1BY AN APPLICATION LODGED ON 25 JANUARY 1978 , THE ITALIAN REPUBLIC , PURSUANT TO THE FIRST PARAGRAPH OF ARTICLE 173 OF THE EEC TREATY , CLAIMED THE ANNULMENT OF COMMISSION REGULATION ( EEC ) NO 2604/77 OF 25 NOVEMBER 1977 INTRODUCING MONETARY COMPENSATORY AMOUNTS IN RESPECT OF DURUM WHEAT AND THE PRODUCTS DERIVED THEREFROM ( OFFICIAL JOURNAL 1977 , L 302 , P . 40 ) AND CONSEQUENTLY OF COMMISSION REGULATION ( EEC ) NO 2792/77 OF 15 DECEMBER 1977 AMENDING REGULATION ( EEC ) NO 2604/77 ( OFFICIAL JOURNAL 1977 , L 321 , P . 29 ) AND COMMISSION REGULATION ( EEC ) NO 2917/77 OF 28 DECEMBER 1977 ON TRANSITIONAL MEASURES CONCERNING THE APPLICATION OF MONETARY COMPENSATORY AMOUNTS TO CERTAIN PRODUCTS IN THE CEREALS SECTOR ( OFFICIAL JOURNAL 1977 , L 340 , P . 37 ).
2THE DISPUTE CONCERNS THE APPLICATION OF THE MONETARY COMPENSATORY AMOUNTS SYSTEM TO DURUM WHEAT AND CERTAIN OF THE PRODUCTS DERIVED THEREFROM WHICH ARE NOT COVERED BY ANNEX II TO THE TREATY AND ARE THE SUBJECT OF A SPECIFIC ARRANGEMENT UNDER ARTICLE 235 OF THE TREATY ACCORDING TO THE TERMS OF ARTICLE 1 ( 2 ) ( B ) OF REGULATION NO 974/71 OF THE COUNCIL OF 12 MAY 1971 ON CERTAIN MEASURES OF CONJUNCTURAL POLICY TO BE TAKEN IN AGRICULTURE FOLLOWING THE TEMPORARY WIDENING OF THE MARGINS OF FLUCTUATION FOR THE CURRENCIES OF CERTAIN MEMBER STATES ( OFFICIAL JOURNAL , ENGLISH SPECIAL EDITION 1971 ( I ), P . 257 ).
3THE COMMISSION CONSIDERED THAT THE ABSENCE OF MONETARY COMPENSATORY AMOUNTS HAD IN SUMMER 1977 CAUSED DIFFICULTIES AS REGARDS BOTH DURUM WHEAT AND THE PRODUCTS DERIVED THEREFROM , THAT DEFLECTIONS OF TRADE IN THE CASE OF DURUM WHEAT AND DISTORTIONS OF COMPETITION IN THE CASE OF SOME OF THE PRODUCTS IN QUESTION HAD BEEN NOTED , AND THAT THIS STATE OF AFFAIRS WAS FURTHERMORE WORSENED BY THE SHARP DROP IN SUPPLIES OF HOME-GROWN DURUM WHEAT AND THE INCREASED NEED FOR IMPORTS FROM NON-MEMBER COUNTRIES .
4CONSEQUENTLY , BY REGULATION NO 2604/77 IT INTRODUCED MONETARY COMPENSATORY AMOUNTS IN RESPECT OF PRODUCTS UNDER IN PARTICULAR TARIFF SUBHEADINGS 10.01 B ( DURUM WHEAT ), 11.02 A I ( A ) ( GROATS AND MEAL OF DURUM WHEAT ), 19.03 A ( MACARONI , SPAGHETTI AND SIMILAR PRODUCTS CONTAINING EGGS ), 19.03 B I ( MACARONI , SPAGHETTI AND SIMILAR PRODUCTS CONTAINING NO COMMON WHEAT FLOUR OR MEAL ) AND 19.03 B II ( OTHER MACARONI , SPAGHETTI AND SIMILAR PRODUCTS ).
5A FEW LATER , BY REGULATION NO 2792/77 OF 15 DECEMBER 1977 , THE COMMISSION ADDED A PARAGRAPH TO ARTICLE 2 OF THE PRECEDING REGULATION , ACCORDING TO WHICH THE COMPENSATORY AMOUNTS INTRODUCED BY THE LATTER SHALL NOT APPLY ' ' TO OPERATIONS CARRIED OUT UNDER COVER OF A CERTIFICATE FIXING THE EXPORT REFUND OR THE IMPORT LEVY IN ADVANCE IN RESPECT OF WHICH THE APPLICATION WAS LODGED PRIOR TO 26 NOVEMBER 1977 ' ' .
6TWO WEEKS LATER , BY REGULATION NO 2917/77 , THE COMMISSION DECIDED THAT DURING THE PERIOD FROM 2 JANUARY 1978 TO 28 FEBRUARY 1978 THE COMPENSATORY AMOUNTS FIXED FOR THE PRODUCTS FALLING WITHIN TARIFF SUBHEADINGS 10.01 B ( DURUM WHEAT ) AND 11.02 A I ( A ) ( GROATS AND MEAL OF DURUM WHEAT ) WERE TO BE GRANTED ON CERTAIN EXPORTS AND IMPORTS ONLY UNDER SPECIFIED TERMS .
7THE ITALIAN GOVERNMENT CLAIMS THE ANNULMENT OF THE THREE REGULATIONS AT ISSUE , BUT CONSIDERS THAT IT HAS TO PUT FORWARD GROUNDS FOR ITS CLAIM ONLY IN RESPECT OF REGULATION NO 2604/77 AS THE FATE OF REGULATIONS NOS 2792/77 AND 2917/77 DEPENDS UPON THAT OF REGULATION NO 2604/77 . FIRST SUBMISSION : INFRINGEMENT OF ARTICLE 1 ( 3 ) OF REGULATION NO 974/71 OF THE COUNCIL OF 12 MAY 1971 AS AMENDED ; MANIFEST ERROR IN THE ASSESSMENT OF THE CONDITIONS AND DISTORTION OF THE FACTS
8THE ITALIAN GOVERNMENT STATES THAT UNDER ARTICLE 1 ( 2 ) OF REGULATION NO 974/71 MONETARY COMPENSATORY AMOUNTS MAY BE APPLIED : ( A ) TO PRODUCTS COVERED BY INTERVENTION ARRANGEMENTS UNDER THE COMMON ORGANIZATION OF AGRICULTURAL MARKETS ; ( B)TO PRODUCTS WHOSE PRICE DEPENDS ON THE PRICE OF THE PRODUCTS REFERRED TO UNDER ( A ) AND WHICH ARE GOVERNED BY THE COMMON ORGANIZATION OF MARKET OR ARE THE SUBJECT OF A SPECIFIC ARRANGEMENT UNDER ARTICLE 235 OF THE TREATY .
9IT ALSO PLEADS AN INFRINGEMENT OF ARTICLE 1 ( 3 ) OF THAT REGULATION AS AMENDED BY REGULATION NO 2746/72 OF THE COUNCIL OF 19 DECEMBER 1972 ( OFFICIAL JOURNAL , ENGLISH SPECIAL EDITION 1972 ( 28-30 DECEMBER ), P . 64 ) ACCORDING TO WHICH MONETARY COMPENSATORY AMOUNTS SHALL APPLY WHERE THERE ARE DISTURBANCES IN TRADE IN AGRICULTURAL PRODUCTS .
10IT POINTS OUT THAT THE SECOND RECITAL IN THE PREAMBLE TO REGULATION NO 2604/77 STATES THAT ' ' THE ABSENCE OF MONETARY COMPENSATORY AMOUNTS HAS IN RECENT MONTHS CAUSED DIFFICULTIES AS REGARDS BOTH DURUM WHEAT AND THE PRODUCTS DERIVED THEREFROM ' ' AND THAT ' ' DEFLECTIONS OF TRADE IN THE CASE OF DURUM WHEAT AND DISTORTIONS OF COMPETITION IN THE CASE OF SOME OF THE PRODUCTS IN QUESTION HAVE BEEN NOTED ' ' .
11THE GOVERNMENT SUBMITS THAT THESE CONSIDERATIONS ARE MANIFESTLY MISTAKEN AND AMOUNT TO ACTUAL DISTORTION OF THE FACTS .
12IT SUBMITS THAT THERE WAS NEVER ANY DISTURBANCE IN TRADE IN DURUM WHEAT AND MEAL , THE MARKET IN WHICH IS NOT ON A COMMUNITY BUT ON A REGIONAL SCALE . THE SOUTHERN REGIONS OF THE COMMUNITY PRODUCE AND PROCESS DURUM WHEAT , AND THE NORTHERN REGIONS OBTAIN THEIR SUPPLIES NOT FROM THE SOUTH OF THE COMMUNITY BUT FROM NON-MEMBER COUNTRIES . THE TWO MARKETS ARE COMPLETELY INDEPENDENT AND NOT CAPABLE OF INTERFERING WITH ONE ANOTHER .
13IT SUBMITS THAT BECAUSE THERE IS NO INTRA-COMMUNITY MARKET IN DURUM WHEAT BUT ONLY IN PASTA , THE COMMISSION CAN SPEAK AT MOST OF DISTURBANCES IN THE PASTA MARKET ( WHICH CANNOT FULFIL THE CONDITION NECESSARY FOR THE INTRODUCTION OF COMPENSATORY AMOUNTS ) BUT CERTAINLY NOT OF DISTURBANCES IN TRADE IN WHEAT .
14THIS SUBMISSION CONCERNS THE APPLICATION OF COMPENSATORY AMOUNTS TO DURUM WHEAT AND MEAL .
15THE COMMISSION HAS SHOWN THAT THERE WERE LARGE-SCALE IMPORTS OF DURUM WHEAT FROM NON-MEMBER COUNTRIES INTO THE UNITED KINGDOM , WHERE OWING TO THE WEAKNESS OF THE CURRENCY THE LEVIES EXPRESSED IN UNITS OF ACCOUNT WERE MUCH LOWER THAN IN THE COUNTRIES WITH A STRONG CURRENCY , AND THAT CONSIDERABLE QUANTITIES WERE RE-EXPORTED TO BELGIUM , THE NETHERLANDS AND THE FEDERAL REPUBLIC OF GERMANY , WITH THE RESULT THAT IMPORTERS IN THOSE COUNTRIES WERE ABLE TO MAKE SUBSTANTIAL PROFITS BY MEANS OF THESE DEFLECTIONS OF TRADE .
16MOREOVER , IT IS NOT DISPUTED THAT A CONSIGNMENT OF 3 500 TONNES OF DURUM WHEAT FROM ITALY WAS OFFERED FOR INTERVENTION BUYING IN BELGIUM .
17THE COMMISSION DID NOT EXCEED ITS ACKNOWLEDGED MARGIN OF DISCRETION BY FINDING IN THE LIGHT OF THE CIRCUMSTANCES THAT THERE WAS A RISK OF DEFLECTION OF TRADE AND DISTURBANCES IN INTRA-COMMUNITY TRADE IN THOSE PRODUCTS .
18ACCORDINGLY , THIS SUBMISSION CANNOT BE UPHELD . SECOND AND THIRD SUBMISSIONS : INFRINGEMENT OF ARTICLE 1 ( 3 ) OF REGULATION NO 974/71 OF THE COUNCIL AND MISUSE OF POWERS
19THESE SUBMISSIONS CONCERN THE APPLICATION OF COMPENSATORY AMOUNTS TO PASTA , AND THEY ARE TO BE DEALT WITH TOGETHER .
20ACCORDING TO THE ITALIAN GOVERNMENT : - PASTA IS A PRODUCT OF FURTHER PROCESSING OF THE BASIC PRODUCT , AND CONSTITUTES A TYPICAL INDUSTRIAL PRODUCT IN WHICH THE CEREAL INGREDIENT IS NOT OF PREPONDERANT IMPORTANCE . - PASTA DOES NOT APPEAR IN ANNEX II TO THE TREATY , WHICH STATES AND LISTS THE PRODUCTS WHICH ARE TO BE REGARDED AS AGRICULTURAL , BUT IS THE SUBJECT OF A SPECIFIC ARRANGEMENT UNDER ARTICLE 235 OF THE TREATY . - IT EMERGES FROM THE SECOND RECITAL IN THE PREAMBLE TO THE CONTESTED REGULATION THAT THE COMMISSION TOOK ACCOUNT OF DISTORTIONS OF COMPETITION IN TRADE IN THE NON-AGRICULTURAL PRODUCT DERIVED FROM THE AGRICULTURAL PRODUCT . - ARTICLE 1 ( 3 ) OF THE COUNCIL REGULATION PROVIDES PRECISELY THAT COMPENSATORY AMOUNTS CANNOT BE APPLIED UNLESS THEIR ABSENCE WOULD LEAD TO DISTURBANCES IN TRADE IN AGRICULTURAL PRODUCTS . - THE FACT OF HAVING BASED THE REGULATION ON CONDITIONS WHICH SHOULD NOT HAVE BEEN TAKEN INTO ACCOUNT MAKES THE REGULATION ILLEGAL IN ITS ENTIRETY , IF ONLY BECAUSE IT HAS NOT BEEN PROVED OTHERWISE THAT THE SAME MEASURES WOULD HAVE BEEN NECESSARY AND WOULD HAVE BEEN ADOPTED IN THE ABSENCE OF THOSE CONDITIONS . - THE INCREASE IN EXPORTS OF ITALIAN PASTA IS DUE TO THE AVAILABILITY OF THE RAW MATERIAL IN LOCO AND TO THE PARTICULARLY HIGH VALUE ATTACHED TO THE BY-PRODUCTS OF DURUM WHEAT IN ITALY , WHICH ALLOWS DURUM WHEAT TO BE BOUGHT AT A LOWER PRICE . - THE INCREASED COMPETITIVE CAPACITY OF ITALIAN PASTA IS LARGELY AND PRIMARILY DUE TO FACTORS PERTAINING TO THE COST OF INDUSTRIAL PROCESSING , REDUCTION OF PROFITS , QUALITY AND INDUSTRIAL TRADITION , WHICH LEAVES MORE OPPORTUNITY FOR THE ORIENTATION OF TASTES AT THE CONSUMER STAGE AND , OCCASIONALLY , TO SHORTAGES AND HIGH PRICES OF OTHER FOODSTUFFS WHICH NORMALLY COMPETE WITH PASTA : POTATOES AND RICE .
21THE COMMISSION ARGUES THAT THE DISTORTIONS OF COMPETITION WHICH AFFECTED THE MARKET IN PASTA WITHIN THE COMMUNITY WERE CAUSED BY : - THE CONSIDERABLE DEPRECIATION OF THE LIRA , MAKING PASTA PRODUCERS IN THE OTHER MEMBER STATES UNABLE TO CONTEND WITH THE COMPETITION FROM ITALIAN PRODUCERS ; - THE LOW LEVEL OF THE PRICE OF DURUM WHEAT IN ITALY , WHICH WAS CLOSE TO THE INTERVENTION PRICE : WHEN PRODUCTION OF THAT PRODUCT WITHIN THE COMMUNITY IS IN DEFICIT , PRICES OUGHT TO BE CLOSE TO THE TARGET PRICE ; - THE PARTICULARLY FAVOURABLE CONDITIONS ENJOYED BY EXPORTS , FROM MEMBER STATES WITH A WEAK CURRENCY , OF PASTA MANUFACTURED FROM COMMON WHEAT AND NOT SUBJECT TO COMPENSATORY AMOUNTS , WHEN IMPORTS OF THE BASIC PRODUCT BENEFITED FROM THOSE AMOUNTS .
22THE WORDING OF ARTICLE 1 ( 3 ) OF REGULATION NO 974/71 AS AMENDED BY REGULATION NO 2746/72 OF THE COUNCIL OF 19 DECEMBER 1972 ( OFFICIAL JOURNAL , ENGLISH SPECIAL EDITION 1972 ( 28-30 DECEMBER ), P . 64 ) REQUIRES THAT FOR THE APPLICATION OF COMPENSATORY AMOUNTS TO BASIC AGRICULTURAL PRODUCTS , THE MONETARY MEASURES REFERRED TO IN PARAGRAPH 1 ( NAMELY THE FLUCTUATION OF THE EXCHANGE RATE OF A MEMBER STATE ' S CURRENCY ) SHOULD LEAD TO DISTURBANCES IN TRADE IN AGRICULTURAL PRODUCTS .
23AS REGARDS THE PROCESSED PRODUCTS , IT EMERGES FROM THE PROVISIONS OF ARTICLE 2 ( 2 ) OF REGULATION NO 974/71 THAT THE COMPENSATORY AMOUNTS APPLICABLE SHALL BE EQUAL TO THE INCIDENCE , ON THE PRICE OF THE PRODUCT CONCERNED , OF THE APPLICATION OF THE COMPENSATORY AMOUNT TO THE PRICE OF THE BASIC PRODUCT ON WHICH IT DEPENDS .
24THEREFORE , IN ORDER TO JUSTIFY THE APPLICATION OF COMPENSATORY AMOUNTS TO PROCESSED PRODUCTS , IT IS SUFFICIENT FOR THE COMPENSATORY AMOUNTS APPLICABLE TO THE BASIC PRODUCT TO HAVE A CONSIDERABLE INCIDENCE ON THE PRICE OF THE PROCESSED PRODUCTS .
25IT FOLLOWS FROM THE FOREGOING THAT AT THE PERIOD UNDER CONSIDERATION THE EXISTENCE OF A DISTURBANCE OF THE MARKET CANNOT BE DISPUTED AS REGARDS DURUM WHEAT AND THE PRODUCT OF FIRST-STAGE PROCESSING , NAMELY DURUM WHEAT MEAL .
26IT WAS FOR THE COMMISSION TO DETERMINE WHETHER THE COMPENSATORY AMOUNTS APPLICABLE TO THE BASIC PRODUCT COULD HAVE A CONSIDERABLE INCIDENCE ON THE PRICE OF THE PROCESSED PRODUCT .
27THE COMMISSION STATED THAT THE BASIC PRODUCT USED FOR THE MANUFACTURE OF PASTA REPRESENTS MORE THAN HALF THE FINAL VALUE OF THE PROCESSED PRODUCT .
28THE ITALIAN GOVERNMENT ' S ARGUMENTS EMPHASIZE THE EXISTENCE OF A MORE FAVOURABLE STRUCTURE OF PRODUCTION COSTS IN ITALY , BUT DO NOT CALL IN QUESTION THE COMMISSION ' S ASSESSMENT , WHICH CONCERNS THE COMMUNITY AS A WHOLE .
29IN FACT , THE COMMISSION NOT ONLY HAD TO TAKE ACCOUNT OF THE INCIDENCE OF THE MONETARY MEASURES ON EXPORTS FROM ITALY BUT ALSO HAD TO TAKE ACCOUNT OF THE INCIDENCE OF THE COMPENSATORY AMOUNTS ON THE BASIC PRODUCT IN TRADE IN THE PROCESSED PRODUCT BETWEEN THE OTHER MEMBER STATES .
30IN VIEW OF THIS , HAVING REGARD TO THE CLOSE CONNEXION BETWEEN DURUM WHEAT AND THE PRODUCTS OF FIRST-STAGE AND FURTHER PROCESSING DERIVED THEREFROM WHICH IS ACKNOWLEDGED IN REGULATION NO 1059/69 OF THE COUNCIL OF 28 MAY 1969 LAYING DOWN THE TRADE ARRANGEMENTS APPLICABLE TO CERTAIN GOODS RESULTING FROM THE PROCESSING OF AGRICULTURAL PRODUCTS ( OFFICIAL JOURNAL , ENGLISH SPECIAL EDITION 1969 ( I ), P . 240 ), THE EXTENT OF THE EFFECT ON PASTA PRICES OF THE INCIDENCE OF THE MONETARY COMPENSATORY AMOUNTS ON THE BASIC PRODUCT FROM WHICH THE PASTA IS DERIVED WAS REASONABLY ACCEPTABLE .
31THEREFORE , THE COMMISSION CANNOT BE ACCUSED OF HAVING EXCEEDED THE LIMITS OF ITS DISCRETION IN THIS FIELD OR OF HAVING USED ITS POWERS FOR PURPOSES OUTSIDE THE AMBIT OF REGULATION NO 974/71 .
32THE SUBMISSIONS BASED ON THE INFRINGEMENT OF ARTICLE 1 ( 3 ) OF REGULATION NO 974/71 AND ON THE EXISTENCE OF MISUSE OF POWERS MUST THEREFORE BE DISMISSED .
33THE APPLICATION MUST BE DISMISSED .