Judgment of the Court of 14 May 1975 Kali und Salz AG and Kali-Chemie AG v Commission of the European Communities

In Joined Cases 19 and 20/74

THE COURT composed of: R. Lecourt, President, J. Mertens de Wilmars and A. J. Mackenzie Stuart, Presidents of Chambers, A. M. Donner, R. Monaco, P. Pescatore, H. Kutscher, M. Sørensen and A. O'Keeffe (Rapporteur), Judges, Advocate-General: J. P. Warner Registrar: A.Van Houtte

gives the following

JUDGMENT

Facts

The facts and arguments developed by the parties in the course of the written procedure may be summarized as follows:

I — Facts

The only two German producers of potash (K2O) are the companies Kali und Salz AG (hereinafter called K & S), and Kali-Chemie AG hereinafter called KC).

K & S, joint subsidiary of the companies Salzdetfurth AG, Wintershall AG and Burbach AG, which make up the BASF group, had a production of 2265000 metric tonnes in 1973 and was responsible for 88·9 % of the German production.

KC, the principal shareholder in which is the company Deutsche Solvay Werke, of the Belgian Group Solvay et Cie, was responsible in 1973, with 282000 metric tonnes, for 11·1 % of the German production.

On 6 July 1970 K & S entered into an agreement the terms of which are as follows:

(i) ‘KC shall sell to K&S … its production of potash in so far as this is not marketed independently by KC nor required for its own production of compound fertilizers. (ii) K&S undertakes to buy annually from KC 280000 metric tonnes of K2O, less such quantities as KC itself requires under Article 1 thereof … (iii) … The parties hereto shall agree in advance as from 1 January 1971, and on each occasion for a period of two years, a provisional programme of allocation having regard to Article 2. They shall agree on the conditions relating to the varieties and delivery periods. (iv) The prices to be paid for the quantities delivered to K & S by KC shall be fixed annually. KC shall receive instalments on account of the prices payable for quantities sold. (v) This article relates to the marketing of kieserite produced by KC. (vi) This agreement … shall continue in force until 31 December 1980. The parties hereto shall enter into negotiations during the 1979/80 marketing year at the latest with a view to renewing this agreement’.

This agreement replaced the sales organization, Verkaufsgemeinschaft Deutscher Kaliwerke (hereinafter called VDK), which before the merger of the BASF interests in K & S was responsible for the sale of straight potash fertilizers by all the German producers of potash from 1958 until its dissolution in 1970.

Like nitrogen and phosphate, potash is one of the main nutritive substances necessary to obtain the best harvests in agriculture. The crude salts are obtained from underground mines and subjected to different refinement processes and treatments for the purpose of obtaining either powdered, non-powdered or crushed varieties.

The potash is supplied as fertilizer either directly to farmers for the purpose of its use as straight potash or as straight potash fertilizer or to manufacturers of compound fertilizers for the purpose of processing.

Figures provided by ISMA of London show that in all European countries straight potash fertilizers are being given up and replaced by compound potash fertilizers. This phenomenon is explained on the one hand by the fact that compound fertilizers, which require only one spreading, save labour, and on the other hand by the considerable reduction in available Thomas-Kali from the metallurgic slag, which is generally used to complement straight potash fertilizer. K & S is in a position to offer a complete range, including granulated kinds. KC mainly produces powdered varieties (100 % of the production of its factory at Friedrichshall and 50 % of that at Ronnenberg), whereas manufacturers of compound fertilizers increasingly use only ‘non-powdered’ and highly concentrated varieties of potash. Further, an ever-increasing proportion of KC's potash is used in the manufacture of the compound fertilizer RHE-KA-PHOS (nowadays distributed independently after having formerly been distributed by VDK), the surplus, which has been diminishing for several years, being sold as straight fertilizer to K & S.

Whereas German imports of potash are practically insignificant, exports of potash fertilizers are roughly at the same level as domestic consumption. The countries to which exports are made are, in the Community, Denmark, the United Kingdom, Belgium, Luxembourg and the Netherlands and, as regards certain kinds, France, and certain third countries, KC's production accounting in 1971 for only approximately 125000 metric tonnes (approximately 90000 metric tonnes in 1973) of the total quantity exported.

In France there is a legal monopoly for the sale of potash fertilizers enjoyed by SCPA, whose production is considerably in excess of the national consumption. But the monopoly of imports as regards intra-Community trade must be abolished as a result of the recommendation of the Commission of 25 November 1969.

The United Kingdom, a large importer, will rapidly become an exporter thanks to the opening of installations with a capacity of 600000 to 900000 tonnes per annum.

As for imports into the Community from third countries, they are quantitatively less than imports from France and the Federal Republic of Germany.

The agreement of 6 July 1970 was submitted to the Commission at its request on 5 November 1971. It was not formally notified until after the Commission began proceedings on its own initiative on 8 May 1973.

After hearing the oral observations of the companies in question the Commission by Decision dated 21 December 1973.

a) held that ‘the agreement of 6 July 1970, concluded between K&S and KC concerning the distribution by K & S of the straight potash fertilizer of KC’ constituted ‘an infringement of Article 85 (1) of the Treaty establishing the EEC’;

b) refused ‘the application for an exemption under Article 85 (3)’;

c) ordered the said undertakings to bring the infringement to an end.

II — Procedure

By applications dated 11 March 1974, filed at the Court Registry on 11 and 12 March 1974, K&S and KC brought an action for annulment of this decision.

On 27 March 1974, KC made an interlocutory application for a stay of execution of Article 3 of the Decision contested.

By order dated 3 April 1974, the President of the Court ordered that execution of this article be stayed until 15 July 1974.

On 28 June 1974, KC made a new application for a stay until judgment by the Court in the main action.

Such a stay was granted by order of the President of the Court on 8 July 1974.

At the request of the Court the applicants and the defendant replied to a certain number of questions.

III — Conclusions of the parties

K&S (the applicant in Case 19/24 claims that the Court should:

a) annul the decision of the Commission of 21 December 1973;

b) order the defendant to pay the costs of the proceedings.

KC (the applicant in Case 20/24) claims that the Court should:

a) annul the decision of the Commission of 21 December 1973;

b) order the defendant to pay the costs of the proceedings.

The Commission claims in both cases that the Court should:

a) Dismiss the application as unfounded;

b) Order the applicants to pay the costs.

IV — Submissions and arguments of the parties

(a) The defendant's argument that there are alternatives to the agreement of 6 July 1970.

1. The market for the products in question, the place of KC in this market and the sensitivity of potash to transport costs

K & S claims that if there were no agreement KC would not be able to sell potash in conditions compatible with good business management.

KC states that straight potash fertilizer and potash in the form of compound fertilizers, the products in question, constitute a single market, since compound fertilizers are nothing other than a mixture, ready for use, of straight fertilizers. Their interchangeability and their keen competition inter se are corroborated by the movement of sales in recent years and everything points to this movement continuing.

The Commission obviously relies on only two facts, that is that 12·5 % of the German production of potash originates from KC's factories and that the amount of potash delivered to K & S represents 13 % of the German consumption. These percentages as such are neither relevant nor significant. A differentiated examination gives a different picture. Even before the disbandment of the sales agency, the production capacity of KC's plant limited its possibilities of competing effectively and permanently with the larger German producers and the other international manufacturers of potash. This is the reason why at a very early stage it centred its investments and activities on the development of the compound fertilizer RHE-KA-PHOS.

The ‘surplus’ delivered to K&S diminished from about 200000 metric tonnes in 1968 to 129000 metric tonnes in 1973.

To determine KC's potential participation in the German potash market it is appropriate to rely on the relationship between the quantities it produces and K&S sells in the Federal Republic of Germany and the total figure of sales made by K & S, that is 3·5 % in 1973. As for KC's potential participation in the Community market of the six original Member States it is appropriate to rely on the relationship between the total production and the volume of KC's ‘surplus’, that is 2·8 % in 1973.

Although clearly lower than the ‘sensitivity limit’ of 5 % fixed by the Commission itself in its ‘notice relating to agreements of subsidiary importance’ of 27 May 1970 (OJ C 64 of 2. 6. 1970), these ‘shares of the market’ are still too high in relation to the real position, since the percentages so fixed represent what KC could achieve if it had the same possibility of sales as K&S. If need be, the applicant could be expected to capture the abovementioned shares of the market, but this would be possible only after a long initial period.

Moreover, KC's two potash mines at Friedrichshall and Ronnenberg, which have been worked since the beginning of the century, have, for geological reasons, a naturally limited duration of life. Three-quarters of the ‘surplus’ comes from Ronnenberg, the future of which is very uncertain since the arrival of alkaline mud in the autumn of 1973 has assumed such proportions that, according to the geological expert, Professor G. Richter-Bernburg, ‘it would scarcely be possible for a period of 15 to 20 months to give a definite judgment on the security of the future of this mine’. The ‘policy conclusions of the company's management’ were the subject of a very confidential statement by KC attached to its application. Without this happening, the foreseeable working duration of the mine at Ronnenberg would in any case have been short since its reserves are limited.

The deposits from the mine at Friedrichshall will be completely required for KC's own commercial needs, thus making it impossible to sell them in the form of straight potash fertilizer.

According to the applicants KC could sell its production only if it were able to deliver in the whole of the Federal territory and in the neighbouring countries and this is ruled out by reason of the substantial transport costs. Deliveries to Italian and Irish manufacturers of compound fertilizers must be ruled out. As regards British and French manufacturers, there is potash production in their respective countries clearly in excess of their needs. It follows that as regards the Community, KC could envisage selling only to manufacturers of compound potash fertilizers in the Federal Republic of Germany, Denmark and the Benelux countries. In these countries, the rare ‘independent’ manufacturers who do not buy potash within their group must be ruled out, since the large producers can easily supply them by reason of long-term delivery contracts. Further, all producers of compound potash fertilizers are in competition with RHE-KA-PHOS. They increasingly sell ‘non-powdered’ varieties 'with a minimum content of 60 % which KC does not produce in sufficient quantity. For these reasons KC must concentrate its efforts on straight potash fertilizers intended for agriculture, the diminishing sales of which relate to an increasing extent — in fact some 80 % — to so-called crushed varieties which it hardly produces. On the other hand the sale of powdered varieties is so small and uncertain that KC cannot regard is as a sure sales outlet.

The defendant in answer says that only a soil analysis, combined with improvements tried over several years, can show the farmer the type of fertilizer to be used. It is true that potash is used more and more in the form of compound fertilizers but there continues to exist in the Federal Republic of Germany a large clientele in favour of straight potash fertilizer such that it is possible to state that there is a ‘market for straight potash fertilizer’ the size of which varies from one‘Land’ to another.

The Commission rejects the argument of K & S and maintains that the German domestic market and the export market provide potential purchasers for the surplus available from KC, that is 130000 metric tonnes of the German production of approximately 2550000 tonnes, in respect both of straight fertilizers and of compound fertilizers. It adds that these two markets (domestic and export) should not be considered separately.

If the applicant sold its surplus on its own, there could be competition with regard to price in the areas favourably situated from the point of view of transport costs. The alleged ‘sensitivity’ of potash in this respect must in any case be doubted, by reason of the fact that, for example, K & S succeeds in exporting to Poland some 80000 tonnes per annum.

K & S in reply says that since the two markets in question form a single entity the sale of KC represent only 130000 metric tonnes of a total of 4750000 tonnes that is to say about 2·5 %, which is insufficient for KC's production to have ‘a noticeable effect’ on the market in potash.

KC says the premises of the defendant's argument, based on the difference in soil structure, are erroneous. Even if there were soils which require only the addition of potash, this does not mean that compound potash fertilizers and straight potash are not interchangeable. The tendency to replace straight potash by compound potash fertilizers must be described as ‘rapid’ and ‘continuous’. The fact that there are still customers for straight potash fertilizers does not permit the inference that straight and compound potash fertilizers may not be substituted for another. Otherwise it could be said that products are not interchangeable so long as they are still in competition, but only when one of the two is almost ousted from the market. Moreover, the peculiarities of use of straight potash and compound fertilizers in the various ‘Lander’ are due exclusively to the difference in prices of Thomas -Kali, which is diminishing on the market, a price calculated ex Oberhausen-West station.

According to K & S, since the purchasers are organized on a wider than district, and even partly Federal basis, KC would have great difficulty in getting them to accept that it wished to apply only those who are situated near its plant, whereas the other products, RHE-KA-PHOS and Rhenania-Phosphat, are available without any restriction of a territorial nature.

KC says that it cannot concentrate exclusively on these areas since the economic consequences of cut-throat competition by price reductions limited territorially would be much less serious for the more powerful competitors than for KC. The low transport costs to Poland are due to the fact that transit through the German Democratic Republic is paid for by means of Comecon ‘clearing’, and in any case the sporadic nature of such sales prevents Poland from being regarded as a certain sales outlet.

In 1971/1972 German imports of potash exceeded 91000 metric tonnes, which figure the defendant does not consider substantial. KC's available surplus, which was only 117000 metric tonnes between May 1973 and April 1974, the period of the official improvement season, could not therefore in the circumstances constitute an ‘appreciable’ factor on the market. Further, the statistics to which the Commission refers in calculating the exports and purchases of straight potash fertilizers relate also to other potash products and in particular to those intended for the manufacture of compound fertilizers. KC's export possibilities can therefore in no way be regarded as substantial.

In its rejoinder, the Commission says that the farmer theoretically has the choice between two kinds of fertilizer, but, in spite of the indisputable advantages of compound fertilizers, certain criteria may lead him to use straight potash fertilizer. Although imports of potash into the Federal Republic of Germany rose to more than 91000 metric tonnes in 1971/72, they included only 40658 metric tonnes of straight potash. Importers of potash do not appear to meet any difficulties in selling in the Federal Republic of Germany and the need does not seem to make itself felt there of distributing straight potash fertilizer by the exclusive agency of K & S. In 1972, the latter exported 77143 metric tonnes of potash to Denmark, which could have been done by KC and all the more so since the use for which it was intended was not known by the seller.

As regards the Commission's claim that there was a single market constituted by the domestic market and the export market, it should be stated that the Federal Republic of Germany represents an important section of the market in potash and thus a market section to which Article 85 should be applied. In is otherwise as regards the policy pursued in the sale of potash. In itself selling its own production KC would have available not only the domestic market but also the export market. The appreciable nature of the restriction on competition appears indisputable when it is observed that K & S, which already occupies a clearly dominant position on the market, is making sure of the part of the market of the only other German producer. Without disputing the sensitivity of potash to transport costs, the conclusion should be drawn from the example of Poland that it must also be possible for KC — if it sold its ‘surplus’ itself — to undertake such operations.

The fact that it appears opportune for KC to continue to deliver RHE-KAPHOS and Rhenania Phosphat (straight phosphate fertilizer, which, contrary to the applicants' allegations, is thus distributed jointly with phosphated potash fertilizer) free at station does not signify that another system could not be adopted for straight potash fertilizer.

2. The possibility of extending KC's range of products

According to the applicants it would be impossible for KC, without undertaking considerable investments, effectively to explore the internal potash market or the market outside the Federal Republic of Germany, in view of the limited varieties it can offer. Its factories are equipped technically only to make powdered varieties which are less in demand and in respect of which demand is declining. The granulating plant, which it would be necessary to acquire, would cost some DM 10 million. The expert opinion from the Research Institute for Economic Policy of the University of Mainz given in October 1973 stressed this difficulty.

The Commission does not understand why it would be indispensable to alter this range by widening it, since the smallest price concessions should produce a revival of interest in the smooth varieties and allow KC to sell the relatively modest quantities which it could not process itself.

Contrary to what the defendant claims KC has never maintained that it had to offer the most ‘complete’ range of varieties possible. However, the, independent marketing of ‘surplus’ would involve in any event substantial investments to improve quality in order to be able to offer varieties and qualities meeting the requirements of the market. The applicants claim that KC would not increase its sales of ‘powdered’ potash by making ‘minimum price concessions’. The case of Thomas-Kali is irrelevant since this produce is sold only in a powdered form and almost never in a granulated form and is 20 % to 25 % less expensive than competing products.

In its rejoinder the Commission stresses that it is paradoxical to claim considerable investments would be necessary to be able to sell straight potash while sales are declining. The move by consumers towards granulated varieties does not show that KC would not succeed in selling its powdered varieties, since K & S has done so until now in respect of KC's production which it had taken over. If Thomas-Kali, which is relatively cheaper thate the other potash fertilizers, sells in spite of its ‘powdery’ nature, this shows that the ‘powdery’ quality is not necessarily an obstacle to sale. It should be noted that since 1968, new methods of spreading have been used for these products allowing, by means of moistening, dispersal without the formation of dust.

Furthermore, as in the case of the Franco-German agreement between producers of potash (Decision of the Commission of 11 May 1973, SCPA — Kali und Salz), the fact that purchasers prefer certain varieties of products does not justify merging the selling channels with the sole object of enabling K & S to offer a complete range.

3. The economic impossibility of stocking

The applicants observe that in order to do its own marketing KC would have to begin, at considerable expense, by installing the necessary storage facilities, which it does not possess at present, as does K & S.

KC claims that wholesalers practically do not stock and retailers prefer to stock expensive fertilizers, nitrogen or phosphates and by reason of this straight potash fertilizers are more and more frequently sent direct from factory to consumer. To meet the seasonal variations in demand producers must, in order to ensure a continuous production, maintain stocks equal to some three months production. For KC this would involve investments in the order of DM 10 million whereas its turnover is only in the order of DM 30 million.

In answer to this the Commission says that KC could, so that stocking should be done largely by the wholesalers, grant them larger reductions for ‘purchases in advance’. Moreover K & S stocks two months of KC's production, which service is paid for by KC.

In reply to this argument K & S maintains that since potash is in competition with finished products of high quality, the ‘price’ of inducement to stock potash would be prohibitive reductions. Moreover this would require a ‘flexible’ delivery since purchases are not spread out equally over the different months of the year.

In its rejoinder the Commission insists on alleging that K & S pays KC advantageous prices because of K & S's interest in being the sole German seller of straight potash fertilizer. As for the seasonal prices, they alone would facilitate the sale of the goods and would moreover be in accordance with the commercial custom in this sector. Moreover KC could grant even larger rebates than those provided for by K & S's scale.

4. The costs involved by a sales in salts of potash

KC states that it has never had, either in the Federal Republic of Germany or in the Community, a sales agency capable of taking care of the sale of its salts of potash, since this was done before 1970 by VDK.

Since the potash contained in straight fertilizer and in the compound fertilizers is in competition with RHE-KA-PHOS it would not be reasonable to seek to distribute these two products through the same sales agency. K & S states that it verified this itself when it began to produce Thomas-Kali. Nor has Solvay et Cie a sales agency capable of helping it sell its potash. For KC to create one would involve it in an additional expenditure of some 2 million DM per annum an moreover would seriously increase the transport costs it had to meet, for the sector includes transport costs in its prices. Since the transport costs of RHE-KA-PHOS amount at present to DM 30 per metric ton and those of K & S for straight potash fertilizers to DM 17 per metric ton only, KC would have to provide for an additional charge of more than DM 10 per metric ton for transport costs, that is, approximately 3·5 million DM, to which must be added the investments necessary to extend the range of products and for stocking, that is, DM 20 million, whereas its sales turnover in potash is less than DM 30 million per annum. To the detriment of consumers, there could be only an increase in the price of the products and a falling off in competition.

The defendant claims that different products, which compete among by the seller of radio sets or by the coal merchant. Moreover in the Federal Republic of Germany there is a well-organized network of wholesalers and retailers, central cooperatives and agricultural cooperatives, which distribute straight potash fertilizers of whatever type is required. VDK, in its time, distributed straight potash fertilizer and RHE-KA-PHOS simultaneously with quite satisfactory results, and what the applicants consider impossible is practised in France by the sales organization of SCPA, in the Netherlands by NKIM and in the Federal Republic of Germany by KC itself as regards Rhenania-Phosphat.

In reply KC says that since sales fell as from 1966, in 1968, that is two years before the agreement of 6 July 1970 came into force, it decided to take charge once again of the sale of RHE-KA-PHOS. Further, VDK, which had two different sales agencies for straight potash and RHE-KA-PHOS, nevertheless had difficulties in selling RHE-KA-PHOS in the Federal Republic of Germany and abroad, since its customers could not readily accept that their supplier should at the same time compete with compound fertilizers. In the Netherlands NKIM sells practically no compound fertilizers and in France SCPA has two completely different sales agencies. Moreover, Rhenania-Phosphat, sold by the same agency as RHE-KA-PHOS represents only 3 % of the sales of compound fertilizers of KC and is therefore insignificant. Comparison with the vendor of radio sets is not pertinent since retailers of fertilizers also sell the main competing products. Since dealers in fertilizers are interested only in the total turnover and not in a particular product, the fertilizer industry involves costly advice organizations to customers to encourge farmers to purchase its products.

K & S emphasizes, moreover, that in terms of business management, it would be quite unreasonable for KC to set up a sales apparatus for at most 130000 metric tonnes of potash.

According to the Commission, if the sales of RHE-KA-PHOS have fallen since 1966, the reason is perhaps bad management on the part of VDK, and this is not a reason for saying that it is impossible successfully to organize such combined sale. The fact that sales of potash are dealt with by two different managements in SCPA confirms the defendant's argument. As to the reference to the simultaneous sale of Rhenania-Phosphat and RHE-KA-PHOS, it is right to recall that the first is a straight fertilizer. Finally, the seller of radio sets would also prefer to sell a more expensive article, but this does not prevent him from likewise offering simple and cheaper sets.

K & S does not define its position on the existence of a network of wholesalers, retailers and cooperatives in the Federal Republic of Germany. Straight potash fertilizer is also imported into that country without any ‘special sales apparatus’.

(b) The applicability of Article 85 (1)

In its Decision of 21 December 1973 the Commission considers:

a) that the effect of the agreement is to restrict competition within the Common Market;

b) that it gives KC the right to sell to K & S on a long-term basis its entire potash production for the purpose of re-sale; although under the agreement KC is not literally bound to sell its potash exclusively through K & S, it in fact hands over the whole of its production to K & S with the exception of such quantities as it uses itself;

c) that this is similar to the situation which existed previously with VDK;

d) that the agreement practically concentrates in a single body the whole of the Federal Republic of Germany's available straight potash fertilizer and thus excludes all competition between the only two German producers of potash as regards the sale of their products to farmers and makers of compound fertilizers;

e) that it covers all the production of a Member State and by its very nature affects trade between Member States in a way which would inhibit the objectives of a single market between Member States from being achieved;

f) that in consequence it is covered by the prohibition in Article 85 (1).

K & S states that on the expiration of the agreement the available potash will be limited to K & S's production and as a result the agreement connot restrict competition or affect trade between Member States.

It is right to observe the absence in the agreement of ‘any obligation to sell’ and of any prohibition on export.

It is such absence which led the Commission to give a negative clearance in previous similar cases (Decisions ‘Cobelaz-Usines de synthèse’, ‘Cobelaz-Cokeroes’, and ‘Comptoir français de l'azote’ of 6 November 1968, ‘Seifa’ of 30 June 1969, and ‘Supexie’ of 23 December 1970). In other decisions the Commission likewise gave negative clearances in respect of horizontal cooperation agreements which allowed the market to be opened to the companies involved (Decisions of 17 July 1968‘Machine Tools’ and of 5 December 1969‘Pirelli-Dunlop’.

KC has never had any direct access to the market since it formerly sold its production through the sales agency. The agreement thus opens a market to KC which it would lose if the agreement were nullified.

KC denies that there is any question in the present case of an agreement within the meaning of Article 85 (1), and that the agreement imposes an obligation on KC, since it remains free to decide for itself the amounts it will entrust to K & S.

The agreement did not have the effect of restricting competition within the Common Market. On the contrary it was KC's inability to compete which made the agreement necessary. The alleged elimination of all competition between K & S and KC is contradicted by the continually growing competition of RHE-KA-PHOS, which represents almost the half of KC's production of potash. The Commission did not take account in its Decision of the fact that KC was in the position in 1970 of having to abandon the exploitation of Ronnenberg if it could not ensure without fluctuation the sale of the whole of the maximum production of this mine. The aforementioned report from the Research Institute points out ‘the danger of seeing (KC) reduce its production and being content in future with extracting only the potash necessary for its own PK fertilizer’.

The agreement in no way affects trade between the Member States of the Community since KC is quite free to export. There is no evidence or indication to conflict with this, just as there is no evidence that the agreement, which imposes no obligation to deliver, enables K & S ‘to concentrate the national sales in its hands’.

The Commission's statement that a ‘large part’ of the quantities made available to K & S by KC ‘are exported to other Member States’ is confusing since it gives the impression that ‘large’ quantities originating from supplies by KC were exported to the Member States of the Community in the previous years. Just as incorrect is the statement that demand in the Netherlands, Belgium, Luxembourg and Denmark centres on types of salts of potash ‘which are suitable for the production of compound fertilizer, which could be supplied by KC’.

The Court of Justice has stated in all the cases submitted to it similar to the present (cf. Case 22/71, Béguelin — Rec. 1971, p. 949) that an agreement does not come within the prohibition in Article 85 (1) unless it affects trade more than insignificantly. The Commission has not bothered about the requirement of an ‘appreciable’ obstacle to competition and to trade. It does not directly cite KC's position on the market. Assuming that the other basic conditions required by Article 85 (1) are met, to establish whether the agreement has prevented KC from perhaps participating to an ‘appreciable’ extent in competing in the potash market, it is necessary to determine what quantities it could sell if it had to distribute its products itself. If account is taken of all the objective factors which characterize the market, to ‘reduce’ the theoretical, potential or maximum parts of KC's market to the part of the market in straight potash which it could probably hold permanently, it will be found that left to itself KC could not continuously sell the quantities of potash for which K & S at present ensures a sale. This dispute is in any case academic in so far as the appearance of alkaline mud already threatens the very existence of the mine and moreover KC must likewise abandon the exploitation of the mine at Ronnenberg if the continuous sale of at least three-quarters of the ‘surplus of potash’ is not assured.

The Commission in its rejoinder says that the determining factor is not that, undoubtedly, KC remains free to dispose of the potash which it does not otherwise require, but lies in the effective results of the agreement. Under Article 85 (1) it is sufficient that the restriction on competition within the Common Market is effective.

The two-year programmes, while they last, are moreover incompatible with any freedom on the part of KC to dispose of those particular quantities.

It is true that the agreement does not formally impose any ‘prohibition on exports’ but the absence of such prohibition does not prevent competition from being affected, since from the point of view of the distance between the factories and potential purchasers and the varieties wanted by the purchasers, deliveries by KC itself would be possible and it would thereby be free to fix the prices.

A market in straight potash fertilizer well and truly exists, the still sizeable part of the market in straight potash fertilizer proving that straight potash and compound potash are not simply interchangeable. The contested Decision rightly took into consideration only the market in straight potash fertilizers. The decisive question is not whether in certain circumstances the farmer has recourse to compound fertilizer in preference to straight potash fertilizer but whether, from the legal point of view, as far as Article 85 (1) is concerned it is possible to speak of a ‘market in straight potash fertilizers’. It is not from an agricultural expert that a proper answer to this question should be sought. The submissions made by the applicant on the subject of the Continental Can case do not stand up to examination: not only are straight and compound fertilizers scarcely comparable with the use of packaging, but the criterion of ‘applications specific’ to a particular ‘purpose’ obtains in the case of straight potash fertilizer. For soil lacking in potash and intended for the cultivation of a plant using much potash, the farmer must use a straight potash fertilizer, which is the only way of manuring having regard to the precise properties of the soil and plant. For soil lacking lime, a straight lime fertilizer complemented with a straight potash fertilizer would be needed. In both cases it is clear that a compound fertilizer would not be appropriate.

Article 85 (1) does not speak of ‘contractual understanding’ but of ‘agreements’ which ‘have as their object or effect the prevention, restriction or distortion of competition within the Common Market’. This is why in the defendant's Decision the first recital on the application of the said article states that the agreement ‘has as its effect the restriction of competition within the Common Market’. Even without any ‘obligation to sell’ an agreement may have an effect restrictive of competition. It is difficult to draw a comparison with the Decision given by the Commission in the case of ‘Comptoir français de l'azote’, because the facts there were different. The objective of the said Comptoir was limited to selling jointly on the French market and on the markets of third countries. On the other hand exports of the various manufacturers and their partners to other Member States could no longer be carried out except on an individual basis. The decision to give a negative clearance was due to the facts of which the Commission had cognizance. By this Decision the Commission did not however intend to rule out that national sales agencies might affect trade between Member States.

The comparison with VDK arises since it follows from Article 85 (1) that it is the effects of an agreement which are important.

As to whether the elimination of competition, which apparently KC no longer in essence contests, is due to the agreement of 6 July 1970 or the autonomous attitude of the applicant, the defendant has shown in its Decision the reasons why it is convinced that the agreement is the decisive factor.

As regards the alleged danger to which the production from the mine at Ronnenberg is subject, the defendant considers that it is entitled to refrain from giving any opinion since this argument was not put to it until now. The legality of the Decision cannot be challenged by factors which have not been brought to the knowledge of the Commission until after the Decision has been given.

As for the agreement affecting trade between Member States, it is for KC a question of commercial policy whether it is advisable to export KC's production or on the contrary to sell it in the Federal territory.

In reply K&S says that the fact that straight fertilizers still make up an important part of the market, in spite of an abundant supply of compound fertilizers, proves that there is effective competition in what is in fact a single market. The differences in the use of straight potash fertilizers and compound fertilizers in the various ‘Lander’ are not due to the nature of the soil, but to the fact that the prices of Thomas-Kali themselves vary according to the Lander. In recognizing that ‘the course of the movement will depend on a series of factors … including the movement of prices’ the defendant admits the ‘cross-elasticity’ of prices, which constitutes an important index of the functional interchangeability of products and the existence of a single market in the sphere dealt with. The Court has given relevant and clear explanations of this phenomenon in its judgment in Continental Can.

KC in its reply says that it is significant that the defendant in seeking henceforth to rely basically on Article 3 of the agreement, which provides for a kind of provisional programme from which the defendant infers an obligation on KC to deliver to K & S. KC has continually proposed the amendment or removal of this provision. Since the Commission has not accepted this proposal, it can no longer rely on this argument.

As regards the interchangeability of the products in question, the expert opinion of Professor Welte concludes that from the point of view of the farmer, straight potash fertilizers and compound potash fertilizers may as a rule be substituted for one another without restriction, that there is therefore competition by way of substitution between these two varieties of fertilizer and that it may be anticipated that the part of the market held by straight potash fertilizers within the Community will be reduced within some years to insignificant proportions from the economic point of view.

The delimitation of partial markets depends in the first place on the answer to the question whether there is competition by substitution between the products in question, and the question of interchangeability is basically a question of fact, in answering which expert opinions should be taken into account. In the aforementioned opinion of the Research Institute, it is stated:

‘having regard to the object of the improvement — which aims at increasing the harvest by a sufficient manuring with nutritive substances — the varieties of fertilizer which contain the same nutritive substance must be regarded as quite interchangeable. Until now there has been no examination of compound fertilizers. From the point of view of interchangeability, these may nevertheless be regarded in the same way as straight fertilizers: each compound fertilizer based on a particular nutritive substance can technically be replaced by another fertilizer containing the same nutritive substance. Competition by substitution, which depends on the technical characteristics of the various fertilizers, is determined by their qualitative properties. There is competition between: (1) straight fertilizers containing the same nutritive substance; (2) straight fertilizers and compound fertilizers containing the same nutritive substance; (3) compound fertilizers containing the same nutritive substance. There is moreover competition between systems of improvement, which competition is made possible only by the existence of compound fertilizers. This competition, too, constitutes competition between various varieties of fertilizer containing the same nutritive substance, but the most important effects of compound fertilizers also influence the demand for varieties of fertilizer containing other nutritive substances’.

The geological situation of the mine at Ronnenberg has not improved since the beginning of 1974. On the contrary the arrival of alkaline mud and the danger which it presents to the mine has increased. The defendant's reticence in this respect is indefensible. KC has continually drawn attention right from the time of the administrative procedure to the limited stocks and life of the mine. The defendant is bound to take into account these circumstances by reason also of the special nature of the present case, which must be looked at as a whole and in the context of the facts. What is in question is KC's ‘potential responsiveness’ to the market which depends on its future position. If circumstances change, the Commission should normally be bound to adapt, amend or repeal its decision in accordance with Article 3 of Regulation No 17/62 (cf. Mestmäcker, ‘Europäisches Wettbewerbsrecht’, 1974, paragraph 43, IV).

In its rejoinder the defendant stresses that the existence of the practice of the ‘provisional programme of quantities’ is certainly settled and constitutes the basis of collaboration between the two companies. It is only one argument among others leading to the decision that Article 85 (1) applies. KC's offer to remove Article 3 from the agreement cannot be taken into account since the content of this article in conjunction with the other points of the agreement is due to a practical necessity and the removal would change nothing.

When KC alleges that K & S is capable of ‘excluding it from the market without having to go to great lengths’ it provides proof that the competition to which it subjects K&S could be more than ‘appreciable’. The expert opinion from Professor Welte stresses the use of straight potash fertilizer, but the defendant's remarks are concerned with the quantities of potash sold to farmers, whether as straight potash fertilizer or as a constituent of compound fertilizer.

There is a lack of interchangeability between the two kinds of potash fertilizer. The farmer has the choice of the form in which he is to use the potash and makes his choice ultimately on the basis of the relationship between the quality and the price. The question of whether there is a single market can in any case arise only in relation to Article 85 (3).

As regards the geological position of the mine at Ronnenberg, the complementary report by Professor Richter-Bernburg is not decisive, since the alkaline mud has not interfered with the extraction work which has been carried on until now. The author takes care not to give an opinion on the question of the viability of the mine at Ronnenberg. As a result the defendant declines to express a view on the question whether a scientific appraisal of the position of the stocks at Ronnenberg must be taken into account in settling the dispute. It is moreover only now that KC is taking it into its head to establish a relationship betwen the mud and the functioning of its mine. The defendant would not hesitate, if appropriate, to adapt its decision to a changed situation if it were convinced of the necessity of such adaptation, but it has not had until now any reason for taking any initiative in this direction. If KC is convinced that the present advance of the mud requires the decision to be changed, it is invited to submit an application to the Commission to this effect.

(c) The inapplicability of Article 85 (3)

In its decision, the Commission takes the view that:

a) K & S is a very important producer of potash and is able, even without the amounts delivered by KC, to adopt the said rationalization measures in its own company; further, KC is part of the important Solvay group which has interests in the potash sector; KC could sell its straight potash fertilizer independently;

b) the agreement brings with it no advantages to balance the disadvantages to competition resulting from centralized marketing; it does not contribute to improving distribution while allowing consumers a fair share of the resulting benefit within the meaning of the first two conditions of Article 85 (3); exemption cannot be granted because the agreement affords the parties the possibility of eliminating competition in a substantial part of the products in question;

c) the agreement enables K & S to improve on its strong position in the potash sector (87·5 % of German production) by becoming the sole supplier of straight potash fertilizer to the German market, a substantial part of the Common Market; as regards straight potash fertilizers used directly in agriculture, although the consumer theoretically has the choice between straight potash fertilizers and compound fertilizers containing potash, special factors appertaining to the mode of use and considerations of the nature of the soil, the availability of labour, atmospheric conditions and prices nevertheless point to the desirability of using straight potash fertilizers;

d) the available statistics show that straight potash fertilizer continues to be in great demand;

e) in the nine Member States a relatively constant increase in sales of straight potash fertilizers and of compound fertilizer containing potash is to be observed;

f) the fact that a small number of farmers may in some years buy straight fertilizer and in others compound fertilizer does not alter the view that the relevant market to take as the basis for the decision in these proceedings is that of straight potash fertilizer;

g) accordingly the agreement cannot be exempted under Article 85 (3).

K & S, on the other hand, claims that the cooperation between the two companies contributes to improving the production and distribution of the goods. With the help of the amounts produced by KC, K & S kan more easily meet the fluctuations in demand. The profitability of the company requires that it should function regularly the whole year through and that there should be considerable storage facilities since those of the various marketing agencies and the consumers do not suffice.

The transport costs amount to 40 % of the price to the consumer in the Federal Republic of Germany and it is in the interest of the consumers to use all means of reducing them by centralization of orders which would allow economies between DM 2·20 and DM 16·50 per metric tonnes that is between 1·5 % and 34 % of the price to the consumer.

K & S could not effect these rationalization measures except with the amounts delivered to it by KC.

Consumers have the benefit of these economies in transport costs, since lower prices are thereby possible as is shown by the movement of prices in the Federal Republic of Germany and in the Common Market. The first condition for the application of Article 85 (3) is thus fulfilled without either KC or K & S having to impose restrictions under the agreement within the meaning of the second condition of the same paragraph.

There is no elimination of competition in a substantial part of the market. The Commission was not able to judge the market correctly in the present case since there is no market for straight potash fertilizers and consumers regard compound fertilizers as substitutes for straight fertilizers.

In considering substitutes in competition the Commission is making the same mistake as in the Continental Can Case, where without any convincing reason it divided the market into several sub-markets in order to be able to allege that there was a dominant position in the sub-markets. As is shown by the movement in the volume of sales, producers of compound fertilizers have been successful in achieving an upward surge while sellers of straight fertilizers are undoubtedly fighting a difficult battle. The agreement between KC and K & S constitutes a rationalization measure assisting them in this and therefore encouraging competition.

KC states that the independent sale of straight potash fertilizers would involve disproportionate costs even in relation to the best possible result. The Commission cannot, without infringing Article 85 (3), disregard this economic aspect relating to profitability. The Solvay group is not capable of helping KC in the sale and export of straight potash fertilizers, for it does not have a distribution and advisory organization, warehousing facilities or knowledge of the market either for fertilizers in general or for potash fertilizers in particular. The Commission's case is not ‘sufficiently established in law’. Moreover, conscious of this ‘fundamental weakness’, the Commission at the end of its case no longer ‘finds’ but simply ‘considers’ that the advantages of the agreement do not balance the disadvantage, to conclude that the exemption cannot be granted because the agreement gives the parties the possibility of eliminating competition ‘in a substantial part of the products in question’. This change of attitude on the Commission's part can mean only one thing, that is, that it is abandoning its previous case based on the conditions of exemption and that it is relying exclusively on the material facts provided for in Article 85 (3) (b). But it cannot rely on this prohibition against granting an exemption. For ‘competition’ to be ‘eliminated’ there must be ‘appreciable’ competition or the possibility of such. The principle stated by the Court of Justice in relation to Article 85 (1) applies even more cogently in the context of Article 85 (3), with the result that competition cannot, by definition, be eliminated when even in the absence of this agreement there would not be effective competition. The word ‘eliminate’ in Article 85 (3) (b) of the EEC Treaty necessarily refers to a complete suppression of competition. Such elimination cannot be alleged in so far as KC competes ever more and more with K & S with the competitive product which may truly be substituted, that is RHE-KA-PHOS.

According to the Commission if every economy made by an autonomous sales organization were regarded as an ‘improvement in the distribution of products’ it would follow that all domestic and foreign sales should be brought under one body. On the contrary, Article 85 assumes that it is true and not distorted competition which best guarantees the regular supply of the market under the most favourable economic conditions. Certain initial outlet organization difficulties — which KC had, for that matter, known with RHE-KA-PHOS — do not suffice to justify an agreement which excludes for an indeterminate duration competition between the only two sellers on the German market.

Moreover, it is not possible to concede, in a market where the principle of freedom of international trade in goods obtains, that the necessity of being able to deliver in the whole of the territory of a Member State be invoked to justify common marketing. In relation to purchasers (especially markers of compound fertilizers) who purchase non-granulated varieties from it, KC is in as favourable a position as the nearest factories of K & S as regards the northern part of Germany and the neighbouring States.

Finally, experience shows that a large number of purchasers obtain no advantage or ‘benefit’ within the meaning of Article 85 (3) by reason of the fact of having to deal with a single seller. As for the objection that the defendant failed to appreciate the ‘determining market’, it is clear that when a product is no longer sold by two sellers but by a single one, competition is eliminated.

The Commission does not see why, within the context of consideration under Article 85 (3), it should have adduced evidence of an ‘appreciable effect’ on competition. According to this provision it had in the first place to examine whether the agreement contributed to ‘improving the distribution of goods’. This consideration led the Commission to answer in its Decision that KC had the possibility of limiting its sales territory to markets favourably situated as regards transport costs. The problem is ultimately for KC to sell 130000 metric tonnes of potash on the one hand to manufacturers of compound fertilizer and on the other hand to farmers and not to be in the position to offer all varieties of fertilizer. The expert opinion from the Research Institute for Economic Policy of Mainz does not come to the conclusion that KC is ‘practically non-competitive’ without a complete range of potash fertilizers.

Without the agreement, KC would itself have to be responsible for the sale of its potash fertilizer and that would involve appreciable competition.

In reply K & S says that the price of potash has increased by only 11·8 % during the course of the last 21 years, which is very much less than the average increase in prices and thus customers had a share in the benefits from the rationalization undertaken.

KC could exert practically no force on competition by marketing its available surplus independently. On the contrary, the amounts of straight potash fertilizer which KC still supplies today would disappear completely from the market if the rationalized sales effected by K & S had to be prevented. It is therefore not possible to speak of an ‘elimination of competition’ resulting from the agreement which has been concluded.

In its rejoinder the defendant recognizes that the applicant has no doubt obtained certain positive results from the rationalization of the production but stresses that the agreement, which relates to the ordering of distribution, has not resulted in consumers sharing in the benefit as alleged by K & S. Moreover K & S has nowhere mentioned the criterion relating to the elimination of competition in respect of a substantial part of the products in question.

V — Questions put by the Court to the parties

(a) Questions on the amendment of the Decision in question following the appearance of alkaline mud in the Ronnenberg mine.

1. The Court requested the applicant to define its position on the defendant's invitation in the rejoinder to submit a formal application to amend the Decision in question following the situation created by the appearance of alkaline mud in the Ronnenberg mine. KC replied that, since 22 August 1974, it had informed the Commission that, although still of the opinion that it was not necessary in law, it was formally requesting, as a precaution, that the Decision of 21 December 1973 be set aside, alternatively that execution of the Decision be stayed for a initial period of three years.

2. The Court asked the defendant what answer it was intending to give to the applicant's request. In answer the Commission stated that the fact of the appearance of mud had been known for a long time and that although the sudden increase presented certain dangers, it did not appear from the expert opinions submitted that it was impossible to avoid the danger. As a result the basis of the Decision of 21 December 1973 would be altered only if the production of potash stopped.

(b) Questions put to K & S

1. First of all the Court asked K & S in which regions it sold powdered potash and the powdered potash originating from KC. In answer the applicant supplied figures relating to direct sales to farmers in the Federal Republic of Germany and to exports to countries of the EEC and third countries, but the precise regions where the powdered potash is used do not appear from the figures; it is thus impossible to know whether these regions are near or not to the KC plant.

2. How do German importers of straight potash sell their goods? The applicant has no knowledge of large sales of straight potash in the Federal Republic of Germany by German importers.

(c) Questions put to KC

1. What fraction of the consumption of straight potash in Ireland, France, Italy and Britain is of the crushed variety and what of the powdered variety? KC replies that in 1971/72 powdered varieties were practically not used in France and that in Ireland and Italy roughly twice as much crushed varieties were used as powdered, while in Britain on the other hand the proportion of the former was only one-third. It may be assumed that the tendency for straight potash fertilizers to decline has continued so that these quantities have become even more insignificant in these countries and that they are now of no importance.

2. Why is it not possible to sell straight potash by means of the organization which already sells RHE-KA-PHOS? The commercial success of KC's sales organization for RHE-KA-PHOS basically resides in the publicity and advice given for the system of PK fertilizers. If a common sales organization simultaneously advertised straight potash and RHE-KA-PHOS, it would be advertising competing products. If VDK had marketed the two products it would have been to the detriment of RHE-KA-PHOS because the potash interests, which were in the majority in this organization, required that no conflicting advertising should be undertaken.

3. How do German importers of straight potash sell their goods? The applicant has no knowledge that foreign producers of potash have organizations in the Federal Republic of Germany for the sale of straight potash to the farmer. It is the same as regards German import undertakings. It is therefore possible that the imported quantities are purchased by producers of compound fertilizers, which would lead one to think that the non-powdered variety of a minimum content of 60 % is involved.

(d) Questions put to the defendant.

1. What geological and atmospheric conditions justify the use of a straight potash? Apart from the price (RHE-KA-PHOS, for example, costs 61 % to 72 % more than straight potash with a 50 % K2O content), it is a fact that certain pedological and climatic conditions can lead a farmer to prefer a straight potash fertilizer. There are the different needs of plants for nutritive substances, the greater leaching in light than in heavy soils, the need to improve soils which have been inadequately fertilized in the past, which requires an additional application of potash, and finally the need to apply potash in the form of a potash fertilizer for soils which have sufficient phosphate.

2. Which are the regions in which straight potash is used to the exclusion of phosphate and nitrogen and how large are they? Soils sufficiently rich in phosphates and nitrogen to require the application only of straight potash fertilizer to be made perfect are rare in the Community. At the oral procedure on 4 February 1975 K & S was represented by W. Dorinkel, Rechtsanwalt of Wiesbaden, KC by R. C. Galler, Rechtsanwalt of Düsseldorf, and the Commission of the European Communities by its Legal Adviser, R. Wagenbaur. The parties adduced new facts which are summarized below. K & S completes the replies which it has given in writing and states that it disposes of the powdered potash which it manufactures throughout its market in so far as KC's production cannot replace it by reason of cheaper transport costs. For example, between Friedrichshall and Denmark or the northern part of Germany they were only DM 29·40 per metric tonne in 1973 whereas from K & S's factory at Neuhof they were DM 39·10 per metric tonne. In the same way between Ronnenberg and ‘Chem. Fabr. Kalk’ at Cologne they were DM 17·60 per metric tonne whereas they would have been DM 27·60 per metric tonne from Neuhof. These figures confirm that considerable economies in transport costs have been achieved. Further, RHE-KA-PHOS does not cost from 61 % to 72 % more than straight potash, but only 5 %. Moreover, K & S stated in reply to a question put at the hearing that it had never undertaken the granulation of the potash which it obtained from KC nor stocked this potash. The defendant stated that there was a scarcity of potash on the world market by reason of a greatly increasing demand and that prices were rising. Moreover, according to an answer given at the hearing of Case 19/74 by K & S, the latter stated that it had never undertaken the granulation of the potash which it obtained from KC nor stocked its potash. KC made no comment on this information. The Advocate-General delivered his opinion on 11 March 1975.

Law

1. By applications filed at the Court on 11 and 12 March 1974, the companies Kali- and -Salz and Kali Chemie (hereinafter called ‘K & S’ and ‘K’) brought an action for annulment of the Decision of the Commission of 21 December 1973 (OJ L 19/22 of 23. 1. 1974) holding that an agreement of 6 July 1970, concluded between the applicants on the marketing by K & S of part of KC's production of potash, constituted an infringement of Article 85 (1) of the EEC Treaty and ordering them to bring the infringement to an end.

2. Since the two applications seek the same relief, it is fitting to join them for the purpose of the judgment.

3. The applicants are the only two producers of potash in the Federal Republic of Germany, K & S having produced more than 2250000 metric tonnes in 1973 while KC produced some 280000 tonnes. Potash is delivered as fertilizer, either directly with a view to its use as straight potash or to the producers of compound fertilizer for the purpose of processing. Under the terms of the agreement in question KC supplies K & S with that part of KC's production which KC does not market itself or which is not required for the manufacture of its compound fertilizer RHE-KA-PHOS, while K & S for its part undertakes to purchase the surplus, the parties agreeing moreover to draw up, on each occasion for a period of two years, a provisional programme of allocation of this production.

4. According to the Decision challenged, this agreement has the effect of concentrating practically the whole supply of straight potash fertilizer in the Federal Republic of Germany and thus restricting competition in the market of this product and affecting trade between Member States.

5. In order to find a restriction on competition the Decision challenged states ‘that the relevant market to take as the basis for the decision in these proceedings is that of straight potash fertilizer’. The applicants allege on the other hand that the market in potash products constitutes an entity and cannot be divided into two separate markets, namely straight potash and compound potash fertilizers, since these two products compete with one another and are to a large extent interchangeable.

6. The arguments on which the Commission has, in the last recitals of its Decision, based its case, show that there is competition between the two products which is effected by their prices and their intrinsic advantages for the consumer. The figures mentioned in the Decision show a considerable increase in consumption of compound potash fertilizers which however has not eliminated straight potash. The Decision challenged stated, it is true, that such considerations as the state of the soil, the availability of labour and the weather, point in certain cases to the desirability of using straight potash, but it is not shown that the two types of fertilizers constitute different markets. The Decision itself makes a point of the fact that a small number of farmers may in some years buy straight fertilizer and in others compound fertilizer.

7. In these circumstances the conclusion of the Decision that ‘the declaration of inapplicability of Article 85 (1) must in any case be refused because the agreement affords the undertakings the possibility of eliminating competition in respect of a substantial part of the products in question’ is not valid.

8. The applicants contest moreover the finding in the Decision challenged that the agreement infringes Article 85 (1) in that, although it does not expressly require KC to deliver the whole of its production of potash to K & S, its spirit and the practice followed by the two companies achieve the same result. According to the applicants KC remains free to supply K & S with whatever quantities KC itself decides. This is moreover amply shown by the fact that the part of KC's production supplied to K & S is diminishing and has gone down from 173500 metric tonnes in 1973 to 129400 metric tonnes in 1973, whereas that used in the processing of its compound fertilizer RHE-KA-PHOS has increased form 119700 metric tonnes in 1971 to 150800 metric tonnes in 1973.

9. The fact that KC delivers its surplus production of straight potash to K & S is due to KC not possessing any sales organization making it possible to market it. Before 1970 it sold this production via the sales agency which then operated between all the German producers of potash for the supply of straight potash fertilizers. The agreement in question is intended to allow KC to concentrate its efforts on the manufacture and sale of the compound product RHE-KA-PHOS and leaves KC to decide what part of its total production should be sold in this form and consequently the amount of the surplus available for sale to K & S.

10. According to the Decision challenged, the agreement covers the entire production of a Member State and by its very nature affects trade between Member States.

11. The applicants allege that the defendant has not given reasons for its Decision on this point, as is required by Article 190 of the EEC Treaty. In this respect (they claim) neither during the administrative stage nor during the course of the proceedings has it sufficiently taken into account KC's actual position on the market,

12. First, the quantities of straight potash sold by KC to K & S are constantly diminishing. According to the Decision challenged, KC was in a position to set up an independent sales organization. The applicants have claimed that the cost of such an organization would be prohibitive for KC having regard to its turnover in straight potash. The examples which the defendant quotes of a possible joint marketing of straight potash and compound fertilizer cannot be related to the position of KC, whose surplus production of straight potash is constantly diminishing.

13. It has therefore not been shown that straight potash can be distributed by an organization which markets the compound product RHE-KA-PHOS which competes with it.

14. It follows from the combination of these circumstances that the continual reduction in the quantities of straight potash which KC has available after manufacturing RHE-KA-PHOS, and further the concomitant decline in the requirement of straight potash fertilizer in favour of compound fertilizers could prevent KC from setting up an onerous marketing apparatus for the sale simply of its surplus production which decreases each year. This position could lead to allowing exceptional measures to be taken for the sale of this surplus production within the context of an agreement which, if analysed, amounts for KC not to an obligation but to an option to sell to K & S.

15. Accordingly, insufficient reasons appear to have been given for the Decision challenged, at least as regards the rejection of the application for exemption.

Costs

16. Under Article 69 (2) of the Rules of Procedure the unsuccessful party shall be ordered to pay the costs. Since the defendant has been unsuccessful, it is proper to order it to pay the costs.

On those grounds, THE COURT hereby:

1 Annuls the Decision of the Commission of 21 December 1973 (IV/795).

2 Orders the Commission to bear the whole of the costs.

1 Language of the Case: German.