1 By application lodged at the Court Registry on 10 May 1996, the Portuguese Republic brought an action under Article 173 of the EC Treaty for annulment of the Commission's practice of applying `exceptional flexibility' measures in the administration of quantitative limits on the importation into the European Community of textile products and clothing from non-member countries and, specifically, of the decision adopted by the Commission following the meeting of the Textile Committee of 6 March 1996 concerning textile products originating in the People's Republic of China (`the contested decision'). Legal background
2 On 9 December 1988, pursuant to Article 4 of the Multilateral Arrangement of 20 December 1973 regarding International Trade in Textiles, commonly referred to as `the Multifibres Agreement', to which the Community became a party by Council Decision 74/214/EEC of 21 March 1974 (OJ 1974 L 118, p. 1), the Community and the People's Republic of China (`China') signed the Agreement on trade in textile products provisionally applied by Council Decision 88/656/EEC of 19 December 1988 (OJ 1988 L 380, p. 1, hereinafter `the EEC-China Agreement').
3 Article 3(1) of the EEC-China Agreement provides for the introduction of quantitative limits on the export to the Community of textile products originating in China, which are expressly set out in Annex III to the agreement. The import of textile products into the Community is subject to a double-checking system. In particular, the Chinese authorities issue export licences and, on presentation by the importer of the original export licence, the competent Community authorities issue the corresponding import licences.
4 Article 5 of the EEC-China Agreement, as subsequently amended, also allows for the possibility of `flexible' applications of the quantitative limits by providing that, subject to compliance with certain fixed ceilings, the Chinese authorities may make advance use of the following year's quantitative limit for the current year, carry over to the quantitative limit for the following year quantities unused in the current year, and transfer available quantities from certain categories of products to other categories.
5 Council Regulation (EEC) No 3030/93 of 12 October 1993 on common rules for imports of certain textile products from third countries (OJ 1993 L 275, p. 1), as amended by Council Regulation (EC) No 3289/94 of 22 December 1994 (OJ 1994 L 349, p. 85, hereinafter `the Regulation') defines the system for importation into the Community of textile products originating in third countries which are linked to the Community by agreements, protocols or arrangements, or which are members of the World Trade Organisation (`WTO').
6 Thus, according to Article 1(1) thereof, the Regulation applies to imports of textile products listed in Annex I, originating in third countries with which the Community has concluded bilateral agreements, protocols or other arrangements as listed in Annex II. China, which is not a member of the WTO, is mentioned in that annex.
7 Article 2(1) of the Regulation provides that the importation into the Community of the textile products listed in Annex V originating in one of the supplier countries listed in that annex is to be subject to the annual quantitative limits laid down in that annex. Under Article 2(2), the release into free circulation in the Community of imports subject to the quantitative limits referred to in Annex V is to be subject to the presentation of an import authorisation issued by the Member States' authorities in accordance with Article 12.
8 Article 2(7) of the Regulation provides: `In order to ensure that quantities for which import authorisations are issued shall not exceed at any moment the total Community quantitative limits for each textile category and each third country concerned, the competent authorities shall issue import authorisations only upon confirmation by the Commission that there are still quantities available of the total Community quantitative limits for the categories of textile products and for the third countries concerned, for which an importer or importers have submitted applications with the said authorities.'
9 The procedure relating to the issue of import authorisations is laid down by Article 12 of the Regulation, which provides inter alia: `1. For the purpose of applying Article 2(2), the competent authorities of the Member States, before issuing import authorisations, shall notify the Commission of the amounts of the requests for import authorisations, supported by original export certificates, which they have received. By return the Commission shall notify its confirmation that the requested amount(s) of quantities are available for importation in the chronological order in which the notifications of the Member States have been received ("first come, first served" basis). However, in exceptional cases where there is reason to believe that anticipated requests for import authorisations may exceed the quantitative limits, the Commission, in accordance with the procedure laid down in Article 17, may limit the amount to be allocated on the "first come, first served" basis to 90% of the quantitative limits in question. In such cases, as soon as this level has been reached, the allocation of the remainder shall be decided in accordance with the procedure laid down in Article 17. ... 4. As far as possible, the Commission shall confirm to the authorities the full amount indicated in the requests notified for each category of products and each third country concerned. Notifications presented by Member States for which no confirmation can be given because the amounts requested are no longer available within the Community quantitative limit will be stored by the Commission in the chronological order in which they have been received and confirmed in the same order as soon as further amounts become available, for example through the application of [flexibility measures provided for] in Article 7. Moreover the Commission shall contact the authorities of the supplier country concerned immediately in cases where requests notified exceed the quantitative limits in order to seek clarification and a rapid solution. ... 8. The Commission may, in accordance with the procedure laid down in Article 17, take any measure necessary to implement this Article.'
10 Articles 7 and 8 of the Regulation concern the administration of the flexibility measures concerning the quantities of imports.
11 Thus, Article 7 provides that, provided they notify the Commission in advance, supplier countries may effect transfers between the quantitative limits listed in Annex V to the extent and subject to the conditions stipulated in Annex VIII. Those flexibility measures may consist, subject to compliance with certain ceilings laid down in the final annex, in the advance use of the quantitative limit fixed for the following quota year, the carrying over of unused quantities to the quantitative limit for the following year, and the transfer of quantities between the categories.
12 Article 8 of the Regulation provides: `Notwithstanding Annex V, where, under particular circumstances, additional imports are required, the Commission may open up additional opportunities for imports during a given quota year. These additional opportunities for imports shall not be taken into account for the purpose of applying Article 7. In an emergency, the Commission shall open consultations in the Committee set up in Article 17 within five working days following receipt of a request from a Member State and shall take a decision within fifteen working days calculated from the same date. The measures provided for in this Article will be taken in accordance with the procedure laid down in Article 17.'
13 Finally, Article 17 of the Regulation establishes a Textile Committee composed of representatives of the Member States and chaired by a Commission representative. Under Article 17(4), the chairman is to lay draft measures before the committee, on which the latter then delivers its opinion. The Commission is to adopt the measures proposed where they are in conformity with the committee's opinion. The facts
14 According to the Portuguese Republic, there were several occasions during 1995 when the Commission granted `exceptional flexibility' measures, causing the quantitative limits on the importation of textile products and clothing laid down in bilateral agreements with several non-member countries, in particular Belarus, China, India, former Yugoslavia, Pakistan, Sri Lanka and Vietnam, to be exceeded.
15 As regards China in particular, the documents before the Court show that, during the early months of 1996, the Commission found that the competent Chinese authorities had issued export licences which, in respect of certain categories of textile products, exceeded the quantitative limits agreed between the Community and China for the quota year 1995. As a result, the products sent from China could not benefit from import authorisations and remained blocked on entry to the customs territory of the Community.
16 In a Note Verbale of 9 February 1996 and a letter of 4 March 1996, the Commission expressed its disapproval of those breaches of quantitative limits and requested the Chinese authorities to remedy the inadequate administration of the limits as laid down in the EEC-China Agreement. It further requested an intensification of the computer network linking the Chinese and Community systems for the transmission of data concerning the granting of export licences and import authorisations.
17 By letter of 5 March 1996, the Chinese authorities maintained that, whilst it was true that the exceeding of the quotas was due to a breakdown of the Chinese administration's computer system, other factors had contributed to complicating the monitoring of compliance with quantitative limits, especially the falsification of export licences and errors in the data entered into the Community system of computerised administration of import authorisations. In respect of certain categories of products they requested that the normal flexibility measures provided for in EEC-China Agreement be applied, and, in respect of other categories, requested that they be granted exceptional flexibility measures by anticipating the quantities provided for under the 1996 quotas.
18 On the same day, the Commission called an urgent meeting of the Textile Committee for 6 March 1996. At that meeting, the Commission indicated that the Chinese authorities had accepted that the link between the Chinese and Community computer systems be intensified. As a consequence, the Commission proposed to the committee that the excesses be corrected, after applying all the normal flexibility measures still capable of being used, by charging them against the 1996 quotas and, in respect of certain categories of products, by carrying forward and transfers between categories. Following the reservations expressed by a number of delegations, the Commission proposed charging against the 1996 quotas breaches of all categories of quotas which had been exceeded as at 6 March 1996.
19 The Textile Committee delivered a favourable opinion to that proposal. The Kingdom of Belgium, the Kingdom of Spain and the Hellenic Republic expressed reservations on account of the size and repetitive nature of the breaches. The Portuguese Republic voted against the Commission's proposal `by reason of its opposition in principle to exceptional flexibility measures and of the damage suffered by the Community industry'.
20 Following that meeting on 6 March 1996, the Commission, on the strength of the Textile Committee's favourable opinion, adopted the contested decision. It thereby authorised, in respect of the 1995 quota year, the importation of textile products from China in an overall quantity higher than that provided for in the EEC-China Agreement and the Regulation, while reducing the corresponding amount of quantities which might be imported during the 1996 quota year. The increase in the quotas for the quota year 1995 concerned eight categories of products and corresponded to a percentage varying between 1.1% and 11.7% of the quotas opened in respect of those categories for 1995.
21 In support of its action, the Portuguese Republic claims that the Commission had no competence to implement the practice of exceptional flexibility measures or to adopt the contested decision, that the EEC-China Agreement has been infringed, and that the principles of allocation of powers, balance between the institutions and protection of legitimate expectations have been infringed. Admissibility
22 The Commission argues that the action is inadmissible in so far as it seeks annulment of the `practice' of exceptional flexibility allegedly followed in the administration of quantitative limits on the importation into the Community of textile products originating in various non-member countries.
23 That objection must be upheld.
24 Article 173 of the Treaty does not allow a practice of a Community institution to be annulled. It follows that the action is admissible only in so far as it seeks annulment of the decision adopted by the Commission following the meeting of the Textile Committee of 6 March 1996 concerning textile products originating in China. Substance The plea that the Commission lacked the necessary powers
25 The Portuguese Republic argues that the Regulation did not authorise the Commission to adopt the contested decision opening up, for the quota year 1995, additional opportunities for imports in respect of certain categories of products originating in China, over and above the quantities laid down in Annex V to the Regulation, so that the Commission has infringed the Regulation.
26 First, the contested decision could not have been based on Article 7 of the Regulation, since the exceptional flexibility measures granted by that decision exceeded the scope defined by that provision and Annex VIII to the Regulation.
27 Nor, moreover, could Article 8 be relied upon as the legal basis of the contested decision. That provision, being a rule of exception, could not be interpreted so widely as to provide a means of discretionary administration of the quantitative limits laid down by the Regulation. The additional imports referred to in Article 8 were subject to the finding of `particular circumstances', which could not consist in the mere exceeding of quantitative limits, whatever the reason for this (breakdown of the computer system, fraud or lax administration).
28 Finally, the applicant submits, the Commission's powers in administering Community quantitative limits are purely implementing powers and should therefore be exercised within the limits and upon the conditions defined in the bilateral agreements and in the Community legislation which the Commission is required to apply. The Commission cannot therefore adopt decisions providing for exceptional flexibility measures which amend the quantitative limits laid down in the EEC-China Agreement and in the Regulation without arrogating to itself powers reserved exclusively for the Council. The provisions of Article 12(4) and (8) of the Regulation, concerning the Commission's powers of implementation, were intended exclusively to ensure that the quantitative limits laid down were observed and not to permit additional imports to absorb an excess of export licences improperly issued.
29 The Commission acknowledges that the contested decision was not based on Article 7 of the Regulation. Nevertheless, by granting additional import quantities for the quota year 1995, through the charging of those quantities against the quotas for 1996, it was exercising the powers of implementation conferred upon it by the Council under Articles 8 or 12(4) and (8) of the Regulation.
30 In this case, all the conditions for exercising the competence conferred by Article 8 of the Regulation were met. The arrival on Community customs territory of goods covered by Chinese export licences, the good faith of the traders concerned and the requests of certain Member States to unblock the goods held at the frontier all constituted circumstances rendering the importation of additional quantities necessary in order to prevent traders from being penalised and certain Member States from adopting measures capable of affecting the overall cohesion of the system of quantitative restrictions established at Community level. Those circumstances were exceptional in that the exceeding of the quantitative limits was due to a breakdown in the Chinese computer system and happened so suddenly that the Commission had been unable to take preventive measures.
31 Similarly, the adoption of the contested decision was justified in the light of the powers of implementation conferred upon it by Article 12(4) and (8) of the Regulation. The Commission maintains that it had the power under that provision to grant additional quantities for a given quota year, since such grant constituted a `solution' dealing with a situation in which quotas had been exceeded. In this case, the solution adopted by the contested decision took account of the interests of the Community industry while safeguarding the legitimate position of traders acting in good faith. Moreover, if the solution for a breach of quotas could not go beyond mere application of the normal flexibility measures provided for in Article 7, Article 12(8) of the Regulation would be deprived of all practical effect.
32 This Court finds first that, as the parties acknowledge, the contested decision was not adopted under Article 7 of the Regulation.
33 In order to determine whether the Commission had the power to adopt the contested decision on the basis of Articles 8 or 12(4) and (8) of the Regulation, it is necessary to examine the Commission's powers in relation to the administration of import quotas for textile products.
34 Whilst Article 113 of the EC Treaty confers on the Council the power to implement, on proposals of the Commission, the common commercial policy, Articles 145 and 155 of the Treaty allow the Council to confer on the Commission, in the acts which the Council adopts, powers for the implementation of the rules which the Council lays down.
35 By the Regulation, the Council established a system of Community quantitative limits applicable to imports of textile products originating in supplier countries the export of which is subject to quantitative limits. In order to ensure that Community quantitative limits are not exceeded, Article 12 of the Regulation contains a specific administrative procedure whereby the competent authorities of the Member States are to notify the Commission of the amounts of the requests for import authorisations received by them
36 Thus, the Council has delegated to the Commission the duty to monitor compliance with Community quantitative limits.
37 Under Article 12(1) of the Regulation, it is the Commission's duty in particular to confirm that the quantities requested are available for importation. Under Article 2(7), the purpose of that confirmation procedure is to ensure that quantities for which import authorisations are issued do not at any time exceed the total Community quantitative limits. Under Article 12(1) of the Regulation, the Commission may even, in exceptional cases where there is reason to believe that anticipated requests for import authorisations may exceed the quantitative limits, limit the amount to be allocated to 90% of the quantitative limits in question.
38 Under Article 12(4) of the Regulation, notifications presented by Member States for which no confirmation can be given because the amounts requested are no longer available within the Community quantitative limit are to be stored by the Commission in the chronological order in which they have been received and confirmed in the same order as soon as further amounts become available, for example through the application of the flexibility measures provided for in Article 7. Moreover, the Commission is to contact the authorities of the supplier country concerned immediately in cases where requests notified exceed the quantitative limits in order to seek clarification and a rapid solution. Under Article 12(8), the Commission may, in accordance with the procedure laid down in Article 17, take any measures necessary to implement Article 12.
39 In addition, under Article 8 of the Regulation, the Council has allocated to the Commission, over and above its powers to monitor compliance with Community quantitative limits, the power to authorise importation of quantities in excess of those limits and the normal flexibility measures provided for by Article 7 of the Regulation `where, under particular circumstances, additional imports are required'.
40 Where Article 145 of the Treaty provides that `the Council shall ... confer on the Commission, in the acts which the Council adopts, powers for the implementation of the rules which the Council lays down', it follows from the Treaty context in which Article 145 must be placed and also from practical requirements that the concept of implementation must be given a wide interpretation (Case 23/75 Rey Soda v Cassa Conguaglio Zucchero [1975] ECR 1279, paragraph 10).
41 Since only the Commission is in a position to watch closely and constantly international market trends and to act quickly when necessary, the Council may confer on it wide powers in this sphere. Consequently, the limits of those powers must be determined by reference amongst other things to the essential general aims of the legislation in question. Thus, the Commission is authorised to adopt all the measures which are necessary or appropriate for the implementation of the basic legislation, provided that they are not contrary to such legislation or to the implementing legislation adopted by the Council (see, in relation to agricultural matters, Case C-478/93 Netherlands v Commission [1995] ECR I-3081, paragraphs 30 and 31).
42 In this case, as the Advocate General points out at paragraph 59 of his Opinion, it is clear from the general scheme of the system defined by the Regulation that Article 12 of the Regulation concerns only the procedure for monitoring compliance with Community quantitative limits and cannot therefore confer upon the Commission the power to change those limits.
43 Thus, the contact which the Commission must establish with the authorities of the supplier countries in question pursuant to Article 12(4) of the Regulation where the requests notified exceed the available quotas cannot give rise to an agreement with the authorities of that non-member country providing for a derogation from the Community quantitative limits fixed by the Council. Similarly, the measures referred to in Article 12(8) serve solely to implement the procedure for administering available quotas.
44 On the other hand, it is clear from the very wording of Article 8 of the Regulation that the latter authorises the Commission to allow opportunities for imports greater than the quantities available under the total Community quantitative limits and the normal flexibility measures provided for in Article 7 of the Regulation.
45 The question to be examined, therefore, is whether the Commission had the power to adopt the contested decision under Article 8 of the Regulation and whether, in particular, circumstances existed within the meaning of that provision that were capable of justifying the authorisation of additional quantities of imports for the 1995 quota year.
46 Since Article 8 allows the Commission to offer additional import opportunities in derogation from the general system established by the Regulation, it can only be interpreted restrictively.
47 In this case, the fact that the Chinese authorities issued export licences in excess of the quantitative limits mainly because of a breakdown in the computer system of those authorities cannot justify the additional import opportunities authorised by the contested decision.
48 In such circumstances, the exceeding of the quantitative limits has its origin in the administration of the double-checking system established by the EEC-China Agreement and must therefore in principle be described not as an unusual or unforeseeable event but as a risk inherent in the procedure for monitoring quantitative limits. In this regard, the Commission has not demonstrated that the situation in which there was an excessive number of export licences in 1995 occurred so suddenly that it was in no position to adopt appropriate measures, such as those, provided for, in particular, in Article 12(1) of the Regulation for preventing the quantitative limits from being exceeded.
49 The Commission cannot draw any argument from the fact that importers acting in good faith are penalised, since it has not demonstrated that it was impossible to adopt such measures and thus avoid the products concerned being blocked on entry to Community customs territory.
50 In those circumstances, and without there being any need to rule on the other pleas in law raised by the Portuguese Republic, the contested decision must be annulled. Temporal limitation of the effects of the annulment
51 The Commission has requested the Court to limit the effects of any annulment of the contested decision.
52 Annulment of the contested decision outright would be likely adversely to affect the exercise of rights arising from the decision.
53 In those circumstances, reasons of legal certainty justify the Court exercising the power conferred on it by Article 174(2) of the EC Treaty. The effects of the annulled decision must therefore be maintained.