Judgment of the Court of 2 December 1986. - Commission of the European Communities v United Kingdom of Great Britain and Northern Ireland. - Failure of a Member Statre to fulfil its obligations - Dual pricing system for milk. - Case 23/84.



European Court reports 1986 Page 03581



Summary

Parties

Subject of the case

Grounds

Decision on costs

Operative part



Keywords

1 . AGRICULTURE - COMMON ORGANIZATION OF THE MARKET - MILK AND MILK PRODUCTS - SPECIAL RIGHTS OF THE MILK MARKETING BOARDS - PRICE DIFFERENTIATION FOR WHOLE MILK ACCORDING TO ITS INTENDED USE - PERMISSIBLE - REFERENCE TO THE INTENDED USE OF A PROCESSED PRODUCT - NOT PERMISSIBLE

( COUNCIL REGULATION NO 1422/78 , ART . 9 ( 1 ); COMMISSION REGULATION NO 1565/79 , ART . 6 ( 2 )) 2 . AGRICULTURE - COMMON ORGANIZATION OF THE MARKET - MILK AND MILK PRODUCTS - SPECIAL RIGHTS OF THE MILK MARKETING BOARDS - PRICE DIFFERENTIATION FOR WHOLE MILK ACCORDING TO THE USE OF THE SKIMMED MILK OBTAINED IN PROCESSING - HIGHER PRICE FOR LIQUID SKIMMED MILK USED FOR ANIMAL FEED - INTERFERENCE WITH THE EFFICIENT FUNCTIONING OF THE AID SCHEMES FOR THE USE OF LIQUID SKIMMED MILK AS ANIMAL FEED - NOT PERMISSIBLE .

( REGULATION NO 986/68 OF THE COUNCIL ; COMMISSION REGULATION NO 1565/79 , ART . 6 ( 2 ))

Summary

1 . ALTHOUGH THE MILK MARKETING BOARDS ARE AUTHORIZED TO OPERATE DIFFERENTIAL PRICING ON THE SALE OF MILK ACCORDING TO ITS INTENDED USE , THAT IS TO SAY THE USE TO WHICH THE PURCHASER WILL PUT THE MILK , THEY MAY NOT OPERATE SUCH DIFFERENTIAL PRICING ACCORDING TO THE INTENDED USE NOT OF THE MILK BUT OF A PROCESSED PRODUCT SUCH AS BUTTER .

THE OPERATION BY THE MILK MARKETING BOARDS OF A SYSTEM OF DUAL PRICING FOR WHOLE MILK USED FOR THE MANUFACTURE OF BUTTER DEPENDING ON WHETHER IT IS TO BE SOLD , ON THE ONE HAND , AS INTERVENTION OR BULK BUTTER , OR , ON THE OTHER , AS PACKET BUTTER ON THE RETAIL MARKET IS THEREFORE INCOMPATIBLE WITH COMMUNITY LAW .

2 . THE OPERATION BY THE MILK MARKETING BOARDS OF DIFFERENTIAL PRICING FOR WHOLE MILK USED FOR THE MANUFACTURE OF BUTTER AND CREAM DEPENDING ON WHETHER THE SKIMMED MILK OBTAINED IN SUCH MANU FACTURE IS USED AS ANIMAL FEED OR PROCESSED INTO SKIMMED-MILK POWDER IS INCOMPATIBLE WITH COMMUNITY LAW IN SO FAR AS THAT DIFFERENTIAL PRICING AMOUNTS TO THE SETTING OF A HIGHER PRICE FOR LIQUID SKIMMED MILK USED FOR ANIMAL FEED , WHICH INTERFERES WITH THE EFFICIENT FUNCTIONING OF THE COMMUNITY AID SCHEMES INTENDED TO ENCOURAGE SUCH A USE OF THE PRODUCT IN QUESTION .

Parties

IN CASE 23/84

COMMISSION OF THE EUROPEAN COMMUNITIES , REPRESENTED BY ITS LEGAL ADVISER , RICHARD WAINWRIGHT , AND BY D . GRANT LAWRENCE , A MEMBER OF ITS LEGAL DEPARTMENT , ACTING AS AGENTS , WITH AN ADDRESS FOR SERVICE IN LUXEMBOURG AT THE OFFICE OF MANFRED BESCHEL , A MEMBER OF ITS LEGAL DEPARTMENT , JEAN MONNET BUILDING , KIRCHBERG ,

APPLICANT ,

SUPPORTED BY

FRENCH REPUBLIC , REPRESENTED BY FRANCOIS RENOUARD , ACTING AS AGENT , AND BY B . BOTTE , ACTING AS DEPUTY AGENT , WITH AN ADDRESS FOR SERVICE IN LUXEMBOURG AT THE FRENCH EMBASSY ,

INTERVENER , V

UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND , REPRESENTED INITIALLY BY G . DAGTOGLOU AND SUBSEQUENTLY BY R . N . RICKS , ACTING AS AGENTS , ASSISTED BY CHRISTOPHER BELLAMY AND RUPERT ANDERSON , COUNSEL , WITH AN ADDRESS FOR SERVICE IN LUXEMBOURG AT THE BRITISH EMBASSY ,

DEFENDANT ,

Subject of the case

APPLICATION FOR A DECLARATION THAT BY PERMITTING THE MILK MARKETING BOARDS TO OPERATE :

( I ) A SYSTEM OF DUAL PRICING FOR WHOLE MILK UTILIZED FOR THE MANUFACTURE OF BUTTER DEPENDING ON WHETHER IT IS TO BE SOLD AS INTERVENTION OR BULK BUTTER OR AS PACKET BUTTER ON THE RETAIL MARKET ; AND

( II ) DIFFERENTIAL PRICING FOR WHOLE MILK UTILIZED FOR THE MANUFACTURE OF BUTTER AND CREAM DEPENDING ON THE INTENDED USE OF THE RESULTANT SKIMMED MILK ;

THE UNITED KINGDOM HAS FAILED TO FULFIL ITS OBLIGATIONS UNDER ARTICLE 10 OF COUNCIL REGULATION NO 1422/78 AND ARTICLE 6 OF COMMISSION REGULATION NO 1565/79 ,

Grounds

1 BY AN APPLICATION LODGED AT THE COURT REGISTRY ON 25 JANUARY 1984 , THE COMMISSION OF THE EUROPEAN COMMUNITIES BROUGHT AN ACTION PURSUANT TO ARTICLE 169 OF THE EEC TREATY FOR A DECLARATION THAT BY PERMITTING THE MILK MARKETING BOARDS , ESTABLISHED IN ENGLAND , WALES AND SCOTLAND BY MILK MARKETING SCHEMES APPROVED BY PARLIAMENT IN 1933 AND IN NORTHERN IRELAND BY A MILK MARKETING SCHEME OF 1955 , TO OPERATE :

( I ) A SYSTEM OF DUAL PRICING FOR WHOLE MILK UTILIZED FOR THE MANUFACTURE OF BUTTER DEPENDING ON WHETHER IT IS TO BE SOLD AS INTERVENTION OR BULK BUTTER OR AS PACKET BUTTER ON THE RETAIL MARKET ; AND

( II ) DIFFERENTIAL PRICING FOR WHOLE MILK UTILIZED FOR THE MANUFACTURE OF BUTTER AND CREAM DEPENDING ON THE INTENDED USE OF THE RESULTANT SKIMMED MILK ;

THE UNITED KINGDOM HAS FAILED TO FULFIL ITS OBLIGATIONS UNDER ARTICLE 10 OF COUNCIL REGULATION NO 1422/78 OF 20 JUNE 1978 CONCERNING THE GRANTING OF CERTAIN SPECIAL RIGHTS TO MILK PRODUCER ORGANIZATIONS IN THE UNITED KINGDOM ( OFFICIAL JOURNAL 1978 , L 171 , P . 14 ) AND ARTICLE 6 OF COMMISSION REGULATION NO 1565/79 OF 25 JULY 1979 LAYING DOWN RULES FOR IMPLEMENTING REGULATION NO 1422/78 ( OFFICIAL JOURNAL 1979 , L 188 , P . 29 ).

2 BEFORE THE UNITED KINGDOM JOINED THE EEC , ONE OF THE PRINCIPAL CHARACTERISTICS OF ITS MARKET ORGANIZATION FOR MILK WAS THE OPERATION OF THE MILK MARKETING BOARDS . THE FUNCTION OF THOSE BOARDS , WHOSE MEMBERS WERE ELECTED BY MILK PRODUCERS , WAS TO IMPROVE THE PRODUCTION AND MARKETING OF MILK PRODUCTS . FOR THAT PURPOSE , ALL MILK PRODUCERS OTHER THAN THOSE SELLING DIRECTLY TO THE PUBLIC SOLD THEIR MILK THROUGH THE MILK MARKETING BOARDS ; THE BOARDS TOOK ALL THE MILK SUPPLIED BY THOSE PRODUCERS IN ORDER TO SELL THE MILK IN THE MOST PROFITABLE MANNER AND PAY PRODUCERS A SINGLE PRICE BASED ON THE AGGREGATE PROFITS MADE IN ALL MARKETS .

3 AFTER ACCESSION , THE OPERATION OF THE MILK MARKETING BOARDS WAS INTEGRATED IN THE COMMON ORGANIZATION OF THE MARKET IN MILK AND MILK PRODUCTS ESTABLISHED BY REGULATION NO 804/68 OF THE COUNCIL ( OFFICIAL JOURNAL , ENGLISH SPECIAL EDITION 1968 ( I ), P . 176 ). COUNCIL REGULATION NO 1421/78 OF 20 JUNE 1978 ( OFFICIAL JOURNAL 1978 , L 171 , P . 12 ), WHICH AMENDED ARTICLE 25 OF REGULATION NO 804/68 , PROVIDED FOR THE POSSIBILITY OF RECOGNIZING ' THESE BOARDS AND , IN COMPARABLE SITUATIONS , EQUIVALENT ORGANIZATIONS . . . UNDER THE COMMON ORGANIZATION OF THE MARKET ' WHILE ENSURING THAT THE OPERATION OF THOSE ORGANIZATIONS WAS COMPATIBLE WITH COMMUNITY LAW AND THAT THE GENERAL PRINCIPLES OF THE TREATY WERE OBSERVED .

4 IN PROVIDING FOR THE POSSIBLE RECOGNITION OF THE MILK MARKETING BOARDS , REGULATION NO 1421/78 MAKES THEIR ACTIVITIES SUBJECT TO A NUMBER OF CONDITIONS . UNDER ARTICLE 25 , AS AMENDED , THE COUNCIL MAY AUTHORIZE A MEMBER STATE TO GRANT AN ORGANIZATION REPRESENTING A CERTAIN PERCENTAGE OF THE MILK PRODUCERS ESTABLISHED IN A SPECIFIC AREA THE EXCLUSIVE RIGHT , SUBJECT TO CERTAIN CONDITIONS , TO BUY FROM PRODUCERS ESTABLISHED IN THAT AREA THE MILK WHICH THEY PRODUCE AND MARKET WITHOUT PROCESSING , AND THE RIGHT TO EQUALIZE THE PRICES PAID TO PRODUCERS IRRESPECTIVE OF THE USE FOR WHICH THE MILK PURCHASED FROM THEM IS INTENDED . IN GRANTING SUCH AUTHORIZATION THE COUNCIL MUST ADOPT GENERAL RULES GOVERNING THE EXERCISE OF THE SPECIAL RIGHTS CONFERRED ON THE ORGANIZATIONS IN QUESTION . THE GENERAL RULES MUST ENSURE IN PARTICULAR THAT THE EXERCISE OF THOSE SPECIAL RIGHTS :

( I ) IS CONSISTENT WITH THE GENERAL PRINCIPLES OF THE TREATY ;

( II ) DOES NOT CONSTITUTE DISCRIMINATION AGAINST PRODUCERS SELLING THEIR MILK TO THE ORGANIZATION AND PERSONS WISHING TO BUY MILK FROM IT ;

( III ) DOES NOT AFFECT COMPETITION IN THE AGRICULTURAL SECTOR MORE THAN IS ABSOLUTELY NECESSARY ;

( IV ) DOES NOT JEOPARDIZE THE EFFICIENT FUNCTIONING OF THE MARKET IN MILK AND MILK PRODUCTS , PARTICULARLY AS REGARDS PRICE AND INTERVENTION ARRANGEMENTS .

5 THE GENERAL RULES GOVERNING THE EXERCISE OF THE SPECIAL RIGHTS TO BE GRANTED BY THE UNITED KINGDOM TO THE MILK MARKETING BOARDS WERE LAID DOWN BY THE COUNCIL IN REGULATION NO 1422/78 OF 20 JUNE 1978 . ARTICLE 9 ( 1 ) OF THAT REGULATION PROVIDES THAT PRICES OF MILK SOLD BY THE MILK MARKETING BOARDS ' MAY BE DIFFERENTIATED ONLY

( A ) ON THE BASIS OF THE USE INTENDED BY THE BUYER ;

( B ) ON THE BASIS OF OTHER CRITERIA ESTABLISHED IN ACCORDANCE WITH THE PROCEDURE REFERRED TO IN PARAGRAPH 4 ' ,

THAT IS TO SAY , A PROCEDURE INVOLVING A JOINT COMMITTEE IN WHICH THE MILK MARKETING BOARDS AND THEIR MILK PURCHASERS ARE REPRESENTED ON AN EQUAL FOOTING . ARTICLE 9 ( 2 ) PROVIDES THAT DIFFERENTIATION ON THE BASIS OF THE INTENDED USE MAY NOT HAVE THE EFFECT OF CAUSING DISTORTION OF COMPETITION ON THE UNITED KINGDOM MARKET BETWEEN MILK PRODUCTS FROM OTHER MEMBER STATES AND LOCAL PRODUCTS .

6 IN ORDER TO ENSURE THAT THOSE PROVISIONS ARE IN FACT OBSERVED BY THE MILK MARKETING BOARDS , ARTICLE 10 ( 1 ) OF REGULATION NO 1422/78 REQUIRES THE UNITED KINGDOM TO TAKE THE NECESSARY MEASURES FOR CONTINUING SUPERVISION OF COMPLIANCE BY THE MILK MARKETING BOARDS WITH COMMUNITY PRINCIPLES AND RULES AND WITH THE SPECIAL CONDITIONS GOVERNING THE AUTHORIZATION . UNDER ARTICLE 6 OF COMMISSION REGULATION NO 1565/79 OF 25 JULY 1979 LAYING DOWN RULES FOR IMPLEMENTING REGULATION NO 1422/78 , THE UNITED KINGDOM IS REQUIRED TO ADOPT THE NECESSARY DETAILED PROVISIONS FOR CONTINUING SUPERVISION OF COMPLIANCE WITH ARTICLE 9 OF REGULATION NO 1422/78 . IN PARTICULAR IT MUST DETERMINE THE POSSIBLE ' USES ' OF MILK FOR THE PURPOSES OF ARTICLE 9 ( 1 ) ( A ) AND THE ' OTHER CRITERIA ' OF AN OBJECTIVE NATURE WHICH MAY BE TAKEN INTO CONSIDERATION UNDER THE JOINT COMMITTEE PROCEDURE ; IT MUST PERIODICALLY COMPARE THE FIRST-HAND SELLING PRICES REALIZED ON THE UNITED KINGDOM MARKET BY THE PRINCIPAL MILK PRODUCTS MADE FROM MILK SOLD BY THE MILK MARKETING BOARDS AND SIMILAR MILK PRODUCTS IMPORTED FROM OTHER MEMBER STATES . FINALLY , THE UNITED KINGDOM MUST COMMUNICATE EACH MONTH TO THE COMMISSION THE LOWEST PRICES RECORDED FOR DOMESTIC PRODUCTS AND IMPORTED PRODUCTS .

7 IN ORDER TO BRING ITS LEGISLATION INTO CONFORMITY WITH THE REQUIREMENTS LAID DOWN BY THE COMMUNITY RULES , THE UNITED KINGDOM ADOPTED THE MILK MARKETING BOARDS ( SPECIAL CONDITIONS ) REGULATIONS 1981 , APPLICABLE THROUGHOUT THE COUNTRY , AND SEPARATE MILK MARKETING SCHEME ( AMENDMENT ) REGULATIONS 1981 FOR EACH OF THE REGIONS WHERE A MILK MARKETING BOARD EXISTS . UNDER PARAGRAPH 66 ( 7 ) OF THE MILK MARKETING SCHEME FOR ENGLAND AND WALES , AS AMENDED BY THE REGULATIONS REFERRED TO ABOVE , THE MILK MARKETING BOARD MAY APPLY A WIDE RANGE OF SELLING PRICES FOR MILK DIFFERENTIATED ACCORDING TO CERTAIN INTENDED USES OF THE WHOLE MILK OR OF THE SKIMMED MILK OBTAINED IN THE MANUFACTURE OF BUTTER OR OF CREAM . UNDER PARAGRAPH 66 ( 8 ) THE MILK MARKETING BOARD MAY ALSO DIFFERENTIATE PRICES ON THE BASIS OF THE CRITERIA SET OUT IN PARAGRAPH 66 ( 8 ) ( A ) TO ( F ) AND , ' SUBJECT TO THE APPROVAL OF THE MINISTER , ANY OTHER CRITERIA OF AN OBJECTIVE NATURE ' ( PARAGRAPH 66 ( 8 ) ( G )). SIMILAR PROVISIONS WERE ADOPTED FOR THE OTHER MILK MARKETING BOARDS .

8 THE MILK MARKETING BOARD FOR ENGLAND AND WALES , TO WHOSE PRACTICE THE PARTIES HAVE AGREED TO REFER IN VIEW OF ITS PREDOMINANT POSITION AND THE SIMILARITY BETWEEN PRACTICES OF THE MILK MARKETING BOARDS , CONSIDERED THAT THAT LEGISLATION PERMITTED IT TO APPLY DIFFERENT PRICES FOR WHOLE MILK , AT ONE LEVEL , ACCORDING INTER ALIA TO WHETHER THE MILK WAS INTENDED FOR THE MANUFACTURE OF BULK BUTTER OR PACKET BUTTER AND , AT A SECOND LEVEL , ACCORDING TO WHETHER THE SKIMMED MILK OBTAINED FROM THAT WHOLE MILK WAS INTENDED FOR THE PRODUCTION OF SKIMMED-MILK POWDER , ANIMAL FEED OR OTHER USES .

9 THE COMMISSION CONSIDERS THAT THE DUAL PRICING SYSTEM FOR MILK INTENDED FOR BUTTER MANUFACTURE AND THE DIFFERENTIATION OF PRICES ACCORDING TO THE INTENDED USE OF THE RESULTING SKIMMED MILK IS CONTRARY TO THE CONDITIONS LAID DOWN IN REGULATIONS NO 1422/78 AND NO 1565/79 .

10 THE UNITED KINGDOM SUBMITS THAT THAT PRACTICE IS ENTIRELY IN ACCORDANCE WITH COMMUNITY LAW AND THAT ITS RECENT DISCONTINUANCE WAS DUE TO PURELY COMMERCIAL REASONS UNRELATED TO ANY DOUBTS AS TO ITS COMPATIBILITY WITH THE COMMUNITY RULES . THE UNITED KINGDOM THEREFORE CONSIDERS THAT BY AUTHORIZING THAT PRACTICE IT DID NOT IN ANY WAY FAIL TO FULFIL ITS OBLIGATIONS UNDER ARTICLE 10 OF REGULATION NO 1422/78 AND ARTICLE 6 OF REGULATION NO 1565/79 .

11 THE GOVERNMENT OF THE FRENCH REPUBLIC , WHICH INTERVENED IN SUPPORT OF THE COMMISSION ' S CONCLUSIONS , CONSIDERS THAT THE PRACTICE OF THE MILK MARKETING BOARDS IS NOT PERMISSIBLE UNDER THE PROVISIONS OF THE COMMUNITY LEGISLATION AND THAT IT RESULTS IN A VERY SERIOUS DISTORTION OF THE CONDITIONS OF COMPETITION .

THE PRELIMINARY SUBMISSIONS MADE BY THE UNITED KINGDOM 12 THE UNITED KINGDOM MAKES TWO PRELIMINARY SUBMISSIONS ARGUING THAT :

( A ) AN ACTION BASED ON ITS ALLEGED FAILURE TO FULFIL ITS OBLIGATIONS IS INAPPROPRIATE INASMUCH AS THE COMMISSION SHOULD HAVE PROPOSED AMENDMENTS TO THE COMMUNITY RULES OR MADE USE OF THE SO-CALLED MANAGEMENT COMMITTEE PROCEDURE RATHER THAN BRING INFRINGEMENT PROCEEDINGS ;

( B ) THE COMMISSION HAS BASED ITS CLAIMS ON PURELY THEORETICAL ARGUMENTS WITHOUT INVESTIGATING THE FACTS OF THE CASE , ALTHOUGH QUESTIONS OF FACT ARE CENTRAL TO THE MATTER , IN PARTICULAR WITH REGARD TO THE POSSIBLE EXISTENCE OF ' DISTORTIONS ' IN THE MARKET .

13 WITH REGARD FIRST OF ALL TO POINT ( B ), IT MUST BE OBSERVED THAT THAT QUESTION CAN ONLY BE CONSIDERED IN CONNECTION WITH THE SUBSTANCE OF THE CASE .

14 WITH REGARD TO POINT ( A ), THE UNITED KINGDOM SUBMITS THAT THE COMMISSION WAS AWARE FROM THE END OF 1978 OF THE SETTING OF DIFFERENT PRICES FOR MILK , BUT BY REGULATION NO 1565/79 IT NEVERTHELESS AUTHORIZED THE GRANTING OF SPECIAL RIGHTS TO THE MILK MARKETING BOARDS , SO THAT IF IT SUBSEQUENTLY WISHED TO RAISE THE PROBLEM IT SHOULD HAVE ADOPTED ' SUPPLEMENTARY GENERAL IMPLEMENTING RULES OR SPECIFIC DECISIONS ' IN ACCORDANCE WITH ARTICLE 2 ( 3 ) OF REGULATION NO 1565/79 . IT ALSO ARGUES , MOREOVER , THAT INSTEAD OF BRINGING PROCEEDINGS AGAINST THE UNITED KINGDOM FOR FAILING TO FULFIL ITS OBLIGATIONS THE COMMISSION SHOULD FIRST , PURSUANT TO ARTICLE 9 ( 5 ) OF REGULATION NO 1422/78 , HAVE SUBMITTED THE PRICES IN QUESTION TO ' AN EXAMINATION TO BE UNDERTAKEN BY THE MANAGEMENT COMMITTEE FOR MILK AND MILK PRODUCTS , IN ACCORDANCE WITH ARTICLE 31 OF REGULATION ( EEC ) NO 804/68 ' .

15 THE COMMISSION REPLIES THAT THE SOLUTION PUT FORWARD BY THE UNITED KINGDOM WOULD ENTAIL THE AMENDMENT OF COMMUNITY LEGISLATION , WHEREAS THE REAL ISSUE IS A MEMBER STATE ' S FAILURE TO APPLY THAT LEGISLATION CORRECTLY , AND IT ARGUES THAT THE PROCEDURE LAID DOWN IN ARTICLE 169 IS THEREFORE AN ENTIRELY APPROPRIATE MANNER OF DEALING WITH SUCH AN INFRINGEMENT .

16 FROM THE BEGINNING THE COMMISSION HAS EXPRESSED ITS DOUBTS WITH REGARD TO THE CONFORMITY WITH COMMUNITY LAW OF A SYSTEM OF DIFFERENTIAL PRICES ; FOR EXAMPLE , IN A LETTER OF 13 JULY 1979 FROM THE DIRECTORATE GENERAL FOR AGRICULTURE TO THE BRITISH MINISTRY OF AGRICULTURE , FISHERIES AND FOOD , IT STATED THAT : ' A DIFFERENTIAL PRICING SYSTEM WOULD BE CONSISTENT WITH THE PROVISION IN ( REGULATION NO 1422/78 ) IF IT DID NOT DISTORT THE NORMAL FUNCTIONING OF THE MARKET ORGANIZATION MECHANISMS AND PARTICULARLY THE INTERVENTION ARRANGEMENTS . IF , HOWEVER , A DIFFERENTIAL PRICING SYSTEM DID HAVE THIS EFFECT ON THESE MECHANISMS AND ARRANGEMENTS AND WAS OTHER THAN NEUTRAL , IT WOULD NOT BE CONSISTENT WITH THIS PROVISION . ' IT CANNOT THEREFORE BE ASSERTED THAT THE COMMISSION ACCEPTED THE PRINCIPLE THAT ANY PRICE DIFFERENTIATION WOULD BE CONSISTENT WITH COMMUNITY LAW .

17 NOR CAN THE ACCEPTANCE OF SUCH A PRINCIPLE BE INFERRED FROM THE FACT THAT THE COMMISSION DID NOT TRY TO OBTAIN THE WITHDRAWAL OF THE UNITED KINGDOM ' S AUTHORIZATION ON THE GROUND THAT THE CONDITIONS LAID DOWN IN REGULATION NO 1422/78 WERE NOT FULFILLED . IT MAY BE CONCLUDED THAT THE COMMISSION DID NOT WISH TO CALL IN QUESTION THE MILK MARKETING BOARD SYSTEM AS A WHOLE , WHICH IS OF INDISPUTABLE BENEFIT TO CONSUMERS , BECAUSE OF AN INFRINGEMENT WHICH COULD BE REMEDIED BY THE BRITISH GOVERNMENT WITHOUT ABOLISHING THE SYSTEM ITSELF .

18 AS FOR THE EXAMINATION OF THE BRITISH PRICES BY THE MANAGEMENT COMMITTEE FOR MILK AND MILK PRODUCTS , IT APPEARS FROM THE DOCUMENTS BEFORE THE COURT THAT SUCH AN EXAMINATION WAS CARRIED OUT AT LEAST ONCE . FURTHERMORE , AS THE COMMISSION CORRECTLY POINTS OUT , SUCH AN EXAMINATION CANNOT BE USED IN ORDER TO RESOLVE THE QUESTION WHETHER A MEMBER STATE IS APPLYING COMMUNITY LEGISLATION IN AN INCORRECT MANNER .

19 IT MUST THEREFORE BE HELD THAT THERE IS NOTHING TO PREVENT THE COMMISSION FROM INSTITUTING PROCEEDINGS UNDER ARTICLE 169 .

COMPLAINT I THE OBJECTION OF INADMISSIBILITY MADE BY THE UNITED KINGDOM WITH REGARD TO THE FIRST SUBMISSION 20 THE UNITED KINGDOM RAISES AN OBJECTION OF INADMISSIBILITY AGAINST THE FIRST SUBMISSION MADE BY THE COMMISSION IN SUPPORT OF COMPLAINT I , TO THE EFFECT THAT THE DIFFERENTIATION OF PRICES FOR WHOLE MILK ACCORDING TO WHETHER BUTTER MADE FROM THAT MILK IS SOLD IN BULK OR IN PACKETS IS INCOMPATIBLE WITH ARTICLE 9 ( 1 ) ( A ) OF REGULATION NO 1422/78 . IT ARGUES THAT THAT SUBMISSION IS INADMISSIBLE ON THE GROUND THAT THE COMMISSION DID NOT , IN ITS CORRESPONDENCE WITH THE BRITISH AUTHORITIES CONCERNING THE QUESTION OF THE DIFFERENTIATION OF MILK PRICES OR IN ITS REASONED OPINION OF 10 JUNE 1983 , RAISE THE ARGUMENT THAT THE DIFFERENTIATION OF MILK PRICES ON THE BASIS OF THE CRITERIA APPLIED BY THE MILK MARKETING BOARDS WAS PER SE CONTRARY TO THE COMMUNITY RULES , IRRESPECTIVE OF WHETHER OR NOT IT RESULTED IN DISTORTION OF COMPETITION OR AFFECTED THE EFFICIENT FUNCTIONING OF THE SYSTEM OF AIDS GRANTED UNDER THE COMMON ORGANIZATION OF THE MARKET .

21 THE COMMISSION REPLIES THAT IT RAISED THE QUESTION OF THE INCOMPATIBILITY WITH ARTICLE 9 ( 1 ) ( A ) OF REGULATION NO 1422/78 OF THE CRITERIA FOR THE DIFFERENTIATION OF PRICES FOR WHOLE MILK APPLIED BY THE MILK MARKETING BOARDS IN A LETTER OF 18 SEPTEMBER 1980 ADDRESSED TO THE PERMANENT REPRESENTATION OF THE UNITED KINGDOM TO THE EUROPEAN COMMUNITIES , AND REFERRED TO IT AGAIN IN A LETTER OF 10 JUNE 1982 ADDRESSED TO THE FOREIGN SECRETARY AND IN THE REASONED OPINION OF 10 JUNE 1983 . THE ARGUMENT SET OUT IN THE APPLICATION SIMPLY GOES INTO GREATER DETAIL ON THE ORIGINAL COMPLAINT AND IS THEREFORE ADMISSIBLE .

22 IT MUST BE POINTED OUT FIRST OF ALL THAT IN THE LETTER OF FORMAL NOTICE AND IN THE REASONED OPINION THE COMMISSION DID NOT EXPRESSLY ASSERT , AS IT DID IN THE APPLICATION , THAT THE DIFFERENTIATION OF MILK PRICES ACCORDING TO WHETHER THE MILK WAS INTENDED FOR THE MANUFACTURE OF BULK BUTTER OR OF PACKET BUTTER WAS IN ITSELF CONTRARY TO ARTICLE 9 ( 1 ) OF REGULATION NO 1422/78 , IRRESPECTIVE OF THE CONSEQUENCES WHICH THAT PRACTICE MIGHT HAVE FOR THE FUNCTIONING OF THE COMMON ORGANIZATION OF THE MARKET .

23 HOWEVER , IT MUST ALSO BE OBSERVED THAT IN ITS LETTER OF 18 SEPTEMBER 1980 , REFERRED TO ABOVE , THE COMMISSION DID STATE THAT A CLAUSE AUTHORIZING THE MILK MARKETING BOARDS TO FIX DIFFERENT PRICES TO TAKE ACCOUNT OF WHETHER THE PRODUCT WAS TO BE SOLD ON THE OPEN MARKET OR TO THE INTERVENTION AGENCY COULD EASILY PRESENT AN OBSTACLE TO THE NORMAL FUNCTIONING OF THE COMMON ORGANIZATION OF THE MARKET AND THAT ' MOREOVER THE IDENTITY OF THE FURTHER BUYER OF THE PRODUCT MANUFACTURED ( INTERVENTION AGENCY OR PRIVATE TRADER ) CANNOT , GENERALLY , BE CONSIDERED AS AN OBJECTIVE CRITERION ' . IT APPEARS FROM THAT LETTER THAT EVEN AT THAT EARLY STAGE THE COMMISSION WAS MAKING IT CLEAR THAT THE COMPATIBILITY OF A CRITERION FOR PRICE DIFFERENTIATION WITH THE COMMUNITY RULES COULD BE ASSESSED INDEPENDENTLY OF ITS EFFECTS ON THE FUNCTIONING OF THE COMMON ORGANIZATION OF THE MARKET .

24 IN ITS LETTER OF FORMAL NOTICE THE COMMISSION DISPUTED THE LEGALITY OF THE MULTIPLE PRICING OF MILK NOT ONLY IN RELATION TO THE NORMAL FUNCTIONING OF THE COMMON ORGANIZATION OF THE MARKET BUT ALSO ON THE BASIS OF ITS INCOMPATIBILITY WITH ARTICLE 9 ( 1 ) AND ( 2 ) OF REGULATION NO 1422/78 . THOSE COMPLAINTS WERE REITERATED IN THE REASONED OPINION . ALTHOUGH ARTICLE 9 ( 2 ) PROVIDES THAT DIFFERENTIATION ON THE BASIS OF INTENDED USE MUST NOT HAVE THE EFFECT OF CAUSING DISTORTION OF COMPETITION , ARTICLE 9 ( 1 ) SIMPLY LAYS DOWN THE GENERAL RULE THAT MILK PRICES MAY BE DIFFERENTIATED ONLY ON THE BASIS OF THE ' USE INTENDED BY THE BUYER ' .

25 CONSEQUENTLY , THE UNITED KINGDOM HAS NOT SHOWN THAT BY INCLUDING FURTHER DETAILS OF THE COMPLAINTS RAISED BY THE COMMISSION DURING THE PRE-LITIGATION STAGE THE APPLICATION WIDENED THE SCOPE OF THE PROCEEDINGS . THE OBJECTION OF INADMISSIBILITY MUST THEREFORE BE DISMISSED .

SUBSTANCE 26 ACCORDING TO THE COMMISSION , THE ' INTENDED USE ' OF MILK CAN ONLY BE THE USE TO WHICH THE BUYER INTENDS TO PUT THE MILK WHICH HE BUYS FROM THE MILK MARKETING BOARDS , IN THIS INSTANCE THE PRODUCTION OF BUTTER , WHEREAS UNDER THE BRITISH SYSTEM THE ' INTENDED USE ' OF MILK , FOR THE PURPOSES OF ARTICLE 9 ( 1 ) ( A ) OF REGULATION NO 1422/78 , IS TAKEN AS MEANING THE USE MADE OF A PRODUCT DERIVED FROM MILK , THAT IS TO SAY BUTTER .

27 THE UNITED KINGDOM , ON THE OTHER HAND , CONSIDERS THAT THE EXPRESSION ' INTENDED USE ' IN FACT REFERS TO THE MARKET ON WHICH THE FINAL PRODUCT IS TO BE SOLD AND THAT DIFFERENTIATION IS JUSTIFIED BY THE EXISTENCE OF TWO SEPARATE MARKETS FOR BUTTER , THAT FOR BULK BUTTER AND THAT FOR PACKET BUTTER .

28 IN THE ABSENCE OF ANY DEFINITION OF THE EXPRESSION ' INTENDED USE ' , IT MUST BE CONSTRUED ON THE BASIS OF AN INTERPRETATION OF THE MEASURE IN WHICH IT APPEARS .

29 FIRST OF ALL , THE ACTUAL WORDING OF ARTICLE 9 ( 1 ) SHOWS THAT THAT PROVISION IS BASED ON THE PRINCIPLE OF A SINGLE PRICE ( ' PRICES SHALL BE IDENTICAL FOR ALL BUYERS CONCERNED ' ), WHICH IS , MOREOVER , IN ACCORDANCE WITH THE BASIC NOTION OF SINGLE PRICES INHERENT IN THE COMMON ORGANIZATION OF THE MARKET , AND PERMITS PRICE DIFFERENTIATION ONLY BY WAY OF EXCEPTION TO THE GENERAL RULE .

30 THAT EXCEPTION RELATES ONLY TO THE ' USE INTENDED BY THE BUYER ' FOR MILK SOLD BY THE MILK MARKETING BOARDS . THE USE OF THE MILK INTENDED BY THE BUYER MAY INDEED BE THE PRODUCTION OF BUTTER ; IT CANNOT , HOWEVER , INCLUDE THE MANNER IN WHICH THE BUTTER SO PRODUCED IS SUBSEQUENTLY PACKAGED , MARKETED OR SOLD . SUCH AN EXTENSION OF THE TERM ' INTENDED USE ' MIGHT CATCH NOT ONLY THE USE OF MILK BY THE BUYER FOR THE PRODUCTION OF BUTTER BUT ALSO THE USE OF THAT BUTTER BY AN ECONOMIC OPERATOR FURTHER DOWN THE CHAIN .

31 IN THE LIGHT OF THE EXCEPTIONAL NATURE OF PRICE DIFFERENTIATION UNDER ARTICLE 9 OF REGULATION NO 1422/78 AND THE UNEQUIVOCAL WORDING OF THAT PROVISION , IT CANNOT BE HELD TO PERMIT , AS THE UNITED KINGDOM ARGUES , DIFFERENTIATION ACCORDING TO THE MARKET IN WHICH THE BUTTER IS SOLD AS A FINAL PRODUCT .

32 IT FOLLOWS THAT THE EXPRESSION ' USE INTENDED BY THE BUYER ' IN ARTICLE 9 ( 1 ) ( A ) OF REGULATION NO 1422/78 MUST BE INTERPRETED STRICTLY AND CAN THEREFORE REFER ONLY TO THE INTENDED USE OF THE MILK AND NOT TO THE INTENDED USE OF A PROCESSED PRODUCT SUCH AS BUTTER .

33 THE UNITED KINGDOM GOES ON TO ARGUE THAT EVEN IF IT IS HELD THAT THE DIFFERENTIATED PRICES FOR MILK WERE NOT ESTABLISHED IN ACCORDANCE WITH ARTICLE 9 ( 1 ) ( A ), IT SHOULD BE CONSIDERED THAT THEY WERE ESTABLISHED IN ACCORDANCE WITH ARTICLE 9 ( 1 ) ( B ), UNDER WHICH PRICES MAY BE DIFFERENTIATED ' ON THE BASIS OF OTHER CRITERIA ESTABLISHED IN ACCORDANCE WITH THE PROCEDURE REFERRED TO IN PARAGRAPH 4 ' , THAT IS TO SAY ON THE BASIS OF NEGOTIATIONS AT WHICH THE MILK MARKETING BOARD CONCERNED AND ITS MILK PURCHASERS WERE REPRESENTED ON AN EQUAL FOOTING . THE OBJECTIVE CRITERIA USED IN THIS CASE WERE THE COSTS INVOLVED IN THE SALE OF BULK BUTTER AND OF PACKET BUTTER RESPECTIVELY AND THE DIFFERENT PRICES OBTAINED FOR BUTTER ON THOSE TWO MARKETS .

34 THE COMMISSION POINTS OUT FIRST OF ALL THAT TO ITS KNOWLEDGE NO NEW CRITERION FOR PRICE DIFFERENTIATION HAS BEEN ADOPTED ON THE BASIS OF THE PROCEDURE LAID DOWN IN ARTICLE 9 ( 4 ). IT ADDS THAT EVEN IF THERE HAD , A CRITERION FOR THE DIFFERENTIATION OF MILK PRICES BASED ON WHETHER THE BUTTER PRODUCED FROM THAT MILK IS TO BE SOLD ON THE RETAIL MARKET OR INTO INTERVENTION CERTAINLY DOES NOT CONSTITUTE AN OBJECTIVE CRITERION WITHIN THE MEANING OF THAT PARAGRAPH , IF IT IS BORNE IN MIND THAT THE OBJECTIVE CRITERIA SET OUT IN PARAGRAPH 66 ( 8 ) ( A ) TO ( F ) OF THE MILK MARKETING SCHEME AS AMENDED IN 1981 , SUCH AS THE QUANTITY OF MILK TO BE DELIVERED , ITS DESCRIPTION , ITS QUALITY AND THE PLACES WHERE IT IS TO BE PRODUCED , PROCESSED OR DELIVERED , ARE ALL CRITERIA WHICH RELATE DIRECTLY TO THE MILK AND IN NO WAY CONCERN THE MARKET ON WHICH A PRODUCT MANUFACTURED FROM THE MILK IS TO BE SOLD .

35 IT MUST BE POINTED OUT THAT NEITHER IN THE WRITTEN PROCEDURE NOR AT THE HEARING DID THE UNITED KINGDOM BRING EVIDENCE IN SUPPORT OF ITS ASSERTION THAT THE DIFFERENTIATION IN QUESTION WAS ESTABLISHED IN ACCORDANCE WITH THE JOINT COMMITTEE PROCEDURE . EVEN IF IT IS TRUE THAT IRRESPECTIVE OF THE CRITERIA SET OUT IN PARAGRAPH 66 ( 8 ) ( A ) TO ( F ) ANY OTHER OBJECTIVE CRITERION COULD BE TAKEN INTO ACCOUNT BY THE JOINT COMMITTEE UNDER PARAGRAPH 66 ( 8 ) ( G ), THE FACT REMAINS THAT IN ITS REPLY TO THE COURT ' S INVITATION ' TO SPECIFY WHETHER AND , IF SO , IN WHAT CIRCUMSTANCES THE JOINT COMMITTEE PROCEDURE HAS BEEN USED TO ESTABLISH NEW OBJECTIVE CRITERIA ' THE UNITED KINGDOM CONFINED ITSELF TO STATING THAT ' THE ADOPTION OF A SINGLE PRICE FOR THE BUTTERFAT ELEMENT OF MILK FOR THE PRODUCTION OF BUTTER HAS MADE IT UNNECESSARY FOR THE JOINT COMMITTEE TO ESTABLISH NEW OBJECTIVE CRITERIA ' .

36 IT MAY THEREFORE BE CONCLUDED THAT THE CRITERION USED BY THE MILK MARKETING BOARDS WAS NOT ESTABLISHED IN ACCORDANCE WITH ARTICLE 9 ( 1 ) ( B ), AND IT IS NOT NECESSARY TO DEAL WITH THE QUESTION WHETHER THAT CRITERION MAY BE REGARDED AS AN OBJECTIVE CRITERION FOR THE PURPOSES OF THE COMMUNITY RULES .

37 THE UNITED KINGDOM FURTHER ARGUES THAT A FAILURE TO COMPLY WITH ARTICLE 9 ( 1 ) OF REGULATION NO 1422/78 CANNOT IN ITSELF CONSTITUTE A BREACH OF COMMUNITY LAW IF IT DOES NOT RESULT IN DISTORTION OF COMPETITION , DISCRIMINATION OR AN OBSTACLE TO THE EFFICIENT FUNCTIONING OF THE COMMON ORGANIZATION OF THE MARKET . IN SUPPORT OF ITS ARGUMENT IT REFERS TO THE POSITION TAKEN BY THE COMMISSION ON A NUMBER OF OCCASIONS AND TO THE SECOND SUBPARARAPH OF ARTICLE 6 ( 2 ) OF REGULATION NO 1565/79 . IT ALSO RELIES ON ARTICLE 9 ( 2 ) AND ( 3 ) OF REGULATION NO 1422/78 , WHICH PROVIDE THAT DIFFERENTIATION ON THE BASIS OF INTENDED USE MAY NOT HAVE THE EFFECT OF CAUSING DISTORTION OF COMPETITION ON THE UNITED KINGDOM MARKET BETWEEN MILK PRODUCTS FROM OTHER MEMBER STATES AND LOCAL PRODUCTS AND THAT THE MILK MARKETING BOARDS MAY NOT SELL MILK AT A PRICE LOWER THAN THAT CORRESPONDING TO THE LOWEST PRICE APPLIED ON THE UNITED KINGDOM MARKET FOR THE MILK PRODUCT CONCERNED WHEN IMPORTED , AND IT ARGUES THAT IF THOSE PROVISIONS HAVE BEEN OBSERVED , AS IT BELIEVES IT CAN SHOW , THE FAILURE TO COMPLY WITH ARTICLE 9 ( 1 ) IS IRRELEVANT .

38 THE COMMISSION DENIES THAT ITS STAFF HAVE EVER EXPRESSED VIEWS AMOUNTING TO AN ADMISSION THAT FAILURE TO COMPLY WITH ARTICLE 9 ( 1 ) OF REGULATION NO 1422/78 WAS CONTRARY TO COMMUNITY LAW ONLY IN SO FAR AS IT AFFECTED THE EFFICIENT FUNCTIONING OF THE COMMON ORGANIZATION OF THE MARKET . IT ADDS , WITH REGARD TO ARTICLE 9 ( 2 ) AND ( 3 ), THAT THE ARGUMENT PUT FORWARD BY THE UNITED KINGDOM MUST , IN ANY EVENT , BE REJECTED SINCE THE BRITISH AUTHORITIES HAVE NOT BEEN ABLE TO SHOW THAT THE FACT THAT THE LOWEST PRICE FOR BRITISH BUTTER WAS FOUND , ON SEVERAL OCCASIONS FROM FEBRUARY 1982 ONWARDS , TO BE LOWER THAN THE LOWEST PRICE FOR IMPORTED BUTTER WAS NOT RELATED TO THE DIFFERENTIATION OF MILK PRICES APPLIED BY THE MILK MARKETING BOARDS .

39 IT DOES INDEED APPEAR FROM THE DOCUMENTS BEFORE THE COURT THAT , AS THE UNITED KINGDOM OBSERVES , THE VIEWS EXPRESSED BY THE COMMISSION ' S STAFF IN THE COURSE OF ITS ORAL AND WRITTEN CONTACTS WITH THE BRITISH AUTHORITIES HAVE NOT ALWAYS BEEN FREE OF AMBIGUITY . IT ALSO APPEARS , HOWEVER , THAT THE BRITISH AUTHORITIES WERE NOT GIVEN ANY ASSURANCE WHICH WOULD HAVE ALLOWED THEM TO CONSIDER THAT THE AUTHORIZATION GRANTED THEM BY REGULATION NO 1422/78 HAD THE WIDE SCOPE NOW ATTRIBUTED TO IT BY THE UNITED KINGDOM .

40 THE ARGUMENT BASED ON THE SECOND SUBPARAGRAPH OF ARTICLE 6 ( 2 ) OF REGULATION NO 1565/79 , UNDER WHICH ' DIFFERENTIATING THE SELLING PRICE ON THE BASIS OF THE USE TO WHICH THE MILK IS PUT OR ON THE BASIS OF OTHER OBJECTIVE CRITERIA SHALL ONLY BE EXCLUDED IN SO FAR AS IT COULD LEAD TO A DISCRIMINATION BETWEEN MILK BUYERS AND IN SO FAR AS IT MAY BE AN OBSTACLE TO THE NORMAL FUNCTIONING OF THE COMMON MARKET ORGANIZATION AND , IN PARTICULAR , ITS INTERVENTION SYSTEM AND COMMUNITY AID SCHEMES ' , REQUIRES A VERY WIDE INTERPRETATION OF THAT PROVISION TO THE EFFECT THAT DIFFERENTIATION OF THE SELLING PRICE IS EXCLUDED ONLY IF IT IS ESTABLISHED THAT THERE IS A RISK OF DISCRIMINATION OR OF DISTORTION EVEN WHERE THE CRITERION OF INTENDED USE OR OTHER OBJECTIVE CRITERIA ARE IGNORED . SUCH AN INTERPRETATION IS CLEARLY CONTRARY TO THE GENERAL SCHEME OF THE COMMUNITY PROVISIONS AUTHORIZING THE MILK MARKETING BOARDS , WHICH EMBODIES THE PRINCIPLE THAT THEIR ACTIVITIES SHOULD BE SUBJECT TO VERY STRICT CONTROL . IN THE LIGHT OF THAT SCHEME IT MUST THEREFORE BE CONSIDERED THAT DIFFERENTIATION OF PRICES IS EXCLUDED IF IT IS FOUND TO ENTAIL RISKS OF DISTORTION OR OF DISCRIMINATION , EVEN IF IT IS IN CONFORMITY WITH THE CRITERION OF INTENDED USE OR OTHER OBJECTIVE CRITERIA WHICH IN THEORY OUGHT THEMSELVES TO ENSURE THAT SUCH DIFFERENTIATION IS COMPATIBLE WITH COMMUNITY LAW .

41 THERE IS NO NEED TO EXAMINE THE ARGUMENT BASED ON ARTICLE 9 ( 2 ) AND ( 3 ) OF REGULATION NO 1422/78 SINCE IT HAS BEEN ESTABLISHED THAT FAILURE TO COMPLY WITH ARTICLE 9 ( 1 ) IS IN ITSELF A BREACH OF COMMUNITY LAW .

42 IT FOLLOWS THAT , BY AUTHORIZING THE MILK MARKETING BOARDS TO DIFFERENTIATE PRICES FOR WHOLE MILK SOLD BY THEM ACCORDING TO WHETHER THE BUTTER MANUFACTURED FROM THAT MILK IS TO BE SOLD AS BULK BUTTER OR AS PACKET BUTTER , THE UNITED KINGDOM HAS FAILED TO FULFIL ITS OBLIGATIONS UNDER THE COMMUNITY RULES .

COMPLAINT II 43 THE SECOND COMPLAINT RELATES TO THE ALLEGED BREACH OF ARTICLE 6 ( 2 ) OF REGULATION NO 1565/79 , REFERRED TO ABOVE , UNDER WHICH ' DIFFERENTIATING THE SELLING PRICE ON THE BASIS OF THE USE TO WHICH THE MILK IS PUT OR ON THE BASIS OF OTHER OBJECTIVE CRITERIA SHALL ONLY BE EXCLUDED IN SO FAR AS IT COULD LEAD TO A DISCRIMINATION BETWEEN MILK BUYERS AND IN SO FAR AS IT MAY BE AN OBSTACLE TO THE NORMAL FUNCTIONING OF THE COMMON MARKET ORGANIZATION AND , IN PARTICULAR , ITS INTERVENTION SYSTEM AND COMMUNITY AID SCHEMES ' . THE COMMISSION ARGUES THAT THE DIFFERENTIATION OF PRICES FOR WHOLE MILK ACCORDING TO THE INTENDED USE OF THE LIQUID SKIMMED MILK OBTAINED IN THE MANUFACTURE OF BUTTER OR OF CREAM INTERFERES WITH THE EFFICIENT FUNCTIONING OF COMMUNITY AID SCHEMES .

44 IN ITS FIRST SUBMISSION IN SUPPORT OF THAT COMPLAINT THE COMMISSION ARGUES THAT THE SETTING OF A PRICE FOR WHOLE MILK WHICH IS HIGHER WHERE THE RESULTING LIQUID SKIMMED MILK IS USED AS ANIMAL FEED THAN WHERE IT IS PROCESSED INTO SKIMMED-MILK POWDER REDUCES THE EFFECTIVENESS OF THE AID FOR LIQUID SKIMMED MILK USED FOR ANIMAL FEED GRANTED PURSUANT TO REGULATION NO 986/68 OF THE COUNCIL OF 15 JULY 1968 ( OFFICIAL JOURNAL , ENGLISH SPECIAL EDITION 1968 ( I ), P . 260 ), REGULATION NO 1105/68 OF THE COMMISSION OF 27 JULY 1968 ( OFFICIAL JOURNAL , ENGLISH SPECIAL EDITION 1968 ( II ), P . 379 ) AND COMMISSION REGULATION NO 2793/77 OF 15 DECEMBER 1977 ( OFFICIAL JOURNAL 1977 , L 321 , P . 30 ).

45 IN ITS SECOND SUBMISSION THE COMMISSION ARGUES THAT THE SETTING OF A PRICE FOR WHOLE MILK WHICH IS HIGHER WHERE THE RESULTING LIQUID SKIMMED MILK IS USED IN THE MANUFACTURE OF CASEIN AND CASEINATES THAN WHERE IT IS PROCESSED INTO SKIMMED-MILK POWDER REDUCES THE EFFECTIVENESS OF THE AID GRANTED UNDER REGULATION NO 987/68 OF THE COUNCIL OF 15 JULY 1968 ( OFFICIAL JOURNAL , ENGLISH SPECIAL EDITION 1968 ( I ), P . 262 ) FOR SKIMMED MILK PROCESSED INTO CASEIN OR CASEINATES .

THE OBJECTION OF INADMISSIBILITY RAISED BY THE UNITED KINGDOM WITH REGARD TO THE SECOND SUBMISSION 46 THE UNITED KINGDOM OBJECTS THAT THE SUBMISSION BASED ON ALLEGED INTERFERENCE WITH THE PROPER FUNCTIONING OF THE AID SCHEME FOR LIQUID SKIMMED MILK PROCESSED INTO CASEIN AND CASEINATES IS INADMISSIBLE ON THE GROUND THAT THE COMMISSION MADE NO MENTION OF ANY SUCH INTERFERENCE BEFORE BRINGING THIS ACTION .

47 THE COMMISSION REPLIES THAT IN ITS LETTER OF FORMAL NOTICE SENT TO THE UNITED KINGDOM ON 10 JUNE 1982 , AND AGAIN IN ITS REASONED OPINION OF 10 JUNE 1983 , IT REFERRED GENERALLY TO COMMUNITY AID SCHEMES AND THAT THE UNITED KINGDOM CANNOT THEREFORE RELY ON THE FACT THAT ONLY CERTAIN AIDS WERE MENTIONED BY WAY OF EXAMPLE WHEREAS OTHERS WERE NOT .

48 IT MUST BE OBSERVED THAT ALTHOUGH THE LETTER OF 10 JUNE 1982 REFERRED TO ABOVE AND THE REASONED OPINION OF 10 JUNE 1983 DO CONTAIN A NUMBER OF REMARKS OF A GENERAL NATURE WHICH MAY APPLY TO ANY COMMUNITY AID FOR LIQUID SKIMMED MILK , THE FACT REMAINS THAT AT NO TIME DID THE COMMISSION , BEFORE BRINGING THESE PROCEEDINGS , PUT FORWARD ARGUMENTS INDICATING , EVEN IMPLICITLY , THAT IT BELIEVED THAT THE DIFFERENTIATION OF PRICES WAS ALSO AN OBSTACLE TO THE EFFICIENT FUNCTIONING OF THE COMMUNITY AID SCHEME FOR LIQUID SKIMMED MILK FOR THE MANUFACTURE OF CASEIN AND CASEINATES .

49 CONSEQUENTLY , SINCE THE SECOND SUBMISSION WAS RAISED BY THE COMMISSION FOR THE FIRST TIME IN ITS APPLICATION IT MUST BE DECLARED INADMISSIBLE .

THE SUBSTANCE OF THE FIRST SUBMISSION 50 ON THE BASIS OF THE MOST RECENT FIGURES NOTIFIED TO IT BY THE UNITED KINGDOM IN SEPTEMBER 1983 BEFORE THESE PROCEEDINGS WERE BROUGHT , THE COMMISSION STATES THAT THE PRICE OF WHOLE MILK WAS SET AT A HIGHER LEVEL WHERE THE RESULTING SKIMMED MILK WAS USED ON FARMS THAN WHERE IT WAS PROCESSED INTO POWDER . THE PRICE DIFFERENCE , WHICH VARIES BETWEEN 0.83 AND 0.89 ECU PER 100 KG ACCORDING TO THE INTENDED USE OF THE BUTTERFAT , REPRESENTS 14.6% OF THE AID FOR LIQUID SKIMMED MILK FOR FEEDING CALVES AND 9.8% OF THE AID FOR LIQUID SKIMMED MILK FOR FEEDING PIGS AND POULTRY ; IN SEPTEMBER 1983 THOSE AIDS WERE 6.10 AND 9.10 ECU PER 100 KG RESPECTIVELY .

51 IN THE LIGHT OF THOSE FIGURES THE COMMISSION OBSERVES THAT THE REAL LEVEL OF THE COMMUNITY AID IS THUS REDUCED , SINCE A PURCHASER OF WHOLE MILK WHO INTENDS TO USE THE RESULTING SKIMMED MILK FOR ANIMAL FEED IS OBLIGED TO PAY A HIGHER PRICE FOR THE WHOLE MILK THAN IF HE INTENDED TO PROCESS THE RESULTING SKIMMED MILK INTO POWDER . THE EFFECTIVENESS OF THE AID IS THUS REDUCED , BECAUSE BUYERS OF WHOLE MILK USE LESS LIQUID SKIMMED MILK ON FARMS THAN THEY OTHERWISE WOULD , AND PROCESS GREATER QUANTITIES INTO POWDER .

52 THE UNITED KINGDOM ADMITS THAT LIQUID SKIMMED MILK IS USED IN THAT COUNTRY ALMOST EXCLUSIVELY FOR FEEDING PIGS AND THAT VIRTUALLY NONE IS USED FOR FEEDING CALVES AND POULTRY . IT GOES ON TO STATE THAT ' THE SKIM VALUE OF SKIMMED MILK USED ON FARMS IS 0.89 ECU PER 100 KG HIGHER THAN THE SKIM VALUE OF SKIMMED MILK USED FOR DRYING BECAUSE THE PRICE THE PIG FARMER IS PREPARED TO PAY FOR SKIMMED MILK FOR USE ON FARMS ( HAVING REGARD TO COMPETING FEEDSTUFFS ) YIELDS AFTER DEDUCTION OF COSTS A BETTER RETURN TO THE MILK PRODUCER THAN DOES THE MARKET PRICE OF SKIMMED-MILK POWDER LESS THE COSTS OF DRYING ' .

53 IT MUST BE OBSERVED THAT , AS APPEARS FROM THE SECOND RECITAL IN THE PREAMBLE TO REGULATION NO 986/68 , REFERRED TO ABOVE , THE AID FOR LIQUID SKIMMED MILK FOR USE AS ANIMAL FEED IS INTENDED TO ENCOURAGE GREATER USE OF LIQUID SKIMMED MILK AS ANIMAL FEED BY ENSURING THAT THE SELLING PRICE IS AS LOW AS POSSIBLE .

54 AS THE COMMISSION CORRECTLY POINTS OUT , THE OBJECTIVE TO WHICH THAT AID IS DIRECTED MAY BE ACHIEVED BY SELLING THE PRODUCT TO USERS AT THE LOWEST POSSIBLE PRICE , THAT IS TO SAY AT A PRICE LOWER THAN THAT WHICH COULD BE OBTAINED IF THERE WERE NO COMMUNITY AID AND IN ANY EVENT AT A PRICE NOT HIGHER THAN THAT OF THE SAME MILK INTENDED FOR ANOTHER USE .

55 IN THIS CASE , HOWEVER , IT APPEARS FROM WHAT THE UNITED KINGDOM HAS SAID THAT THE PRICE OF LIQUID SKIMMED MILK FOR USE AS ANIMAL FEED IS SET BY THE JOINT COMMITTEE IN THE LIGHT OF THE HIGHEST PRICE WHICH LIVESTOCK FARMERS , IN PARTICULAR PIG FARMERS , ARE PREPARED TO PAY , HAVING REGARD TO THE PRICE OF COMPETING FEEDSTUFFS .

56 THE UNITED KINGDOM ITSELF THUS RECOGNIZES THAT THE SYSTEM WHICH IT APPLIES PREVENTS THE COMMUNITY AID FROM ACHIEVING ITS OBJECTIVE , WHICH IS TO ENSURE THE LOWEST POSSIBLE PRICE FOR LIQUID SKIMMED MILK FOR USE AS ANIMAL FEED . UNDER THAT SYSTEM THE SOLE EFFECT OF THE COMMUNITY AID IS TO ALLOW DAIRIES TO SELL LIQUID SKIMMED MILK NOT AT THE LOWEST PRICE POSSIBLE BUT AT THE HIGHEST PRICE FARMERS ARE WILLING TO PAY HAVING REGARD TO THE PRICES OF COMPETING FEEDSTUFFS .

57 IT FOLLOWS THAT THE REDUCTION IN PRICES FOR LIQUID SKIMMED MILK WHICH WOULD HAVE OCCURRED HAD THE BRITISH SYSTEM OF SETTING MILK PRICES ALLOWED THE COMMUNITY AID TO HAVE FULL EFFECT WOULD HAVE MADE THE USE OF LIQUID SKIMMED MILK MORE ADVANTAGEOUS THAN THAT OF COMPETING FEEDSTUFFS AND WOULD THEREFORE HAVE INCREASED CONSUMPTION OF THAT PRODUCT . IT MUST BE OBSERVED IN THAT REGARD THAT , AS APPEARS FROM THE REPLY GIVEN BY THE COMMISSION ON 6 SEPTEMBER 1985 TO A QUESTION PUT BY THE COURT , THE UNITED KINGDOM PROPOSED TO ESTABLISH ' A SEPARATE , HIGHER PRICE FOR NON-AIDED USES ' FOR THE YEAR 1985/86 AND TO CONTINUE TO APPLY DURING THAT YEAR ' A SINGLE PRICE FOR SKIMMED MILK SET AT THE POWDER LEVEL FOR ALL USES SUBJECT TO AID AND INTERVENTION ARRANGEMENTS ' . THE UNITED KINGDOM HAS THUS IMPLICITLY RECOGNIZED THAT ITS PRACTICE OF SETTING A HIGHER PRICE FOR A PRODUCT INTENDED FOR A USE COVERED BY AN AID SCHEME WAS NOT COMPATIBLE WITH THAT SCHEME .

58 IN THE LIGHT OF THE FOREGOING , IT MUST BE CONCLUDED THAT THE SETTING OF A HIGHER PRICE FOR LIQUID SKIMMED MILK USED FOR ANIMAL FEED INTERFERES WITH THE EFFICIENT FUNCTIONING OF THE COMMUNITY AID SCHEMES INTENDED TO ENCOURAGE SUCH A USE OF THE PRODUCT IN QUESTION .

59 IT FOLLOWS THAT THE DIFFERENTIATION OF PRICES FOR WHOLE MILK ACCORDING TO WHETHER THE SKIMMED MILK OBTAINED IN THE MANUFACTURE OF BUTTER OR OF CREAM IS INTENDED FOR USE AS ANIMAL FEED OR FOR PROCESSING INTO SKIMMED-MILK POWDER MUST BE CONSIDERED INCOMPATIBLE WITH COMMUNITY LAW .

60 IN VIEW OF THE FOREGOING IT MUST THEREFORE BE HELD THAT BY AUTHORIZING THE MILK MARKETING BOARDS TO OPERATE :

( I ) A SYSTEM OF DUAL PRICING FOR WHOLE MILK UTILIZED FOR THE MANUFACTURE OF BUTTER DEPENDING ON WHETHER IT IS TO BE SOLD AS INTERVENTION OR BULK BUTTER OR AS PACKET BUTTER ON THE RETAIL MARKET , AND

( II ) DIFFERENTIAL PRICING FOR WHOLE MILK UTILIZED FOR THE MANUFACTURE OF BUTTER AND CREAM DEPENDING ON WHETHER THE SKIMMED MILK OBTAINED IN SUCH MANUFACTURE IS USED AS ANIMAL FEED OR PROCESSED INTO SKIMMED-MILK POWDER ,

THE UNITED KINGDOM HAS FAILED TO FULFIL ITS OBLIGATIONS UNDER ARTICLE 10 OF COUNCIL REGULATION NO 1422/78 OF 20 JUNE 1978 AND ARTICLE 6 OF COMMISSION REGULATION NO 1565/79 OF 25 JULY 1979 .

Decision on costs

COSTS

61 UNDER ARTICLE 69 ( 2 ) OF THE RULES OF PROCEDURE , THE UNSUCCESSFUL PARTY IS TO BE ORDERED TO PAY THE COSTS IF THEY HAVE BEEN ASKED FOR IN THE SUCCESSFUL PARTY ' S PLEADINGS . SINCE THE UNITED KINGDOM HAS FAILED IN ITS SUBMISSIONS , IT MUST BE ORDERED TO PAY THE COSTS , INCLUDING THOSE OF THE INTERVENER , THE FRENCH REPUBLIC , WHICH MADE SUCH A REQUEST .

Operative part

ON THOSE GROUNDS ,

THE COURT

HEREBY :

( 1 ) DECLARES THAT BY AUTHORIZING THE MILK MARKETING BOARDS TO OPERATE :

( I ) A SYSTEM OF DUAL PRICING FOR WHOLE MILK UTILIZED FOR THE MANUFACTURE OF BUTTER DEPENDING ON WHETHER IT IS TO BE SOLD AS INTERVENTION OR BULK BUTTER OR AS PACKET BUTTER ON THE RETAIL MARKET , AND

( II ) DIFFERENTIAL PRICING FOR WHOLE MILK UTILIZED FOR THE MANUFACTURE OF BUTTER AND CREAM DEPENDING ON WHETHER THE SKIMMED MILK OBTAINED IN SUCH MANUFACTURE IS USED AS ANIMAL FEED OR PROCESSED INTO SKIMMED-MILK POWDER ,

THE UNITED KINGDOM HAS FAILED TO FULFIL ITS OBLIGATIONS UNDER ARTICLE 10 OF COUNCIL REGULATION NO 1422/78 OF 20 JUNE 1978 AND ARTICLE 6 OF COMMISSION REGULATION NO 1565/79 OF 25 JULY 1979 ;

( 2 ) ORDERS THE UNITED KINGDOM TO PAY THE COSTS , INCLUDING THOSE INCURRED BY THE INTERVENER , THE FRENCH REPUBLIC . MACKENZIE STUART GALMOT KAKOURIS O ' HIGGINS SCHOCKWEILER BOSCO KOOPMANS DUE EVERLING BAHLMANN JOLIET DELIVERED IN OPEN COURT IN LUXEMBOURG ON 2 DECEMBER 1986 . P . HEIM A . J . MACKENZIE STUART