Commission of the European Communities v Council of the EC. (Transport ) [1989] EUECJ C-355/87 (30 May 1989)

Judgment 1 By an application lodged at the Court Registry on 25 November 1987 the Commission of the European Communities brought an action pursuant to the first paragraph of Article 173 of the EEC Treaty for the annulment of Council Decision 87/475/EEC of 17 September 1987 relating to maritime transport between Italy and Algeria ( Official Journal 1987, L 272, p . 37 ). 2 In July 1985 Italy informed the other Member States and the Commission that it was encountering difficulties in its trade relations with Algeria . Algeria was requiring that about 80% of goods shipped on liner services between Italy and Algeria be carried by the Algerian State shipping line . 3 The Community and the Member States made diplomatic representations to Algeria on the matter . The Italian share of traffic with Algeria nevertheless continued to diminish and has fallen to about 10 %. 4 Italy then negotiated on its own behalf an agreement with Algeria entitled "Agreement on Maritime Transport and Navigation between the Italian Republic and the People' s Democratic Republic of Algeria" ( hereinafter referred to as "the draft agreement "). On 17 March 1987 it notified the draft agreement, which had been initialled and signed but not yet ratified, to the Commission . Italy made that notification pursuant to Article 6(5 ) of Council Regulation No 4055/86 of 22 December 1986 applying the principle of freedom to provide services to maritime transport between Member States and between Member States and third countries ( hereinafter referred to as "the regulation on freedom to provide services ") ( Official Journal 1986, L 378, p . 1 ). According to that provision, Member States which adopt measures in order to preserve access to traffic with a non-member country must notify such measures immediately to the Commission . 5 Article 4 of the draft agreement between Italy and Algeria is worded as follows : "Shipowners will be responsible for taking the measures necessary for the organization and sharing of trade in the framework of a conference or other organization of shipowners for the most effective operation of lines, in accordance with the trade-sharing principle laid down in the Code of Conduct for Liner Conferences and subject to compliance with the international obligations of each party ." 6 The Commission considered that that provision constituted a cargo-sharing arrangement within the meaning of Article 5(1 ) of the regulation on freedom to provide services . Under that provision : "Cargo-sharing arrangements in any future agreements with any third countries are prohibited other than in those exceptional circumstances where Community liner shipping companies would not otherwise have an effective opportunity to ply for trade to and from the third country concerned . In these circumstances such arrangements may be permitted in accordance with the provisions of Article 6 ." 7 Article 6(2 ) of the regulation provides that : "The Council, acting by qualified majority on a proposal of the Commission, shall decide on the necessary action . Such action may include, in the circumstances envisaged in Article 5(1 ), the negotiation and conclusion of cargo-sharing arrangements ." 8 The Commission considered that the restrictive condition which Article 5(1 ) of the regulation on freedom to provide services places on the possibility of authorizing a cargo-sharing arrangement was not met in this case . Italy would have had an effective opportunity to ply for trade to and from Algeria if it had acceded to the Convention on a Code of Conduct for Liner Conferences adopted at Geneva on 6 April 1974 under the auspices of the United Nations Conference on Trade and Development ( TD/code/11/rev . 1 and corr . 1; also published in the Bundesgesetzblatt II, 1983, p . 64 ) ( hereinafter referred to as the "Code of Conduct "), which would, pursuant to Article 2(4 ) of the Code, have given its shipping companies access to the traffic in question . 9 Article 2(4 ) of the Code of Conduct provides that : "When determining a share of trade within a pool of individual member lines and/or groups of national shipping lines in accordance with Article 2, paragraph 2, the following principles regarding their right to participation in the trade carried by the conference shall be observed, unless otherwise mutually agreed : ( a ) The group of national shipping lines of each of two countries the foreign trade between which is carried by the conference shall have equal rights to participate in the freight and volume of traffic generated by their mutual foreign trade and carried by the conference; ( b ) Third-country shipping lines, if any, shall have the right to acquire a significant part, such as 20%, in the freight and volume of traffic generated by that trade ." 10 However, the Commission accepted that the agreement between Italy and Algeria could be applied during the period necessary for Italy to accede to the Code of Conduct . It therefore submitted to the Council a proposal for a decision pursuant to Article 6(2 ) of the regulation on freedom to provide services . The proposed authorization was subject to the condition that Italy should accede as rapidly as possible to the Code of Conduct . The agreement was to cease to have effect as soon as the Code of Conduct became applicable to trade between Italy and Algeria and at the latest three years after the date of the Council decision . Under the proposal, the draft agreement was first to be amended in certain respects in order to ensure freedom to provide services and the maintenance of effective competition . 11 On 17 September 1987, the Council unanimously adopted the contested decision, addressed to the Italian Republic . The preamble to the decision states that : "the provisions of the aforementioned Agreement need to be applied in such a way as to avoid a conflict with the obligations of the Member States under Community law, in particular with respect to fair, free and non-discriminatory access to cargoes by Community nationals or shipping companies, including independent lines ". 12 Article 1 of the contested decision grants unconditional authorization to ratify the agreement, "on the understanding" that Italy will accede as soon as possible to the Code of Conduct . It authorizes the application of the agreement without any temporal limitation . Finally, it does not require any amendment of the provisions of the draft agreement but simply states that Italy "will reiterate to Algeria that the provisions of the Agreement will be implemented in accordance with Community law ". 13 Reference is made to the Report for the Hearing for a fuller account of the applicable legislation and the submissions and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court . Breach of Articles 5 and 6 of Council Regulation No 4055/86 on freedom to provide services 14 In its first submission the Commission maintains that the Council Decision is contrary to Articles 5 and 6 of the regulation on freedom to provide services, first because it authorized the conclusion of a cargo-sharing arrangement although the requisite conditions were not met and also because the agreement in question was contrary to Community law in several respects . 15 It must first be determined whether Article 4 of the draft agreement between Italy and Algeria contains a cargo-sharing arrangement, as the Commission argues, or whether, as the Council asserts, it simply provides for the establishment of a liner conference, that is to say a group of vessel-operating carriers which provides international liner services for the carriage of cargo and has arrangements on freight rates and other conditions of transport . 16 Article 4 of the draft agreement sets the criteria to be observed by shipowners in sharing trade since it requires them to apply the trade-sharing principle laid down in the Code of Conduct . That provision is likely to have the same result as if Italy and Algeria themselves divided the trade in question . It therefore amounts to a cargo-sharing arrangement . 17 With regard to the breach of Article 5(1 ) of the regulation on freedom to provide services, the first branch of its submission, the Commission argues that there were no "exceptional circumstances" within the meaning of that provision so as to justify the conclusion of a cargo-sharing arrangement unlimited in its duration . Such circumstances exist only where there is no means less restrictive of freedom to provide services by which the Member State concerned can obtain access to the trade in question . In this case, Italy could have acceded to the Code of Conduct . 18 According to the Commission, such accession would at the same time have brought Italy under Council Regulation No 954/79 of 15 May 1979 concerning the ratification by Member States of, or their accession to, the United Nations Convention on a Code of Conduct for Liner Conferences ( hereinafter referred to as "the regulation on ratification of the Code of Conduct" ) ( Official Journal 1979, L 121, p . 1 ). Under Article 3 of that regulation, cargoes allocated to Italian members of the liner conference would have had to be redistributed fairly among all the Community lines which were members of that conference . The simple reference in Article 4 of the draft agreement between Italy and Algeria to the trade-sharing principle in the Code of Conduct did not make the redistribution rule in Article 3 of the regulation applicable . The draft agreement, says the Commission, thus does not guarantee freedom to provide services to the same degree as the accession of Italy to the Code of Conduct would have done . 19 The regulation on ratification of the Code of Conduct simply lays down certain obligations which Member States that accede to the Code must observe in order to ensure that the Code is applied in a manner consistent with Community law . Contrary to what the Commission proposed, the regulation does not set a time-limit within which accession must take place . The regulation thus does not oblige the Member States to accede to the Code of Conduct . 20 Nor can Italy' s accession to the Code of Conduct be required on the ground that it would guarantee freedom to provide services to a greater extent than the application of the agreement between Italy and Algeria . The agreement may provide the same guarantees in that respect as accession to the Code if it contains appropriate clauses guaranteeing freedom to provide services . The question whether that is the case must be considered in connection with the second branch of this submission . 21 Consequently, the Council was entitled to refrain from making authorization to ratify the draft agreement between Italy and Algeria subject to the condition that Italy should accede to the Code of Conduct . 22 The first branch of the submission must therefore be rejected . 23 In the second branch of the submission, the Commission argues that the contested decision is contrary to Article 6(2 ) of the regulation on freedom to provide services because under that provision the Council could authorize only measures consistent with Community law; the contested decision is contrary to Community law in two respects . 24 The Commission argues first of all that the Council could authorize ratification of the agreement only if it ensured fair, free and non-discriminatory access for companies from other Member States to shares in the traffic between Italy and Algeria . It relies in that regard on Article 6(4 ) of the regulation on freedom to provide services, according to which Member States which themselves negotiate a cargo-sharing arrangement, after the Council has failed to act for a prolonged period, must ensure such freedom of access . The same requirement necessarily applies to Council decisions authorizing a cargo-sharing arrangement . 25 The Commission goes on to argue that the Council can authorize a cargo-sharing arrangement only if it gives Community companies which are not members of the conference effective access to cargoes transported by the conference . That obligation follows from Article 7(2)(b)(i ) of Council Regulation No 4056/86 of 22 December 1986 laying down detailed rules for the application of Articles 85 and 86 of the Treaty to maritime transport ( Official Journal 1986, L 378, p . 4 ), which requires that effective competition be maintained . 26 A comparison of the two claims set out above indicates that the first concerns the redistribution of the Italian share of the trade in question between Community companies which are members of the conference other than Italian companies and the second concerns access to that share of trade on the part of Community companies, from whatever Member State, which are not members of the conference . 27 With regard to the first claim, it should be observed that Italy is bound to ensure that all Community companies which are members of the conference have access to the trade share allocated to Italian shipowners by the agreement . That obligation follows from Article 1 of the regulation on freedom to provide services, which makes the freedom to provide services applicable to maritime transport . It is confirmed in Article 6(4 ) of that regulation, which is relied on by the Commission . With regard to the second claim, it should be observed that Article 7(2)(b)(i ) of Council Regulation No 4056/86 does require that the agreement should preserve the possibility of access by Community companies which are not members of the conference to the trade share allocated to Italian shipowners by the agreement . 28 According to the Commission, the draft agreement between Italy and Algeria does not meet those two requirements because it contains no specific provisions in that respect . 29 The Commission argues first of all that the reference to Italy' s international obligations contained in Article 4 of the draft agreement is too vague to ensure observance of freedom to provide services and freedom of competition . 30 Article 4 of the draft agreement is made more specific by Article 1(b ) of the contested decision, under which Italy "will reiterate to Algeria that the provisions of the agreement will be implemented in accordance with Community law ". The second to last recital in the preamble to the contested decision states that the obligations imposed by Community law include the obligation to ensure "fair, free and non-discriminatory access to cargoes by Community nationals or shipping companies, including independent lines ". Italy' s obligation to ensure observance of freedom to provide services and freedom of competition is thus stated in a sufficiently precise manner . 31 The Commission also objects that the international obligations referred to in Article 4 of the draft agreement cannot be relied on against private parties, that is to say the shipowners that are responsible for applying the agreement . 32 The fact that the application of the agreement is delegated to private parties cannot prejudice observance of Community law . Italy must adopt the necessary internal measures to ensure that its shipowners grant other Community companies rights of access in accordance with Italy' s Community obligations . 33 Since the Commission has not shown that the agreement, as supplemented by the requirements set out in the contested decision, is contrary to Community law, the second branch of the submission must also be rejected . 34 Consequently, the first submission must be dismissed . Breach of the prohibition of discrimination 35 This submission is made in the alternative to the first submission, in the event that Articles 5(1 ) and 6(2 ) of the regulation on freedom to provide services did not in themselves prevent the Council from authorizing the contested agreement . The Commission submits that in that case these provisions should be implemented in such a manner as to ensure observance of the prohibition of discrimination laid down in Article 7 of the Treaty . According to the Commission, that was not done in this case . However, it does not put forward arguments in that respect separate from those which it made in arguing that the contested decision is contrary to the regulation on freedom to provide services . 36 Consideration of the first submission has shown that the agreement between Italy and Algeria, as supplemented by the requirements set out in the contested decision, ensures non-discriminatory access on the part of shipping lines from other Member States to cargoes allocated to Italy under the agreement . 37 Consequently, this submission must also be dismissed . Breach of the obligation to state reasons 38 The Commission submits that by failing, in the contested decision, to state that Article 4 of the draft agreement contained a cargo-sharing arrangement and to state what were the "exceptional circumstances" within the meaning of Article 5(1 ) of the regulation on freedom to provide services which justified the conclusion of such an arrangement the Council failed to comply with its obligation to state reasons pursuant to Article 190 of the Treaty . 39 It is apparent from the first recital in the preamble to the contested decision that Algerian practices of cargo reservation were at the root of the problem . The second recital shows that the purpose of the draft agreement between Italy and Algeria was to counteract the effects of those practices . The contested decision thus gave a sufficient indication of the type of problem which the agreement whose ratification it authorizes was intended to deal with . A separate, express statement that this was a cargo-sharing arrangement was therefore nugatory . 40 With regard to the existence of "exceptional circumstances" justifying authorization to ratify the agreement it should be emphasized that the fourth recital in the preamble to the contested decision states that its legal basis is Article 6(2 ) of the regulation on freedom to provide services and points out that that provision authorizes the adoption of measures "where a Member State' s nationals or shipping companies do not have an effective opportunity to ply for trade to and from a particular third country ". It is apparent from that recital that the Council considered that the Algerian practices of cargo reservation had created a situation in which Italy no longer had effective access to trade with that non-member country . The contested decision therefore contains a sufficient explanation of the exceptional circumstances justifying its adoption . 41 It follows from the foregoing that the submission based on breach of the obligation to state reasons must also be rejected . Breach of Article 149 of the Treaty 42 In its final submission the Commission argues that in adopting the contested decision the Council went beyond the limits of its right of amendment under Article 149(1 ) of the Treaty . Under that provision, it says, the Council can adopt a measure only if it has the same subject-matter and objective as the Commission' s proposal . Otherwise the Council' s measure must be considered to have been adopted without any proposal . In this case the Commission proposed that the Council should refuse authorization to ratify the agreement if specific amendments were not made . The Council, on the other hand, granted unconditional authorization to ratify the agreement . By so doing it completely altered the objective of the Commission' s proposal and thus disregarded the limits to its right of amendment . 43 Article 1 of the proposal submitted by the Commission to the Council with a view to the adoption of the contested decision provided that "Italy may ratify its Agreement on Maritime Transport and Navigation with Algeria, signed on 28 February 1987, on condition that ... ". The conditions set out in the proposal were intended to make the agreement consistent with Community law . The contested decision also authorizes Italy to ratify the agreement, but makes that authorization subject to certain requirements which, as has been established above, ensure observance of Community law . 44 It is not therefore necessary for the Court to rule generally on the limits of the right of amendment provided for in Article 149(1 ) of the Treaty; it is sufficient to hold that in this case, and contrary to what the Commission maintains, the Council did not in any event depart from the subject-matter of the Commission' s proposal and did not alter its objective, that is to say, to ensure that the agreement was applied in compliance with Community law . 45 Consequently, the submission based on breach of Article 149 of the Treaty cannot be upheld . 46 It follows from all the foregoing that the action is unfounded and must be dismissed . Costs 47 Under Article 69(2 ) of the Rules of Procedure the unsuccessful party is to be ordered to pay the costs . Since the Commission has been unsuccessful in its submissions it must be ordered to pay the costs, including those incurred by the intervener . On those grounds, THE COURT hereby : ( 1 ) Dismisses the application; ( 2 ) Orders the Commission to pay the costs, including those incurred by the intervener . © European Communities, 2001 All rights reserved BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII