Italy v Council (Agriculture) [1998] EUECJ C-352/96 (12 November 1998)

Judgment By application lodged at the Court Registry on 25 October 1996, the Italian Republic brought an action under the first paragraph of Article 173 of the EC Treaty for the annulment of Articles 3, 4 and 9 of Council Regulation (EC) No 1522/96 of 24 July 1996 opening and providing for the administration of certain tariff quotas for imports of rice and broken rice (OJ 1996 L 190, p. 1, hereinafter 'the Regulation'). After the accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden to the European Community, the latter conducted negotiations with non-member countries pursuant to Article XXIV(6) of the General Agreement on Tariffs and Trade ('GATT'), and in particular pursuant to paragraph 5 et seq. of the Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade 1994 (hereinafter 'the Understanding'), in order to agree with those countries upon certain compensatory adjustments required as a result of the increase in certain customs duty rates ensuing from the application of the Common Customs Tariff by the three new Member States. Paragraph 5 of the Understanding provides in particular that: 'These negotiations will be entered into in good faith with a view to achieving mutually satisfactory compensatory adjustment ...'. Following those negotiations, the Community concluded agreements with the Commonwealth of Australia and the Kingdom of Thailand which were approved by Council Decision 95/592/EC of 22 December 1995 (OJ 1995 L 334, p. 38). The Regulation was adopted pursuant to those agreements. Under Article 1(1)(a) of the Regulation, and in accordance with the above agreements, annual tariff quotas of 63 000 tonnes of semi-milled and wholly milled rice are opened for imports into the Community at zero duty. For Australia and Thailand, Article 1(3) of the Regulation provides that those quotas are to be broken down into 1 019 tonnes and 21 455 tonnes respectively. As far as those two countries are concerned, a system for administering the said quotas is laid down in Articles 3 and 4 of the Regulation. Article 3 provides that import licences for rice and broken rice are to be issued to traders holding an export licence obtained in the country of origin. Article 3(1) provides: 'Where import licence applications are submitted in respect of rice and broken rice originating in Thailand and rice originating in Australia under the arrangements laid down in Article 1, they shall be accompanied by export licences completed in accordance with the model set out in Annexes I and II respectively and issued by the competent body in the countries as indicated therein.' Article 4 lays down the rules governing the issue of import licences by the competent authority of the Member State concerned. Article 9 provides that: '1. The Commission shall monitor the quantities of goods imported under this Regulation, with a view in particular to establishing: - the extent to which traditional trade flows, in terms of volume and presentation, to the enlarged Community are significantly changed, and - whether there is subsidisation between exports benefiting directly from this Regulation and exports subject to the normal import charge. 2. If either of the criteria set out in the indents in paragraph 1 is met, and in particular if the imports of rice in packages of five kilograms or less exceed the figure of 33 428 tonnes, and in any event on an annual basis, the Commission shall submit a report to the Council accompanied, if necessary, by appropriate proposals to avoid disruption of the Community rice sector.' The Italian Republic considers that Articles 3 and 4 of the Regulation are contrary to Article XXIV(6) of GATT, the agreement concluded with the Commonwealth of Australia and Decision 95/592 approving it, Article 43 of the EC Treaty and the general principle of proportionality. It also considers that insufficient reasons are given for Article 9, that it is contrary to Article XXIV(6) of GATT, Article 43 of the Treaty and the general principle of proportionality and, lastly, that it constitutes a misuse of power. Pleas concerning Articles 3 and 4 Pursuant to Articles 3 and 4 of the Regulation, import certificates are to be issued solely to traders holding an export licence obtained in the country of origin, and that export licence is to accompany the import licence application. The Italian Government maintains that there can be no mutually satisfactory solution, within the meaning of Article XXIV(6) of GATT, where, as is the case here, non-member countries obtain specific advantages from the enlargement of the Community in the absence of adequate compensatory adjustment. Moreover, according to the Italian Government, since no provision was made for administration of the tariff quotas, as described in Articles 3 and 4, in the agreement concluded with the Commonwealth of Australia, unlike the agreement concluded with the Kingdom of Thailand, it is not justified as regards Australia and the Regulation is accordingly contrary to Decision 95/592 approving those agreements. The Italian Government further claims that such a management system gives the countries in question an advantage contrary to the general principle of proportionality, since exporters from the non-member country are empowered to administer exports under the agreed tariff quota. It also considers that that advantage indicates that the Council manifestly did not seek to adopt a measure appropriate to the requirements of the common agricultural policy. The Council points out, first, as regards Article XXIV(6) of GATT, that in principle the features of GATT preclude the Court from taking its provisions into consideration to assess the lawfulness of a regulation in an action brought by a Member State under the first paragraph of Article 173 of the Treaty (see Case C-280/93 Germany v Council [1994] ECR I-4973, paragraphs 106 to 109). In the alternative, it maintains that Article XXIV(6) of GATT, a provision which requires negotiations to be entered into in good faith with a view to achieving a mutually satisfactory solution, does not establish any other criterion for assessing the result of the negotiations. As regards the argument that the management system described is unjustified in the case of the Commonwealth of Australia, since it was not provided for in the agreement concluded with that country, the Council states that the Community has a discretionary power in the administration of tariff quotas. Moreover, the contested management system cannot be contrary to either Article XXIV(6) of GATT or the agreement concluded with the Commonwealth of Australia, inasmuch as they make no provision for the case where one of the parties, in the exercise of its discretionary power, might wish to grant the other advantages additional to those provided for in the agreement. In respect of the alleged infringement of the principle of proportionality, the Council observes that the motivation for granting Australian exporters an advantage identical to that given to Thai exporters is the need not to treat the former less favourably than Thai exporters, a need resulting from the general framework of relations with that country. Accordingly the measure in question would seem entirely suitable for achieving the objective to be served by its adoption. Lastly, as regards infringement of Article 43 of the EC Treaty, the Council considers that the applicant has produced no arguments in support of its allegation that the contested Regulation infringes that provision. As a preliminary point, it should be remembered that it is only if the Community intended to implement a particular obligation entered into within the framework of GATT, or if the Community act expressly refers to specific provisions of GATT, that the Court must review the lawfulness of the Community act in question from the point of view of the GATT rules (see, in particular, Case C-280/93 Germany v Council , cited above, paragraph 111). Furthermore, by adopting the Regulation pursuant to agreements concluded with non-member countries following negotiations conducted on the basis of Article XXIV(6) of GATT, the Community sought to implement a particular obligation entered into within the framework of GATT. It follows that the Court must review the legality of the Regulation in the light of the GATT rules which the applicant alleges have been infringed. The rules in question are Article XXIV(6) of GATT and paragraph 5 et seq. of the Understanding. As is clear from the actual wording of paragraph 5 of the Understanding, the parties are required to achieve 'mutually satisfactory compensatory adjustment'. The concept of 'mutually satisfactory compensatory adjustment' does not in itself constitute an objective criterion and the requirement to achieve a mutually satisfactory agreement must be regarded as fulfilled when an agreement embodying a solution is concluded by the parties concerned. Accordingly, if the parties themselves have reached agreement on the question of mutually satisfactory compensatory adjustment, the requirement referred to in Article XXIV(6) of GATT must be regarded as fulfilled and cannot therefore serve as a basis for examining the legality of the Regulation. That argument must therefore be rejected. As regards the argument that, as far as the Commonwealth of Australia is concerned, the system for administering the tariff quotas referred to in the Regulation is contrary to the agreement concluded with that country and Decision 95/592 approving that agreement, it should be noted that although that agreement did not require the Council to provide for the introduction of an export licence system, it did not prohibit it either. Moreover, the sixth recital in the preamble to the Regulation shows that the contested management system was introduced in order to ensure that the agreement was implemented effectively in respect of certain tariff quotas for imports of rice and broken rice. Accordingly, the management system referred to in the Regulation does not infringe either the agreement with the Commonwealth of Australia or the decision approving it. On the question of the alleged infringement of the general principle of proportionality by Articles 3 and 4 of the Regulation, it is settled case-law that in order to establish whether a provision of Community law complies with the principle of proportionality, it must be ascertained whether the means which it employs are suitable for the purpose of achieving the desired objective and whether they do not go beyond what is necessary to achieve it (see inter alia Case C-426/93 Germany v Council [1995] ECR I-3723, paragraph 42). As the first, eighth and ninth recitals in the preamble make clear, the objective of the Regulation is to maintain traditional trade flows to the enlarged Community while avoiding subsidisation between exports benefiting directly from the contested Regulation and exports subject to the normal import charge. Furthermore, the aim of the contested management system, according to the third and sixth recitals, is to regulate the administration of the quotas granted following agreements with the non-member countries in question, while taking account of traditional suppliers. Consideration must therefore be given to the question whether the management system is consistent with the objective so described and whether it is necessary in order to achieve it. There is no doubt that the authorities of the exporting countries are the best placed to determine who, in those countries, were the traditional suppliers of Austria, Finland and Sweden, and to ensure that they obtain the necessary export licences to maintain the traditional flow of trade. In addition, the management system forms part of the Community system of monitoring and control referred to in Article 9 of the Regulation. Moreover, as the Advocate General rightly pointed out in point 32 of his Opinion, the advantage given cannot be regarded as being so significant as to make Articles 3 and 4 of the Regulation disproportionate to the aim in view, which is to regulate the management of quotas granted under agreements concluded with the non-member countries concerned. Accordingly, it must be held that the management system provided for in Articles 3 and 4 of the Regulation cannot be considered to be contrary to the general principle of proportionality. Lastly, as regards the alleged infringement of Article 43 of the Treaty, the applicant has supplied no details in support of its plea to the effect that the provisions in question show that the Council manifestly did not seek to adopt a measure appropriate to the requirements of the common agricultural policy. It must therefore be concluded that examination of Articles 3 and 4 of the Regulation in the light of the pleas put forward by the Italian Government has revealed no factor capable of affecting its validity. Pleas concerning Article 9 The Italian Government maintains that Article 9 of the Regulation lacks the necessary statement of grounds with regard to the criteria and facts on the basis of which the Council considered it had to set the threshold for imports of rice in packages of five kilograms or less at 33 428 tonnes. The Italian Government further considers that that threshold is contrary to Article XXIV(6) of GATT and to the general principle of proportionality. First, the quantity fixed is higher than was necessary to maintain traditional trade flows. Secondly, it exceeds the level of what was necessary to avoid giving an unwarranted competitive advantage to established exporters in certain non-member countries in relation to Community undertakings. It adds that the provision came about through a failure to consider whether the measure was adequate in the light of the requirements of the common agricultural policy. The Italian Government maintains, moreover, that the choice of that figure for imports serves aims that are different from those underlying the adoption of the Regulation and hence constitutes a misuse of powers vitiating the Regulation. As regards the alleged lack of a statement of grounds, the Council considers that the reasoning underlying Article 9 is shown clearly in the recitals to the Regulation. The Council's observations concerning the alleged infringements of Article XXIV(6) of GATT, Article 43 of the Treaty and the general principle of proportionality which have been set out in paragraphs 14, 15, 17 and 18 of this judgment concerning Articles 3 and 4 of the Regulation are equally applicable to Article 9. As far as the principle of proportionality is concerned, the Council adds that the threshold referred to in Article 9 constitutes a guarantee which augments the protection of Community traders. As regards the choice of 33 428 tonnes as the threshold, the Council states that it represents the total, increased by 10%, of the quantities of rice in packages of five kilograms or less imported annually by the three countries which acceded to the Community in the years immediately preceding their accession. Lastly, the Council does not see where the alleged misuse of powers lies. The purpose of adopting the Regulation was clearly to apply the agreements concluded with the non-member countries concerned, while Article 9 provides a safeguard in order to avoid any disruption of the Community rice sector. Concerning the lack of a statement of grounds, the Court has consistently held that the statement of grounds required by Article 190 of the Treaty must be adapted to the nature of the act in question. It must disclose in a clear and unequivocal fashion the reasoning followed by the Community institution which adopted the measure in such a way as to make the persons concerned aware of the reasons for the measure and to enable the Court to exercise its power of review. It also follows from that case-law that it is not necessary for details of all relevant factual and legal aspects to be given. The question whether the statement of the grounds for an act meets the requirements of Article 190 must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question (see, to that effect, Case C-350/88 Delacre and Others v Commission [1990] ECR I-395 , paragraphs 15 and 16, and Case C-180/96 United Kingdom v Commission [1998] ECR I-2265 , paragraph 70). In this case the Council stated as grounds in the eighth and ninth recitals in the preamble to the Regulation that it wished to maintain traditional trade flows towards the enlarged Community, while considering it necessary to avoid subsidisation between exports benefiting directly from the contested Regulation and exports subject to the normal import charge. Moreover, as the Advocate General emphasised in point 39 of his Opinion, the Council was not obliged to explain, in the recitals, the method of calculation used to obtain the figure for the threshold fixed in Article 9. The requirement to state grounds for Community acts cannot extend so far as to require the Council to specify the methods used to calculate every figure mentioned. In those circumstances, it must be held that the Council stated sufficient grounds for Article 9 of the contested Regulation. With regard to the principle of proportionality, in order to establish whether a provision of Community law complies with that principle, consideration must be given to the question whether the means which it employs are suitable for the purpose of achieving the desired objective and whether they do not go beyond what is necessary to achieve it. In that connection, it must be recalled that the objective of the contested Regulation is to implement agreements concluded with non-member countries in order to maintain traditional trade flows to the enlarged Community, while avoiding subsidisation between exports benefiting directly from the contested Regulation and exports subject to the normal import charge (see paragraph 26 of this judgment). Moreover, it appears from the evidence placed on the file by the Council, at the Court's request, that the figure in question corresponds to the average, increased by 10%, of imports into the three new Member States during the years preceding their accession. Lastly, it must be noted that Article 9 does not limit the Commission's power to intervene should the threshold be reached. It provides that the Commission may exercise control even where imports do not exceed that limit and, in particular, if either of the criteria set out in paragraph 1 is met. Accordingly, the quantity of 33 428 tonnes fixed by the Council cannot be regarded as disproportionate in relation to the traditional trade flows which the Regulation seeks to safeguard. The argument that Article 9 of the Regulation is incompatible with Article XXIV(6) of GATT and with the Understanding must be rejected, for the reasons already given in paragraphs 22 and 23 of this judgment. The plea alleging infringement of Article 43 of the Treaty must also be dismissed for the same reason as was given in paragraph 31. Lastly, on the issue of alleged misuse of powers, it should be recalled that the Court's case-law defines misuse of powers as the adoption by a Community institution of a measure with the exclusive or main purpose of achieving an end other than that stated or evading a procedure specifically prescribed by the Treaty for dealing with the circumstances of the case (see inter alia Case C-156/93 Parliament v Commission [1995] ECR I-2019 , paragraph 31). It this case it must be noted that there is nothing in the file to indicate that in adopting the provision in question the Council was pursuing any aim other than that set out in the recitals in the preamble to the Regulation. The applicant has not, moreover, produced any evidence to cast doubt on that finding. Accordingly, it must be concluded that examination of Article 9 of the Regulation in the light of the pleas in law relied on by the Italian Government has revealed no factor capable of affecting its validity. It follows from all the foregoing that, since none of the pleas in law put forward by the applicant can be upheld, the application must be dismissed. Costs 54. Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings. Since the Council applied for costs, the Italian Republic, which has been unsuccessful, must be ordered to pay the costs. On those grounds, THE COURT (Sixth Chamber) hereby: 1. Dismisses the application; 2. Orders the Italian Republic to pay the costs. Kapteyn Murray Ragnemalm SchintgenIoannou Delivered in open court in Luxembourg on 12 November 1998. R. Grass P. J. G. Kapteyn Registrar President of the Sixth Chamber 1: Language of the case: Italian. BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII