1 By application lodged at the Registry of the Court of Justice on 21 April 1999, the Italian Republic sought, under the first paragraph of Article 173 of the EC Treaty (now, after amendment, the first paragraph of Article 230 EC), the annulment of Commission Decision 1999/186/EC of 3 February 1999 excluding from Community financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF), (OJ 1999 L 61, p. 34) (hereinafter the contested decision), in so far as it disallowed ITL 7 421 939 820 of expenditure incurred by the Italian Republic for aid for the processing of tomatoes.
2 That sum represents a flat-rate correction of 2% of the total expenditure incurred by the Italian Republic in connection with aid for the processing of tomatoes declared under the EAGGF. The legal context
3 Council Regulation (EEC) No 426/86 of 24 February 1986 on the common organisation of the market in products processed from fruit and vegetables (OJ 1986 L 49, p. 1) established a system of production aid for certain products obtained from fruit and vegetables harvested in the Community. Article 3(1) of that regulation provides: Production aid shall be granted to processors who have paid producers for their raw materials a price not less than the minimum price under contracts between producers or recognised producers' groups or associations thereof, on the one hand, and processors or processors' groups and associations thereof, on the other hand, legally constituted in the Community.
4 The first paragraph of Article 4(1) and Article 5(1) of Regulation No 426/86, as amended by Council Regulation (EEC) No 1202/90 of 7 May 1990 (OJ 1990 L 119, p. 66), set out the criteria on the basis of which the Commission fixes the minimum price to be paid to producers as well the amount of the production aid.
5 For the 1996/97 marketing year the minimum price to be paid to producers of tomatoes and the amount of production aid for processed tomato products was fixed in the annexes to Commission Regulation (EC) No 1398/96 of 18 July 1996 (OJ 1996 L 180, p. 6). Annex I to that regulation laid down that the minimum price payable to producers is to be calculated in ECUS per 100 kg net, ex producer.
6 Articles 2 to 4 of Commission Regulation (EEC) No 1558/91 of 7 June 1991 laying down detailed rules for the application of the system of production aid for products processed from fruit and vegetables (OJ 1991 L 144, p. 31) provide that processors of the products in question must give the competent authorities of the Member States various information.
7 Article 6 of that regulation provides: 1. Any contract referred to in Article 3 of Regulation (EEC) No 426/86, hereinafter referred to as the "processing contract", shall be concluded in writing. The processing contract may take the form of a commitment to supply between, on the one hand, one or more producers and, on the other hand, their recognised group or association, acting as processor. 2. ... 3. The processing contract must specify: ... (e) the price to be paid to the other contracting party for the raw materials excluding, in particular, costs connected with packing, loading, transport, unloading and the payment of taxes. Any such amounts shall be indicated separately. ... Factual background
8 On 17 July 1996, the Italian associations of producers and of processors concluded a trade management agreement for tomatoes intended for industrial processing for the marketing year 1996/97 (GURI No 187 of 10 August 1996) (the trade agreement), in accordance with Italian Law No 88 of 16 March 1988 on trade agreements (Law No 88).
9 Article 11 of the trade agreement dealt with the detailed rules of payment. It provides, inter alia, that the producer, in his capacity as vendor, shall pay the cost of transport relating only to the collection of the bins and other empty containers or similar equipment necessary for the delivery of the raw material to the processing undertakings. Under the same article, [t]he parties expressly agree that, in that case, the cost of the transport chargeable to the producers and associations of producers shall not in any case exceed 35% of the overall cost, as supported by documentary evidence, of transport, including the carriage of the raw material from the place of harvest to the processing plant which, as the Community legislation provides, shall be paid by the processing industry.
10 In Summary Report No VI/6462/98 on the results of the checks carried out for the clearance of the accounts of the Guarantee Section of the EAGGF for the 1995 financial year, as consolidated on 12 January 1999, the Commission explained the financial correction, which is the subject of these proceedings, in the following manner: The information collected during the audits showed that the tomato producers were obliged by the processors to pay 35% of the cost of transport of the raw materials, even if it is contrary to the Community rules, and in particular to Article 6(3)(e) of Regulation (EEC) No 1558/91. ... Taking account of the available information, Commission staff consider that that breach of the Community rules can be likened to an incomplete payment of the minimum price to the producers for the raw materials supplied, and achieved for the processing undertakings an unfair competitive advantage in relation to other countries' undertakings. ... Arguments of the parties
11 According to the Italian Government, the fact that Article 6(3)(e) of Regulation No 1558/91 specifies certain costs which cannot be taken into account in the minimum price does not mean that no charge may, in any event, be invoiced by the processors to the producers. In fact, the reason for that provision is only to avoid the minimum price fixed by the Community provisions being affected by the indirect means of invisible practices, such as the fixing of an overall price covering, at the same time, the price of sale of the product and payment for additional services. That purpose does not require the total exclusion of the payment, by the producers, of all the expenses relating to the sale of the tomatoes, and, in particular, the partial payment of the cost of the transport of the product freely accepted within the framework of the contractual freedom of the parties.
12 The Italian Government claims also that, if the Community legislature had decided, as the Commission maintains, that the aim was to charge the entirety of the supplementary expenses exclusively to the processor, it would have made it clearer, by stating expressly that the processing contracts must provide for a price net of all charges.
13 It adds that providing containers is not connected to the processing operations, the costs of which must be paid exclusively by the processors.
14 The contested correction could also not be based on the circumstance that the Italian authorities had not proved their own allegations. They have never, in fact, claimed that all the costs of transport were paid by the processors. On the contrary, they have always fairly accepted that 35% of those costs, corresponding solely to the transport of the empty containers belonging to the processors and to their distribution in the harvest sites, could be paid by the producers within the framework of the trade agreement. According to the Italian Government, the Commission was not, moreover, entitled to ignore the terms of that agreement, given that it had been ratified by Law No 88 and that the Commission had challenged certain aspects of it.
15 Further, the Italian Government supports a narrow interpretation of transport of the product for the purposes of Article 6(3)(e) of Regulation No 1558/91, claiming that it only covers the carriage of raw materials from the harvest sites to the processing plants, and excludes the provision by the processors of containers for the producers' use.
16 The Commission submits, in essence, first, that the payment of part of the costs of the transport, even limited to 35% of the documented cost of the total transport, serves ultimately to reduce the minimum price and is contrary to the requirement of payment of a minimum price expressed as being ex producer, as specified in Annex I to Regulation No 1398/96. It goes on to add that there is plainly a close relationship between the cost relating to the use of the containers necessary for the delivery of the tomatoes and the transport itself. Finally, it emphasises the aim of the Community legislation in establishing a minimum price, that is, the protection of the producers. Findings of the Court
17 It must, firstly, be pointed out that the minimum price which the processors must pay to the producers under the relevant Community legislation is a price described as ex producer, so that the costs of the transport from the place of production to the place of processing may not be charged to the producers.
18 Secondly, it must be noted that the provisions of the trade agreement mentioned in paragraph 9 of this judgment provide, on the one hand, that the producer shall pay the cost of the transport relating only to the collection of the empty containers necessary for the delivery of the tomatoes to the processors and, on the other hand, that the cost thus chargeable to the producers is not to exceed 35% of the documented cost of all the transport, including the carriage of the raw material from the place of production to the place of processing. In that regard, the Italian Government made clear at the hearing that the containers in question are not used to transport the tomatoes from the producer's site to the processing plant, but only for harvesting the tomatoes.
19 As the Italian Government pointed out, in the first place the Community legislation does not prevent the processors from rendering certain services to the producers, such as, in particular, providing containers for harvesting the tomatoes, the costs of which may be charged to the producer. In the second place, the fact of providing, in relation to the costs chargeable to the producers, for a limit calculated in relation to the costs of transport is not, of itself, contrary to the Community legislation. However, the Member States must ensure strict compliance with the obligation of the processors to pay the minimum price, and particularly that the costs of the transport from the place of production to the place of processing are not charged to the producers.
20 Any direct or indirect circumvention of that obligation is a breach of Community law. Article 6(3)(e) of Regulation No 1558/91 is intended to ensure that the minimum price is not circumvented by the indirect means of invisible practices.
21 In that regard, and without it being necessary to decide whether the provisions of the trade agreement mentioned in paragraph 9 of this judgment are sufficiently transparent, it must be held that numerous processing contracts made in the various regions of Italy in accordance with the trade agreement, and annexed to the application, fix the contribution of the producers to the cost of transport, within the meaning of Article 11 of that agreement, at 35% of the overall cost of the transport.
22 It appears therefore, as the Commission pointed out, that, according to a widespread practice, the producers' contribution is calculated not according to the cost actually incurred for each producer, but by a flat-rate method charging producers the maximum percentage allowed by the trade agreement. Such a flat-rate calculation is contrary to the obligation mentioned in paragraph 19 of this judgment.
23 Therefore, the Commission was right to decide that the effect of processing contracts concluded on the basis of the trade agreement is incomplete payment of the minimum price described as being ex producer.
24 As a result, it must be held that the expenditure incurred by the Italian Republic in the context of processing aid for tomatoes and declared under the EAGGF was not incurred in accordance with Community rules and that the Commission was therefore entitled to apply the flat-rate correction which is the subject-matter of this case.
25 In those circumstances, the Italian Republic's action must be dismissed.