CELEX: 62002CC0173
Language: en
Date: 2004-01-22 00:00:00
Title: Opinion of Mr Advocate General Jacobs delivered on 22 January 2004. # Kingdom of Spain v Commission of the European Communities. # Regulation (EEC) No 3950/92 - Common organisation of the market for milk and milk products - Commission decision prohibiting aid to acquire milk quotas. # Case C-173/02.

OPINION OF ADVOCATE GENERALJACOBSdelivered on 22 January 2004(1)
         Case C-173/02Kingdom of SpainvCommission of the European Communities
            ()
            
      
         
        1.        In the present case, Spain challenges Commission Decision 2002/411/EC, 
         			(2)
         		 declaring a Spanish State aid to milk producers in the Asturias to be incompatible with the common market.
      
      
        2.        The aid in question took the form of an interest rate rebate on loans to enable milk producers to purchase additional milk
      quotas.  The Commission found it to be incompatible with the common market on the basis that it infringed the relevant Community
      rules governing the common organisation of the market in milk and milk products.  In the Commission’s view, it was not expressly
      provided for in Regulation (EEC) No 3950/92 of 28 December 1992 establishing an additional levy in the milk and milk products
      sector. 
         			(3)
         		  It also ran counter to the objectives underlying that legislation.
      
      
        3.        The case therefore raises the question whether and in what circumstances a Member State may adopt measures for the reallocation
      of milk quotas other than those expressly provided for by Community law.
      
       Legal framework
        4.        Under Article 36 EC, the State aid rules of the Treaty (Articles 87, 88 and 89 EC) apply to the production of and trade in
      agricultural products only to the extent determined by the Council in legislation working out and implementing the common
      agricultural policy.
      
      
        5.        The common organisation of the market in milk and milk products is established by Council Regulation (EC) No 1255/1999, 
         			(4)
         		 Article 37 of which renders the State aid rules applicable to such products ‘save as otherwise provided’ in that Regulation.
      
      
        6.        The additional levy scheme in the milk and milk products sector is currently governed by Council Regulation (EEC) No 3950/92
      (hereinafter, ‘the Regulation’). 
         			(5)
         		  The first recital of the preamble gives the history of the scheme and explains that its purpose is ‘to reduce the imbalance
      between supply and demand on the milk and milk-products market and the resulting structural surpluses’.
      
      
        7.        The 16th recital notes that ‘in order to continue restructuring milk production and improving the environment, certain derogations
      to the principle linking reference quantities to holdings should be extended, and Member States should be authorised to continue
      implementing national restructuring programmes and to organise some degree of mobility for reference quantities within a given
      geographical area, on the basis of objective criteria’.
      
      
        8.        Article 5 of the Regulation provides:
      ‘Within the quantities referred to in Article 3, the Member State may replenish the national reserve following an across-the-board
      reduction in all the individual reference quantities in order to grant additional or specific quantities to producers determined
      in accordance with objective criteria agreed with the Commission.’
      
      
        9.        Article 8 of the Regulation provides, in so far as is relevant:
      ‘With a view to completing restructuring of milk production at national, regional or collection area level, or to environmental
      improvement, Member States may take one or more of the following actions in accordance with detailed rules which they shall
      lay down taking account of the legitimate interests of the parties:
      
        
      –
         grant compensation in one or more annual instalments to producers who undertake to abandon definitively all or part of their
            milk production and place the reference quantities thus released in the national reserve,
         
      
      
        
      –
         determine, on the basis of objective criteria the conditions under which producers may obtain, in return for payment, at the
            beginning of a 12-month period, the reallocation by the competent authority or by the body designated by that authority, of
            reference quantities released definitively at the end of the preceding 12-month period by other producers in return for compensation
            in one or more annual instalments equal to the abovementioned payment,
         
      
      
      …’
      
      
        10.      The Commission has issued a set of Community guidelines for State aid in the agriculture sector (hereinafter, the ‘guidelines’),
      which it intends to apply when assessing such aid.
      
      
        11.      At point 3.2 of the guidelines, the Commission states its view that:
      ‘Although Articles 87, 88 and 89 [EC] are fully applicable to the sectors covered by the common organisations of the market,
      their application nevertheless remains subordinate to the provisions established by the regulations concerned …  In other
      words recourse by a Member State to the provisions of Articles 87, 88 and 89 cannot receive priority over the provisions of
      the regulation of that sector of the market.  It follows that under no circumstances can the Commission approve an aid which
      is incompatible with the provisions governing a common organisation of the market or which would interfere with the proper
      functioning of the common organisation.’
      
      
        12.      At point 3.5 of the guidelines, the Commission states that:
      ‘In order to be considered compatible with the common market, any aid measure must contain some incentive element or require
      some counterpart on the part of the beneficiary.  Unless exceptions are expressly provided for in Community legislation or
      in these guidelines, unilateral State aid measures which are simply intended to improve the financial situation of producers
      but which in no way contribute to the development of the sector, and in particular aids which are granted solely on the basis
      of price, quantity, unit of production or unit of the means of production are considered to constitute operating aids which
      are incompatible with the common market.  Furthermore, by their very nature, such aids are also likely to interfere with the
      mechanisms of the common organisations of the market.’
      
      
        13.      At point 4.1.1.6 of the guidelines, the Commission states that ‘no aids may be granted for the purchase of production rights
      except in accordance with the specific provisions of the common organisation of the market concerned, and the principles set
      out in Articles 87, 88 and 89 of the Treaty’.
      
       The factual background and the contested measure
        14.      In the 1998/99 milk year, the authorities in the Asturias region of Spain implemented an aid for the purchase of milk quotas
      (hereinafter, ‘the aid’ or ‘the aid at issue’).  The beneficiaries of the aid were those producers of cows’ milk who were
      classed as priority producers for the purposes of allocating reference quantities from the national reserve.  The aid consisted
      of an interest rate rebate on loans to purchase milk quotas from other producers.
      
      
        15.      The Commission only became aware of the aid during the course of its implementation following a complaint.  Spain suspended
      the aid on 31 December 1998 while the Commission conducted an investigation.  On 12 March 2002, the Commission adopted a decision
      (hereinafter, the ‘contested measure’) 
         			(6)
         		 holding the aid to be incompatible with the common market.
      
      
        16.      The contested measure found that the aid fell within Article 87(1) EC, 
         			(7)
         		 that the derogations specified in Article 87(2) were manifestly inapplicable, 
         			(8)
         		 and that the aid could not benefit from a derogation under Article 87(3) because it was contrary to the rules governing the
      common organisation of the market in milk and milk products. 
         			(9)
         		
      
        17.      The common organisation of the market constitutes a complete and exhaustive system which precludes Member States from taking
      measures that infringe or derogate from it. 
         			(10)
         		 Articles 5 and 8 of that Regulation provide Member States with specific and sufficient means to promote restructuring and
      an increase in the efficiency of production structures. 
         			(11)
         		 Neither provision can be read as authorising the aid.
      
      
        18.      The reference quantities transferred in connection with the aid were not assigned from the national reserve, as required by
      Article 5.  Nor were they obtained either by an across-the-board reduction of reference quantities or from producers who had
      not marketed milk or other milk products during a 12-month period. 
         			(12)
         		
      
        19.      As to Article 8, the reference quantities transferred as a result of the aid had not been obtained by the State in exchange
      for compensation, under the first subparagraph of that article, nor were they transferred to their recipients by the competent
      authority or another designated body, as required by the second subparagraph.  Moreover, the amount paid by the recipients
      did not equal the amount paid to the transferors. 
         			(13)
         		
      
        20.      The aid was therefore contrary to the provisions governing the common organisation of the market in milk and milk products
      and, in the light of point 4.1.1.6 of the guidelines, 
         			(14)
         		 could under no circumstances be approved by the Commission under Article 88(3). 
         			(15)
         		
      
        21.      In the Commission’s view, it was immaterial whether the aid was consistent with the objectives of the relevant Community rules.
       From the moment the Community lays down a common organisation of the market in a particular sector, it is the Community that
      is responsible for finding solutions to problems under the common agricultural policy.  The Member States must not therefore
      adopt unilateral measures, even if compatible with the Community’s common policy. 
         			(16)
         		
      
        22.      In any event, the Commission concluded that the aid could force up the price of milk quotas, thereby distorting the smooth
      operation of the common organisation of the market.  The vendor of the quotas could increase the price to take account of
      the additional resources available to the purchaser by reason of the aid. 
         			(17)
         		
       Procedure and claims of the parties
        23.      Spain seeks the annulment of the contested measure.  The Commission asks the Court to reject the action as unfounded.  Neither
      party requested a hearing and none was therefore held.
      
      
        24.      The Spanish Government advances three arguments to show that the Commission was mistaken to conclude in the contested measure
      that the aid at issue was incompatible with the common market.
      
      
        25.      First, the Community rules governing the common organisation of the market take precedence over those which concern State
      aid.  The compatibility of the aid at issue with the common market therefore depends upon its consistency with the Regulation.
       
      
      
        26.      Secondly, in assessing the consistency of the aid with the Regulation, it is not necessary to show that it is expressly authorised
      thereby.  It is sufficient to demonstrate that it accords with the objectives underlying the Regulation and that it does not
      infringe any other rule or principle of Community law.  Such is indeed the case.
      
      
        27.      Thirdly, contrary to the position taken in the contested measure, the aid at issue does not carry with it any consequences
      which run counter to the objectives of the Regulation and which thereby threaten to distort the smooth functioning of the
      common organisation of the market in milk and milk products.
      
      
        28.      As to the first argument advanced by Spain, the Commission accepts that the present proceedings turn on whether the aid is
      permitted under the rules governing the common organisation of the milk market.  There is therefore no need to consider the
      issue in any greater detail, and I propose to devote the remainder of the Opinion to a consideration of the Spanish Government’s
      remaining two arguments.
      
       Must the Regulation expressly authorise the aid at issue?
        29.      Spain submits that according to the Court’s case-law, Member States may adopt unilateral measures not expressly provided for
      in the Community rules governing the common organisation of an agricultural market provided that those measures are consistent
      with the Community’s objectives and do not otherwise breach a rule or principle of Community law.  The Commission was therefore
      in error to find that the aid at issue was incompatible with the Regulation merely because no express provision was made for
      it.
      
      
        30.      Thus, in the case of Pigs and Bacon Commission, 
         			(18)
         		 the Court held that ‘once the Community has … legislated for the establishment of the common organisation of the market in
      a given sector, Member States are under an obligation to refrain from taking any measure which might undermine or create exceptions
      to it’. 
         			(19)
         		  The Court does not go so far as to suggest that Member States must refrain from any unilateral measure.
      
      
        31.      In Italy v Commission, 
         			(20)
         		Commission v France 
         			(21)
         		 and Zoni, 
         			(22)
         		 the Court appears to lay down a broader prohibition.  It states in each of those cases that once the Community has established
      a common market organisation in a given sector, Member States must refrain from taking any unilateral measure, even if that
      measure is likely to support the Community’s common policy.  In such a circumstance, it is for the Community and not the Member
      States to seek solutions to problems. 
         			(23)
         		
      
        32.      However, the Spanish Government explains the outcome of those three cases on a narrower basis.  In Italy v Commission, the Court found the national measure to breach Community law because it in fact ran counter to the objectives of the common
      market organisation.  In the other two cases, the national measures under consideration obstructed the free movement of goods
      and were therefore inconsistent with another rule or principle of Community law.
      
      
        33.      In its reply, the Spanish Government attempts to derive further support for its argument from the Court’s judgment in Mulligan, delivered after Spain’s application was lodged. 
         			(24)
         		  In that case, the High Court (Ireland) referred questions regarding the compatibility with Community law of a so-called
      clawback scheme under which, when a dairy holding was sold, 20 per cent of the milk quotas attaching to it would not be transferred
      with it, but would be added instead to the Irish national reserve.  The question of relevance to the present proceedings concerned
      the scheme’s compatibility with the Regulation.  On the Spanish Government’s reading of the judgment, the Court held that
      the scheme was not expressly authorised under the Regulation, but was none the less compatible with its objectives and could
      therefore be allowed to stand.
      
      
        34.      Spain contends that the aid at issue in the present case clearly advanced the objectives underlying Articles 5 and 8 of the
      Regulation.  It was intended to restructure milk production, an objective which is explicitly recognised in the 16th recital
      of the preamble to the Regulation.  It did so on the basis of objective criteria.  Nor was it inconsistent with any other
      rule or principle of Community law.  There was therefore no basis for impugning it.
      
      
        35.      In Spain’s view, it would make no sense to prohibit a measure such as the aid at issue.  Member States are permitted under
      the Regulation to make gratuitous grants of quotas to producers.  They may also supply quotas to producers at an unsubsidised
      price under the second subparagraph of Article 8.  The aid at issue amounted to an intermediate mechanism between those two
      options.  It was adopted by the regional authorities of the Asturias because they could not afford to acquire quotas for gratuitous
      distribution but realised that unsubsidised transfers would be impossible for priority producers to afford.  The solution
      which they arrived at achieved the Community objective of restructuring without placing an unaffordable burden upon the public
      purse.  It also better accorded with point 3.5 of the guidelines than the options laid down in the Regulation, in that it
      both included an incentive element for producers and required them to provide some counterpart.
      
      
        36.      I am not persuaded by the Spanish Government’s submissions.
      
      
        37.      As a general proposition, it appears to me that once the Community lays down rules on a given matter as part of a common organisation
      of an agricultural market, the Member States may not supplement those rules with unilateral measures unless authorised to
      do so.  The prohibition on unilateral action extends even to measures which are intended to further the objectives pursued
      by the Community legislature.
      
      
        38.      It is true that in consequence, a Member State will in some circumstances be required to adopt a particular solution preferred
      by the Community despite the existence of another method of achieving the same purposes which it considers to be better suited
      to its situation. 
      
      
        39.      However, if it were otherwise, Member States could supplement the common market organisation in a given sector with a number
      of unilateral initiatives based upon their own appreciation of the Community objectives at work.  Those objectives are open
      to various interpretations.  Moreover, several conflicting objectives must often be balanced in the context of the common
      agricultural policy.  As the Commission rightly submits, there would thus be considerable potential for national measures
      to undermine the uniform effectiveness of Community law. 
      
      
        40.      Such an approach is in my view entirely compatible with the Court’s judgment in Mulligan.  It is clear to me that the Court considered Article 7(1) of the Regulation explicitly to authorise a clawback scheme such
      as the one at issue in that case. 
         			(25)
         		  It then proceeded to confirm that ‘such an interpretation’ did not run counter to the specific objective pursued by the
      Community legislature. 
         			(26)
         		  The Spanish Government is therefore wrong to suggest that the Court upheld a national measure not expressly provided for
      in the Community rules.
      
      
        41.      It is of course the case that Member States will frequently be accorded a considerable degree of discretion by the Community
      law governing the common organisation of an agricultural market.  They may be empowered to act in extremely broad terms. 
      They may be permitted to choose from a number of specific options.  They may also be required or empowered to lay down the
      detailed provisions relating to the application of a given rule.  Without some such authorisation, however, they may not adopt
      measures of their own to supplement the applicable Community rules.
      
      
        42.      In its reply, the Spanish Government points to the fact that under Article 8 of the Regulation, Member States are permitted
      to take ‘one or more of the following actions in accordance with detailed rules which they shall lay down taking account of
      the legitimate interests of the parties’.  It considers that Article 8 thereby expressly confers upon the Member States a
      discretion to supplement the options identified by the Article.
      
      
        43.      I do not agree.  On the contrary, Article 8 supports the interpretation which I advocate.
      
      
        44.      The reference to ‘one or more of the following actions’ permits Member States to adopt any or all of the measures listed singly
      or in combination.  It does not authorise them to devise new types of action.  Similarly, the ‘detailed rules’ which Member
      States may enact must serve to implement one or more of the measures listed.
      
      
        45.      I therefore consider that the Spanish Government’s second argument must be rejected, and that its action must fail.  Aid of
      the kind at issue is not authorised by the Regulation, and is thus impermissible under the Community rules governing the common
      organisation of the market in milk and milk products.  On that basis alone, the Commission was right to declare the aid at
      issue incompatible with the common market.
      
       Does the aid at issue undermine the common market organisation in milk and milk products?
        46.      The Commission also found, in the contested measure, that the aid at issue operated in such a way as to undermine the common
      organisation of the market in milk and milk products.  That finding constitutes an independent basis for the contested measure,
      with which the Spanish Government would need to deal, even were it to succeed in its previous argument. 
      
      
        47.      The contested measure specifically identifies the risk that the aid would force up the price of milk quotas.  As the Commission
      submits, that would undermine a key objective of the Regulation, which is to prevent quotas being used ‘not in order to produce
      or market milk but in order to derive purely financial benefits by taking advantage of their market value’. 
         			(27)
         		
      
        48.      In response, the Spanish Government submits that the aid at issue was calculated in order to enable the purchase of quotas
      by priority producers who would otherwise be unable to afford them.  Contrary to what is suggested in the contested measure,
      the aid would not enable sellers to increase their price by the amount of the subsidy since, if such were the case, the priority
      producers would no longer be in a position to pay.
      
      
        49.      I am not convinced by that argument.
      
      
        50.      As the Commission submits and as the contested measure states, it does appear probable that an increase in the purchasing
      power of buyers and therefore of the overall level of demand for milk quotas would result in at least some upward pressure
      on the price of such quotas.
      
      
        51.      In its reply, the Spanish Government makes two further submissions to demonstrate that the aid at issue could not have increased
      the price of milk quotas.
      
      
        52.      First, Spain refers to various provisions of Royal Decree 1486/1998 of 10 July concerning the modernisation and improvement
      of competitiveness in the milk sector. 
         			(28)
         		  Those provisions impose conditions upon the transfer of milk quotas in Spain, in order to prevent quotas from becoming objects
      of commerce and from increasing in price.  When viewed in the context of those provisions, Spain submits that the aid at issue
      was incapable of the negative consequences attributed to it by the contested measure.
      
      
        53.      Secondly, Spain asserts that the regional authorities would in fact have granted the aid only in the case of transactions
      which did not exceed a maximum purchase price, fixed at the level of the indemnity approved by the Spanish State under the
      second subparagraph of Article 8. 
      
      
        54.      The Commission challenges the admissibility of the Spanish Government’s further submissions, on the basis that they are advanced
      at too late a stage of the procedure.  The Spanish Government made no reference to them during the course of the Commission
      investigation which preceded the contested measure.  They now appear for the first time in the reply.
      
      
        55.      In my view, it would not be appropriate to admit the Spanish Government’s submissions relating to Royal Decree 1486/1998 and
      to the specification of a maximum price as a condition of the aid at issue.
      
      
        56.      It is doubtful whether a Member State can be allowed to challenge a Commission decision relating to a State aid on the basis
      that the Commission failed to consider an aspect of the aid which the Member State itself failed to disclose.
      
      
        57.      In any event, Article 42(2) of the Court’s Rules of Procedure states that no new plea in law may be introduced in the course
      of proceedings unless it is based on matters of law or of fact which come to light in the course of the procedure.  The Commission’s
      argument regarding the effect of the contested measure upon the price of quotas is contained in the contested measure itself
      and was therefore known to Spain in advance of the present proceedings.  Article 42(1) of the Rules of Procedure also makes
      clear that whilst a party may offer further evidence in reply, it must give reasons for its delay in so doing.  The Spanish
      Government provides no such explanation.
      
      
        58.      Moreover, the Spanish Government’s second assertion should in my view be excluded on the basis that it is insufficiently particularised.
       No attempt is made by the Spanish Government to specify which general rules of the State are purported to limit the aid at
      issue to transactions not exceeding a maximum price.  As a consequence, it is impossible for the Commission properly to respond
      to the Spanish Government’s claim or for the Court to arrive at its own assessment of it. 
      
      
        59.      The parties make further submissions on the question whether the aid at issue could affect the price of milk and milk products.
       However, the contested measure does not explicitly advance such a claim, which cannot in my view be relevant when assessing
      the measure’s validity.
      
      
        60.      I therefore consider that the Spanish Government has not succeeded in showing that the Commission was mistaken in concluding
      that the aid at issue undermined an objective of the common organisation of the market in milk and milk products.  Accordingly,
      the contested measure cannot be regarded as invalid even if, contrary to my conclusions above, 
         			(29)
         		 aid of the kind in issue were not unlawful on the ground that it was not authorised by the Regulation.
      
        Conclusion
        61.      In the light of the foregoing, I am therefore of the opinion that the Court should:
      (1)     dismiss the action as unfounded;
      (2)     order Spain to pay the costs.
      
      
       1 –
         
         Original language: English.
      
      2 –
         
         Commission Decision 2002/411/EC of 12 March 2002 on the State aid implemented by Spain for producers of cows' milk considered
            to be priority producers, OJ 2002 L 144, p. 49.
            
         
      
      3 –
         
         OJ 1992 L 405, p. 1.
            
         
      
      4 –
         
         Council Regulation (EC) No 1255/1999 of 17 May 1999 on the common organisation of the market in milk and milk products, OJ
            1999 L 160, p. 48.
            
         
      
      5 –
         
         Cited in note 3.
            
         
      
      6 –
         
         Cited in note 2.
            
         
      
      7 –
         
         Points 19 to 25.
            
         
      
      8 –
         
         Point 27.
            
         
      
      9 –
         
         Points 29 to 48.
            
         
      
      10 –
         
         Point 38, citing Case 177/78 Pigs and BaconCommission [1979] ECR 2161.
            
         
      
      11 –
         
         Point 37.
            
         
      
      12 –
         
         Point 36.
            
         
      
      13 –
         
         Point 37.
            
         
      
      14 –
         
         Cited in point 47.
            
         
      
      15 –
         
         Points 40 to 41.
            
         
      
      16 –
         
         Point 45, citing Case C-86/89 Italy  v Commission [1990] ECR I-3891.
            
         
      
      17 –
         
         Points 43 and 46.
            
         
      
      18 –
         
         Cited in note 10.
            
         
      
      19 –
         
         At paragraph 14.
            
         
      
      20 –
         
         Cited in note 16.
            
         
      
      21 –
         
         Case 216/84 [1988] ECR 793.
            
         
      
      22 –
         
         Case 90/86 [1988] ECR 4285.
            
         
      
      23 –
         
         . Italy v Commission, cited in note 20, at paragraph 19 of the judgment;  Commission v France, cited in note 21, at paragraph 18;  Zoni, cited in note 22, at paragraph 26.
            
         
      
      24 –
         
         Case C-313/99 [2002] ECR I-5719.
            
         
      
      25 –
         
         See paragraph 29 of the judgment.  Such also was the conclusion of Advocate General Geelhoed, at paragraph 71 of the Opinion.
            
         
      
      26 –
         
         At paragraph 30 of the judgment.
            
         
      
      27 –
         
         .Mulligan, cited in note 24, at paragraph 30 of the judgment.
            
         
      
      28 –
         
         Real Decreto 1486/1998 de 10.07.1998 sobre modernización y mejora de la competitividad del sector lácteo (BOE 165 of 11 July
            1998, p. 2328).
            
         
      
      29 –
         
         At paragraphs 36 to 45.