JUDGMENT OF 5. 7. 1977 — CASE 116/76 GRANARIA v HOOFDPRODUKTSCHAP VOOR AKKERBOUWPRODUKTEN

In Case 116/76 Reference to the Court under Article 177 of the EEC Treaty by the College van Beroep voor het Bedrijfsleven of the Netherlands for a preliminary ruling in the action pending before that court between

THE COURT composed of: H. Kutscher, President, A. M. Donner and P. Pescatore, Presidents of Chambers, J. Mertens de Wilmars, M. Sørensen, Lord Mackenzie Stuart, A. O'Keeffe, G. Bosco and A. Touffait, Judges, Advocate General: F. Capotorti Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and issues

The facts, the procedure and the written observations submitted pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC may be summarized as follows:

I — Facts and procedure

1. The common organization of the market in milk and milk products provides for a system of prices based inter alia on a target price for milk as well as on intervention prices fixed mainly for butter and skimmed-milk powder. Despite this price system, the Community is experiencing a surplus of milk which takes the form, in particular, of the accumulation of considerable intervention stocks of skimmed-milk powder.

2. Among the measures which the institutions of the Community have adopted in order to reduce those stocks is Council Regulation (EEC) No 563/76 of 15 March 1976 on the compulsory purchase of skimmed-milk powder held by intervention agencies for use in feeding-stuffs (OJ L 67, p. 18). In its first recital, the regulation states that stocks of skimmed-milk powder bought in by intervention agencies have reached considerable proportions and that the stocks available represent an important source of protein which can be used in feeding-stuffs. The second recital states that in order to increase utilization of this protein in feeding-stuffs for animals other than calves, provision should be made for the compulsory purchase of a certain quantity of skimmed-milk powder. The fifth recital indicates that in view of the amount of the stocks, their constant growth and resulting costs, if the steps taken are to be effective they must be implemented at the earliest possible moment and their application to transactions already undertaken in the context of long-term contracts ensured. In order to ensure compliance with the obligation to purchase introduced by the regulation, the grant of aid for certain vegetable foods (colza and rape seeds, soya beans, etc.) is made subject to the provision of a security or the presentation of a document, of standard Community form, made out by the competent authority of the Member State which is responsible for denaturing, hereinafter referred to as ‘attestation of purchase and denaturation’ (Articles 2 and 6). Free circulation in the Community of imported vegetable foods (such as oil seeds, flours from these seeds, certain animal food preparations etc.), is subject to the presentation of a ‘protein certificate’ (Article 3 (1)). This certificate is issued by Member States to any applicant. The issue thereof is conditional on the provision of a security of the submission of an ‘attestation of purchase and denaturation’ (Article 3 (2)). In the case of contracts concluded before the date of entry into force of the regulation, the successive buyers of the products referred to in Articles 2 and 3, or of protein products processed therefrom are to bear the burden of the costs arising under the arrangements laid down in the regulation (Article 5). The regulation entered into force on 15 March 1976. It was stated to apply from 1 April 1976, with the exception of Articles 3 (1) and 5 in so far as it concerned the costs arising from the implementation of Article 3 (1), both of which were to apply from 19 March 1976 (first and second paragraphs of Article 11). Pending adoption of implementing rules on the matter, Member States were to take the necessary steps to ensure that clearance was not given for products which had been declared for the purposes of being put into free circulation unless the person concerned gave a commitment accompanied by a security guaranteeing that these provisions would be respected (third paragraph of Article 11). The regulation was to apply until 31 October 1976 (fourth paragraph of Article 11). If the objective of a considerable reduction in existing stocks of skimmed-milk powder had not been achieved by that date, the Council was entitled to decide to extend the system for the period of time necessary to achieve that aim (fifth paragraph of Article 11). It did not, however, take such a decision.

3. On 24 March 1976 Granaria BV, the plaintiff in the main action, asked the Hoofdproduktschap voor Akkerbouwprodukten (Principal Production Board for Agricultural Products), the defendant in the main action, to issue it with a protein certificate within the meaning of Article 3 (1) of Regulation (EEC) No 563/76 for the free circulation in the Community of a consignment of maize gluten feedmeal pellets of North American origin under tariff heading 23.03 A II of the Common Customs Tariff. Replying to this request on the same day, the defendant in the main action stated that, under the terms of Regulation (EEC) No 563/76, in particular Articles 3 and 11 thereof, it was not possible to issue a protein certificate for which no security had been provided.

4. The plaintiff in the main action instituted proceedings against the decision of the Hoofdproduktschap before the College van Beroep voor het Bedrijfsleven (an administrative court for economic matters). Before the College, Granaria argued inter alia that the decision of the Hoofdproduktschap ought to be annulled since the regulation on which it was based was void in that it conflicted with various provisions and principles of European law.

5. The College van Beroep considered that the case raised questions of interpretation of Community law and, by order of 7 December 1976, stayed the proceedings and, pursuant to Article 177 of the EEC Treaty, requested the Court of Justice to give a preliminary ruling on the following questions: I — Must the objective of the regulation be regarded as being: (a) to achieve a considerable reduction of existing stocks of skimmed-milk powder as appears from the last sentence of Article 11 of the regulation or else: (b) to increase the utilization of the protein contained in skimmed-milk powder for the feeding of animals other than calves? If the objective must be regarded as that set out in (a) above, can it then be said that the regulation states the reasons on which it is based as required by Article 190 of the Treaty? it the last question is answered in the negative does that then have the consequence that the regulation is not binding as being in conflict with Article 190? II — Are the rules contained in the regulation, whereby the issue of a protein certificate required for the free circulation in the Community of the products referred to in Article 3 of the regulation is conditional after 1 April 1976 either on the submission of proof of the purchase and the denaturation of skimmed-milk powder or provision of a security and, before 1 April 1976 but after 19 March 1976, the provision of a security incompatible with the objectives of the common agricultural policy as defined in Article 39 of the Treaty? If so, is the regulation therefore not binding? III — Are the rules in conflict with the system and the principles of Article 3 (f) and Articles 85 and 86 of the Treaty? If so, is the regulation therefore not binding? IV — Are the rules in conflict with the principle that there should be no discrimination as laid down inter alia in Article 40 (3) of the Treaty? If so, is the regulation therefore not binding? V — If revenue accrues to the Community pursuant to the application of the regulation and if the revenue is not to be regarded as ‘own resources’ within the meaning of Article 1 of the Decision of the Council of 21 April 1970 (OJ English Special Edition 1970 (I), p. 224) is the regulation not binding as being in conflict with that decision? VI — Is the Council empowered by the Treaty to prescribe, as it does in Article 5 of the regulation, that the purchaser shall bear the costs which arise for the vendor from the implementation in accordance with a Community regulation of a contract which was concluded before the entry into force of the regulation? If the question is answered in the negative is the regulation consequently not binding? VII — Is the third subparagraph of Article 11 of the regulation to be interpreted as meaning that the Member States were already authorized before 1 April 1976 to make the provision of a security a condition for the issue of a protein certificate although it is provided in the second subparagraph of Article 11 that the regulation only applies from 1 April 1976? If the question is answered in the affirmative is the rule contained in the third subparagraph of Article 11 binding in view of the fact that Article 3 (2) of the regulation, which requires a security for the issue of a protein certificate, became applicable only with effect from 1 April 1976 and that the detailed rules for the application of Article 3 (2) referred to in Article 9 of the regulation, which are contained in Regulation (EEC) No 677/76 of the Commission, entered into force only with effect from 1 April 1976?

6. This issue is the same as the main issue in the actions for compensation in Joined Cases 83 and 94/76 and 4 and 15/77, Bayerische HNL Vermehrungsbetriebe GmbH & Co. KG and Others v Council and Commission and of the references for a preliminary ruling in Case 114/76, Bela-Mühle v Grows-Farm GmbH & Co. KG and in Joined Cases 119 and 120/76, Kurt A. Becher v Hauptzollamt Bremen-Nord and Olmühle-Hamburg AG v Hauptzollamt Hamburg-Waltershof.

7. The order of the College van Beroep was received at the Court Registry on 9 December 1976. In accordance with Article 20 of the Protocol on the Statute of the Court of Justice written observations were submitted by the plaintiff in the main action, represented by B. H. ter Kuile, Advocate, of The Hague; by the defendant in the main action, represented by its secretary, F. W. Helmstrijd; by the Council, represented by its Legal Adviser, Bernhard Schloh, acting as agent, assisted by G. Peeters, Legal Advicer of the Council; and by the Commission, represented by its Legal Advisers, P. Gilsdorf and J. H. J. Bourgeois, acting as Agents. Having heard the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry.

II — Written observations submitted to the Court

Granaria, before commenting on the questions referred to the Court for a preliminary ruling, contends that, when Regulation (EEC) No 563/76 was applied, in its case on 26 March 1976, the national and Community institutions concerned infringed the legal principle that a public authority must draft its measures with care; on the date in question there was uncertainty regarding nearly all aspects of the implementation and application of the regulation. On this point, Granaria mentions, in particular, that:

The amount of the selling price of milk powder had not been fixed by the (Netherlands) intervention agencies;

The amount of any security to be provided in advance had not been fixed in various Member States; at least, it varied from one Member State to another;

The rules for the denaturing of powdered milk had not yet been fixed, at least in the Netherlands;

There were doubts about the validity and the negotiability of protein certificates in the Member States of the Community;

Practically nothing was known on the subject of the operation and the form of the proof of the purchase and denaturation of the skimmed-milk powder referred to in Article 6 of Regulation (EEC) No 563/76; or again about

the way in which the costs which arose under Regulation (EEC) No 563/76 for an importer such as Granaria were to be debited to the successive buyers in accordance with Article 5 of Regulation (EEC) No 563/76.

Infringement of this legal principle, which the Court of Justice must uphold, may mean that Regulation (EEC) No 563/76 has no binding effect on the points indicated by the College, regardless of the extent to which the regulation also contravenes any mandatory general provision.

As the College did not, in its questions, consider the possibility of an infringement of this legal principle, those questions must wherever possible be understood as also to be asking to what extent, in the actual circumstances prevailing on 24 March 1976, the institutions of the Community and the competent national authorities of the Member States in giving effect to the provisions of Regulation (EEC) No 563/76 have taken, as far as Granaria is concerned, sufficient care in drafting their measures.

The Commission and the Council begin by referring to the observations which they submitted in Joined Cases 83 and 94/76 and 4 and 15/77.

First question

According to Granaria, it is clear from the title and the recitals in the preamble to Regulation (EEC) No 563/76 that its objective was to increase utilization of the protein contained in the large available stocks of skimmed-milk powder in feeding-stuffs for animals other than calves. The statement of the reasons on which the regulation is based make absolutely no reference to intervention arrangements designed to eliminate the surpluses of skimmed-milk powder.

The condition that the milk powder must be denatured to ensure that it is used only for animal feed does not in any case accord with the objective of multiplying the outlets for skimmed-milk powder and in this way getting rid of surpluses. If this had been the Council's objective, it would have confined itself to providing for the disposal of greater quantities of skimmed-milk powder in any way at all.

The fact that, because of the obligation to purchase, the substantial stocks of skimmed-milk powder available are not continuing to increase is regarded by the Council as an additional advantage. However, this supplementary consideration relates to the efficacy of the measure, not to its purpose.

Article 11 of the regulation is not in accord with its title and recitals. In any case since a requirement laid down in an article of a regulation does not form part of the statement of reasons on which it is based, it is not possible to read into Article 11 an objective of the regulation in question which is at variance with the relevant considerations set out on this subject in the preamble.

Again in the procedure on the substance of the case, the question arose whether Regulation (EEC) No 563/76 did not have a double objective, the first of which is contained in (a) and the other in (b) of the first question referred to the Court for a preliminary ruling.

In principle, this seems quite possible but there is no such double objective in the case of Regulation (EEC) No 563/76.

In the first place the title and the recitals in the preamble to the regulation do not allow of it. In the second place this would conflict with the restriction imposed on the utilization of milk powder, that is to say, its utilization exclusively for feeding-stuffs.

Granaria further contends that if the objective referred to in subparagraph (a) of the first question does constitute an objective of Regulation (EEC) No 563/76 the regulation provides for an independent measure. The title and recitals of the regulation give no indication that it forms part of the campaign conducted by the Council to reduce the stocks of milk powder.

The plaintiff in the main action concludes that the object of Regulation (EEC) No 563/76 is to increase utilization of the protein contained in skimmed-milk powder in feeding-stuffs for animals other than calves.

If the object of the regulation is that shown in subparagraph (a) of the College's first question, there is no statement of the reasons on which it is based, as required by Article 190 of the Treaty. In consequence, the regulation has no binding force. On the other hand no difficulty arises as regards the statement of reasons in connexion with the objective referred to in (b).

As the absence of a statement of reasons within the meaning of Article 190 of the Treaty relates to the objective and ipso facto the very essence of the regulation, it has, in consequence, no binding force and must be inapplicable in its entirety as being contrary to Article 190.

The Hoofdproduktschap states that the aim of Regulation (EEC) No 563/76 was to increase utilization of skimmed-milk powder. This objective is clearly set forth in the first two recitals to the regulation. That objective must, by implication, lead to a reduction of the existing stocks of skimmed-milk powder. The fact that reference to this aspect is made only in the fifth paragraph of Article 11 does not constitute an infringement of Article 190 of the Treaty.

The Council states that the statement of reasons on which a regulation is based may be confined to indicating the general situation which led to its adoption on the one hand and the general objectives which it is intended to achieve on the other: judgment of the Court of Justice of 13 March 1968, in Case 5/67 Beus v Hauptzollamt München, [1968] ECR 83.

In this case, the first and fifth recitals define the general situation. The general objective of the regulation, which is expressly indicated in the fifth paragraph of Article 11, is to effect a considerable reduction in existing stocks of skimmed-milk powder by making greater use of them in feeding-stuffs; as the second recital makes clear, the means provided to this end is compulsory purchase.

The statement of reasons on which the regulation is based is therefore sufficient and is not deprived of force by reason of an infringement of Article 190 of the Treaty.

According to the Commission the essential objective of Regulation (EEC) No 563/76 is to reduce the surplus stocks which exist and also the costs which they entail; a reading of the fifth paragraph of Article 11 makes this objective clear. The increased use of protein in feeding-stuffs is secondary to this main objective.

The Commission does not agree that the statement of reasons is inadequate: in the first place the recitals describe both the general situation which led to its adoption as well as its general objectives; moreover the fifth paragraph of Article 11 again expressly refers to the reduction of stocks. Article 190 of the Treaty does not specify at what point in the wording of a regulation the statement of reasons is to appear. It can equally well be expressed in the operative part of the instrument.

Second question

Before going into this question Granaria first points out that, in accordance with the case-law of the Court, an agricultural regulation of the Council can be reviewed in the light of the provisions of Article 39 of the Treaty as a separate measure if, as in the present case, it contains rules which stand on their own under Article 40 of the Treaty.

Secondly, Granaria points out that, in its decisions, the Court has held that a regulation complies with Article 39 of the Treaty if it makes possible the attainment of one or more of the objectives set out in that article and is ‘neutral’ in relation to the other objectives. On the other hand a regulation which conflicts with one or more of the objectives of the agricultural policy is not valid even if it promotes the achievement of other objectives. This applies in the case of Regulation (EEC) No 563/76 which, as a Council measure which must be treated independently from the standpoint of Article 40 of the Treaty, is in conflict with one or more of the objectives set out in Article 39 of the Treaty.

Regulation (EEC) No 563/76 does not pursue the objective described in Article 39 (1) (a); its aim is not to increase agricultural productivity. Whatever the objective of the regulation, it does not seek to further technical progress as such or the rational development of agricultural production. Article 39 (1) (a) plays no part in this measure.

Agricultural productivity could nevertheless increase also if and to the extent to which the regulation ensured optimum utilization of the factors of production, in particular labour. The answer to this question depends on the objective of the regulation. In this respect, the first and second questions of the College are connected.

If the object of Regulation (EEC) No 563/76 is to increase the utilization of animal protein it might still be considered as a ‘neutral’ measure in terms of Article 39 (1) (a).

This would not be the case if the object of the regulation is to produce a reduction in the stocks of skimmed-milk powder. Costly production of animal protein would first be encouraged by high intervention prices in order subsequently to compel agricultural and non-agricultural undertakings to use this protein instead of the vegetable protein which is traditionally used, is not so expensive, is available in sufficient quantities and which can be more easily processed into animal feed. The obligation to purchase does not, in consequence, ensure technical progress, the rational development of agricultural production or the optimum utilization of the factors of production, in particular, labour.

Article 39 (1) (b) has no independent significance but must be construed in the light of the objectives set forth in Article 39 (1) (a).

The result of the obligation to purchase is to increase the costs of breeders of non-dairy cattle without at the same time increasing their income. It is therefore not such as to ensure a fair standard of living for this group of the agricultural community by increasing individual earnings.

In view of the foregoing, Granaria concludes that the compulsory purchase arrangements provided for under Regulation (EEC) No 563/76 conflict with the objectives set out in Article 39 (1) (a) and (b).

If the objectives of the common agricultural policy defined in Article 39 (1) (a) and (b) are viewed as a whole, it becomes clear that these objectives can only be attained by structural measures and not by measures of market policy such as compulsory puchase.

Nor can Regulation (EEC) No 563/76, viewed from this standpoint, promote those objectives of the common agricultural policy.

If the contested regulation is not to be regarded as contrary to these provisions of the Treaty, it is ‘neutral’ in relation to them.

In order to ascertain whether the obligation to purchase stabilizes markets (Article 39 (1) (c)), it is necessary to establish what, in this case, is the market to be stabilized.

If the market in question is that in feeding-stuffs the obligation to purchase might possibly be regarded as a measure for stabilizing markets.

The obligation to purchase contributes nothing towards the stabilization of the market in skimmed-milk powder by reducing over-production. The crux of the problem, which is the production, a structurally important element in relation to demand, of skimmed-milk powder in the Community, remains the same. From this viewpoint, therefore, Regulation (EEC) No 563/76 does not produce any stabilization of the market because the intervention price for milk powder is not adjusted to the demand for skimmed-milk powder. The price is far too high.

In order to stabilize markets, a regulation can, of course, as Regulation (EEC) No 563/76 has done, build up demand by encouraging outlets but it can only do this in so far as it serves in this way to produce a balance between No 563/76 in the nature of a special arrangement consistent with the economic structure and present conditions within the Community.

Even if it is granted that the obligation to purchase has a stabilizing effect on markets, the fact that it distorts competition on the market in feedingstuffs for the traditional products which can no longer be disposed of in sufficient measure does not appear to accord with the policy laid down in Article 39 (1) (c).

Granaria goes on to refer to other effects of compulsory purchase which create an imbalance on the market: the traditional pattern of imports is distorted; the contractual relationships between suppliers and purchasers are affected; denaturing raises technical problems; and national or European requirements regarding the permitted additives to foodstuffs are liable to be contravened.

With regard to the first part of the second question, Granaria contends that if the objective of Regulation (EEC) No 563/76 is to effect an appreciable reduction in stocks of skimmed-milk powder, it is contrary to Article 39 (1) (a) to (c) inclusive, and that if its objective is to increase the utilization of protein, it may be ‘neutral’ in relation to those provisions, but despite this last objective it cannot promote the objectives of Article 39 (1) (a) and (b) since in order to do so structural measures must also be adopted.

On the second part of the second question Granaria argues that an agricultural regulation within the meaning of Article 40 of the Treaty which conflicts with one or more of the objectives laid down in Article 39 of the Treaty is on this ground without binding force and must be inapplicable in its entirety since it is the central principle of the rules which is itself involved in this case.

The Hoofdproduktschap states that it is wrong to view the individual objective of every measure promulgated under an organization of the markets in the light of the general objectives of the agricultural policy referred to in Article 39.

The fact is that a way of disposing of the intervention stocks had to be found. The measures adopted to this end can be subject only to the condition that they are necessary to attain that end. They cannot therefore be appraised in isolation from their stabilizing effect on the market.

According to the Hoofdproduktschap, there is nothing to justify the conclusion that the obligation to purchase does not constitute an authorized measure for the organization of the market within the meaning of Article 40 (3) of the Treaty. In fact, it constitutes a suitable means of ensuring the disposal of substantial intervention stocks.

The Council states that, in accordance with the case-law of the Court, the Community institutions may allow some of the objectives of Article 39 temporary priority over others.

The obligation to purchase, in particular, has the effect of stabilizing markets. It made it possible to dispose of between 300000 to 400000 tonnes of skimmed-milk powder and it therefore corresponds to the objective set out in Article 39 (1) (c).

Nor does the contested regulation infringe the provisions laid down in subparagraphs (a) and (b) of Article 39 (1).

The Commission states that, in view of the very wide wording of the objectives listed in Article 39 (1) and their relationship with each other, it is only in extreme cases that it is possible to establish that rules promulgated by a Community institution are clearly outside the scope of those objectives. The Court has already declared that those objectives cannot always in practice be pursued simultaneously and that the Community institutions may accordingly allow any one of them temporary priority.

The question whether the rules accord with the objective laid down in Article 39 (1) (a) involves a complicated economic value-judgment implying wide powers of discretion: for the purposes of judicial review, there must have been at least a serious error in the assessment of the economic considerations. Furthermore, the rules which were introduced are merely a supplementary measure arising from the implementation of a market policy, which has for many years been based upon rationalization and improvement of organizational structures.

In any case, it is impossible to carry out an appraisal of the legality of general policy by virtue of which the contested measure was adopted on the basis of a retrospective review of the extent to which it was successful; in terms of the law, it is enough that when a measure is promulgated it does not appear manifestly unsuitable for the purpose of attaining the objective in view.

The rules at issue are the result of the price maintenance policy and accordingly help to increase the individual earnings of persons engaged in agriculture (Article 39 (1) (b)).

Above all, the contested measure accords with the objective of stabilization of the market (Article 39 (1) (c)). Any consideration of it from this point of view must have regard to the market in milk as a whole. It is very difficult to restore a satisfactory balance between supply and demand. In consequence, the Community institutions must be able, on a provisional basis, to employ unorthodox measures in so far as they are essential for the improvement of outlets.

The measures are also appropriate for the purpose of attaining the objective of the contested regulation because they put comparatively large quantities of the product to new use. The fact that the intervention stocks continued to increase for a time after the entry into force of the regulation in no way detracts from the efficacy of the regulation since the increase in stocks during that period was in any case less than the quantities which it was possible to dispose of as a result of the regulation.

The compulsory purchase system was, moreover, also necessary because there was no other way of quickly achieving the desired result. Action directly related to the causes of the structural surpluses would not, in the short term, have been able to help in reducing the stocks.

Third question

According to Granaria, the obligation to purchase is contrary to Articles 3 (f), 85 (1) (e) and 86 (d) of the Treaty because it is a linked transaction.

There are other reasons why the scheme in Regulation (EEC) No 563/76 distorts competition: the increase, resulting from the obligation to purchase, in the price of certain basic products referred to in Articles 2 and 3 of the regulation benefits any competing products to which the regulation does not apply. Skimmed-milk powder, the purchase of which is compulsory under the regulation, is moreover superseding competing products.

Nor does the contested regulation constitute a protective measure; this is clear from its title and its recitals. Nor does a situation of emergency, which often plays a part in the case of protective measures, have any direct relevance to Regulation (EEC) No 563/76.

Because the regulation needlessly infringes Articles 3 (f), 85 and 86 of the Treaty and, furthermore, in this respect gives an insufficient statement of the reasons on which it is based within the meaning of Article 190, it has no binding force, with the result that it must be inapplicable in its entirety.

According to the Hoofdproduktschap none of the articles mentioned in the third question limits the power of the Council to take measures considered necessary for the purposes of the agricultural policy. In any case, Articles 85 and 86 of the Treaty are addressed to undertakings.

The Council points out that, according to Article 42 of the Treaty, the principles of the articles cited in the question are not automatically applicable to agriculture.

Moreover, the obligation to purchase is among the legitimate instruments of economic policy available to the legislature, which are not affected by the provisions of Articles 85 and 86 of the Treaty.

The Commission states that Articles 3 (f), 85 and 86 of the Treaty are not rules which are strictly and unconditionally binding on the Community institutions. This is clear above all from Article 3 of the Treaty which refers not only to competition which is not distorted but also to the adoption of a common agricultural policy. The article lays down no priority as between these two activities.

Fourth question

Granaria contends that Regulation (EEC) No 563/76 involves prohibited discrimination between consumers of feeding-stuffs. Consumers of feedingstuffs intended for animals other than dairy cattle pay a higher price but, unlike consumers of feeding-stuffs for dairy cattle, do not receive any compensation through the medium of the intervention price for milk powder.

There is a further group of producers and consumers who are the victims of discrimination: some manufacturers of animal feed who require the basic products to which Regulation (EEC) No 563/76 applies have to pay a price which, in terms of competition, is too high, while other manufacturers can buy basic products which are unaffected by the regulation.

On those grounds, Granaria's reply to the fourth question is that the arrangements in Regulation (EEC) No 563/76 infringe the principle of non-discrimination as set out in, inter alia, Article 40 (3) of the Treaty. As this illegality vitiates the very root of Regulation (EEC) No 563/76 it has no binding force since it infringes the Treaty and must be inapplicable in its entirety.

According to the Hoofdproduktschap, a distinction must be drawn between the concept of discrimination and that of preferential treatment. It is the latter which exists in this case, inasmuch as manufacturers of skimmed-milk powder receive an indirect subsidy as a result of the obligation to purchase.

In the Council's view, the obligation to purchase covers, in principle, all those who use protein feeding-stuffs.

It is true that poultry-farmers are obliged to use a proportion of the skimmed-milk powder coming from surpluses for which they are not responsible but, when account is taken of the provisions of the first sentence of Article 38 (1) and Article 43 (2) of the Treaty, no discrimination arises in this case.

In support of its view the Council refers, in addition, to Article 39 (2) (c) of the Treaty.

The Commission states that the contested arrangements affect virtually the whole of the feeding-stuffs industry and that they draw no distinction between the various groups involved.

There is, moreover, no principle laying down that a particular industry must, on its own, bear the cost involved in solving its own problems. There must exist some connexion between the industry ‘called upon to bear the cost’ and the industry ‘benefited’. Such a link does in fact exist between all sectors of agriculture and, in particular, between the vegetable protein and the animal protein sectors.

As there is no other less costly means of purchasing feeding-stuffs it may moreover be concluded that in principle the cost must be passed on to the purchaser and the ultimate consumer.

Fifth question

Granaria contends that the application of Regulation (EEC) No 563/76 is liable to produce revenue in the form of forfeited securities and quasi-duties or concealed levies. In this connexion it refers particularly to Article 10 (2) of the regulation under which any security forfeited shall be used to offset the intervention expenditure of the European Agricultural Guidance and Guarantee Fund. As the Fund appears in the Communities' budget, the financial consequences of applying the regulation, which are borne by the Fund, form part of the budget. The Communities' budget is principally financed out of the Communities own resources as defined in the Council Decision of 21 April 1970 on the Replacement of Financial Contributions from Member States by the Communities' own Resources (OJ English Special Edition 1970 (I), p. 224).

Granaria goes on to consider whether securities declared forfeit are own resources within the meaning of Article 2 or ‘other revenue’ within the meaning of Article 4 (1) of that decision and whether the quasi-duties or the concealed levies come within the scope of those provisions.

Neither forfeited securities, quasi-duties nor concealed levies arising from the fact that the price of skimmed-milk powder is higher than the prices of competing products on the market in feeding-stuffs are covered by the above-mentioned provisions of the decision relating to own resources. Regulation (EEC) No 563/76 is in consequence contrary to that decision, is without binding force and must be inapplicable in its entirety because the decision has greater authority.

The Hoofdproduktschap contends that regulations made under Article 43 of the Treaty can perfectly well introduce levies or other pecuniary charges which do not form part of the system of own resources.

Article 2 of the decision on the Communities' own resources could not have been couched in its present terms if such charges could not be introduced independently of the procedure of Article 201 of the Treaty. Moreover, Article 40 (3) contains no restriction relating to Article 201 of the Treaty in the fixing of levies.

The Council states that there is, in this case, no question of providing the Community with its own resources but of introducing a security to ensure that the obligation to purchase is complied with. The Court has, in previous cases, already had to consider similar arrangements for security and has declared them to be lawful. When the security is forfeited the revenue therefrom forms part of the ‘other revenue’ referred to in Article 4 (1) of the decision on the Communities own resources.

The Commission considers that, since the applicant is not affected, it cannot contend before the national court either that Article 10 (2) of Regulation (EEC] No 563/76 is invalid or that ‘revenue’ which the sale of skimmed-milk powder provides for the intervention agencies is unlawful. Even if the provisions referred to were contravened this would only mean that the forfeited securities and the price of skimmed-milk powder constituted revenue in the budgets of the Member States. This eventuality is therefore outside the framework of anything that can be the subject of a question for a ruling on validity under Article 177 of the Treaty. Moreover, even if the alleged invalidity could be established, this could not affect the validity of the scheme as such. The question which budget the revenue must be allocated to is a secondary and separate one from the economic aspects of the scheme.

The Commission does not understand how the obligation to purchase could constitute a Community tax. Even if, because of the fixing of a security, the arrangements were to be regarded as a form of taxation, this would not affect its validity; by virtue of Article 43 of the Treaty, the Community has power to introduce all manner of taxes in so far as they accord with the objectives set out in Article 39.

Sixth question

Granaria states that if the objective of Regulation (EEC) No 563/76 is to reduce stocks of skimmed-milk powder the Council can, by means of emergency protective measures, under certain conditions interfere with existing contractual relationships.

On the other hand, if the objective is to encourage the utilization of protein, it does not possess this power since such an intervention in contractual relationships is not necessary in order to increase the utilization of protein. In that case the regulation has no binding force and must be inapplicable in its entirety owing to the fact that Article 5 is a vital provision of the measure promulgated by the regulation taken as a whole.

The Hoofdproduktschap claims that there are in fact two questions: one is whether a regulation promulgated under Article 43 of the Treaty can in principle govern civil law relationships and, if the reply is in the affirmative, the related question is whether such rules can also affect existing contractual relationships.

In view of the provisions of Article 40 (3) of the Treaty, under which the common organization of the markets may include all measures required to attain the objectives set out in Article 39, the first question must be answered in the affirmative.

As the provision of a security is permitted within the limits of Article 40 of the Treaty, because it is required by the circumstances of this case, the second question must also be answered in the affirmative.

According to the Council the measure embodied in Article 5 of the regulation is dictated by the public interest.

The Council could have been criticized if it had not adopted that provision. If prior contracts had not been covered by the new rules this would in fact have compromised the attainment of the objective of economic policy underlying the obligation to purchase.

Article 5 was therefore dictated by an overriding matter of public interest within the meaning of the judgment of the Court of 14 May 1975 in Case 74/74 CNTA v Commission, [1975] ECR 533.

The Commission does not see why Article 5 should make the ‘scheme’ invalid in its entirety. The existence of the scheme and a reasonable application of it do not depend upon its applicability or otherwise to prior contracts.

Seventh question

Granaria contends that, in adopting the third paragraph of Article 11 of Regulation (EEC) No 563/76, the Council wished to prevent the regulation from becoming a dead letter after 1 April 1976, the date on which the regulation was to be applicable in its entirety, in so far as the institutions had not adopted detailed implementing rules.

Article 11 must be interpreted as meaning that, at the material time, from 19 March to 1 April 1976, the third paragraph of Article 11 had entered into force but was not yet applicable. This means that, during that period, Member States would have been bound to issue protein certificates on demand without those concerned having to provide a security.

Although this interpretation of Article 11 might seem to be correct the wording of the article is not altogether clear. Much depends on the interpretation to be given to the last part of the third paragraph of Article 11 which contains the words ‘… the person concerned gives a commitment accompanied by a security guaranteeing that these provisions will be respected’.

If the words ‘these provisions’ refer to each and every provision of the regulation which would be consistent with its construction, the security should have been provided with effect from 1 April 1966 inasmuch as the Community implementing rules had not been adopted at that date.

The words ‘these provisions’ do not refer to the provisions of Article 3 (1) or of Article 5 of the regulation, which have applied since 19 March 1976, because if they did so the words would be meaningless; Article 3 (1) of the regulation requires only the presentation of a ‘protein certificate’. The other provisions, in particular Article 1 and Article 3 (2) of the regulation which, together with Article 3 (1), form a whole, were not yet applicable between 19 March and 1 April 1976. The force of Article 3 (1) alone, in conjunction with Article 5 of the regulation, could not have been so great during this period that, before issuing ‘protein certificates’ only, the Member States would have had to obtain a security guaranteeing that this single provision would be complied with.

If, on the other hand, the words ‘these provisions’ refer to the ‘implementing rules on the matter’ mentioned at the beginning of the third paragraph of Article 11, it must be borne in mind that these implementing rules could not be applicable before 1 April 1976. Since, at the time when Regulation (EEC) No 563/76 was adopted, there was as yet no certainty that the Community implementing rules would be ready by 1 April 1976, there would have been good reason for obtaining, as from that date, certain guarantees that all the arrangements in the regulation and in its implementing rules would be complied with.

Whatever may be the interpretation to be placed upon Article 11, Granaria considers that the Member States did not, prior to 1 April 1976, have power to make the issue of a protein certificate conditional on the prior provision of a security, because the institutions and the Member States had not drawn up the contested instruments with sufficient care.

The issue which the national court indicates by implication in the second part of its seventh question must be resolved by answering the first part of the question in the manner suggested by Granaria.

According to the Hoofdproduktschap the effect of the second paragraph of Article 11 of Regulation (EEC) No 563/76 is to lay down that, with effect from 19 March 1976, importation is subject to the presentation of a ‘protein certificate’. In this connexion the third paragraph of Article 11 obliges the Member States to take certain measures: to require the importer to give a commitment accompanied by a security guaranteeing that the implementing rules to be adopted by the Commission will be respected. The first part of the question must, accordingly, be answered in the affirmative.

The second part of the question must also be answered in the affirmative: the fact that the Community security referred to in Article 3 (2) of the regulation could be provided only on and after 1 April 1976 does not prevent the Member States from requiring a national security with effect from 19 March 1976. This security was converted into a Community security on 1 April 1976.

According to the Council, the third paragraph of Article 11 refers to the free circulation of products for which a ‘protein certificate’ must be presented and it governs the period between 19 March 1976 and the date of entry into force of the implementing rules on the matter.

It is quite clear from the French text which employs the expression ‘engagement cautionné’ (‘security guaranteeing’) in the third paragraph of Article 11 and the expression ‘caution’ (‘security’) in Article 3 (2), that the security is not the same in each case. Thus the rules did not provide for Article 3 (2) of the regulation to come into force on 19 March 1976.

The Council is in consequence of the opinion that the third paragraph of Article 11 of the regulation must be understood as meaning that the Member States had the power and the duty, before 1 April 1976, to require the provision of a security as a condition for the issue of the ‘protein certificate’.

According to the Commission, so long as the implementing rules for Regulation (EEC) No 563/76 had not been adopted, neither the provisions of Article 3 (2) nor the document referred to in Article 6 could have practical application. Article 3 (1) became applicable on 19 March 1976, with the result that the provisional national measures provided for in the third paragraph of Article 11 guaranteeing that it would be respected also came into force on 19 March.

III — Oral procedure

The plaintiff in the main action, represented by. B. H. ter Kuile, Advocate, of The Hague, the defendant in the main action, represented by J. Goosens of the Ministry for Agriculture and Fisheries, the Council, represented by its Legal Adviser, B. Schloh, acting as Agent, assisted by G. Peeters, and the Commission, represented by its Legal Advisers, P. Gilsdorf and J. H. J. Bourgeois, acting as Agents, submitted oral observations at the hearing on 3 May 1977.

The Court had invited the Commission and the Council to supply at the hearing information and suitable explanations concerning the costs of dehydrating skimmed milk and the costs of denaturing necessitated by the compulsory use of skimmed-milk powder in feeding-stuffs compared with the value of this milk as animal feed.

In Joined Cases 83 and 94/76 and 4 and 15/77, the applicants replied that the three factors, dehydration, storage and denaturing, represented a total of about 27 u.a. or DM 95 per 100 kg, and that the value of 100 kg of skimmed-milk powder as animal feed was roughly between DM 50 and 65.

The Commission replied that the cost of manufacturing skimmed-milk powder was on average 15 u.a. per 100 kg. The denaturing costs involved in the scheme in question are between 1 and 3 u.a. per 100 kg according to the denaturing method. The value of skimmed-milk powder as animal feed varies according to whether the product is used for feeding. calves or for swine and poultry. In the first case the supply price fixed by the Community for this type of use determines the price on the market. For the period in question the supply price was 52 u.a. per 100 kg of skimmed-milk powder. In the second case the market price of the product is fixed on the basis of its value as animal feed compared with substitute products and, in particular, of the price of soya oil cake. During the time when the contested regulation applied, the price of soya oil cake was about 18 u.a. per 100 kg. The price of soya at the present time is 25 u. a. per 100 kg.

The Advocate General delivered his opinion at the hearing on 7 June 1977.

Decision

1. By order of 7 December 1976, which was received at the Court Registry on 9 December 1976, the College van Beroep voor het Bedrijfsleven referred to the Court a number of questions under Article 177 of the EEC Treaty concerning the interpretation of certain provisions of the Treaty and the interpretation and validity of Council Regulation (EEC) No 563/76 of 15 March 1976 on the compulsory purchase of skimmed-milk powder held by intervention agencies for use in feeding-stuffs (OJ L 67, p. 18).

2. These questions were submitted in connexion with a dispute between an undertaking which is an importer of cattle feed, the plaintiff in the main action, and the competent Netherlands authority, the defendant in the main action, concerning the issue under Regulation (EEC) No 563/76 of a ‘protein certificate’ fot the free circulation of a consignment of imported animal feed.

3. The defendant in the main action refused to issue such a certificate on the ground that the security required by the provisions of the regulation had not been provided and the applicant sought a declaration that the refusal was null and void on the ground that the regulation on which it is based is incompatible with certain provisions of the Treaty.

4. Regulation (EEC) No 563/76 was promulgated at a time when the stocks of skimmed-milk powder bought in by the intervention agencies pursuant to Regulation (EEC) No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk products (OJ English Special Edition 1968, p. 176) had reached considerable proportions and were continuing to increase despite the measures adopted by the Community institutions to curb the tendency towards over-production of milk and to increase the sale of skimmed-milk powder.

5. The system established by Regulation (EEC) No 563/76 the application of which was not extended beyond the end of the original period of application, which expired on 31 October 1976, was designed to reduce stocks through the increased use in feeding-stuffs of the protein contained in skimmed-milk powder.

6. To this end the regulation made the grant of the aids provided for certain vegetable protein products as well as the free circulation in the Community of certain imported animal feed products subject to the obligation to purchase specified quantities of skimmed-milk powder.

7. In order to ensure that this obligation was fulfilled the grant of aid and free circulation were subject to the provision of a security or the production, on the prescribed form, of evidence of the purchase and of the denaturing of the prescribed quantities of skimmed-milk powder.

8. Under Article 1 of Commission Regulation (EEC) No 753/76 of 31 March 1976 laying down detailed rules for the sale of skimmed-milk powder for use in animal feed (OJ L 88, p. 1), skimmed-milk powder held by the intervention agencies was resold by them in fulfilment of the obligation to purchase at a price of 5216 u. a. per 100 kg, multiplied by a coefficient which, in the case of the Netherlands, amounted to 0-8874.

9. The denaturing costs to be borne by the purchaser were between 1 and 3 u. a. per 100 kg.

10. During the period when Regulation (EEC) No 563/76 applied, the market price of soya oil cake, a vegetable product with a nutritional value comparable to that of skimmed-milk powder for use in animal feed other than that for young calves, varied between 13-30 and 20-40 u. a. per 100 kg, the average being about 18 u. a. per 100 kg.

11. The compulsory purchase of skimmed-milk powder was, therefore, imposed at a price equal to about three times its value as animal feed.

12. The security, which was released only on production of proof of the purchase of a specified quantity of powdered skimmed milk, was fixed at such an amount that, if it was forfeited, its effect on the prices of feedingstuffs was slightly more than the increase due to the purchase of powdered skimmed milk.

13. Article 5 of the regulation laid down that, in the case of contracts concluded before the date of entry into force of the regulation, the burden of the costs arising under the arrangements was to be borne by the successive buyers of the products in question.

14. The regulation did not contain any similar provision making it possible for consumers of feeding-stuffs, such as breeders of poultry and pigs, to incorporate the increase in the price of their products.

15. The validity of these arrangements has been contested on grounds of conflict in particular with the objectives of the common agricultural policy as defined in Article 39 of the Treaty, the prohibition of discrimination laid down in the second subparagraph of Article 40 (3) and the principle of proportionality between the means employed and the end in view.

16. Because of the close connexion between these grounds of complaint, it will be appropriate to consider them together.

17. Under Article 39, the objectives of the common agricultural policy are to be the rational development of agricultural production, the assurance of a fair standard of living for the whole of the agricultural community, the stabilization of markets and the availability of supplies to consumers at reasonable prices.

18. Although Article 39 thus enables the common agricultural policy to be defined in terms of a wide choice of measures involving guidance or intervention, the fact nevertheless remains that the second subparagraph of Article 40 (3) provides that the common organization of the agricultural markets shall be limited to pursuit of the objectives set out in Article 39.

19. Furthermore, the same subparagraph lays down that the common organization of the markets ‘shall exclude any discrimination between producers or consumers within the Community’.

20. Thus the statement of the objectives contained in Article 39, taken together with the rules in the second subparagraph of Article 40 (3), supplies both positive and negative criteria by which the legality of the measures adopted in this matter may be appraised.

21. The arrangements made by Regulation (EEC) No 563/76 constituted a temporary measure intended to counteract the consequences of a chronic imbalance in the common organization of the market in milk and milk products.

22. A feature of these arrangements was the imposition not only on producers of milk and milk products but also, and more especially, on producers in other agricultural sectors of a financial burden which took the form, first, of the compulsory purchase of certain quantities of an animal feed product and, secondly, of the fixing of a purchase price for that product at a level three times higher than that of the substances which it replaced.

23. The obligation to purchase at such a disproportionate price constituted a discriminatory distribution of the burden of costs between the various agricultural sectors.

24. Nor, moreover, was such an obligation necessary in order to attain the objective in view, namely, the disposal of stocks of skimmed-milk powder.

25. It could not therefore be justified for the purposes of attaining the objectives of the common agricultural policy.

26. In consequence, the answer must be that Council Regulation (EEC) No 563/76 of 15 March 1976 is null and void.

27. In view of this reply, there is no need to consider the questions submitted by the College van Beroep in so far as they refer to rules of Community law other than those treated above.

Costs

28. The costs incurred by the Council and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable.

29. 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, costs are a matter for that court.

On those grounds, THE COURT, in answer to the questions referred to it by the College van Beroep voor het Bedrijfsleven, by order of 7 December 1976 hereby rules: