Italian Republic v Commission of the European Communities. (Agriculture ) [1989] EUECJ C-258/87 (19 October 1989)

Judgment 1 By an application lodged with the Court Registry on 27 August 1987, the Italian Republic brought an action under the first paragraph of Article 173 of the EEC Treaty for a declaration that Commission Decision 87/368 of 19 June 1987 on the clearance of the accounts presented by the Italian Republic in respect of the European Agricultural Guidance and Guarantee Fund, Guarantee Section, expenditure for 1983 ( Official Journal 1987, L 195, p . 43 ) is void in part . 2 By applications lodged at the Court Registry on 26 October 1987, the Italian Republic brought two actions under the same provision of the Treaty for declarations that Commission Decisions 87/468 and 87/469 of 18 August 1987 on the clearance of the accounts presented by the Italian Republic in respect of the European Agricultural Guidance and Guarantee Fund, Guarantee Section, expenditure for 1984 and 1985 ( Official Journal 1987, L 262, pp . 23 and 33 ) are void in part . 3 By its applications, the Italian Republic seeks a declaration that the three decisions at issue are void in so far as they did not recognize as being chargeable to the EAGGF the following amounts relating to the three financial years in question : ( i)LIT 19 447 011 549 in respect of sales of skimmed-milk powder held in public storage; ( ii)LIT 7 201 099 330 in respect of the conversion rate for the conversion of oranges and lemons; ( iii)LIT 454 112 525 in respect of the special carry-over premium in the fisheries sector . 4 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the legal background 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 . I -Sales of skimmed-milk powder in public storage 5 The submissions of the Italian Government relate to two different problems as regards the sale of skimmed-milk powder, namely the absence of markings on the sacks and permanent supervision of the denaturing of skimmed-milk powder . ( a ) The marking of the sacks 6 The Commission refused to reimburse expenditure occasioned by sales of skimmed-milk powder held in public storage in respect of the 1983 financial year . That refusal was based on the fact that, in the Commission' s view, the sacks containing skimmed-milk powder delivered by an intervention agency did not bear the markings required by Commission Regulations Nos 368/77 of 23 February 1977 on the sale at a fixed price of skimmed-milk powder for use in feed for pigs and poultry ( Official Journal 1977, L 52, p . 19 ) and 443/77 of 2 March 1977 on the sale at a fixed price of skimmed-milk powder for use in feed for pigs and poultry and amending Regulations ( EEC ) Nos 1687/76 and 368/77 ( Official Journal 1977, L 58, p . 16 ). 7 In accordance with Article 15 of Regulation No 368/77 and Article 7 of Regulation No 443/77, sacks containing skimmed-milk powder delivered by the intervention agency pursuant to one of those two regulations, following a sale at a fixed price, must carry, in letters not less than 1 cm high, the words "to be denatured" followed by the number of the regulation in question . 8 The Commission found that the marking of the sacks required by these two provisions had not been carried out in Italy during the 1983 financial year . It based this finding on the fact that the Italian authorities had not requested the reimbursement of costs in respect of marking and that there was no factor enabling it to ascertain that the marking had in fact been carried out . The Italian Government maintains that the marking was in fact carried out and that it provided the Commission with the necessary evidence of this . 9 In this connection it should be stated that the Commission decided, on 17 June 1986, on the basis of its Regulation No 1723/72 of 26 July 1972 on the clearance of accounts concerning the European Agricultural Guidance and Guarantee Fund, Guarantee Section ( Official Journal L 186, p . 1 ), that all additional information to be provided by the Member States as being necessary for the purpose of the adoption of the decisions on the clearance of accounts for the 1983 financial year were to reach the Commission not later than 15 July 1986 . That decision was notified to the Italian Government on 18 June 1986 . It is undisputed that the Italian authorities, which were not unaware of the Commission' s objections on the question of the marking of sacks, provided no additional information prior to 15 July 1986 . 10 The Italian Government maintains, however, that the deadline of 15 July 1986 could not apply to information relating to the marking of sacks . In this connection, it claims, first of all, that that information had already been supplied to the Commission during a bipartite meeting which was held on 26 June 1986 and that, in any event, a telex message from the Commission of 8 July 1986 postponed the deadline of 15 July 1986 sine die . Moreover, the Commission itself acknowledged that the deadline was not mandatory inasmuch as it requested additional information during October 1986 . It was, furthermore, on this occasion that the Italian Minister for Agriculture provided the necessary evidence regarding the marking of sacks . 11 On the first point it should be observed that, although the Italian authorities did in fact give oral explanations at the bipartite meeting, the Commission, in its telex message of 8 July 1986, expressly requested written confirmation . That telex message, whose purpose was to communicate to the Italian Ministry of Agriculture the results of the bipartite meeting, merely stated, on the question of the marking of sacks, that the Commission "awaits the written reply which has been promised ". Consequently, the oral information provided during the bipartite meeting was not regarded as sufficient, and the telex message requesting the promised written reply was not intended to postpone the deadline which had been fixed by the Commission' s decision . 12 On the second point, which concerns information requested after expiry of the 15 July 1986 deadline, it should be emphasized that a first version of the summary report for the 1983 financial year was prepared by the Commission' s departments during August 1986 . It was subsequently communicated to the competent authorities of the Member States . It is true that, in a telex message of 17 October 1986, the Commission again requested additional information from the Italian intervention agency AIMA, without however calling in question the decision, which had already been announced, that certain amounts would be disallowed on account of a failure to mark the sacks . The text of the telex message states that, owing to the lack of information, the EAGGF services "have not yet been able to calculate the rectification to be applied ". The decision to disallow that expenditure was thus deemed to have been taken already at that stage of the preparation of the final decision . In this respect, it is important to note that the request for information sought, in particular, to obtain particulars relating to the breakdown of expenditure for marking according to the place of denaturing of the skimmed-milk powder . The Commission in fact decided to limit the disallowance to cases where denaturing had been carried out in a place other than the place of storage on the ground that the risk of the product' s being diverted from its final destination is then greatest . 13 It must be added that, in replying on 27 October 1986 to the abovementioned telex message, AIMA provided statistical information requested by the Commission and thus enabled that institution to make an exact calculation of the amount in respect of which financing was to be refused . The fact that the covering letter from AIMA also included a statement to the effect that marking had always been carried out at the time when the sacks left the place of storage was not sufficient, at that time, to justify the reopening of discussion on the very principle of a rectification, since that assertion was not, moreover, supported by any further particulars or evidence . 14 It follows from the foregoing that the submissions relating to the absence of markings on the sacks are unfounded . ( b ) The supervision of denaturing 15 The three contested decisions are based on the consideration that the denaturing of skimmed-milk powder must be supervised in accordance with a permanent on-the-spot system of supervision and by means of systematic chemical analyses . Analysis is said to be necessary in order to verify the homogeneity of the denatured product since it cannot be established by any other method . 16 The Italian Government' s first complaint relates to the mandatory nature of the chemical analysis . The applicable provisions, it says, in no way have the meaning contended for by the Commission . Article 16(2 ) of aforementioned Regulation No 368/77 requires the competent authorities of the Member States to carry out supervision of denaturing . To this end "it shall both verify accounts and provide for on-the-spot supervision ". That provision makes no reference to a chemical analysis . The Italian Government adds that, although the annex to the regulation, at paragraph 3(D ), provides for an analysis of the denatured product, it in no way entails the obligation to carry out such an analysis in a systematic manner . 17 In this respect, it should be remembered that Article 16(2 ) of Regulation No 368/77 lays down the principle that denaturing must be supervised and determines the applicable procedures . As regards the content of supervision, that provision refers to Article 6 of the same regulation which in its turn refers, as regards the technical prescriptions, to paragraph 3 of the annex to the regulation . That paragraph, at point ( D ), provides that products added to skimmed-milk powder with a view to denaturing "must be distributed in a uniform manner so that in two individual samples of 50 g, drawn at random from a 25 kg package, there is contained - by chemical determination - the same results as above within tolerable error limits set by the methods of analysis used ". 18 This brief account of the applicable provisions demonstrates that the technical prescriptions mentioned at paragraph 3(D ) of the annex form an integral part of the system for the supervision of denaturing established by Regulation No 368/77 and that these prescriptions themselves indicate the systematic nature of the chemical analysis . The provisions in point convey the purpose of the regulation which is to exclude the use of the denatured product in feedingstuffs for calves . Such an exclusion can be guaranteed only if the uniform distribution of the denaturing agents is guaranteed in the whole of the quantity denatured . 19 In these circumstances, the Italian Government' s complaint must be rejected . 20 In its second complaint, the Italian Government submits that the analyses which the Commission alleges ought to have been carried out were in fact carried out, at the request of a firm called Zoovit, an undertaking specializing in the field of denaturing, by a laboratory established in Crotone, by the name of Itrapag . That laboratory is not official but the Community rules lay down no requirement in this respect . 21 That complaint cannot be upheld . It is clear from a declaration made on 21 July 1987 by the laboratory concerned that Zoovit never requested an analysis for verification purposes and that, consequently, such an analysis was not carried out . A letter from AIMA to the Commission, dated 27 October 1986, moreover states that "the quantification of the product subject to supervision without analysis" concerned only Zoovit and thus confirms the absence of analyses alleged by the Commission . 22 Accordingly, the submissions relating to the supervision of denaturing must be rejected . II -The processing of oranges and lemons 23 The three contested decisions disallow from EAGGF financing a part of the financial compensation granted to processors of fresh oranges and lemons, on the ground that the Italian authorities applied an incorrect conversion rate . The issue between the parties relates to the time at which a new conversion rate becomes applicable to that financial compensation . In order to determine that time, the Commission had regard to the marketing years for oranges and lemons, whereas the Italian Government considers that there is no link between the rules governing industrial processing of which the financial compensation forms part and those governing fresh products for which marketing years have been laid down . 24 In its application, the Italian Government seeks first to demonstrate that the industrial processing of citrus fruits is governed by autonomous regulations which make no reference to the common organization of the markets in the fruit and vegetable sector . The Community regulations thus establish a clear distinction between the regime applicable to fresh fruits and that governing the processing of citrus fruits in such a way as to exclude any possibility of extending the effects of the marketing-year concept to the regime specific to the processing of fruit for which that concept is not appropriate . 25 The Italian Government goes on to claim that the Community provisions applicable to the processing of citrus fruits laid down a specific reference date . In accordance with those provisions, the event conferring entitlement to financial compensation is deemed to have occurred on a given date . That date was specifically fixed in order to avoid the legal uncertainty which might arise from the difficulty in establishing the precise date on which a given consignment was processed . In this respect the government refers in particular to Commission Regulation No 2972/75 of 12 November 1975 amending Regulation No 208/70 of the Commission laying down detailed rules for the application of measures to encourage the processing of oranges ( Official Journal 1975, L 295, p . 16 ). In respect of oranges, that regulation provides that the event conferring entitlement to financial compensation is deemed to have occurred on 1 May of each year . 26 It should be observed first of all that aid for the processing of oranges and lemons is intended to assist the marketing of those products . The financial compensation granted to processors of oranges was introduced by Council Regulation No 2601/69 of 18 December 1969 laying down special measures to encourage the processing of certain varieties of oranges ( Official Journal, English Special Edition 1969 ( II ), p . 586 ). The recitals in the preamble to that regulation mention the serious difficulties in disposing of Community production and the need to adopt measures with a view to increasing the number of Community outlets by having greater recourse to processing in order to remedy that situation . To that end the regulation introduces a system of financial compensation intended to encourage the processing of oranges in the framework of contracts which ensure regular supplies to the processing industries at a minimum purchase price to the purchaser . 27 It follows from the foregoing that the financial support given to processing undertakings forms part of a system intended to encourage the disposal of fresh oranges and involving the payment of minimum prices to producers of those fruits . The same conclusion holds good as regards aid for the processing of lemons . Therefore, the Community financing of the financial compensation in question is based on a close link between that compensation and the prices paid to the producers of fresh oranges and lemons . 28 It should also be borne in mind that the minimum price is valid for a given marketing year, that the amount of financial compensation is fixed before the beginning of each marketing year and that that compensation is calculated on the basis of the minimum price, on the one hand, and on the price which processors usually pay for their supplies, on the other, the latter price being calculated on the basis of prices charged by the industry during the three previous marketing years . 29 That system of financing is thus determined by the duration of the marketing year with the result that the prices fixed and used as the basis for calculating financial compensation are valid only for the duration of the marketing year in question . It follows that the applicable conversion rate is also valid only for that marketing year . Taking account of the date of the event conferring entitlement to financial compensation does not affect the uniformity of the rate applied during the whole of the marketing year . That date is notional and serves only to determine in an abstract manner the time at which processing is deemed to have taken place . It does not, however, determine the period during which a given rate is applicable . 30 These considerations show that the submissions relating to the conversion rate applied to the financial compensation for processors of oranges and lemons are unfounded . III -The special carry-over premium in the fisheries sector 31 The special carry-over premium forms part of the machinery of financial compensation for the processing of sardines and anchovies . In the three contested decisions, the Commission refused to allow amounts corresponding to premiums paid to processors who had obtained supplies from the Domar producers' organization at Porto Garibaldi . 32 In its judgments of 25 November 1987 in Cases 342 and 343/85 Commission v Italy (( 1987 )) ECR 4701 and 4725, the Court dismissed the applications of the Italian Republic directed against the decision to disallow from EAGGF financing amounts paid by way of Community compensation for the withdrawal from the market of fisheries products during the years 1980 and 1981, which had been declared by the Domar producers' organization . The Court considered that that exclusion was justified by the fact that the activities of that producers' organization had not been subject to any form of control and that the persons responsible in Domar had been reported to the judicial authorities for having unlawfully received Community aid . 33 The Italian Government maintains that compensation for withdrawal from the market which is paid to the producers' organization itself is not comparable to the special premiums which are at issue in the present case and which are paid to the processing undertakings . AIMA checked the quantities of products received and processed by the undertakings and also the correct payment of the purchase price by those undertakings . In those circumstances, the fact that Domar' s activities are the subject of an investigation ought not to preclude the payment of premiums to undertakings which have carried out processing of its products . 34 It should be borne in mind, as the Commission rightly pointed out, that the functioning of the system of carry-over premiums is based on the activities of producers' organizations . Article 2 of Council Regulation No 2204/82 of 28 July 1982 laying down general rules for the granting of a special carry-over premium for Mediterranean sardines and anchovies ( Official Journal 1982, L 235, p . 7 ) provides that the premium is to be granted only in respect of products which "have been caught by a member of a producers' organization ". Article 5(2 ) of that regulation confers on producers' organizations the task of informing the authority responsible for inspections of the quantities of products offered for sale . 35 In respect of the financial years in question in these proceedings, the Italian Government acknowledged that Domar could not be regarded as a proper producers' organization capable of being the subject of the rights and obligations which the provisions of Community law confer and impose on such organizations . That fact alone prevents the premiums in question from being allowed, since the expenditure incurred by a producers' organization may not be imputed to the EAGGF if that producers' organization does not satisfy the conditions laid down by the Community rules . 36 The submissions relating to the special carry-over premium cannot therefore be upheld . 37 It follows from the foregoing considerations that the applications must be dismissed in their entirety . Costs 38 Under Article 69(2 ) of the Rules of Procedure the unsuccessful party is to be ordered to pay the costs . Since the Italian Republic has failed in its submissions, it must be ordered to pay the costs . On those grounds, THE COURT hereby : ( 1)Dismisses the applications; ( 2)Orders the Italian Republic to pay the costs . © European Communities, 2001 All rights reserved BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII