JUDGMENT OF 17. 2. 1976 — CASE 91/75 HAUPTZOLLAMT GOTTINGEN v MIRITZ

In Case 91/75 Reference to the Court under Article 177 of the EEC Treaty by the Bundesfinanzhof for a preliminary ruling in the action pending before that court between

THE COURT composed of: R. Lecourt, President, H. Kutscher and A. O'Keeffe, Presidents of Chambers, A. M. Donner, J. Mertens de Wilmars, M. Sørensen and Lord Mackenzie Stuart, Judges, Advocate-General: A. Trabucchi Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts

The order making the reference and the written observations submitted under Article 20 of the Statute of the Court of Justice of the EEC may be summarized as follows:

I — Facts and procedure

Wolfgang Miritz GmbH & Co. withdrew from its bonded warehouse in Germany, for internal consumption, citrus peel distillates imported from Italy, the quantity of spirit in which amounted to 360.8 litres in all, and had to pay the monopoly equalization duty. By notice of assessment of 18 May 1971, the Customs Office demanded payment of DM 404 (DM 112 per hectolitre) as a special equalization charge pursuant to Article 1 (1) of the Law of 23 December 1970 on the imposition of a special equalization charge on imported distilled spirits (Bundesgesetzblatt 1970, I, p. 1878, Bundeszollblatt 1971, p. 2).

Article 1 of this Law, which came into force in January 1971, reads as follows:

‘For the protection of producers of basic agricultural products processed into alcohol and in order to compensate for the differences recorded between the prices prevailing for homeproduced and imported alcohol, a special equalization charge (Preisausgleich) shall be imposed on imports of alcohol and alcohol products suitable for production of alcohol for consumption provided that the alcohol or alcohol products are not, either under the Treaty or independently of it, subject to a customs duty under the Common Tariff of the European Economic Community.’

The basis of the ‘Preisausgleichsabgabe’ is defined in paragraph (5) of the article. For a hectolitre of spirits it is equal to:

‘the difference between the “normal selling price” and the lowest price at which it is possible, in another Member State of the European Economic Community, to buy alcohol intended for the manufacture of alcohol for consumption.’

The equalization charge is arrived at by adding the normal monopoly equalization duty (Monopolausgleich) to the lowest price.

The introduction of this charge forms part of the adjustment of the State alcohol monopoly carried out in accordance with Article 37 (1) of the EEC Treaty and in application of the recommendation of the Commission of 22 December 1969 (JO L 31 of 1970, p. 20) adopted pursuant to Article 37 (6) of the EEC Treaty.

Miritz brought an action against the imposition of the ‘Preisausgleich’ before the Finanzgericht Hamburg which, by decision of 28 July 1972, ruled that the charge was unconstitutional.

The Hauptzollamt Göttingen appealed against this decision before the Bundesfinanzhof (Federal Finance Court) and the Bundesfinanzminister (Federal Minister of Finance) intervened in support of the Hauptzollamt.

Miritz contended before the court that the ‘Preisausgleich’ was incompatible with the EEC Treaty.

By order of 18 June 1975 the Bundesfinanzhof stayed proceedings and referred the following questions to the Court of Justice:

1) Does the introduction ot a levy which is only imposed upon imports from other Member States of spirits and products containing alcohol and the amount of which corresponds to the total amount of charges falling, as a result of the Distilled Spirit Monopoly (Branntweinmonopol), upon similar domestic products, without such products being expressly subjected to the same equalization charge, amount to an infringement of Article 12 of the Treaty establishing the European Economic Community?

2) If the answer to Question 1 be in the negative: does the imposition of the charge referred to under Question 1 above infringe Article 37 (2) of the Treaty establishing the European Economic Community?

3) If the answer to Question 1 or 2 be in the affirmative: is the imposition of the charge referred to under 1 above justified by Article 37 (4) of the Treaty establishing the European Economic Community?

The order making the reference was received at the Registry on 11 August 1975.

Written observations were lodged under Article 20 of the Protocol on the Statute of the Court of Justice of the EEC by the Federal Republic of Germany, Miritz GmbH & Co. and the Commission of the European Communities.

The Court put questions to the Federal Republic of Germany and to the Commission.

II — Summary of the written observations

Observations of the Commission

The Commission states that the Law of 23 December 1970 is intended to compensate for the difference between domestic prices for spirits and the lowest prices in other Member States so as to ensure, by bringing the price of imported alcohol up to the German level, that the monopoly can market home-produced alcohol.

In the Commission's view, this charge is, in consequence, closely linked with the existence of a monopoly of a commercial character in alcohol, with the result that it is only Article 37 of the Treaty and not Article 12 which requires consideration. The Commission submits that the Court should first consider whether a charge of this type falls within the prohibition under Article 37 (2) and, then, whether paragraph (4) of the article exempts it.

Article 37 (2)

Article 37 (2) prohibits, inter alia, any new measure which is contrary to the principles laid down in paragraph (1) of the article: Case 13/70 Cinzano ([1970] ECR 1089).

The obligation, arising under Article 37 (1), to carry out an adjustment, must be understood as requiring a monopoly of a commercial character to be adjusted before the end of the transitional period in such a way that not only all de facto discrimination but also all power to discriminate have been eliminated.

A charge designed to bring the price of imported alcohol up to the level of the price at which the monopoly sells its alcohol constitutes a handicap to foreign producers, in other words, discrimination between nationals of Member States in regard to conditions of sale. As the charge concerned is a new measure, the reply to the first question from the Bundesfinanzhof must be in the affirmative.

The special equalization charge also falls within the second, alternative definition laid down in Article 37 (2) of the Treaty. It restricts the scope of the articles dealing with the abolition of customs duties. In the Commission's view, the charge imposed is a charge having an effect equivalent to a customs duty because it is levied specifically on imported products and not on similar domestic products, it increases the cost price of the former and, in consequence, has the same restrictive effect on the movement of goods as a customs duty.

It is not correct to say that, if cheaper alcohol came on to the German market, this would discriminate against domestic production. The Commission takes the view that it is not possible, within the meaning of the Treaty, to refer to discrimination in connexion with the natural conditions of production which, on account of, for example, the climate, are less favourable in the Federal Republic of Germany than in some other countries.

Article 37 (4)

In the case of a State monopoly of a commercial character, designed to make it easier to dispose of or obtain the best return for agricultural products (in the present case, ethyl alcohol of agricultural origin), it makes no difference whether the product subject in this case to the charge is or is not an agricultural product within the meaning of the Treaty.

The removal of restrictions on imports as required by the obligation to make adjustments under paragraph (1) of the article inevitably leads to fears that equivalent safeguards for the employment and standard of living of the producers concerned can in fact no longer be provided. Because of this the Commission recommended the Federal Republic of Germany to take the steps suggested in paragraph (4) and to introduce appropriate charges.

In its view, the Member States may, until the common organization of the market comes into force, provide for quantitative restrictions, even after the end of the transitional period. In Case 48/74, Charmasson [1974] ECR 1383, the Court emphasized that the absence of a common agricultural policy was contrary to the requirement of Article 3 (d) of the Treaty without, on account of this, drawing any conclusion that the absence of this policy made it necessary to permit, after the end of the transitional period, derogations from the general rules of the Treaty which might be embodied in a national organization of the market.

The judgment in Charmasson renders inoperative from the end of the transitional period all the derogations which the Commission, pending the common organization of the market, granted for the benefit of the alcohol monopoly, despite the fact that a common organization of the market in alcohol has yet to be established.

The Commission drew the necessary conclusions from this judgment, particularly as regards the continuation of the German monopoly in alcohol and notified the Member States by a letter dated 31 July 1975 that they were, in view of the Court's decisions, under a duty to abolish all the derogations from the obligation to adjust laid down in Article 37 and which and until then been granted to them pursuant to Article 37 (4) of the Treaty.

The Commission suggests that the following reply should be given to the questions referred to the Court.

The introduction of a charge which is imposed exclusively on imports from other Member States of spirits and products containing alcohol and the amount of which is intended to compensate for the difference between the lowest price of spirits in the exporting countries and that of home-produced spirits conflicts with the provisions of Article 37 (2) of the Treaty and it is of no avail to rely upon Article 37 (4) of the Treaty.

Observations of the Federal Republic of Germany

The Federal Republic of Germany deals only with the third question which should, in its view, be answered in the affirmative.

In so far as the special conditions defined in Article 37 (4) of the EEC Treaty for the adjustment of the monopoly covered by that provision are not satisfied, there is justification for maintaining the legislation relating to the contested charge. The expiry of the transitional period does not alter the fact that the conditions laid down in Article 37 (4) must be satisfied.

As a State monopoly of a commercial character, the German monopoly in alcohol embodies rules which are designed to make it easier to dispose of agricultural products or obtain for them the best return within the meaning of Article 37 (4) of the EEC Treaty.

The provisions introducing the special equalization charge are designed to compensate for the higher costs of the basic products and of German alcohol production. If alcohol imports were not subject to the equalization charge, foreign products would come on to the domestic market at prices considerably lower than the cost of production of German products.

Alcohol manufacture based on agricultural raw materials can continue thanks to the imposition of the equalization charge. This charge is inseparable from the objectives of agricultural policy and support for medium and small scale businesses by the German alcohol monopoly. Among these objectives are the determination to preserve the structure of German distilleries as small-scale businesses and above all to provide an income for the associated agricultural undertakings. Whereas the task of the latter is to withdraw surplus crops from the market and in this way to help to keep prices stable, the function of the monopoly in alcohol is, to some extent, to carry out in addition a general policy of support for agriculture.

The justification for introducing the charge is a recommendation of the Commission which recognized that it was necessary.

In its reply, in Parliament, to Written Question No 513/70 from Mr Kriedemann (JO C 46, 1971, p. 5), the Commission described the introduction of an equalizing charge as the most suitable method of ensuring that German monopoly alcohols find a market and in this way guaranteeing the employment and standard of living of the German producers concerned.

The Federal Republic of Germany states that this reply showed that the Commission correctly understood the conditions of competition on the German market in spirits. It is of primary importance to draw attention to the dangerous situation which would be created for German alcohol production if the provisions introducing the contested charge were abolished without being replaced. The economic position of German alcohol producers has not changed in recent years. No system could have been established either at Community or national level which would ensure equivalent safeguards for the employment and standard of living of the producers concerned as required by the conditions laid down under Article 37 (4) of the EEC Treaty. In the absence of such a system, the obligation to adjust contained in Article 37 (1) of the EEC Treaty cannot prevail over the enactments providing for the equalization charge.

The Federal Republic of Germany suggests that the questions should be answered as follows:

Article 37 (4) of the EEC Treaty must be interpreted as justifying the imposition upon imports from other Member States of alcohol and alcohol products of a charge, the amount of which must, of course, correspond to the general levy which is imposed by the monopoly in alcohol on similar products, but without the latter's being expressly subject to the same equalizing charge.

Observations of Wolfgang Miritz GmbH & Co.

First question

Miritz states that this question is based on the presumption that the amount of the ‘Preisausgleich’ corresponds to the general levy which the monopoly in ethyl alcohol imposes on similar domestic products. This question is decisive only when the facts have to be considered from the standpoint of the prohibition of discrimination [within the meaning of Article 37 (1)].

The application of Article 12 of the EEC Treaty is not rendered nugatory by simultaneous application of Article 37 (2) of the Treaty.

The applicant contends that the Law on the equalizing charge was not embodied in the Law dealing with the monopoly in ethyl alcohol.

The prohibition of charges having equivalent effect applies to any charge demanded on the occasion or by reason of importation, which, because it is specifically imposed on imported goods to the exclusion of similar national goods, increases their cost price and, in consequence, has the same restrictive effect on the free movement of goods as a customs duty.

There can be no doubt that the equalizing charge constitutes a charge having equivalent effect since similar national products are not subject to a charge. The normal selling price of the products subject to the monopoly does not correspond to a charge laid down by legislation but, on the contrary, to a price laid down by the monopoly system and made up of various elements which are neither known nor capable of being individually checked. Prominent among those elements are the costs of the German market organization in alcohol and the subsidies granted because the alcohol is, in certain cases, sold at a price below the cost of production. Not only is the characteristic feature of a charge wanting but action is, moreover, taken to equal a price which has, in part, the character of a subsidy and is designed to encourage activity for the benefit of national products only.

Even on the assumption that there is a certain relationship between the ‘Preisausgleich’ and a particular fraction of the normal selling price and even if it is accepted that, although they were introduced under different laws, both charges form part of a general system of internal dues, the conditions enabling them to be properly compared, on the basis of the same criterion, are wanting.

The fact that the charge merely equalizes prices does not prevent it from being described as a charge having equivalent effect. In this connexion, Miritz refers to the Commission v Luxembourg and Kingdom of Belgium (Joined Cases 2 and 3/62, [1962] ECR 425).

It proposes that the following answer should be given to the question referred to the Court:

The introduction of a charge imposed exclusively on imports of alcohol and alcohol products from other Member States conflicts with Article 12 of the EEC Treaty, even if the amount of the national charge corresponds to the general levy imposed by the monopoly in alcohol on similar national products so long as national products are not expressly subject to the same equalizing charge.

Article 37 (2)

In the first place, there can be no doubt that the equalizing charge is a new measure. Inasmuch as the Court finds that the equalizing charge is a charge having equivalent effect, this offends under the second head of the prohibition laid down in Article 37(2).

Even though the charges may be introduced as part of a State monopoly of a commercial character they must not result in thwarting the absolute prohibition of charges having equivalent effect.

Secondly, the new measure introduces discrimination regarding the conditions under which alcohol is procured and marketed. The aim of Article 37 (1) is to ensure that market conditions at the end of the transitional period are similar to those on the national markets. Although, when the transitional period has ended, it is still possible for homeproduced and imported products to be taxed on equal terms, it is no longer lawful to maintain charges, such as the equalizing charge, which offset costs for which the monopoly is itself responsible, namely subsidies or the costs of stabilizing the market.

Thirdly, from the standpoint of the prohibition of discrimination, a charge cannot be compared with a selling price. The latter cannot be treated as a charge: see Case 28/69 Commission v Italy ([1970] ECR 187). In the present case the selling price is made up of elements deriving not from taxation but from the monopoly.

Fourthly, Miritz lists examples of discrimination to which, in its view, the contested charge gives rise:

The ‘Preisausgleich’ applicable to the various products may be changed only if the variation is established as being greater or less than a minimum of DM 10.

It is possible to buy, at best, at the average market rate and not at the lowest price prevailing in the exporting country. Moreover, there is no means of checking whether the prices selected by the Federal Minister of Finance are really correct.

The free-at-German-frontier delivery costs incurred in the exporting country are not taken into account but they represent a substantial proportion of the price.

Miritz states that, in this case, it procured first quality ethyl alcohol in Belgium and transported it to Sicily for processing in its factory. It calculates that, when transport costs are taken into account, the price of the alcohol was appreciably higher than the price of German alcohol.

Article 37 (4)

Miritz expresses the view that Article 37 (4) of the EEC Treaty provides no justification for charges having equivalent effect within the meaning of Article 12 of the EEC Treaty. The provision in Article 12 prohibiting charges having equivalent effect in intra-Community trade applies without reservation. A reply in the affirmative to the first question referred to the Court would therefore make it quite unnecessary to consider Question 3. The wording of Article 37 (4) itself shows that this provision is not to be considered as creating an exception to the paramount prohibitions laid down in the EEC Treaty. Article 37 (4) is in fact merely intended to ensure the same safeguards for the employment and standard of living of the producers concerned.

Article 37 (4) cannot be validly invoked after the end of the transitional period.

A recommendation of the Commission based on Article 37 (6) cannot restrict the scope of Article 37 (1) and (2). In any event, the Commission changed its attitude on the subject of the German monopoly in the light of, in particular, the judgment delivered by the Court in Case 48/74 Charmasson ([1974] ECR 1383).

Nor does Article 37 (4) permit exceptions to be made to the prohibition laid down in Article 37 (1) and (2) on the ground that, in the Federal Republic of Germany, alcohol products, at the present time, still form part of a national organization of the markets in agriculture. This follows from the judgments delivered by the Court of Justice concerning the effects of the expiry of the transitional period and, in particular, the judgment in Case 48/74 Charmasson, referred to above. Miritz interprets this judgment as meaning that, after expiry of the transitional period, national provisions which create exceptions and hinder the attainment of the objectives of the common agricultural market are no longer lawful. This would be so even if, at Community level, there were no corresponding market organization.

Finally, Miritz states that citrus peel distillates do not constitute an agricultural product within the meaning of Article 37 (4). The manufacture of citrus peel distillates involves a complicated and expensive process in which the function of alcohol is simply to act as a technical medium, namely as a solvent. Even from the standpoint of price, alcohol plays a subsidiary role.

In reply to certain questions put by the Court, the Commission explained that, in the EEC, there is an alcohol monopoly only in the Federal Republic of Germany and France.

In the Federal Republic, the existence of the alcohol monopoly is justified on grounds of agricultural policy and policy towards medium and small-scale businesses. This object finds expression in the fixing of the basic price of alcohol. The average German distillery is of modest proportions.

With regard to the disposal of unprocessed alcohol, the German Law on the alcohol monopoly contains details of standard selling prices and reduced selling prices to be applied according to the use to be made of the alcohol.

These prices, before tax, range from DM 263 per hectolitre (peak price) to DM 65 per hectolitre.

In France, the monopoly price system is based on the price of alcohol manufactured from sugar beet. In the case of alcohol produced from other materials, a coefficient is applied to this ‘basic price’. As in the Federal Republic of Germany, selling prices depend on the use to which the product is put. These prices, before tax, range from FF 600 per hectolitre to FF 75 per hectolitre.

The selling prices, before tax, for alcohol in the Benelux countries and in Italy are appreciably lower than the prices ruling in the Federal Republic and in France.

The alcohol monopoly in the Federal Republic and in France operates in conjunction with an import monopoly. Nevertheless, the importation of alcohol for consumption and of alcoholic drinks has been liberalized. In the Federal Republic it is subject to the ‘monopoly equalization charge’. In France it is subject to the monopoly charges usually applied in that country, the amount of which varies according to the basic product

Italy uses the ‘State charge’ (fiscal duty) as a means of protecting its national alcohol production. This protection is achieved by imposing the full amount of the ‘State charge’ (Lit. 60000 per hectolitre) on all imports of alcohol or alcoholic drinks, regardless of the product used for their manufacture. This system makes it possible for the volume of imports of alcohol and of alcoholic drinks into Italy to be maintained at a very modest level.

Furthermore, Italy recently raised to 30 % the level of VAT applicable to spirituous liquors manufactured from cereals and sugar (other alcoholic drinks: 12 %).

Denmark operates an indirect system of taxing alcohol the effect of which is, where necessary, also to protect domestic production; DKr 92.80 per litre is charged on ‘akvavit’ and ‘snaps’ whereas other spirits are subject to a duty of DKr 137·00 per litre.

In the Benelux countries, the level of prices is such that the amount of alcohol imported from other Member States is small. Moreover, the Benelux countries are authorized by the Commission to impose an equalizing charge on imports of ethyl alcohol from France and Germany, where there is a monopoly (Commission Decision No 70/67/EEC of 30 December 1969, OJ L 19 of 26. 1. 1970, p. 50). The decision applies ‘until there is a new Commission decision, and at the latest until measures for common organization of the market in fermentation alcohol are put into effect’ (Article 4).

Oral Procedure

At the hearing on 17 December 1975 Mr Ehle of the Cologne Bar, representing Wolfgang Miritz GmbH & Co., explained that the object of the special charge was to safeguard domestic production and, thereby, the production costs of national producers in relation to the lower production costs prevailing in other countries of the Community.

Before the new charge was introduced, the German monoply used its exclusive import rights to adjust the price of imported alcohol to the monopoly price. By use of the flexible element of the monopoly's equalization charge, the ‘Monopolausgleichsspitze’ (monopoly equalization margin), the price level of imported products was taken up to that of the State's own alcohol. When the question of abolishing the German State's import monopoly arose, it was realized that the “Monopolausgleichspitze” was not in all cases sufficient to bring the price of alcoholic products from other countries of the Community up to the level of the German selling price. The equalization charge was thereupon introduced as an additional variable levy in order to bring up the price of alcoholic drinks imported from countries where the price of alcohol used for the manufacture of alcoholic drinks was lower than the price prevailing in the Federal Republic of Germany. As the level of prices in France is kept virtually at the same level as that in the Federal Republic, no equalization charge is imposed on imports from France.

With regard to the social and economic background, Mr Ehle pointed out that, when price equalization is carried out, due regard is paid to the maintenance of the national price, which is based on the average price prevailing among German potato distillers whose average output is in the region of 500 hectolitres. But, generally speaking, 500-hectolitre distilleries only just pay their way. There is a structural problem in this matter, which has for years remained unresolved although the Commission, in its 1969 recommendation, clearly indicated that the fixing of prices must be based on a capacity of 10000 hectolitres. The structural problem has existed for 17 years but nothing has been done. The Treaty itself states that monopolies are to be adjusted within the framework of the common market even though adjustment of the structures concerned raises serious problems for some alcohol producers. Moreover the alcohol industry is not the only industrial activity integrated into the common market. In the organization of the market in fruit and vegetables and, in particular, the preserves industry, it can be seen that, during recent years, the preserves industry in Germany has been in constant decline. This sort of structural adjustment is in fact necessary in a common market.

The clear indication given by the Court of the legal rules on monopoly and the adjustment of structures makes it easier to effect the establishment of a common organization for alcohol which, five years after the end of the transitional period, has still not been achieved.

For the Federal Republic of Germany Mr Seidel, acting as Agent, pointed out that, in the present case, the provisions of Article 37 (1), (2) and (4) constitute, in relation to the provisions of Article 12, a lex specialis. The present case involves an essential feature of the German monopoly in alcohol.

He pointed out that provisions abolishing certain rules of the German monopoly would lead to serious consequences: 1300 agricultural distilleries and nearly 4000 farms would be affected and, in addition, nearly 27000 other distilleries and 250000 persons holding stocks of raw materials would, in turn, be involved. Merely to abolish the special equalization charge would, in the Federal Republic, have damaging economic effects on farms which benefit from the existence of the monopoly.

In Article 37, those who drew up the Treaty provided for a set of rules which are quite separate in that the protection provided by monopolies which can operate only by means of a discriminatory measure is accorded legal recognition by this provision of the Treaty. In view of the failure of the Council of Ministers to act and the absence of Community rules concerning alcohol manufactured from agricultural produce, restriction of the provisions of Article 37 (4) to the transitional period only, in accordance with a judgment of the Court, would have meant that it was impossible for Member States to adopt the measures necessary in order to prevent the abolition of monopoly measures from creating economic and social problems in a particular industry. It is not possible simply to abolish these monopolies at a stroke. Mr Seidel recalled that for this reason, in cases involving provisions which are contrary to the constitution, the supreme judicature of Germany is empowered to keep some provisions in force for a certain time. Although Articles 171 and 174 are concerned with different conditions, they may be applied by analogy: the procedural rules of the Court of Justice do not wholly prevent it from making a creative interpretation in law and, in so doing, acknowledging its power to grant a period of grace.

For the Commission, Mr Wägenbaur, acting as Agent, recalled that, in the Commission's view, Article 37 (1) can apply only if the conditions in Article 37 (4) are fulfilled. This interpretation, on the part of the Commission, is based on the interpretation of a whole series of legal measures relating to agriculture; for example, Article 38 (4), under which the establishment of a common agricultural policy among the Member States must accompany the operation and establishment of a common agricultural market, Article 43 (2), which refers to the replacement of the various national organizations by a common organization, and Article 45 (1). A whole series of provisions in the agricultural sector confirms the principle of a progressive establishment of the common market in agriculture. In the Commission's view, the same idea runs through all the provisions concerned, namely that, when the transitional period ends, there must not be a sudden change-over to the general rules of the Treaty without regard to the state of the common agricultural policy. The Commission contends that it is possible to continue the national markets in agricultural products until, in accordance with Article 40 (2), they have been replaced by common market organizations. In view of the fact that the interests to be taken into account are of equal importance, the Commission would have thought that this idea could also be applied in terms of Article 37 (4), because it has the advantage of allowing progress to take place gradually. It would have avoided difficulty for the interests protected by the monopolies concerned. But it would at the same time have the disadvantage that, as no closing date was fixed, there would no longer be any compelling political need for agreement on common measures.

The Commission's view of the situation corresponds exactly to the view which was prevalent until the proceedings in Charmasson (Case 48/74). The Court held that national organizations might be kept in existence but not beyond the transitional period. Even although it is still possible to differentiate between the facts in the present case and those in Charmasson, the Commission now believes that there should be no return to the view which it took at that time.

It comes to the conclusion that there should be a final period of time during which the national market could be kept in existence pending its replacement by the general, rules of the Treaty. This period of grace could be used by the Member States, in particular the Federal Republic, either to obtain a common organization of the markets from the Council or to adopt national measures which would themselves then be compatible with the Treaty and consistent with the measures laid down under Article 37 (4).

The Commission is not unaware that the institution of a period of grace would be something new for the common market. It is prepared to consider the idea of a time-limit which must not be too long and moreover it would have no objection to a reply in this sense being given to the third question of the Bundesfinanzhof.

In reply to a question put by the Court Mr Seidel, Agent for the Federal Republic of Germany, declared that the obligation and powers provided for in Article 37 (4) are applicable quite as much to the Community institutions as to national bodies. The Federal Republic did not take national measures for the very reason that it did not wish to prejudge Community rules.

The Advocate-General delivered his opinion on 21 January 1976.

Law

1. By order of 18 June 1975, which reached the Court of Justice on 11 August 1975, the Bundesfinanzhof has referred to the Court under Article 177 of the EEC Treaty three questions concerning the interpretation of Articles 12 and 37 of the EEC Treaty. The questions referred arose out of a dispute between a German importer of citrus peel distillates from Italy and the Customs authorities of the Federal Republic of Germany in which the issue was raised whether the special equalization charge on imports of alcoholic products, called the “Preisausgleichsabgabe” was compatible with the provisions cited above.

2. The charge forms part of the adjustment of the State monopoly in alcohol embarked upon by the Federal Republic of Germany as a result of the Recommendation of the Commission of 22 December 1969 (JO L 31, 1970, p. 20) adopted pursuant to Article 37 (6) of the Treaty. In an endeavour to ensure equivalent safeguards for the employment and standard of living of the producers concerned whilst abolishing the monopoly's exclusive right to import, the Federal Republic of Germany introduced the charge, which is calculated on the basis of the difference between the basic price used to fix the price which the monopoly pays to the domestic alcohol producer and the lowest price at which it is possible to obtain pure alcohol in the exporting Member State.

3. It is clear from the file and the information supplied by the German Government and the Commission that, as neither the object nor the effect of the equalization charge is to offset an internal due levied on the domestic product it does not, in consequence, form part of a general system of internal dues.

4. The Court is asked whether the introduction of a charge which is imposed only on imports from other Member States of spirits and products containing alcohol and the amount of which corresponds to the total amount of charges falling, as a result of the alcohol monopoly, upon similar domestic products, without such products' being expressly subjected to the same equalization charge, amounts to an infringement of Article 12 of the EEC Treaty. If the answer to this question is in the negative, the Court is asked whether the imposition of the charge infringes Article 37 (2) of the Treaty. If one of these two first questions is answered in the affirmative, the Court is asked whether the imposition of the charge referred to is justified by Article 37 (4) of the Treaty.

5. Since the structure and character of the equalization charge link it to the system of the German alcohol monopoly, the answer to the first question must be ascertained from the text of Article 37, which deals specifically with the adjustment of State monopolies.

6. The second and third questions are connected in the sense that it is first necessary to interpret Article 37 in its entirety and in the context of the Treaty.

7. Under Article 37 (1), Member States shall progressively adjust their state monopolies of a commercial character so as to ensure that no discrimination regarding the conditions under which goods are procured and marketed exists between nationals of Member States. Without requiring the abolition of the said monopolies, this provision prescribes in mandatory terms that they must be adjusted in such a way as to ensure that when the transitional period has ended such discrimination shall cease to exist. Paragraph (2) refers to the obligation on all Member States to refrain, as from the beginning of the transitional period, from introducing any new measures likely to restrict the scope of the articles dealing with the abolition of customs duties and quantitative restrictions between Member States. Paragraph (3), moreover, provides that the time-table for adjustment provided for in paragraph (1) of the article must be harmonized with the abolition of quantitative restrictions on the same products provided for in Articles 30 to 34.

8. Article 37 (1) is not concerned exclusively with quantitative restrictions but prohibits any discrimination, when the transitional period has ended, regarding the conditions under which goods are procured and marketed between nationals of Member States. It follows that its application is not limited to imports or exports which are directly subject to the monopoly but covers all measures which are connected with its existence and affect trade between Member States in certain products, whether or not subject to the monopoly, and thus covers charges which result in discrimination against imported products as compared with national products coming under the monopoly. It follows from these provisions and their structure that the obligation laid down in paragraph (1) aims at ensuring compliance with the fundamental rule of the free movement of goods throughout the common market, in particular by the abolition, in trade between Member States, of customs duties and charges having equivalent effect. A charge of the type at issue introduced after the entry into force of the EEC Treaty is, accordingly, contrary to Article 37 (2).

9. Nevertheless, the German Government takes the view, which accords with the Recommendation of the Commission, that Article 37 (4) constitutes justification for a charge having equivalent effect which is designed to ensure safeguards for the employment and standard of living of German producers, of agricultural alcohol because it is the equivalent of the safeguards which they enjoyed by virtue of the monopoly's exclusive right to import, which was abolished by the German Government in order to comply with the obligations arising under paragraph (1) of the article.

10. If a monopoly has rules which are designed to make it easier to dispose of an agricultural product, Article 37 (4) provides that steps should be taken in applying the rules contained in Article 37 to ensure equivalent safeguards for the employment and standard of living of the producers concerned, account being taken of the adjustments that will be possible and the specialization that will be needed with the passage of time.

11. Article 37 (1) lays down a specific and unconditional obligation to achieve results by the end of the transitional period. Far from providing for an exception in the case of certain rules of a monopoly, Article 37 (4) is intended to have effect ‘in applying the rules’ contained in the article. Its purpose is to enable the national authorities, if necessary in cooperation with the Community institutions, to promulgate various measures designed to compensate for the effects which the abolition of the discrimination which a monopoly specifically implies may have on the employment and standard of living of the producers concerned. Nevertheless these equivalent safeguards must themselves be compatible with the provisions of Article 37 (1) and (2).

12. The answer to the second and third questions of the national court must, accordingly, be that, after the end of the transitional period, Article 37 of the EEC Treaty prevents a Member State from levying a charge imposed only on products imported from another Member State for the purpose of compensating for the difference between the selling price of the product in the country from which it comes and the higher price paid by the State monopoly to domestic producers of the same product. The provisions of Article 37 (4) do not derogate from the other provisions of the article

Costs

13. The costs incurred by the Federal Republic of Germany and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main action are concerned, a step in the action pending before the national court, the decision on costs is a matter for that court.

On those grounds, THE COURT in answer to the questions referred to it by the Bundesfinanzhof by order of 18 June 1975, hereby rules:

1 After the end of the transitional period, Article 37 of the EEC Treaty prevents a Member State from levying a charge imposed only on products imported from another Member State for the purpose of compensating for the difference between the selling price of the product in the country from which it comes and the higher price paid by the State monopoly to national producers of the same product;

2 The provisions of Article 37 (4) do not derogate from the other provisions of the article.