Opinion of Mr Advocate General Lenz delivered on 15 April 1997. - Portuguese Republic v Commission of the European Communities. - Common agricultural policy - Regulation (EC) No 307/95 - Oil seeds - Final regional reference amounts - Exclusion of Portuguese producers from the benefit of compensatory adjustments for overshoots and non-utilization in the Community as a whole - Action for annulment. - Case C-150/95.



European Court reports 1997 Page I-05863



Opinion of the Advocate-General

A - Facts

1 By this application the Portuguese Republic challenges a 20% reduction in compensatory payments made to Portuguese sunflower seed producers. That reduction resulted from Commission Regulation (EC) No 307/95 of 14 February 1995 establishing corrected final regional reference amounts for producers of soya beans, rape seed, colza seed and sunflower seed for the 1994/95 marketing year. (1) As is apparent from Annex I to that regulation, the Commission found that the maximum guaranteed area set for sunflower seed production in Portugal had been exceeded by 20%, which led it to reduce the final regional reference amounts, and thus the compensatory payments as well, by the same percentage.

2 The maximum guaranteed area set for Portugal which is referred to in the Annex to Regulation No 307/95 derives, first, from the Act concerning the conditions of accession of the Kingdom of Spain and the Portuguese Republic and the adjustments to the Treaties (2) (`the Act of Accession'). In view of the particular importance of sunflower seed cultivation in Portugal, special arrangements for that State were included in the Act of Accession. Article 294 thus provides:

`During the 1986/87 to 1994/95 marketing years, specific guarantee thresholds shall be fixed for colza and rape seeds and for sunflower seeds produced in Portugal.

For the 1986/87 marketing year these thresholds shall be fixed at:

- 1 000 tonnes for colza and rape seeds,

- 48 000 tonnes for sunflower seeds.

For the following marketing years these specific guarantee thresholds shall be determined according to criteria comparable to those adopted for fixing the guarantee thresholds in the Community as at present constituted.

When a specific guarantee threshold is exceeded, the co-responsibility penalties shall be applied according to procedures which are similar to those applied in the Community as at present constituted and with the same ceiling.'

The thresholds set for Portugal under Article 294 were increased to 90 000 tonnes for 1990/91 and 1991/92.

3 Under the reform of the common agricultural policy, maximum guaranteed quantities were converted into maximum guaranteed areas. That conversion was brought about by Council Regulation (EEC) No 1765/92 of 30 June 1992 establishing a support system for producers of certain arable crops. (3) According to Article 1, the regulation establishes a system of compensatory payments for producers of arable crops. Article 2 provides that producers may apply for those compensatory payments, which are fixed on a per hectare basis and are regionally differentiated.

4 Under Article 2(5) compensatory payments may be made by two different methods: a general scheme open to all producers and a simplified scheme open to small producers. Producers applying for a compensatory payment under the general scheme are subject to an obligation to set aside part of their holding from production and receive a compensatory payment in return.

5 When a regional base area has been set and the sum of the individual areas for which aid has been claimed exceeds that regional base area, under Article 2(6) the eligible area per farmer is reduced proportionately in the same marketing year. In the following marketing year producers in the general scheme are required to make, without compensation, a special set-aside. The percentage rate for the special set-aside is to be equal to the percentage by which the regional base area was exceeded. That measure is distinct from the general set-aside scheme, governed by Article 7, under which producers other than small producers receive a compensatory payment. By virtue of that provision, each producer applying for compensatory payments under the general scheme is to set aside an area of land. For the 1993/94 marketing year the set-aside rate was fixed at 15% and the set-aside had to be rotational.

6 Article 5 of the regulation governs the detailed calculation of crop-specific oil-seed payments. In that regard too, special arrangements are made for Spain and Portugal. Article 5(2) provides:

`For Spain and Portugal a national projected reference amount for producers of sunflower seed will be set as the point of departure for regionalization within those Member States. The amount for Portugal will be set at ECU 272 per hectare...

Until the end of the 1994/95 marketing year, the compensation payment for non-professional producers of sunflower seed in Spain and Portugal will be fixed by the Commission in such a way as to avoid any distortion which might arise from transitional arrangements for sunflower seed producers in these Member States.'

7 The area of 122 000 hectares referred to in Regulation No 307/95 which Portugal allegedly exceeded derives, secondly, from an agreement concluded between the European Community and the United States within the framework of the GATT, known as the Blair House Agreement.

8 That agreement had become necessary because a GATT Panel found that a consequence of the Community support scheme for oil seeds was an impairment of the value of the tariff concession which the Community had granted to the United States in 1962. (4) Paragraph 4 of this `memorandum of understanding' on oil seeds provides:

`The Community shall introduce a separate base area (SBA) for producers benefiting from the crop-specific oil seeds payments system which shall respect the following principles:

- progressive implementation to affect those crops planted for harvest in 1994 and subsequent years,

- in recognition of the Treaties of Accession, full implementation for Spain and Portugal will commence in 1995/96.'

In paragraph 5, the separate base area is defined as follows:

`- A Community oil seed base area shall be established for which crop-specific oil seeds payments are made (the figures for EC-12 are set out in the Annex);

- for a particular marketing year the applicable EC-12 oil seeds base area shall be reduced to reflect the annual set-aside rate for arable crops fixed by the Council. In no year, however, shall the reduction be less than 10% of the base.'

9 Paragraph 6 makes crop-specific oil seed payments subject to an additional discipline:

`- For every 1% of area planted benefiting from crop-specific oil seeds payments in excess of the Community oil seed base area (after reduction in conformity with paragraph 5) the compensatory payments to such oil seed producers shall be reduced by 1%;

- any such decreases in compensatory payments applied to area planted above the SBA shall be applied in the same marketing year;

- in addition, the percentage decrease in the adjusted compensatory payment shall be carried forward to the following marketing year;

- however, in any year in which there is no decrease required in the compensatory payment (i.e. area planted is equal to or below the SBA (after reduction in conformity with paragraph 5)) the compensatory payment in that year may return to the level of the base reference amount,

- subsequent adjustments in the compensatory payment shall be applied in the manner described above.'

10 In the annex to the memorandum of understanding specific base areas are set out by Member State and by product. The area of 122 000 hectares set for sunflower seeds in Portugal also appears therein. In order to make the reasoning that follows easier to understand, I reproduce here the annex in full.

ANNEX EC-12 oil seed separate base area system (1) (Soya beans, rape and colza seeds and sunflower seeds)

Member State/oil seed

Reference year (2)

1994/95

1995/96

and subsequent years (3)

Hectares

SPAIN

Sunflower seed

PORTUGAL

Sunflower seed

EC-12

Other

Total

1 411 000

122 000

3 966 000

-

-

-

-

5 128 000

(1) Figures to be reduced to reflect the annual set aside rate for arable crops.

(2) The term 1994/95 refers to the Community marketing year, i.e. oil seeds (both winter and spring sown) for harvest in 1994.

(3) It is understood that, should the membership of the Community be expanded, this Agreement will be amended to reflect an increase in the separate base area in an amount no more than the average level of production area of the acceding member in the three years immediately preceding such accession.

11 The Blair House Agreement was finally transposed into Community law by Council Regulation (EC) No 232/94. (5) By virtue of that regulation, the following provisions were added at the end of Article 5(1) of Regulation No 1765/92:

`(e) from the 1994/95 marketing year, maximum guaranteed areas (MGA) shall be established for the crop-specific oilseed payments. They shall be equal in size to the areas of land set out in Annex IV, reduced by the rate of rotational set-aside applicable for that marketing year, or by 10% if that rate is less than 10%. If after the application of Article 2(6) first indent those maximum guaranteed areas are exceeded, the Commission shall reduce the final regional reference amounts for oilseeds in accordance with the provisions of subparagraphs (f) and (g);

(f) if the area of oilseeds already determined as eligible for compensatory payments in any year exceeds such maximum guaranteed areas, the Commission shall reduce, by 1% for each percentage point by which the maximum guaranteed area is exceeded, the relevant final regional reference amounts for that year. With effect from the 1994/95 marketing year, if the maximum guaranteed area is exceeded by more than a threshold percentage, special rules shall apply. Up to the threshold percentage, the reduction of the final regional reference amounts shall be uniform in all Member States. Beyond the threshold percentage, appropriate additional reductions shall apply in those Member States which have exceeded the national reference areas set out in Annex V, reduced by the rate referred to in subparagraph (e). The Commission shall, in accordance with the procedure laid down in Article 38 of Regulation 136/66/EEC, establish the size and distribution of the appropriate reductions to be applied and shall, in particular, ensure that the weighted average reduction for the Community as a whole is equal to the percentage by which the maximum guaranteed area has been exceeded;

(g) the threshold percentage provided for in subparagraph (f) shall be 0%...'

12 Annex IV, which is referred to in Article 5(1)(e), reads as follows:

ANNEX IV

Areas to be taken into account for the calculation of oilseeds maximum guaranteed areas

Member State/oilseed

area in hectare

1994/95

1995/96

and subsequent

years

Spain, sunflower

Portugal, sunflower

EC 12, other

Total

1 411 000

122 000

3 966 000

-

-

-

-

5 128 000

Here too, the maximum area for sunflowers in Portugal is set at 122 000 hectares.

13 Finally, the national reference areas are set out in Annex V, for example 122 000 hectares for sunflowers in Portugal.

14 As section II of Annex I to Regulation No 307/95 indicates, after the application of Article 2(6) of Regulation No 1765/92 the areas of land for which crop-specific oil seed payments had been made were such that the maximum guaranteed areas had been exceeded by the following percentages:

- the Community of 12, other than Spanish and Portuguese sunflowers: 9%;

- Spain, sunflowers: 4%;

- Portugal, sunflowers: 20%.

For that reason, as the annex likewise indicates, the Commission reduced the final regional reference amounts for Portuguese sunflower seed producers by 20%.

15 The Portuguese Republic challenges that reduction. In its view, Regulation No 307/95 is void because it infringes Regulation No 1765/92, as amended by Regulation No 232/94. At the same time, in case Regulation No 307/95 in fact merely implements the two latter regulations, it pleads pursuant to Article 184 of the EC Treaty that the latter two regulations are unlawful.

16 The Portuguese Republic claims that the Court should:

(a) annul Commission Regulation (EC) No 307/95 of 14 February 1995 establishing corrected final regional reference amounts for producers of soya beans, rape seed, colza seed and sunflower seed for the 1994/95 marketing year;

(b) order the Commission to pay the costs.

17 The Commission contends in response that the Court should:

(a) dismiss the application as unfounded;

(b) order the Portuguese Republic to pay the costs.

The Council has intervened in support of the Commission's claims and contends that the plea of illegality should be rejected.

B - Analysis

I. Calculation of the overshoot of the maximum guaranteed area

18 The Portuguese Republic submits that in Regulation No 307/95 the Commission disregarded the special status accorded to Portugal. In that regard, it refers, first, to the calculation of the alleged overshoot of the maximum guaranteed area. In that calculation the Commission reduced the area of 122 000 hectares set for Portugal in accordance with Article 5(1)(e) of Regulation No 1765/92. Under that provision the maximum guaranteed areas laid down for oil seeds are to be reduced by the applicable rate of `rotational' (6) set-aside. The second subparagraph of Article 7(1) fixes the rate for sowings from the 1993/94 marketing year onwards at 15%. In other words, the Commission based its calculation on an area of 122 000 hectares reduced by 15% of that area (that is to say 122 000 hectares less 15%). It then reached the conclusion that Portugal had exceeded that area by 20%.

1. Reduction of the area allocated to Portugal

19 According to the Portuguese Republic, the first error in calculation lies in the fact that the area laid down for Portugal was reduced at all. It refers in that regard to the special arrangements made for Portugal in the Act of Accession. As it submits, and is not disputed, those arrangements were intended to prevent Portugal from being affected by the reduction in official prices and, hence, in subsidies, in that sector. The arrangements involved the initial setting of a separate threshold value for Portuguese sunflower seeds. That threshold value was to remain until the expiry of the transitional period, that is to say until the end of the 1994/95 marketing year. In Portugal's view, those special arrangements are inviolable until the expiry of the transitional period. They were accordingly respected on the transition from maximum quantities to maximum guaranteed areas under the reform of the common agricultural policy. Regulation No 1765/92, which was adopted as part of that reform, sets a separate reference amount for Portuguese sunflower seed producers. (7)

20 The Portuguese Republic adds that the Blair House Agreement also respected its special status. It refers in that regard to the second indent of paragraph 4 of the agreement, (8) which states that, in recognition of the Treaties of Accession, the separate base area is not to be implemented in full in Spain and Portugal until 1995/96. Furthermore, it is apparent from the annex to the memorandum of understanding that, here too, Portugal is accorded a special status in that a separate area of 122 000 hectares for 1994/95 is laid down for Portuguese sunflower seeds. (9) In the view of the Portuguese Republic, it also follows from the annex that that area is inviolable, that is to say, is not subject to set-aside. Under the second indent of paragraph 5, the applicable EC-12 oil seed base area is to be reduced to reflect the set-aside rate. As the annex shows, that relates to the area in the left-hand column for `EC-12 Other', which is given as 3 966 000 hectares. (10) Since Portugal does not produce any other oil seeds and an area is set especially for Portuguese sunflower seeds, which does not fall under EC-12, set-aside does not apply either to that separate area of 122 000 hectares.

21 The Portuguese Republic submits that Portugal's special status was also respected on the implementation, by Regulation No 232/94, of the Blair House Agreement, because, in Annex IV to that regulation, a separate area of 122 000 hectares for 1994/95 is again set for Portugal. (11) Since Portugal is not included in the area for the Community as a whole until 1995/96 (as is apparent from the annexes to the memorandum of understanding and to Regulation No 232/94), (12) it is only from that point onwards that it is subject to the set-aside obligation. Until then, that is to say, until the expiry of the transitional period, the inviolable special arrangements for Portugal apply. That also accords with the second indent of paragraph 4 of the memorandum of understanding on oil seeds which does not envisage full implementation for Portugal until 1995/96. (13)

22 Portugal is persuaded, therefore, that the area of 122 000 hectares is not affected by set-aside. In its view, the Commission was thus wrong to reduce that area by 15% and, for that reason, the resulting 20% overshoot is inconsistent with the Blair House Agreement, the Act of Accession and, in particular, Regulations No 1765/92 and No 232/94. Accordingly, Regulation No 307/95 infringes those regulations.

23 The Commission - in my opinion rightly - takes a different view. It contends that the area of 122 000 hectares set for Portugal is likewise subject to set-aside. In its opinion, that follows from both Regulation No 1765/92, as amended by Regulation No 232/94, and the Blair House Agreement.

24 The Commission does not dispute that the Act of Accession included special arrangements for Portugal but refers to the third and fourth paragraphs of Article 294 thereof, according to which the specific guarantee thresholds laid down for the following marketing years are to be determined according to criteria comparable to those adopted for fixing the guarantee thresholds in the rest of the Community. (14) The Commission states that the threshold of 48 000 tonnes fixed for the 1986/87 marketing year was increased to 90 000 tonnes for 1990/91 and 1991/92 pursuant to that provision. Furthermore, the maximum guaranteed quantities were converted into maximum guaranteed areas. The fourth paragraph of Article 294 even makes the specific guarantee threshold subject to the co-responsibility penalties in accordance with the procedures which are generally applied in the Community. (15)

25 It follows, at least, that the specific guarantee threshold laid down in Article 294 does not have to remain unaltered. In other words, even if the special arrangements laid down for Portugal continue to be respected, the quantities or areas set out therein may nevertheless be altered. (16)

26 Nor, in my view, does it follow from the Blair House Agreement that the maximum area for Portugal which it lays down is not subject to set-aside. Under the second indent of paragraph 5 of the memorandum of understanding the EC-12 oil seeds base area applicable in a particular marketing year is to be reduced to reflect the annual set-aside rate. (17) That does not refer, however, as the Portuguese Republic contends, to the area laid down for 1994/95 for `EC-12 Other', that is to say 3 966 000 hectares. It is, on the contrary, a reference to the total EC-12 area given in the annex, that is to say to the total of the three separate areas specified in the first column of the annex. (18) The heading of the annex, which reads `EC-12 oil seed separate base area system', also points to that conclusion. Under the second indent of paragraph 5, that base area is subject to set-aside. It relates, as is clear from the text in brackets following the heading, to soya beans, rape and colza seeds and sunflower seeds, and therefore also to Portuguese sunflower seeds. It is subdivided into individual areas for 1994/95. One of those areas is for sunflower seeds in Spain, another is for those in Portugal and the third is for other oil seeds in the Community of 12. For 1995/96, on the other hand, a single oil seed base area is given for the whole of the Community. That does not mean, however, that for 1994/95 only individual sub-areas are subject to set-aside.

27 That analysis also accords with the spirit and purpose of the Blair House Agreement. The objective of that agreement was to cut Community oil seed subsidies. Since those payments are by area, that could be achieved by fixing or possibly reducing the area in question. Thus, the area in respect of which subsidies may still be paid is fixed for the Community as a whole. That area serves as the reference area. It is given as a single area for the years from 1995/96 onwards and is broken down into separate areas for 1994/95. The second indent of paragraph 5 provides that the applicable EC-12 oil seeds base area is to be reduced; while, from 1995/96 onwards, that relates to the total area, for 1994/95 it relates to the sum of the individual areas, that is to say each individual area is reduced. That is the only way of achieving the objective of the agreement - to fix and reduce the area qualifying for subsidy.

28 The annex to the memorandum of understanding contains, moreover, a further indication that the area of 122 000 hectares laid down for Portugal is likewise subject to set-aside, namely the footnote amplifying the heading of the annex. The footnote states that the figures are to be reduced to reflect the annual set-aside rate for arable crops. In my view, it clearly follows that all the areas specified in that annex, hence the areas for Portugal as well, are to be reduced.

29 That does not conflict with paragraph 4 of the memorandum of understanding, under which there is not to be full implementation in Spain and Portugal until 1995/96 onwards. (19) The Portuguese Republic contends that if the area set for Portugal is also subject to set-aside from 1994/95, there is no further element which applies to Portugal for the first time from 1995/96. In other words, the Blair House arrangements are, in that case, fully implemented in Portugal from 1994/95.

30 In my opinion, that argument cannot be accepted. On the contrary, the special arrangements under which an area continues to be set separately for Portugal are respected until the end of 1994/95. As has been explained above, nothing else is laid down in the Act of Accession. There too, an individual threshold value was set for Portugal which could nevertheless be increased and, if necessary, reduced in accordance with certain criteria. Nothing different occurs in this case: a separate area is still set for Portugal, that area is merely reduced by a specified percentage, and the Act of Accession is thus not infringed. The special arrangements for Portugal therefore continue to be respected and regard is accordingly had to the Act of Accession. The system is not implemented in full in Portugal until 1995/96, when Portugal is included in the area laid down for the whole of the Community.

31 Nor does it follow from Regulation No 1765/92, as amended by Regulation No 232/94, that the area laid down for Portugal is not subject to set-aside. The tenth recital in the preamble to Regulation No 1765/92 admittedly states that rules must be established in order to take into account the specific situation in Spain and Portugal, including the different rates of progress towards integration as foreseen in the Act of Accession. It is, however, clear from Article 5(1)(e), (20) as inserted by Regulation No 232/94, that set-aside also applies to the area set for Portugal. That provision states that the maximum guaranteed areas are to be equal in size to the areas of land set out in Annex IV, reduced by the rate of rotational set-aside applicable for that marketing year. In my view, that makes it quite clear that the area of 122 000 hectares set for Portugal in Annex IV must be reduced by the appropriate set-aside rate. Regulation No 232/94 thus implements the Blair House Agreement correctly and not in the way in which Portugal - mistakenly - considers that it should be implemented.

32 Accordingly, the Commission applied Regulation No 1765/92, as amended by Regulation No 232/94, and the Blair House Agreement correctly when it calculated the overshoot of the maximum guaranteed areas.

33 That conclusion is also disputed by Portugal inasmuch as it submits that, in Regulation No 307/95, the Commission went beyond the Blair House Agreement by adopting a set-aside rate of 15% instead of the rate of 10% laid down in that agreement. That submission cannot be accepted because it is clear from both the agreement and Regulation No 232/94 that the areas must be reduced by the annual set-aside rate fixed by the Council, but not by less than 10%. (21) Under Article 7(1) of Regulation No 1765/92 (22) the set-aside rate with effect from the sowings for the 1993/94 marketing year onwards is 15%. The Commission applied that rate. The rate of 10% referred to is to be applied only if the set-aside rate fixed by the Commission is below 10%. Thus, no infringement of Regulation No 1765/92 by Regulation No 307/95 has been revealed.

34 Accordingly, Regulation No 307/95 is not unlawful as regards application of the set-aside rate.

2. Inclusion of the area farmed by small producers within the area farmed in Portugal

35 In case the Court finds that the area allocated to Portugal is nevertheless subject to set-aside, the Portuguese Republic submits that a further mistake was made in the calculation of the overshoot of the maximum guaranteed area. In its view, it was not open to the Commission to include the area farmed by small Portuguese producers within the total area farmed in Portugal. The Portuguese Republic's submission that small Portuguese producers farmed 21 397 hectares in 1994/95 has not been challenged. If that amount is subtracted from the area considered by the Commission to be the total area farmed, the result is that professional producers governed by the general scheme farmed 103 875 hectares. They thus barely exceeded the area allowed of 103 700 hectares (122 000 hectares less 15%). On the basis of that calculation the reference amounts for Portugal should not be reduced.

36 The Portuguese Republic refers in support of its argument to the distinction drawn in Regulation No 1765/92 between small producers, who are subject to a simplified scheme, and all other producers, who are governed by a general scheme. (23) Only the producers governed by the general scheme are also subject to the set-aside requirement. (24) Small producers, who are not required to set land aside, receive lower compensatory payments in return. In Portugal's view, that distinction must also be respected when applying the Blair House Agreement. For that reason, the area cultivated by small producers cannot be included in the calculation of the overshoot of the maximum guaranteed area.

37 In my opinion, that argument cannot be accepted. The distinction between small producers and other producers drawn in Regulation No 1765/92 relates first and foremost to a difference in the method of making compensatory payments. Compensatory payments to small producers are governed by a simplified scheme. The general scheme laid down for all other producers also includes an obligation on their part to set aside a certain part of their holding, in return for which they again receive compensation. (25) The fact remains, however, that both - small producers and all other producers - receive compensatory payments, albeit of differing amounts. That is an important point with regard to implementation of the arrangements under the Blair House Agreement. The objective of that agreement was to amend the Community support scheme for oil seeds in order to compensate for a reduction in the value of tariff concessions granted to the United States. Thus, support for oil seeds, granted in the form of compensatory payments calculated by reference to area (crop-specific oilseed payments), was to be cut. Under paragraph 4 of the memorandum of understanding, (26) a separate base area is introduced for producers in receipt of crop-specific oilseed payments. That area is reduced in accordance with paragraph 5 of the memorandum, (27) while non-compliance may be penalized under paragraph 6. (28) It follows that the base area laid down for producers in receipt of compensatory payments is reduced. Since those compensatory payments are calculated by reference to area, the compensatory payments themselves are thereby also reduced. No distinction is drawn in that regard between individual producers. All that matters is that they receive crop-specific oil seed payments. It is thus not apparent why small producers who, as made clear by Article 2(5) and the second subparagraph of Article 5(2) of Regulation No 1765/92, also receive compensatory payments, should not be included in the calculation of the overshoot of the maximum area. If the areas farmed by those small producers were not taken into account when calculating the overshoot, the area laid down in the Blair House Agreement could continue to be exceeded at will, which would mean that the objective of the agreement might not be attained.

38 Nor, moreover, does Regulation No 1765/92 give a different result, as the new Article 5(1)(e) and (f) (29) inserted therein adopt in that regard the provisions of the Blair House Agreement.

3. Reduction of the area farmed by small producers

39 Finally, the applicant pleads in the alternative that yet another error was made in calculating the overshoot of the maximum guaranteed area. In its view, no account is to be taken of the area farmed by small producers, who are exempted from set-aside under Regulation No 1765/92, when reducing the maximum guaranteed area by 15%. In other words, before the area of 122 000 hectares is reduced by 15%, the area farmed by small producers must be deducted from that amount. The Portuguese Republic states that small producers farmed 21 397 hectares in 1994/95. If that area is subtracted from 122 000 hectares, an area of 100 603 hectares for reduction is obtained. On reduction of that area by 15%, an area of 85 513 hectares is arrived at. According to the Portuguese Republic, the sum of that area and the area farmed by small producers, that is to say a total of 106 910 hectares, is the area which was allowed to be farmed in the 1994/95 marketing year. If that figure forms the basis for the calculation, the result is that Portugal did not exceed the area by 20%, but only by 17%.

40 The applicant justifies the method of calculation which it puts forward by stating that under Regulation No 1765/92 small producers are expressly exempted from the set-aside obligation. In its view, that regulation is infringed if the Commission in its calculation makes the areas farmed by small producers too subject to set-aside.

41 However, as already stated, the distinction drawn in the regulation between small producers and other producers is concerned solely with the laying down of different methods for the grant of a compensatory payment. Further support for that view is contained in Article 8(1) of Regulation No 1765/92, which states that small producers may apply for the compensatory payment under the simplified scheme. (30) That is interpreted by the Court of Justice as meaning that small producers are also entitled to choose the general scheme for the making of compensatory payments. (31) Small producers are thus not automatically excluded from set-aside. It is, however, important that small producers and other producers alike receive compensatory payments. The regulation lays down that other producers must in addition set aside a specified percentage of their holding, for which they are also compensated. (32) The set-aside is rotational. Small producers thus receive a lower compensatory payment than other producers; the latter, however, must set aside part of their holding on a rotational basis. In that regard, they are not subject to any additional obligation for which no compensation is payable.

42 The reduction of the base area to be made under the Blair House Agreement does not, however, involve the setting aside of land under the system which I have just described. The rate of the reduction merely corresponds to the set-aside rate laid down in Regulation No 1765/92. As I have already stated a number of times, the reduction under the Blair House Agreement is concerned with a general cut in subsidies which is brought about by a reduction of the base area. That means that the subsidies granted by the Community are to be cut as a whole. Against that background, it is, however, not clear why only the area farmed by other producers should be reduced. That would mean that only the subsidies paid to those producers would be cut, while small producers would receive the same high amount of subsidy; that is all the less evident inasmuch as - as demonstrated above - small producers are not given any form of preferential treatment under Regulation No 1765/92 either.

43 Nor, moreover, does Regulation No 1765/92 exempt small producers from a reduction of their area in every case. First, as already explained, small producers may make a choice between the general scheme and the simplified scheme. In addition, Article 2(6) (33) provides that where the sum of the individual areas for which aid is claimed is in excess of the regional base area the eligible area per farmer is to be reduced proportionately. In that case, therefore, the appropriate reduction is also made to the area of a small producer.

44 It is thus not evident in this case how Regulation No 307/95 has infringed Regulation No 1765/92, as amended by Regulation No 232/94.

4. Plea of illegality in relation to calculation of the overshoot of the maximum guaranteed area

45 Should the Court conclude that the Regulation No 307/95 is compatible with Council Regulations No 1765/92 and No 232/94, Portugal pleads under Article 184 that the latter are unlawful because they offend against the Blair House Agreement and the Act of Accession. However, it was only in its reply that it asserted for the first time that the Act of Accession was infringed.

46 According to the Council, that amounts to the introduction of a new plea in law, which under Article 42(2) of the Rules of Procedure of the Court of Justice is not permissible. It also maintains that infringement of the Blair House Agreement cannot be pleaded, because that agreement has no direct effect in Community law but must first be implemented by regulation.

47 The Commission takes the view that in this case the Council regulation cannot be challenged in any event, because the time-limit laid down in the fifth paragraph of Article 173 had expired.

48 A plea of illegality is a separate head of claim. (34) In this case, the possibility of the applicant's pleading that the Council regulations are unlawful as a means of challenging Regulation No 307/95 cannot be entirely excluded. On the other hand, if such a plea were allowed in this case the time-limit for bringing actions laid down by the fifth paragraph of Article 173 of the EC Treaty would be circumvented. In the Council's view, moreover, infringement of the Blair House Agreement cannot be pleaded in this case because that agreement has no direct effect. The applicant disagrees with that view. In its opinion, the decisive issue is not whether the agreement has direct effect. Rather, the case is concerned with the examination of Community rules to see whether they are consistent with the agreement.

49 It can, however, be stated in the light of the above that the Blair House Agreement was not infringed in any event. It follows, moreover, from the consideration of the applicant's ancillary plea that the Council regulations are entirely consistent with the Blair House Agreement. Also, as the Commission rightly states, neither the Blair House Agreement nor Regulation No 232/94 draws a distinction between small producers and other producers. On the contrary, the entire area of 122 000 hectares is subject to the 15% reduction. In that regard too, therefore, no infringement of the Blair House Agreement can be discerned. The same is true of the Act of Accession. It was in its reply that the applicant first pleaded that the Act of Accession was infringed, but under Article 42(2) of the Rules of Procedure of the Court of Justice a plea may be introduced in that way only in quite specific circumstances, that is to say where it is based on matters of law or of fact which came to light in the course of the procedure. In this case, however, there appears to be no reason why the applicant would have been unable to plead that the Act of Accession had been infringed until it lodged its reply.

50 I conclude, therefore, that, as regards the calculation of the overshoot of the maximum guaranteed area, no infringement of the Council regulations, the Blair House Agreement or the Act of Accession can be discerned.

II. Exclusion of Portugal from the possibility of compensatory adjustment of the maximum guaranteed area by transferring the unutilized area

51 In addition to the errors in calculation which it pleads, the applicant also relies on a procedure referred to in Article 5(1)(f) of Regulation No 1765/92. (35) The final sentence of that provision states, in relation to implementation of the reductions in the reference amounts in the individual Member States, that the Commission is to establish the size and distribution of the appropriate reductions to be applied and, in particular, is to ensure that the weighted average reduction for the Community as a whole is equal to the percentage by which the maximum guaranteed area has been exceeded. The third recital in the preamble to Regulation No 307/95 indicates how that weighting is to be carried out and the reasoning which underlies it. It states:

`Whereas, within the MGA covering production other than of sunflower seed in Spain and Portugal, in cases where Member States have large percentage overshoots of very small national reference areas, and where these overshoots represent few hectares, the reductions in support to be applied in these Member States should not be excessive; whereas some of the non-allocated area of land within this MGA (36) may be transferred temporarily to the national reference areas of these Member States in order to reduce their contributions towards the total overshoot of the MGA.'

52 As is shown by this quotation, Spain and Portugal are excluded from that system of compensatory adjustment as regards sunflower seed production. It is thus also stated in paragraph II.3 of Annex I to Regulation No 307/95 that part of the non-allocated area within the maximum guaranteed area covering EC-12 production other than of sunflower seed in Spain and Portugal was temporarily transferred to the national reference areas of Spain and Ireland in order to reduce their contribution towards the total overshoot of the maximum guaranteed area. A further part was temporarily transferred to the United Kingdom. On that basis, 554 hectares were, for example, transferred to Ireland and 4 240 hectares to the United Kingdom.

1. Discrimination against Portuguese producers

53 In the applicant's view, Portugal was wrongly excluded from that system of compensatory adjustment, contrary to the principle of equality. If Portugal - in the applicant's view wrongly - is treated no differently from the other Member States in relation to the calculation of the reduction of the reference amounts, there is, it submits, no reason to exclude it from the benefit of that system of compensatory adjustment.

54 It is true that - as already demonstrated - in the 1994/95 marketing year Portugal is not yet treated in the same way as the other Member States, because it continues to be allocated a separate maximum guaranteed area. However, it is not immediately clear why Portugal, or rather the area allocated to it, which is smaller than, for example, the national reference area allocated to the United Kingdom, (37) should not benefit from the compensatory adjustment procedure, in particular as the sum of the individual areas set for 1994/95 always formed the basis for calculation of the overshoot. It was always intended that the area set for the Community as a whole should be the reference point, even if that area is broken down into several smaller areas. However, each individual area is now considered separately for the purpose of making compensatory adjustments between areas.

55 The Commission's justification for this is that separate arrangements continue to apply to Spain and Portugal under the Act of Accession, on the basis of which they were allocated separate areas. Compensatory adjustments cannot be made between those separate arrangements, or rather those separate areas, and the area otherwise set for the Member States.

56 That still does not explain entirely why part of the area laid down for the other Member States which remained undistributed could not be allocated to Portugal. That could amount to discrimination against Portuguese producers. For there to be discrimination, however, producers in comparable positions must be treated differently. The Commission disputes that Portuguese producers are in a comparable position to that of the other producers in the Community, because special arrangements continue to apply to Portugal.

57 In order to demonstrate that Portuguese producers are in a different position from other producers, the Commission refers to the period before Regulation No 1765/92 was adopted. Under the arrangements then in force, guaranteed maximum amounts were laid down for sunflower seeds and, if they were exceeded, the amount of aid was reduced by a specified amount. (38) In principle that reduction affected all the Member States. The Commission points out, however, that Portugal was exempted from those reductions because of its special status under the Act of Accession. Payments of aid were thus reduced considerably in the other Member States while no reductions were imposed on Portugal.

58 The applicant does not deny that Portugal, unlike the other Member States, did not have its aid reduced. It attributes that to the fact that all the other Member States exceeded their maximum quantities while Portugal itself adhered to the maximum quantity allocated to it.

59 It is apparent from the Commission's submissions and the relevant regulations that the amount of aid for all the Member States was reduced once the maximum quantity set for the whole Community was exceeded. That means that aid for Portugal would normally have been reduced even if it had adhered to the maximum quantity allocated to it. The arrangements for Portugal were special for the very reason that it was allocated its own area for which it was responsible. There was thus a reduction in aid for Portugal only if it exceeded its own area. Portugal's argument is no different, that is to say aid was not reduced because it did not exceed the maximum quantity allocated to it. That very circumstance, however, amounted to separate treatment, stemming from the Act of Accession and justified by the fact that the maximum quantity allocated to Portugal was considered separately from the other maximum quantities. However, if such a separation of areas is introduced, leaving Portugal itself responsible for its own area, it must also be consistently observed by the Commission. In other words, that separation cannot be upheld only when it is advantageous to Portugal. On the contrary, Portugal is also to be regarded as entirely responsible for its area when it has exceeded it.

60 It follows that Portugal is not in a comparable position to that of the other Community producers. For that reason dissimilar treatment cannot be regarded as discrimination.

2. Infringement of Regulation No 1765/92

61 The applicant has also submitted that Regulation No 307/95 infringes Article 5(1)(f) of Regulation No 1765/92, as amended by Regulation No 232/94. However, no such infringement is evident in this case, because the detailed rules for using the undistributed Community area to make compensatory adjustments to the individual national areas were first established in Regulation No 307/95. Regulation No 1765/92 refers to a weighted average reduction in general terms only.

3. Plea of illegality in relation to the exclusion of Portugal from the possibility of compensatory adjustment for the overshoot of the maximum guaranteed area

62 In case Regulation No 307/95 should be found compatible with Regulation No 1765/92, the applicant pleaded in its reply that the latter was unlawful because it infringed the Blair House Agreement and the principle of non-discrimination and thus also rendered Regulation No 307/95 unlawful.

63 Illegality of Regulation No 1765/92 is pleaded here as a separate head of claim. In this instance too, however, the time-limit for bringing actions laid down in the fifth paragraph of Article 173 of the EC Treaty would be circumvented if the plea of illegality were allowed. Apart from the question whether Regulation No 1765/92 may still be challenged at all by means of Article 184, there is the further question of whether such a plea of illegality may be raised for the first time in the reply. On the basis that such a plea is nothing other than a separate head of claim, it is open to question whether, under Article 42(2) of the Rules of Procedure of the Court of Justice, it may still be introduced in the course of the proceedings. Under that provision new pleas in law may be introduced in the course of proceedings only where quite specific conditions are fulfilled. In this instance, however, the plea does not appear to be based on new matters of law or of fact which came to light only in the course of the procedure.

64 Besides, Regulations No 1765/92 and No 232/94 do not infringe either the principle of non-discrimination or the Blair House Agreement. As I have already shown, the principle of non-discrimination was not infringed. By referring merely to the exceeding of the total area in the Community, the Blair House Agreement allows adjustments to be made between the individual regional areas. However, that does not mean that the adjustments must be made in a certain way. Therefore the Blair House Agreement appears also not to have been infringed in this instance.

C - Conclusion

65 I therefore propose that the Court should:

(1) dismiss the application;

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

(1) - OJ 1995 L 36, p. 2.

(2) - OJ 1985 L 302, p. 23.

(3) - OJ 1992 L 181, p. 12.

(4) - First recital in the preamble to Council Decision 93/355/EC of 8 June 1993 concerning the conclusion of a memorandum of understanding on certain oil seeds between the European Economic Community and the United States of America within the framework of the GATT (OJ 1993 L 147, p. 25).

(5) - Council Regulation (EC) No 232/94 of 24 January 1994 amending Regulation (EEC) No 1765/92 establishing a support system for producers for certain arable crops (OJ 1994 L 30, p. 7).

(6) - See point 11 above.

(7) - Article 5(2); see point 6 above.

(8) - See point 8 above.

(9) - See point 10 above.

(10) - See point 10 above.

(11) - See point 12 above.

(12) - See points 10 and 12 above.

(13) - See point 8 above.

(14) - See point 2 above.

(15) - See point 2 above.

(16) - See point 2 above, third and fourth paragraphs of Article 294.

(17) - See point 8 above.

(18) - See point 10 above.

(19) - See point 8 above.

(20) - See point 11 above.

(21) - Second indent of paragraph 5 of the Blair House Agreement and Article 5(1)(e) of Regulation No 1765/92, as amended by Regulation No 232/94.

(22) - OJ 1992 L 181, p. 12.

(23) - Article 2(5); see point 4 above.

(24) - Second subparagraph of Article 2(5) and Article 7(1); see points 4 and 33 above.

(25) - Second subparagraph of Article 2(5).

(26) - See point 8 above.

(27) - See point 8 above.

(28) - See point 9 above.

(29) - See point 11 above.

(30) - OJ 1992 L 181, p. 12; emphasis added.

(31) - Case C-353/92 Greece v Council [1994] ECR I-3411, paragraph 9.

(32) - Article 2(5).

(33) - See point 5 above.

(34) - Opinion of Advocate General Reischl in Case 92/78 Simmenthal v Commission [1979] ECR 777, at p. 813.

(35) - See point 11 above.

(36) - Emphasis added.

(37) - Annex V to Regulation No 232/94.

(38) - Article 1(4) of Council Regulation (EEC) No 1454/86 of 13 May 1986 amending Regulation No 136/66/EEC on the common organization of the market in oils and fats (OJ 1986 L 133, p. 8) and Article 1(8) of Council Regulation (EEC) No 1915/87 of 2 July 1987 amending Regulation No 136/66/EEC on the establishment of a common organization of the market in oils and fats (OJ 1987 L 183, p. 7).