1 By decision dated 8 January 1988 which was received at the Court on 14 January 1988, the College van Beroep voor het Bedrijfsleven referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty a question on the interpretation of Paragraph 3 of the Protocol on German internal trade and connected problems dated 25 March 1957, appended to the EEC Treaty .
2 That question was raised in the context of proceedings between Schaefer Shop BV, whose registered office is at Arnhem, the Netherlands, and the Minister van Economische Zaken following the Minister' s rejection of an application for authorization to import from the Federal Republic of Germany various office items, to be sold as business gifts, originating in the German Democratic Republic .
3 The contested decision of rejection was based on Article 1(2 ) of the Vrijstellingsbeschikking niet-landbouwgoederen EG 1981 ( a 1981 order exempting non-agricultural goods from the European Economic Community from duty ) and Article 2(1 ) of the Invoerbesluit landen 1981 ( a 1981 regulation relating to imports from certain countries ) under which, read together, the importation of goods originating in the German Democratic Republic is made subject to ministerial authorization, even when those goods were first exported from the German Democratic Republic to the Federal Republic of Germany .
4 Those provisions represent the application by the Kingdom of the Netherlands of a policy adopted by the three Benelux States in 1975 on the basis of Paragraph 3 of the Protocol on German internal trade and connected problems, according to which "any application for authorization to import goods from the Federal Republic of Germany, where they are in free circulation, originating in the German Democratic Republic is to be rejected", although the competent authorities may "grant authorizations when they consider that, as a matter of good administration, a refusal to do so would be unreasonable ".
5 The national court, in doubt as to whether such a rule was compatible with the requirements of the Protocol on German internal trade, referred the following question to the Court for a preliminary ruling : "Is Paragraph 3 of the Protocol on German internal trade and connected problems annexed to the EEC Treaty to be interpreted as meaning that it is compatible therewith for a Member State or a group of Member States to adopt a policy under which, through a ban on importation without authorization into the Member State or group of Member States of goods originating in the German Democratic Republic which have been brought into free circulation in the Community in the Federal Republic of Germany, all applications for authorizations are, in practice, refused, with the exception of those relating to goods of limited value and of a non-commercial kind?"
6 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the course of the procedure and the observations submitted to the Court of Justice, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court .
7 The aim of the Protocol on German internal trade is to take into consideration "the conditions at present existing by reason of the division of Germany ". Paragraph 1 provides that trade between the German territories subject to the Basic Law of the Federal Republic of Germany and the territories in which that law does not apply is part of German internal trade and is therefore to remain subject to the rules in force at the time when the Protocol was signed .
8 In order to alleviate the difficulties which that special status might entail, Paragraph 2 of the Protocol provides that each Member State is to inform the other Member States and the Commission of any agreements relating to trade with the German territories in which the Basic Law of the Federal Republic of Germany does not apply and of any provisions implementing such agreements, and is to ensure that the implementation thereof does not conflict with the principles of the common market and to "take appropriate measures to avoid harming the economies of the other Member States ".
9 Finally, under Paragraph 3 of the Protocol, each Member State may "take appropriate measures to prevent any difficulties arising for it" from trade between a Member State and the territories in question .
10 The Netherlands and Belgian Governments claim that the special arrangements governing German internal trade give rise to difficulties in both their States, even though the quantity of imports of products originating in the Federal Republic of Germany is limited, because such imports do not bear Common Customs Tariff duties or levies . Furthermore, on entering the Federal Republic of Germany they benefit from a flat-rate deduction of 11% corresponding to the theoretical amount of the VAT deemed to have been paid on them in the German Democratic Republic . Although that deduction should not normally apply to goods intended for re-exportation, it nevertheless poses a threat since the arrangement has proved very difficult to control .
11 In those circumstances, the two governments claim, the policy adopted is the most appropriate measure, since no measure any less severe would provide an adequate protection against such imports . The representative of the Netherlands Government pointed out at the hearing that 80% of the applications for authorizations during 1986 and 1987 were granted .
12 The German Government and the Commission consider that an outright ban on the importation of products originating in the German Democratic Republic is excessive . An assessment of whether or not the measures which a State may adopt on the basis of Paragraph 3 of the Protocol are "appropriate" should take into account the measures taken by the Federal Republic of Germany itself pursuant to Paragraph 2 of the Protocol in order to "avoid harming the economies of the other Member States ".
13 From that point of view, both the Commission and the Federal Republic of Germany claim that reliable safeguards are contained in the rules governing German internal trade, in particular in the Berlin Agreement of 20 September 1951 ( Bundesanzeiger No 186, 26.9.1951 ). Under those rules, imports of products from the German Democratic Republic, which involve only products originating in that country and are limited to the Federal Republic' s requirements, may be paid for only by offset . As a result, 99% of the goods concerned remain on the market of the Federal Republic of Germany, and the authorities of the Federal Republic ensure that only goods whose prices are comparable to those prevailing on its internal market are allowed to enter . Goods which are re-exported do not enjoy any tax benefit whatever .
14 As the Court has already held ( judgments of 1 October 1974 in Case 14/74 Norddeutsches Vieh - und Fleischkontor v Hauptzollamt Hamburg-Jonas (( 1974 )) ECR 899, and of 27 September 1979 in Case 23/79 Gefluegelschlachterei Freystadt GmbH v Hauptzollamt Hamburg-Jonas (( 1979 )) ECR 2789 ), the Protocol accords a special status to the German Democratic Republic, as a result of which the Federal Republic of Germany is exonerated from applying the normal rules of Community law to German internal trade and, consequently, the German Democratic Republic, while not a Member State of the Community, is not a non-member country vis-à-vis the Federal Republic of Germany .
15 By allowing Member States to take "appropriate measures" to prevent any difficulties arising for them from trade between the Federal Republic and the German Democratic Republic, Paragraph 3 of the Protocol confers on them a relatively wide degree of discretion as to the nature, the scope and the duration of the relevant measures .
16 It must be pointed out that the Protocol does not introduce a derogation from the rules of the common market but, on the contrary, a safeguard to protect the Member States against any disadvantage they might suffer as a result of the fact that trade between the Federal Republic of Germany and the German Democratic Republic enjoys a special status under Paragraph 1 of the Protocol .
17 The power conferred in those circumstances upon the Member States may not, however, be exercised without taking into account the terms of Paragraph 2 of the Protocol and the principle of proportionality .
18 First, it is the responsibility of the Member States, when exercising the power conferred upon them by Paragraph 3 of the Protocol, to assess the importance of the difficulties arising for their economies out of the special arrangements applicable to goods originating in the German Democratic Republic in the light of the measures taken to avoid those difficulties by the Federal Republic of Germany pursuant to Paragraph 2 .
19 Secondly, by virtue of the actual terms of Paragraph 3, which, by requiring that the measures taken be "appropriate" to the difficulties, embodies a specific application of the principle of proportionality, Member States may take only those measures which are strictly necessary to prevent or eliminate actual and serious difficulties .
20 It follows from the foregoing that the Protocol prohibits Member States from taking measures which would have the effect, de jure or de facto, of creating an absolute bar to the entry into their territory of goods coming from the Federal Republic of Germany but originating in the German Democratic Republic, save in exceptional cases where the re-exportation from the Federal Republic of Germany of goods originating in the German Democratic Republic would constitute a threat to a Member State' s economy, taken as a whole .
21 However, the Protocol does not preclude the introduction by Member States of a prior authorization system, even of a general nature, that is to say not confined to one or more specific economic sectors, provided that that system constitutes in practice the only appropriate means of tackling any disturbances arising for the economies of the other Member States as a result of German internal trade .
22 It must, however, be pointed out that under such a system, authorization to import, which may represent only a partial granting of the application, must not be discretionary; each application must be assessed in the light of the actual impact which the importation in question may have on the economic sector concerned .
23 It is for the national court hearing the main proceedings to determine the existence of an actual and significant threat to the economy of the State concerned - either at the time when the contested decision was taken or, if national procedural rules so require, at the time of its ruling - and to assess whether the measures taken on the basis of Paragraph 3 of the Protocol are proportional to such a threat, taking into account the steps taken by the Federal Republic of Germany to fulfil its obligations under Paragraph 2 thereof .