JUDGMENT OF 10. 1. 1973 — CASE 55/72 GETREIDE-IMPORT v EINFUHR-UND VORRATSSTELLE GETREIDE

In Case 55/72 Reference to the Court under Article 177 of the EEC Treaty by the Hessisches Finanzgericht (VIIth Senate) for a preliminary ruling in the action pending before that court between

THE COURT composed of: R. Monaco (President of Chamber), President, P. Pescatore, President of Chamber, A. M. Donner (Rapporteur), J. Mertens de Wilmars and H. Kutscher, Judges, Advocate-General: K. Roemer Registrar: A. Van Houtte

gives the following

JUDGMENT

Issues of fact and of law

I — Facts and Procedure

The facts and procedure may be summarized as follows:

Between January and March 1966, the defendant in the main action issued to the applicant in the main action a certain number of import authorizations for forward contracts for the import of maize from Italy which the applicant wished to carry out between January and June 1966. The defendant fixed the levy rates in the import licences both for the imports carried out within the time allowed and for those carried out after its expiration.

The case concerns the intra-Community levy provided for by Article 2 of Regulation No 19 in order to compensate for the differences existing between the prices of cereals in the Member States at the time when the common market for agricultural products was in its transitional stage. The amount of the levy corresponded to the difference between the price of maize from Italy delivered free-at-frontier in Germany and the German threshold price, after deduction of a flat-rate amount. It devolved on the Commission to determine the free-at-frontier price in accordance with the detailed rules laid down by Article 3 of Regulation No 19 of the Council of 4 April 1962 on the gradual establishment of a common organization of the market in the cereals sector (OJ p. 933/62).

According to Regulation No 89 of the Commission of 25 July 1962 laying down criteria for determining free-at-frontier prices for cereals, flour, groats and meal (OJ p. 1899/62), the free-at-frontier price was to be determined on the basis of the most favourable price ruling on the most representative Italian markets for exports to Germany, taking freight charges into account (Article 2). By representative markets was meant the Italian markets from which maize could be exported to Germany at the most favourable price (Article 3). The most favourable price was that which, taking into account the price ruling on the most representative markets together with freight charges and marketing costs not already included in such prices, worked out at the lowest figure in relation to the standard of quality (Article 4 (1)). Freight charges were defined in Article 5 of Regulation No 89.

These data were regularly prepared by the Italian authorities, who calculated the free-at-frontier price and then supplied the Commission with such data (Article 7). After checking the data, the Commission determined the free-at-frontier prices each Friday (Articles 8 and 9). The competent German authorities then calculated the amounts of the intra-Community levies in accordance with the provisions of Article 15 of Regulation No 19.

The applicant in the main action appealed to the Hessisches Finanzgericht against the fixing of the levies in the import licences. It considers that the Commission incorrectly based the free-at-frontier price on the market price of maize imported from the United States and not on the higher price of maize produced in Italy. Further, the market price taken by the Commission as the basis of calculation was not the price ruling in the most representative markets for exports of maize from Italy to Germany. Finally, the applicant to the main action maintains that the Commission should have applied the effective exchange rate in calculating in DM the free-at-frontier price determined in lire, instead of the exchange rate declared to the International Monetary Fund.

The Hessisches Finanzgericht, considering that the determining of the free-at-frontier price is a decision emanating from an institution of the European Communities, has, by order dated 28 June 1972 received at the Court Registry on 3 August 1972, decided to refer for a preliminary ruling the following question:

‘Are the decisions of the EEC Commission published in the EEC Official Journal (Agricultural Supplement) No 1 of 12 January 1966, page 16/66 B; No 4 of 2 February 1966, page 118/66 B; No 7 of 23 February 1966, page 214/66 B; No 8 of 2 March 1966, page 250/66 B and No 9 of 9 March 1966, page 285/66 B, determining the free-at-frontier price for the import of maize from Italy to the Federal Republic of Germany, valid?’

By order dated 18 October 1972, the Court decided to join Cases 41/72 and 55/72 for the purposes of the oral proceedings.

The applicant in the main action and the Commission submitted their written observations in accordance with the provisions of Article 20 of the Protocol on the Statute of the Court of Justice of the EEC.

After hearing the report of the Judge Rapporteur and the opinion of the Advocate-General, the Court decided to proceed without a preparatory inquiry. The oral observations of the applicant in the main action and the Commission were made at the hearing on 16 November 1972. F. Modest of the Hamburg Bar appeared for the applicant in the main action, and the Commission's Legal Adviser, P. Kalbe, for the Commission.

The Advocate-General delivered his opinion at the hearing on 6 December 1972.

II — Observations presented under Article 20 of the Protocol on the Statute of the Court of Justice of the EEC

The observations presented under Article 20 of the Statute of the Court of Justice of the EEC may be summarized as follows:

1) The plaintiff submits that following the judgment of the Court in Case 16/65 (Judgment of 1 December 1965 in Case 16/65, Fa. C. Schwarze v Evst., Recueil 1965, p. 1081), the Commission took the price of imported maize sold in Padua (US — Yellow Corn 2) as the basis for calculating the free-at-frontier price, and not the price of home-grown maize. As the price of imported maize was about 3000 lire less than the price of home-grown maize, the free-at-frontier prices were lowered from 10 December 1965 by a corresponding amount, leading to an increase in the levies collected on the import of maize from Italy to Germany. The applicant maintains that several distinctions exist between the Italian maize market and the Netherlands barley market referred to in the judgment of the Court in Case 16/65. The ratio decidendi of that judgment cannot be applied directly to the present case. In the first place, the Court based its decision on the supposition that home-grown cereals and imported cereals of the same quality, and therefore interchangeable, must command the same price. In the present case, it is established that the price of imported maize was lower than that of the home-grown product. Therefore the conclusion must be drawn that the imported maize was of inferior quality to the maize produced in Italy. In these circumstances, the Commission must act in accordance with the provisions of Article 6 of Regulation No 89, that is to say, to define the quality of US — Yellow Corn 2 and to compare it with the standard of quality in respect of which the Italian target price for maize is fixed. It must then correct the price of imported maize by applying the coefficients in force in Italy for determining the target prices and intervention prices. When there is a difference between the standard of quality in respect of which the Italian target price is fixed and the standard of quality in respect of which the threshold price is fixed, the price resulting from the first correction must be adapted by applying the coefficients of equivalence under the terms of Article 11 of Regulation No 61 of the Commission of 25 June 1962 fixing standards of quality for cereals and coefficients of equivalence between those standards and the standards of quality in respect of which national target prices are fixed (OJ p. 1671/62). It may be assumed, for reasons explained by the applicant, that the prices for maize produced in Italy ruling on the most representative markets reflected the Italian target price. The imported maize ‘US — Yellow Corn 2’ must therefore be of an inferior quality to that of the Italian standard of quality, that is of home-grown maize. The first correction under Article 6 of Regulation No 89 must therefore result in bringing up the price of ‘US — Yellow Corn 2’ to the same level as the price obtained for Italian maize. The second correction deals with the possible differences between the standard of quality for the threshold price and the standard of quality for the Italian target price, differences which, according to the applicant, did not exist. If the Commission had proceeded as indicated above, the free-at-frontier price determined by it would correspond to the prices ruling for home-grown maize, even if the Commission had taken the price of imported maize as the basis for calculation. In this connection the plaintiff invites the Court to ask the Commission to submit all the data taken into account in calculating the free-at-frontier prices determined by it in the disputed decisions. If it appears that the differences between the prices of imported maize and home-grown maize cannot be explained by differences in quality, it must be presumed, at least for 1965/66, that there was a division in the Italian maize market. The principle according to which cereals of the same category, of equal quality, command the same price ceases therefore to apply. In these circumstances, the application of the ratio decidendi of the judgment in Case 16/65 would have results quite contrary to the objectives of Regulation No 19. The primary objective of Regulation No 19 is the promotion of intra-Community trade in cereals. It is to this end that Article 2 provided for the flat-rate amount to be deducted from the intra-Community levy. Thus, by Regulation No 86 of the Commission of 25 July 1962 embodying provisions to prevent diversion of trade in cereals (OJ p. .1894/62), the Commission limits preference to cereals harvested in the exporting Member State. Moreover, the Regulation lays down that, on the import of cereals in circulation in the exporting Member State but harvested in another country, not only is the preference resulting from the deduction of the flat-rate amount to be withdrawn, but the levy applicable in the case of third countries must be charged. In these circumstances, the c.i.f. price of cereals coming from third countries is the basis on which the levy is calculated. From the above considerations, it must be concluded that by Article 1 of Regulation No 86 the principle of the interchangeability of cereals of the same category and quality was excluded in intra-Community trade. The application of the ratio decidendi of Case 16/65 would be liable to create market disturbances in the intra-Community trade in cereals. It would therefore be impossible to. import into a Member State cereals harvested in another Member State when cereals coming from third countries in circulation in that other Member State are sold at prices more favourable than those paid for the home-grown product. This result would be contrary to the objectives of Regulation No 19. The plaintiff concludes from this that, in the event of a division in the market, the free-at-frontier price must be calculated on the basis of the price of the home-grown product.

2) Further, the plaintiff raises an objection to the choice of Padua as the most representative market for the export of maize from Italy to Germany. The volume of transactions in maize there (it is contended) is minimal compared to that of Milan. The differences in price on these markets — in 1965/66 the prices on the Milan market were consistently about 2000 lire higher than those on the Padua market — can only be explained by the lack of importance of the Padua market in dealings in imported maize. It is evident, therefore, that the Commission should have chosen Milan as the most representative market.

3) Finally, the plaintiff submits that the Commission should have seen to it that, in converting the free-at-frontier price determined in Italian lire, the defendant to the main action applied the effective exchange rate of lire into DM instead of the exchange rate declared to the International Monetary Fund (IMF). During the 1965/1966 winter, the effective rates varied from 64-34 DM to 64-37 DM for 10000 lire. On the other hand the rate declared to the IFM was exactly 64 00 DM for 10000 lire. So far as the disputed free-at-frontier price is concerned, there is a resultant difference in price of 1-71 DM to 1-84 DM per metric ton of maize. It is true that by Article 2 (1) of Regulation No 129 of the Council of 23 October 1962 on the value of the unit of account and the exchange rates to be applied within the framework of the common agricultural policy (OJ p. 2553/62), the Member States must convert the free-at-frontier price expressed in units of account by applying the exchange rates declared to the IMF. Nevertheless, in cases where the difference between the two exchange rates jeopardises the functioning of the common organizations of the market or the implementation of the common agricultural policy, the Council and the Commission may authorize the application of the effective exchange rate (Article 2 of Regulation No 129). Market disturbance was all the more probable as the Federal Republic of Germany fixed the limit referred to in Article 1 of Regulation No 67 of the Commission of 11 July 1962 laying down criteria for amending the amounts of the levies imposed on cereals, flour, groats and meal (OJ p. 1860/62) at 0-75 u.a. According to the applicant's calculations, the difference resulting from the two variations in the basic factors for determining the levy amounted to between 4-71 DM and 4-84 DM per metric ton of maize. The Commission was therefore abusing its discretionary powers by failing to apply the provisions of Article 2 (2) of Regulation No 129.

4) The Commission states that at first it based its calculation of the free-at-frontier price on the lowest prices for Italian maize ruling at the time at Padua, in accordance with the provisions of Regulation No 89. This method corresponded in principle to that generally followed by the Commission with regard to other Member States. If there were no prices for home-grown cereals available in the exporting State, or when such prices were higher, free-at-frontier prices were determined on the basis of the prices fixed for imported cereals, a method which the Court held to be permissible in its judgment in Case 16/65. The Italian maize market was different from the markets of the other Member States in that the prices of home-grown produce on the one hand and the prices of imported maize on the other hand were fixed independently, so that the price of ‘US — Yellow Corn 3 (sic)’ was more often than not from 1500 to 3000 lire less than the prices ruling for the home-grown hybrid maize. The problem of calculating the free-at-frontier price appeared therefore in these terms: calculation either on the basis of the absolute minimum price, that is of imported maize, or on the basis of the lowest price of the home-grown product. Initially the Commission chose the second solution, as it considered that the levies derived from the free-at-frontier price were only applicable to cereals harvested in the exporting Member State. Towards the end of 1965, however, more and more indications came to light that maize coming from third countries and falsely declared as merchandise harvested in Italy was being exported to Germany. Since the introduction of the common organization of the market in the cereals sector, exports to Germany of maize allegedly harvested in Italy had increased out of all proportion compared tp normal quantities. (Exports of maize to Germany increased from a total of 211 metric tons in 1962 to 503738 metric tons in 1965, and fell to 13346 metric tons in 1967 after amendment of the method of calculating free-at-frontier prices.) In the circumstances, the Commission considered it necessary to fill the gap in the application of the levy system in Germany by basing the calculation of the free-at-frontier prices for exports of maize from Italy to Germany on the prices ruling for ‘US — Yellow Corn 3 (sic)’ as from 10 December 1965.

5) The plaintiff's objections to the choice of Padua as ‘the most representative market’ are without foundation. According to the definition in Article 3 of Regulation No 89, it must be considered as ‘the market from which the product can be exported at the most favourable price to the importing Member State’. The Lombardy markets are taken into consideration merely for commercial reasons. In this respect, Ravenna is one of the most important ports for importing maize from North America. The nearest cereal exchange is Padua, which forms a model market for estimating the price of maize, as offers of imported and home-grown maize coincide there. Similar conditions exist in Milan, but because of its more inland position prices are higher than at Padua. Under the clear terms of Article 3 of Regulation No 89, the choice of Padua is obligatory. Further, the Commission refutes the applicant's allegation in the main action that the offer price for imported maize was higher in Padua than the threshold price then in force.

6) With regard to the exchange rate to be applied when calculating the free-at-frontier price, the Commission maintains that it must apply the official parity declared to the IMF. Although the Commission may apply the effective exchange rates in exceptional cases, it did not do so in this case as the prescribed conditions for doing so were not present.

Grounds of judgment

1. By order dated 28 June 1972, received at the Registry on 3 August 1972, the Hessisches Finanzgericht referred to the Court for a preliminary ruling the question of the validity of the EEC Commission's decisions published in the EEC Official Journal, Agricultural Supplement No 1 of 12 January 1966 (page 16/66 B), No 4 of 2 February 1966 (page 118/66 B), No 7 of 23 February 1966 (page 214/66 B), No 8 of 2 March 1966 (page 250/66 B) and No 9 of 9 March 1966 (page 283/66 B (sic)) determining the free-at-frontier price for importing into the Federal Republic of Germany maize coming from Italy.

2. It is apparent both from the file and from the proceedings before the Court that three grounds of complaint have been raised against those decisions, concerning: (a) the choice of the price of maize imported from the United States as the basis of calculation for determining the free-at-frontier price of maize from Italy imported into Germany, (b) the choice of Padua as the most representative market within the meaning of Article 3 of Commission Regulation No 89 of the Commission and (c) the exchange rate applied when calculating the free-at-frontier price.

The first ground of complaint

3. Under the terms of Article 2 of Regulation No 89 of the Commission of 25 July 1962 (OJ 1962, p. 1899), the free-at-frontier price is determined on the basis of the price most favourable to the importing Member State. Under the terms of Article 1 of Regulation No 86 of the Commission of 25 July 1962 (OJ 1962, p. 1894), intra-Community levies are imposed on cereals harvested in the exporting Member State, the levy in respect of third countries only being charged if the products have not been harvested in the exporting Member State. Under the terms of Articles 2 and 9 of Regulation No 19 of the Council of 4 April 1962 (OJ 1962, p. 933) the amount of intra-Community levies must be determined according to the difference between the free-at-frontier price and the threshold price of the importing Member State, with deduction of a flat-rate amount.

4. The cumulative effect of these provisions is that the free-at-frontier price must be calculated on the basis of the most favourable price of the product harvested in the exporting Member State. Support for this conclusion can be found in the 9th recital in the Preamble to Regulation No 19, which states that ‘the system to be established must allow for the maintenance in favour of Member States of the preference which follows from the application of the Treaty’.

5. From 10 December 1965 the Commission no longer calculated the free-at-frontier price of maize imported from Italy into Germany on the basis of the most favourable price of the product harvested in Italy, but on the basis of the most favourable price of imported maize, which, at that time, was about 3000 lire lower than the price of Italian maize. The Commission has maintained that it was forced to make such a departure from the general rule by the fact that large quantities of maize coming from third countries, falsely declared as merchandise harvested in Italy, were being exported to Germany and that, by determining the free-at-frontier price on the basis of the most favourable price of imported maize, a stop could be put to this practice.

6. Departure from the rule by which the free-at-frontier price must be calculated from the price of the home-grown product is only possible on the condition that home-grown and imported products are completely interchangeable and offered for sale at a uniform market price. . Calculation of the free-at-frontier price on the basis of the market price of an imported maize, the price of which is less than that of home-grown maize, has the effect of impeding exports of home-grown maize by virtue of the fact that the advantage arising from the application of the flat-rate amount referred to in Article 2 of Regulation No 19 and the existence of the profit margin referred to in Article 4 of Regulation No 89 would be seriously reduced or even nullified. Such method of calculation is therefore incompatible with the expressed aim of Regulation No 19.

7. The decisions in question are therefore invalid insofar as, in determining the free-at-frontier price, they were based on the most favourable price ruling for maize imported from a third State.

The second ground of complaint

8. Under, the terms of Article 3 of Regulation No 89, those markets shall be deemed the most representative from which the product can be exported at the most favourable price to the importing Member State. The conditions laid down by this provision are satisfied when the market from which the product can be exported at the most favourable price to the importing Member State can be considered as a market of importance compared to other representative markets.

9. Because of the quantities of both Italian and imported maize dealt with on the Padua market, the Commission was entitled to consider that that market is important in international trade in this cereal compared to the other principal markets of Northern Italy. Moreover, it is not disputed that the most favourable prices for the export of maize from Italy to Germany are those quoted on the Padua exchange.

10. The ground of complaint concerning the choice of Padua as the most representative market within the meaning of Article 3 of Regulation No 89 is therefore rejected.

The third ground of complaint

11. Under Article 2 (1) of Regulation No 129 of the Council of 23 October 1962 (OJ 1962, p. 2553), the Commission must apply the exchange rates declared to the International Monetary Fund when calculating the various prices within the framework of the common agricultural policy. Under the terms of Article 2 (62) of that Regulation, the application of the effective exchange rates may be authorized in exceptional cases where the functioning of the common agricultural system is put in jeopardy.

12. The data submitted by the applicant in the main action concerning the slight variations in the effective exchange rate of the lira during the 1965/66 winter is not such as to make the likelihood of a disturbance in the maize market a plausible possibility. The margin of 0.45 to 0.75 u.a. per metric ton in the factors for calculating agricultural prices allowed for by Article 1 (2) of Regulation No 67 of the Commission of 11 July 1962 (OJ 1962, p. 1860), defines the limits of variation in the exchange rates betwen which, in any case, no revision of the rate of levy shall be made. It cannot be deduced from this that any variation beyond those limits by itself constitutes an indication of such serious disturbance as to compromise the effectiveness of the mechanism of the common organizations of the market or the implementation of the common agricultural policy.

13. The ground of complaint is therefore rejected.

Costs

14. The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable, and as these proceedings are, insofar as the parties to the main action are concerned, a step in the action pending before a national court, the decision on costs is a matter for that court.

On those grounds Upon reading the pleadings; Upon hearing the report of the Judge Rapporteur; Upon hearing the observations of the applicant in the main action and the Commission of the European Communities; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Economic Community, especially Article 177; Having regard to Regulation No 19 of the Council of 4 April 1962 on the gradual establishment of a common organization of the market in the cereals sector, especially Articles 2 and 9; Having regard to Regulation No 129 of the Council of 23 October 1962 on the value of the unit of account and the exchange rates to be applied within the framework of the common agricultural policy, especially Article 2; Having regard to Regulation No 67 of the Commission of 11 July 1962 laying down criteria for amending the amounts of the levies imposed on cereals, flour, groats and meal, especially Article 1; Having regard to Regulation No 86 of the Commission of 25 July 1962 embodying provisions to prevent diversion of trade in cereals, especially Article 1; Having regard to Regulation No 89 of the Commission of 25 July 1962 laying down criteria for determining free-at-frontier prices for cereals, flour, groats and meal, especially Articles 2 and 3; Having regard to the Protocol on the Statute of the Court of Justice of the European Economic Community, especially Article 20; Having regard to the Rules of Procedure of the Court of Justice of the European Communities; THE COURT, in answer to the question referred to it by the Hessisches Finanzgericht by order of that court dated 28 June 1972, hereby rules: