JUDGMENT OF 18. 2. 1970 — CASE 38/69 COMMISSION v ITALY

In Case 38/69

THE COURT composed of: R. Lecourt, President, R. Monaco and P. Pescatore (Rapporteur), Presidents of Chambers, A. M. Donner, A. Trabucchi, W. Strauß and J. Mertens de Wilmars, Judges, Advocate-General: J. Gand Registrar: A. Van Houtte

gives the following

JUDGMENT

Issues of fact and of law

I — Facts

Article 19 of the EEC Treaty provides that duties in the Common Customs Tariff are to be at the level of the arithmetical average of the duties applied in the four customs territories comprised in the Community and that the duties taken as the basis for calculating this average are, subject to certain exceptions, to be those applied by Member States on 1 January 1957.

Under Article 20 of the Treaty the duties applicable to the products in List G of Annex I to the Treaty are, in principle, to be determined by negotiation between the Member States. These products include unwrought lead (including argentiferous lead) and lead waste and scrap (tariff heading No 78.01 in the Brussels Nomenclature) and unwrought zinc and zinc waste and scrap (tariff heading No 79.01).

On the signing of the agreement fixing the duties in the Common Customs Tariff for the products in List G, the Member States expressed support, in Protocol No XV of 2 March 1960, for the application, in favour of the Italian Republic, of Article 226 of the Treaty as regards lead and zinc.

As a result, for a period of six years from that date the Italian Republic benefited by virtue of several decisions of the Commission from the isolation of its market in lead and zinc.

The Commission gave its permission to establish and maintain a system of isolation subject to the implementation of a programme of rationalization and reorganization in the mining and metallurgical industry of the sector concerned.

On 23 February 1966 the Italian Government requested the Commission to extend the isolation of the domestic market in lead and zinc to 30 June 1968 and to prepare time-tables and procedures for a gradual reduction in intra-Community customs duties and a gradual alignment with the duties in the common external tariff to take place after 30 June 1968.

By a decision of 6 July 1966 the Commission authorized the Italian Republic under Article 226 to take certain protective measures in respect of unwrought lead and zinc. This decision, the details of which were subsequently amended, was to remain in force only until 31 December 1967.

On 26 July 1966 the Council brought forward to 1 July 1968 the final implementation of the customs union by its Decision No 66/532/EEC concerning the abolition of customs duties, the prohibition of quantitative restrictions between Member States and the application of the duties in the Common Customs Tariff for products other than those listed in Annex II to the Treaty (OJ No 165 of 21.9.1966, p. 2971/66)

On 7 December 1967 the Italian Government again requested a limited extension of the protective measures applying to the lead and zinc sector.

This request was rejected by the Commission by decision of 20 March 1968.

By letter of 10 April 1968 the Italian Government requested the Commission to reconsider its decision of 20 March.

By letter of 13 September 1968 the Commission instituted against the Italian Republic the procedure provided for in Article 169 of the Treaty.

As the Commission was not satisfied with the Observations submitted by the Italian Government on 23 October 1968, it delivered on 2 April 1969 a reasoned opinion in which it first of all gave reasons for its finding that the Italian Government had failed to fulfil its obligations under Article 23(1)(c) of the Treaty and Articles 1 and 2 of Decision No 66/532/EEC of the Council of 26 July 1966 and, secondly, called on the Italian Republic to take the necessary measures to terminate this breach within one month. Under the terms of the decision it was possible to extend this period on the basis of the requirements of the parliamentary proceedings.

In a memorandum of 28 May 1969 the Italian Government submitted to the Commission a statement of the economic and social reasons which, in its opinion, rendered it necessary to maintain a residuary customs protection on imports of lead and zinc until 31 December 1969.

By application lodged on 11 August 1969 in accordance with the second paragraph of Article 169 of the Treaty the Commission brought before the Court of Justice the alleged failures of the Italian Republic to fulfil its obligations regarding the imposition of customs duties on imports of unwrought lead, unwrought zinc and lead and zinc waste and scrap.

II — Procedure

The written procedure followed the normal course.

The Commission waived its right to lodge a reply.

Upon hearing the report of the Judge-Rapporteur and the views of the Advocate-General, the Court decided that there was no necessity for any preparatory inquiry. Before the opening of the oral procedure the parties produced several documents at the request of the Court.

The parties presented oral argument at the hearing on 26 November 1969 when they replied to the questions of the Judge-Rapporteur.

The Advocate-General delivered his opinion at the hearing on 10 December 1969.

III — Conclusions of the parties

The Commission claims that the Court should:

1) Declare that, by applying, during the first six months of 1968, to imports from other Member States of unwrought lead (tariff heading No 78.01 A), unwrought zinc (tariff heading No 79.01 A), lead waste and scrap (tariff heading No 78.01 B) and zinc waste and scrap (tariff heading 79.01 B) customs duties which exceeded by 15 per cent those applied on 1 January 1957, and to imports of the same products from third countries customs duties in excess of those applied in practice on 1 January 1967, as reduced by 60 per cent of the difference between the latter duties and those in the Common Customs Tariff, the Italian Republic has failed to fulfil its obligations under:

a) Article lof Decision No 66/532/EEC of the Council of 26 July 1966 concerning the abolition of customs duties, the prohibition of quantitative restrictions between Member States and the application of the duties in the Common Customs Tariff for products other than those listed in Annex II to the Treaty;

b) Article 23(1)(c) of the Treaty;

2) Declare that, by failing to abolish on 1 July 1968 customs duties on imports of unwrought lead, unwrought zinc and lead and zinc waste and scrap from the other Member States and by failing at the same date to apply the duties in the Common Customs Tariff in respect of unwrought lead and zinc imported from third countries, the Italian Republic has failed to fulfil its obligations under Articles 1 and 2 of Decision No 66/532/EEC of the Council of 26 July 1966;

Order the Italian Republic to pay the costs.

The Italian Republic contends that the Court should:

Dismiss the application made by the Commission;

Order the Commission to pay the costs.

IV — Submissions and arguments of the parties

A — The nature of the alleged breach

The Commission puts forward the following twofold breach for which it alleges the Italian Republic is responsible:

1) As regards imports from the other Member States, Article 1 of Decision No 66/532/EEC of the Council of 26 July 1966 obliges Member States to abolish the customs duties existing between them on products other than those listed in Annex II to the Treaty by applying, on 1 July 1967, a reduction lowering the duty on each product to 15 per cent of the basic duty and by abolishing those duties on 1 July 1968. In the light of the fact that on 1 January 1957 the basic duties were 35 lire per kilogramme and 25 lire per kilogramme respectively for lead and zinc and 10 per cent and 11 per cent ad valorem respectively for lead and zinc waste and scrap, a comparison between the customs duties which the Italian Republic was authorized to impose and those which it in fact applied to the products in question was as follows : Lead Zinc Duties authorized (Lire/Kg) Duties applied (Lire/Kg) Duties authorized (Lire/Kg) Duties applied (Lire/Kg) From 1 January to 30 June 1968 5.25 17.5 3.75 12.5 As from 1 July 1968 0 7 0 5 Lead waste and scrap Zinc waste and scrap Duties authorized Duties applied Duties authorized Duties applied From 1 January to 30 June 1968 1.5 % 5 % 1.65 % 5.5 % As from 1 July 1968 0 from 3.8 to 6.9 Lire/Kg 0 0

2) As from 1 January 1968 the Italian Republic was required under Article 23(1)(c) of the Treaty to apply to imports from third countries customs duties which reduced by 60 per cent the difference between the rate actually applied on 1 January 1957 and that provided for in the Common Customs Tariff and, under Article 2 of Decision No 66/532/EEC of the Council, to apply the Common Customs Tariff as from 1 July 1968. A comparison between the duties which could legally be imposed and those in fact applied was as follows : Lead Zinc Duties authorized (Lire/Kg) Duties applied (Lire/Kg) Duties authorized (Lire/Kg) Duties applied (Lire/Kg) From 1 January to 30 June 1968 19 27 15 20 As from 1 July 1968 8.25 18.9 8.25 14.9 Lead wa ste and scrap Zinc waste and scrap Duties authorized Duties applied Duties authorized Duties applied From 1 January to 30 June 1968 4 % 7 % 4.5 % 7.7 % As from 1 July 1968 0 0 0 0 The Italian Republic does not contest the Commission's statement but puts forward various arguments with which to reject the complaint of a failure to fulfil its obligations under the Treaty or the measures taken in implementation thereof.

B — The justification for the maintenance of the protective measures

1. The content and scope of the declaration of the Italian delegation made at the Council meeting on 26 July 1966 The Italian Republic maintains that, as the Italian market in lead and zinc had been isolated since 1960 in pursuance of Protocol No XV annexed to the agreements concerning List G, during the Council's meeting on 26 July 1966 which adopted a decision to bring forward the implementation of the customs union by 18 months in relation to the dates provided for in the Treaty the Italian delegation had recorded in the minutes a statement to the effect that its acceptance of the acceleration decision did not signify abandonment of the protective measures in force in the lead and zinc sector; this statement, which was accepted without objection by the other Member States, must be interpreted as a refusal to comply with the acceleration decision concerning the customs union in the lead and zinc sector. The reference to Article 226 is thus purely formal. The Commission observes that, at all events, the statement made by the Italian delegation at the Council's meeting on 26 July 1966 only concerned the acceleration in the timetable for achieving the objectives of the Treaty and thus could not be invoked in order to avoid the obligations resulting directly from the Treaty itself, in this instance from Article 23 (1)(c). In the light of the terms of the so-called Acceleration Decision, No 66/532/EEC, and its preliminary documents and in accordance with the case-law of the Court, this statement can only be regarded as confirmation that the anticipated abolition of customs duties between Member States and the anticipated introduction of the Common Customs Tariff were not likely to hinder the future application of Article 226, provided that the requirements of form and substance laid down for this purpose were satisfied. Decision No 66/532/EEC, the wording and meaning of which are perfectly clear, provided for the total abolition of customs duties on imports of non-agricultural products coming from the Member States and the application of the Common Customs Tariff in its entirety before the date provided for by the Treaty, without laying down any reservation or exception as regards industrial products. The Italian Republic maintains that the negotiations which resulted in the so-called Acceleration Decision, No 66/532/EEC, were specific and independent negotiations held in pursuance of Article 235 of the Treaty. In such negotiations, which concern objectives which go above and beyond the undertakings provided for in the Treaty, the Commission only has a power to put forward proposals, as the power to take decisions belongs to the Member States alone. The statements of the Member States are legislative in nature, as is the final agreement itself. In fact, such agreements, which supplement the Treaty, have legislative effect. Although they are presented in the form of decisions, they constitute international agreements having the same effect as a protocol annexed to the Treaty. Additional statements appearing in the minutes of the Council meetings during which such agreements are negotiated form part of the agreement and condition its implementation. In the absence of any definitive version of the minutes of the Council meeting on 26 July 1966 — a fact which is not disputed by the Commission — the declaration of the Italian delegation cannot be given a content and an interpretation which does not correspond to the express and often-repeated wish to maintain in force protective measures for lead and zinc. The Italian Republic cannot be criticized for failing to institute proceedings against the decision of 20 March 1968 by which the Commission refused to grant an extension for the protective measures, as, in this instance, such a decision did not fall within the powers of the Commission. The Commission maintains that the Acceleration Decision adopted by the Council on 26 July 1966 in accordance with Articles 14 and 235 of the Treaty and published in the Official Journal, constitutes a decision within the meaning of Article 189. For this reason no statement, whatever its content, can contradict it. This decision alone is of legislative value and neither its recitals nor its operative part contain the least reservation concerning any specific sector of the domestic market. The effect of this decision could not deprive the Commission of its powers to authorize protective measures under Article 226 of the Treaty.

2. The applicability of Protocol No XV The Italian Republic relies on Protocol No XV of 2 March 1960 annexed to the agreements on the products in List G, under the terms of which the Member States expressed support for the application of Article 226 of the Treaty entailing the isolation of the Italian market in lead and zinc. This protocol is of great significance and refers to Article 226 as a means of ensuring that the Italian market in the products in question receives the necessary protection. The Commission, basing its arguments on the case-law of the Court, maintains that Protocol No XV does not lay down a mandatory rule but merely provides a guideline for it to follow without being bound by any specific legal obligation. Thus, the reference to this protocol is irrelevant.

3. The economic and social position of the Italian market in lead and zinc The Italian Republic observes that in Italy the position of the market in lead and zinc is characterized by several specific features, namely : before the entry into force of the EEC Treaty, a high degree of customs protection justified by the structure of the national industry in this sector; the unfavourable position of the mining industry, which was the result, in particular, of the heavy geographical concentration of mineral deposits (85 % in Sardinia), the high level of mining costs, the low metal content, the insufficient degree of mechanization and the low productivity per unit of production; the high cost of transporting the mineral to the foundries which are almost all situated on the Italian mainland. These special features warranted the introduction and maintenance of protective measures. They also enabled a wide programme of rationalization to be implemented in the sector concerned. For reasons of a financial, economic and social nature, it was not possible to carry out this programme according to the timetable laid down. In these circumstances, the Commission, having acknowledged the existence of these serious difficulties, cannot demand that the abolition of all customs protection should precede the adoption of the measures required by the situation existing in the lead and zinc sector in Italy. The Commission considers that however real the economic and social difficulties referred to by the Italian Republic they cannot justify measures taken unilaterally by that State in a departure from the rules of the Treaty or, as a result, legalize a posteriori the resultant breach.

Grounds of judgment

1. By application of 11 August 1969 the Commission requested the Court under Article 169 of the EEC Treaty to declare that:

‘(1). By applying, during the first six months of 1968, to imports from other Member States of unwrought lead (tariff heading No 78.01 A), unwrought zinc (tariff head No 79.01 A), lead waste and scrap (tariff heading 78.01 B) and zinc waste and scrap (tariff heading No 79.01 B), customs duties which exceeded by 15 per cent those applied on 1 January 1957, and to imports of the same products from third countries customs duties in excess of those applied in practice on 1 January 1967, as reduced by 60 per cent of the difference between the latter duties and those in the Common Customs Tariff, the Italian Republic has failed to fulfil its obligations under:

a) Article 1 of Decision No 66/532/EEC of the Council of 26 July 1966 concerning the abolition of customs duties, the prohibition of quantitative restrictions between Member States and the application of the duties in the Common Customs Tariff for products other than those listed in Annex II to the Treaty;

b) Article 23 (1) (c) of the Treaty;

(2). By failing to abolish on 1 July 1968 customs duties on imports of unwrought lead, unwrought zinc and lead and zinc waste and scrap from the other Member States and by failing at the same date to apply the duties in the Common Customs Tariff in respect of unwrought lead and zinc imported from their countries, the Italian Republic has failed to fulfil its obligations under Articles 1 and 2 of Decision No 66/532/EEC of the Council of 26 July 1966.’

2. Lead and zinc are among the products appearing in List G annexed to the Treaty for which, under Article 20 of the Treaty, the duties in the Common Customs Tariff were fixed by negotiation between the Member States. Protocol No XV annexed to the agreement of 2 March 1960 which concerns those negotiations (OJ 1960, pp. 1825 et seq.) contains the following statement: ‘The Member States support the application of Article 226 of the Treaty entailing the isolation, for a period of six years from the signing of the present protocol, of the Italian market in lead and zinc, both as regards other Member States and third countries’.

3. By virtue of this protocol the Commission used the power conferred on it by Article 226 of the Treaty in order to authorize the Italian Republic to take certain protective measures in the lead and zinc sector. These protective measures were extended beyond the period of six years envisaged by Protocol No. XV on the last occasion by Decision No 66/429/EEC of the Commission of 6 July 1966 (OJ 1966, p. 2543). This decision, which was still in force when the Council adopted the Acceleration Decision, ceased to have effect on 31 December 1967.

4. By decisions of 20 March 1968 and 16 July 1969 the Commission rejected subsequent applications by the Italian Government for a further extension of these protective measures.

5. Without disputing the accuracy of the facts in relation to which it is criticized by the Commission, the defendant considers that its action is justified by a set of circumstances existing prior to the entry into force of Acceleration Decision No 66/532/EEC of 26 July 1966 (OJ 1966, p. 2971), taking into account the special conditions which in Italy characterize the production sector in question. According to the defendant, both during the discussions which preceded the Acceleration Decision of 26 July 1966 and during the 191st meeting of the Council, held on 22, 23, 26 and 27 July 1966 during which it was adopted, the Italian delegation expressed reservations concerning lead and zinc in order to ensure that the Acceleration Decision should not become ‘a factor liable to hinder a possible extension of the measures to protect lead and zinc, even under Article 226 of the Treaty’.

6. The defendant maintains therefore that these various factors clearly show its acceptance of the decision of 26 July 1966 to be subject to the proviso that lead and zinc would enjoy appropriate protection until 31 December 1966 and these reservations justify the maintenance in force of the rates criticized by the Commission.

7. For its part, the Commission produces the draft minutes of the same meeting and concludes that the statement made by the Italian delegation merely expressed the wish that the Acceleration Decision should not hinder the possible application of Article 226 and adds that in reply to this statement it reserved its assessment of the criteria for the application of possible protective measures within the meaning of that article.

8. However, it has not been possible to establish beyond doubt the exact wording and scope of the statements, as the parties have been unable to produce a definitive version of the minutes of the Council meeting during which the Acceleration Decision was adopted.

9. According to the defendant, the Acceleration Decision was the result of ‘negotiations during which the contracting parties retained the independence which they enjoyed by virtue of their sovereignty’ and therefore, in spite of its form, the nature of this decision is that of an international agreement having the same value as the Treaty itself, to which it has made certain additions; in accordance with the principles of both international law and Community law, statements made by a contracting party at the conclusion of such negotiations form an integral part of the agreement reached. In these circumstances, according to the defendant, the reservations expressed by the Italian delegation must be interpreted as a refusal to accept the Acceleration Decision as regards the products in question.

10. The Acceleration Decision was taken by virtue of Article 235 which provides that ‘If action by the Community should prove necessary to attain, in the course of the operation of the Common Market, one of the objectives of the Community and this Treaty has not provided the necessary powers, the Council shall, acting unanimously on a proposal from the Commission and after consulting the Assembly, take the appropriate measures’. The power to take the measures envisaged by this article is conferred, not on the Member States acting together, but on the Council in its capacity as a Community institution. Under Article 235 the Council acts on a proposal from the Commission and after consulting the Assembly. Although the effect of the measures taken in this manner by the Council is in some respects to supplement the Treaty, they are adopted within the context of the objectives of the Community.

11. In these circumstances, a measure which is in the nature of a Community decision on the basis of its objective and of the institutional framework within which it has been drawn up cannot be described as an ‘international agreement’.

12. The scope and effect of the Acceleration Decision must be assessed in the light of its terms and therefore cannot be restricted by reservations or statements which might have been made in the course of drawing up the measure concerned. Although formally addressed to the Member States alone this decision is intended to have repercussions on the Common Market as a whole and it conditions or prepares for the implementation of measures which are directly applicable within the Member States as a consequence of Article 9 (1) of the Treaty and, as regards relations with third countries in particular, of Regulation No 950/68/EEC of the Council of 28 June 1968 concerning the Common Customs Tariff (OJ, L 172 of 22. 7. 1968, p. 1).

13. In these circumstances, it is unnecessary to come to a decision on the disagreement which has arisen between the parties concerning the definitive nature and actual wording of the minutes of the Council meeting. The defendant cannot refer to the circumstances in which the Acceleration Decision was adopted in order to justify the protective measures which it maintained beyond the entry into force of that decision, without prejudice to the effects flowing directly from Article 23 (1) (c) of the Treaty.

14. Such protective measures as the isolation of the Italian market in lead and zinc as an exception to the Acceleration Decision and, as regards the progressive introduction of the Common Customs Tariff, to Article 23 (1) (c) of the Treaty and Regulation No 950/68 could only have been justified by recourse to Article 226 of the Treaty. Therefore, whatever the value of the arguments of an economic and social nature put forward by the defendant in order to justify the continuance of special protection for the sector in question, they cannot be taken into consideration within the context of the present action as these circumstances were taken into account in various decisions taken by the Commission under Article 226, against which the Italian Government has instituted no proceedings.

15. As the validity of the latest protective measures approved by the Commission in Decision No 66/429 expired on 31 December 1967 and as their extension was refused, the measures isolating the Italian market in lead and zinc, which were maintained in force by the authorities of the Italian Republic, thus lost all justification as from the respective dates on which the Acceleration Decision and Article 23 (1) (c) of the Treaty took effect.

Costs

Under the terms of Article 69 (2) of the Rules of Procedure the unsuccessful party shall be ordered to pay the costs.

The defendant has failed in its submissions.

On those grounds, Upon reading the pleadings; Upon hearing the report of the Judge-Rapporteur; Upon hearing the parties ; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Economic Community, especially Articles 9, 14, 19, 20, 23, 169, 171, 189, 226 and 235; Having regard to the Protocol on the Statute of the Court of Justice of the European Economic Community; Having regard to the Rules of Procedure of the Court of Justice of the European Communities ; THE COURT hereby :

1 Declares that, by applying, from 1 January to 1 July 1968, to imports from other Member States of unwrought lead (tariff heading No 78.01 A), unwrought zinc (tariff beading No. 79.01 A), lead waste and scrap (tariff heading No 78.01 B) and zinc waste and scrap (tariff heading No 79.01 B) customs duties which exceeded by 15 per cent those applied on 1 January 1957, and by applying to imports of the same products from third countries customs duties in excess of those applied in practice on 1 January 1957, as reduced by 60 per cent of the difference between the latter duties and those in the Common Customs Tariff, the Italian Republic has failed to fulfil its obligations under: Article 1 of Decision No 66/532/EEC of the Council of 26 July 1966 concerning the abolition of customs duties, the prohibition of quantitative restrictions between Member States and the application of the duties in the Common Customs Tariff for products other than those listed in Annex II to the Treaty, and Article 23 (1) (c) of the Treaty:

2 Declares that, by failing to abolish on 1 July 1968 customs duties on imports of unwrought lead, unwrought zinc and lead and zinc waste and scrap from other Member States and by failing at the same date to apply the duties in the Common Customs Tariff in respect of unwrought lead and zinc imported from third countries, the Italian Republic has failed to fulfil its obligations under Articles 1 and 2 of Decision No 66/532/EEC of the Council of 26 July 1966;

3 Orders the defendant to pay the costs.