (2) is subject to the limitation that it may not be exercised so as to reduce a quota exhausted by the production of the undertaking concerned in previous marketing years. In my view, the answer to that question must be ‘No’. I agree with the Italian Government that such a limitation would tend to defeat the object of reducing production costs through the application of modern production methods. It would mean that quotas used up during the previous marketing year would be inviolable, however inefficient and expensive the methods of the undertaking concerned might be.

The Court invited written submissions before the hearing on the question whether Article 8 of Regulation No 3331/74 should be applied by analogy to alterations in basic quotas proposed to be made under Article 2 (2). Article 8 prescribes a procedure under which, where such alterations are proposed to be made under Article 2 (1) or Article 4 (which applies to mergers and transfers of undertakings, and the like), the Commission is to be consulted and the Member State concerned may be compelled, through the Management Committee procedure, to amend or abandon its proposals. I need, I think, on that question, say only that I find the carefully reasoned negative reply of the Commission convincing. No one suggested that the question should be answered in the affirmative.

The seventh question

The Tribunale's seventh and last question is in the following terms:

‘Is the direct applicability of the Regulation within the Italian legal system (second paragraph of Article 189 of the Treaty) compatible with legislation intended to govern its implementation?’

The Order for Reference goes on to explain that the problem troubling the Tribunale arises from the fact that Article 2 (2) leaves it to the Italian State to define the content and limits of the restructuring plans. This may result in activity on the part of the State impinging upon matters which, according to constitutional principle, are the exclusive preserve of the legislature. Thus it may be necessary for national legislation to be enacted to regulate the measures taken by the Italian authorities to implement Article 2 (2).

I imagine that what the Tribunale has in mind are the decisions of this Court to the effect that a Member State may not by its own legislation duplicate or purport to alter directly applicable Community legislation. But where a provision in Community legislation confers a discretion on a Member State, it is open to that Member State to enact legislation for the purpose of implementing that provision. To what extent such legislation may be necessary, or administrative action may suffice, is a matter to be determined according to that Member State's own law, including where appropriate its constitutional law.

Conclusions

In the result I am of the opinion that, in answer to the questions referred to the Court by the Tribunale, Your Lordships should rule as follows:

(1) Consideration of those questions has disclosed no factor of such a kind as to affect the validity of Article 2 (2) of Regulation No 3331/74.

(2) The phrase ‘restructuring plans’ in that Article is to be interpreted according to the ordinary use of language and without reference to any specific criteria to be found in Community law. It does not exclude a plan for a single undertaking.

(3) The power to alter basic quotas conferred by Article 2 (2) is subject to the following limitations: (i) Before the power may be exercised at all there must be a restructuring plan relating to the beet or the sugar sector (or both) and that plan must have been submitted to the Commission for its opinion before 1 July 1978; (ii) The power may only be exercised to the extent necessary for the implementation of the plan; (iii) In exercising the power, due allowance must be made for the interests of beet growers; (iv) The responsible authorities must abide throughout by the general principles of Community law, in particular that of proportionality; (v) Those authorities must also heed the express provisions of the EEC Treaty, in particular the objectives and principles of the common agricultural policy set out in Article 39.