JUDGMENT OF 29. 6. 1978 — CASE 154/77 PROCUREUR DU ROI v DECHMANN

In Case 154/77, REFERENCE to the Court under Article 177 of the EEC Treaty by the Tribunal de Première Instance (Chambre Correctionnelle) (Court of First Instance (Criminal Chamber), Neufchâteau, for a preliminary ruling in the proceedings pending before that court between

THE COURT composed of: H. Kutscher, M. Sørensen and G. Bosco (Presidents of Chambers), A. M. Donner, J. Mertens de Wilmars, P. Pescatore and A. O'Keeffe, Judges, Advocate General: H. Mayras Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

The facts of the case, 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. Pursuant to the provisions of Article 2 (1) and (2) of the Belgian Law on economic regulation and prices, as stated in the Law of 30 July 1971 (Moniteur Belge of 31 August 1971) amending the Arrêté-Loi of 22 January 1945, the minister responsible for economic affairs may fix maximum prices for products, materials, foodstuffs, goods or animals, as well as the limit of the profit to be made by any vendor or intermediary. The Belgian Government used this power in particular as regards the retail sale of beef and veal and pigmeat, and thus established a system essentially consisting in limiting the profit margin of retail butchers and pork-butchers. Within the framework of those rules the Belgian Government adopted, in relation to pigmeat, the Arrêté Ministériel (Ministerial Order) of 27 March 1975, which provides inter alia as follows: Article 2: ‘The selling prices of pigmeat to the consumer, inclusive of value-added tax, charged by retail butchers may not exceed the sum of the weighted average purchase price as increased by a maximum profit margin of Frs 22 and by value-added tax calculated in accordance with Article 3.’ Article 3 (2), first subparagraph: ‘The profit margin shall be the weighted average of the differences established by type of purchase between, on the one hand, the weighted average selling price not inclusive of value-added tax and, on the other hand, the weighted average purchase price not inclusive of value-added tax.’ Article 3 (3): ‘The weighted average selling price shall be, by type of purchase, the product of the multiplication of the selling price of each piece by the figure relating to the cuts appearing: (a) … (b) for pigmeat: in Annex IV for purchases of carcases or half-carcases; in Annex V for purchases of loins; in Annex VI for purchases of hams; in Annex VII for purchases of shoulders; in Annex VIII for purchases of bellies.’ Article 3 (4) provides that the ‘weighted average purchase price’ shall be obtained by type of purchase: Where the butcher purchases this meat on the hoof, the weight of the carcases is deemed to correspond to 80 % of the weight of the meat on the hoof. The purchase price may be increased by Bfr 4 per kilogram on the hoof in order to obtain the purchase price in carcases. According to Article 5 (3), the prices thus calculated may not be increased for four weeks following the date of their application. Article 5 also imposes a duty on retailers to put the prices charged for the different pieces up on their notice boards and enter them in the prescribed registers which every retail butcher and pork-butcher must keep. Finally, Article 9 provides that persons infringing the aforesaid provisions shall be liable to prosecution and punishment pursuant to the provisions of Chapters II and III of the aforesaid Law on economic regulation and prices.

‘by dividing the total of the invoices by type of purchase, not inclusive of value-added tax, for the four preceding weeks, by the corresponding number of kilograms less 2.5 %.’

2. Pierre Dechmann, a retail butcher and pork-butcher in Bouillon, is being prosecuted before the Chambre Correctionnel (Criminal Chamber) of the Tribunal de Première Instance (Court of First Instance), Neufchâteau, for having contravened the aforesaid legislation on 25 July and 18 September 1975. The charge contains two counts: first, that he omitted to make the entries required by law in the prescribed register; secondly, that he failed to observe the legal limit on the profit margin as laid down in the Arrêté Ministériel of 27 March 1975, and exceeded that limit by Bfr 6.28 per kilogram for the period from 25 July to 21 August 1975, and by Bfr 6.60 per kilogram for the period from 22 August to 18 September 1975. The accused objected that the Arrêté Ministériel is unlawful, arguing that it conflicts with the Community legislation which introduced the common organization of the market in beef and veal (Regulation No 805/68 of the Council of 27 June 1968) and in pigmeat (Regulation No 121/67 of the Council of 13 June 1967). By a judgment of 17 November 1977, the Tribunal decided to stay the proceedings and to request the Court, in accordance with Article 177 of the EEC Treaty, to give a preliminary ruling on the following question:

‘Did the Arrêté Ministériel of 27 March 1975 fixing the selling price to the consumer of pigmeat involve an infringement of Regulation No 121/67/EEC of the Council on the common organization of the market in pigmeat, and in particular of Articles 3, 4 and 5 thereof, and of the regulations which established the basic price for pigmeat?’

3. A copy of the judgment making the reference was received at the Court on 19 December 1977. The Belgian Government, by its Counsel Roger Lallemand, Advocate of Brussels, the British Government, represented by the Treasury Solicitor's Office, and the Commission of the European Communities, represented by its Legal Adviser, Jean Amphoux, submitted written observations pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC. Having heard the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure after requesting the defendant in the main action, the Belgian Government and the Commission of the European Communities to supply certain details in writting.

II — Written observations submitted under Article 20 of the Protocol on the Statute of the Court of Justice of the EEC

A —. The Belgian Government points out that the common organization of the market in pigmeat, as it results from Regulation No 121/67 of the Council of 13 June 1967, fixes the price for pigmeat at the ‘production or wholesale’ stage. According to the case-law of the Court, in particular Case 31/74 [1975] 1 ECR 47 which was decided by a judgment of 23 January 1975, and also in the opinion of the Commission, the existence of such a common organization does not prevent the introduction of national rules at a later stage — the retail stage — provided that such rules do not jeopardize the aims and functioning of the common organization of the market. The national rules called in question in the present case satisfy those requirements, because they take effect at a stage later than that covered by the aforesaid common organization and do not jeopardize the aim and the functioning of that organization. The Arrêté Ministériel of 27 March 1975, which embodies such rules, in fact accepts the purchase price to the retailer as determined by the law of the market. Taking that price as its starting point, it confines itself to fixing a maximum profit margin. The price to be paid by the consumer, inclusive of value-added tax, is a direct function of the purchase price to the butcher, and no pressure can be exerted on the latter price, the level of which comes under the Community rules. The weighting rules laid down in the Arrêté are merely a method of calculation which enable it to be established on a flat-rate basis, on the basis of a typical cut as used in the trade, whether the profit margin allowed by the butcher is higher than that which is authorized (Bfr 22 per kilogram). Therefore those rules cannot have the slightest influence on the purchase price paid by the butcher. Moreover, to accept that such an intervention at the retail stage might call in question the common organization of the wholesale market would mean depriving the Member States of an essential and economically decisive prerogative, which they were expressly recognized as having in the aforesaid judgment in Case 31/74, by taking away from them an essential instrument of anti-inflation policy approved by both the Council and the Commission (cf. Council Resolution of 5 December 1972 on measures to be taken against inflation, Official Journal, English Special Edition 1972 (9-28 December), p. 13). In these circumstances, to call in question the national legislation concerned is not only prejudicial to the anti-inflation policy of the Member States, but also in contradiction to the aims of the Community.

B —. The British Government refers to its observations submitted in Case 65/75 [1976] ECR 291, and observes that inflation remains a formidable enemy throughout the Community against which Member States should be able to take unilateral action which does not conflict with their Community obligations. The argument of Mr Dechmann, who cites in his support a passage from the judgment of the Court in Case 31/74 to the effect that the legislation at issue has immediate and inevitable repercussions on the prices paid to the producer, does not take into account that the Court has held, inter alia in the aforesaid case, that the unilateral fixing by a Member State of maximum prices for goods subject to a common organization of the market is incompatible with the Community rules ‘once it jeopardizes the objectives and the functioning of this organization and in particular its system of prices’. The Court also said that nationally fixed maximum selling prices constitute an indirect obstruction to a common organization if the prices are fixed ‘at such a low level that the grower finds it practically impossible to sell at the intervention price’. The Court went on to say that ‘in every case it is for the national court to decide, having regard to the considerations which have just been set out, whether the maximum prices which it is called upon to consider produce such effects as to make them incompatible with the Community provisions on sugar’. These considerations are as valid for the interpretation of Regulation No 121/67 of the Council on the common organization of the market in pigmeat as they were for the interpretation of the regulation referred to in Case 65/75. In the light of these observations, the United Kingdom urges the Court to hold that the unilateral fixing by a Member State of a maximum price for products to which Regulation No 121/67 applies (at any stage of production and distribution) is not incompatible with the common organization of the market in pigmeat to the extent to which such fixing does not jeopardize the objectives and functioning of the market organization. It is for the national courts to determine in each case whether the fixing of maximum prices has such effects on the market organization in question.

C —. The Commission of the European Communities states first that as the Court of Justice does not have jurisdiction to give rulings on the validity of provisions of national law or on their compatibility with Community law, the question submitted should be read as asking whether and to what extent Regulation No 121/67 on the common organization of the market in pigmeat and its implementing regulations allow the continued existence of a power on the part of Member States to regulate the selling price of that product to consumers. In the present case, the answer to that question is to be sought essentially in Community provisions on the price system, by examining whether the national measures on prices are compatible with those provisions, a problem moreover which the Court has already examined in a certain number of judgments. The common organization of the market in pigmeat does not comprise intervention and protection mechanisms as direct as those provided for other agricultural products. In particular, it does not comprise as wide ranging and complete a system of guaranteed prices as those for the other products. The provisions of Regulation No 121/67 are more flexible, and place more reliance on the normal operation of market forces within the Community. That organization has a conventional structure, primarily providing for an intervention system as far as the internal market is concerned, and as regards trade with third countries providing a system of protection and regulation based on levies and refunds. After having set out in detail these systems and the mechanisms which they involve, the Commission examines the case-law of the Court in this field, and infers from it that: first, the difference between the fixing of maximum prices at the retail stage and the fixing of such prices at earlier stages is not qualitative but quantitative as regards the risks of conflict with the common organizations of the market; secondly, in both cases, the question whether or not a national system of maximum prices applied to the sale of products coming under the common organization of the market is compatible with that organization depends on whether or not that system can materially jeopardize the aims and the functioning of the organization. Being concerned to ensure fair remuneration for pig-farmers and stable prices on Community markets, the common organization of the market introduced by Regulation No 121/67 is based on permanent supervision of prices involving, if necessary, intervention measures financed by the Community if it is found that prices fall below the basic Community price. The mechanisms and steps laid down for these purposes essentially apply either at the slaughtering stage or at the production or wholesale stage. In general, subsequent phases of marketing are no longer concerned. The fixing of maximum prices for the sale of pigmeat for consumption can affect the aims of stabilizing prices and ensuring fair remuneration for producers, if the level adopted is such that the prices imposed will necessarily cause a significant reduction in prices charged at earlier stages in the marketing of meat. Thus, a rigid system of maximum prices for consumption, fixed at a level apt to influence prices charged at the slaughtering stage would be such as to ‘distort’ the establishment of the Community market price and in extreme cases could lead to intervention measures being put into operation ‘artificially’. Moreover, a system of fixed prices for the sale of pigmeat could also be contrary to the common organization of the market or other provisions of the Treaty (in particular those relating to free movement of goods) by virtue of the direct or indirect effects which it might have on trade, either: on importation, if in view of the general situation of imported products as against that of domestic products, the price fixed is such as to prevent goods from being imported otherwise than at a loss, or on exportation, where prices imposed in a Member State are considered by traders to be so inadequate that they seek to export their products to other Member States or to third countries, instead of putting them on the domestic market. Having stated that it is essentially for the court making the reference to decide whether or not the national system called in question in this case has effects apt to make it incompatible with the provisions of Regulation No 121/67, the Commission suggests that the said court should use the following criteria: First of all, the price system introduced by the Arrêté Ministériel of 27 March 1975 concerns only the stage of the sale of pigmeat by the retailer to consumers. The obstacles which such a price system might in certain cases present to the aims or functioning of the common organization of the market could at most be only indirect. Secondly, the characteristic feature of the said system is its flexibility. It does not freeze the retail price at a specified level, applicable uniformly and permanently, but confines itself to imposing a maximum profit margin on retailers. The limit which retailers must not exceed is variable for each one of them and is variable in time. In fact the limit involves two factors for each retailer, one of which is fixed and consists of the maximum profit margin of Bfr 22 per kilogram, and the other of which is variable and is represented by the weighted average of the purchase prices paid by the person concerned either to the producer or to the wholesaler for his supplies of pigmeat. In calculating that average, the purchase prices at the production or wholesale stage are taken by this system as being a factor resulting from the operation of market forces at that stage. Therefore from that point of view it does not appear that the national system in question affects the free formation of prices of pig carcases on the Community markets or that its application can exert any influence on the aims or functioning of the common organization of the market introduced by Regulation No 121/67. Although it is true that the method of calculation adopted involves a flat-rate element, the fact remains that that element, limited as it is, appears to be inherent in the system for reasons of practicability. Thirdly, the level adopted for the profit margin in question should be considered, by examining, on the one hand, whether that margin is not so small as to discourage deliveries to the Member State concerned to the advantage of exports and, on the other hand, whether in view of the market situation the margin is not such as to place the disposal of imported products on the domestic market of the said State at a disadvantage in relation to that of domestic production. These effects which are contrary to Community law do not give grounds for concern if the profit margin is limited to a level which may be considered as reasonable taking into account the economic situation and the practices, limitations and situation of the trade concerned. If such is the case, it may be found that the effects of the limitation of the profit margin can hardly be felt except further down the line from the commercial stage concerned, and that the limitation is essentially designed to prevent traders from taking advantage of an inflationary economic situation in order to include excessive profit margins in the prices which they charge their customers and thus from maintaining that economic situation at the expense of the consumer. The Commission does not have sufficiently precise details and figures to determine whether the level of the gross profit margin adopted in the Arrêté Ministériel of 27 March 1975 is suited to the situation of the trade concerned, having regard to the general and local conditions in which that trade is carried on. However, on the basis of such experience as has been acquired, it seems that an average gross profit of Bfr 22 per kilogram, as in this case, did appear to correspond at the material time to the profit margin of pigmeat retailers in other Member States, and that therefore it can be described as reasonable. At all events it is for the national court to determine, on the basis of all the material facts, whether this assessment is correct. In the light of these considerations, the Commission proposes that the Court should give the following answer to the question submitted:

‘A measure taken unilaterally by a Member State to limit the selling price of pigmeat is incompatible with Regulation No 121/67/EEC on the common organization of the market in pigmeat if it jeopardizes the aims or the functioning of that organization, in particular its price system.

National rules applicable only at the stage of sale of meat by a retailer to consumers and confined to limiting the profit margin which that retailer is authorized to include in his selling prices, are not contrary to Regulation No 121/67/EEC to the extent to which they are confined to imposing a maximum profit margin and to which that margin is fixed at such a level that the effects of the rules are not likely to have repercussions on earlier stages of production or marketing or to make themselves felt in the patterns of trade.’

III — Oral procedure

At the hearing on 9 May 1978 Mr Dechmann, represented by J. M. Van Hille, the Belgian Government, represented by E. M. Knops, and the Commission of the European Communities submitted oral observations.

During that hearing, Mr Dechmann pointed out inter alia that for there to be incompatibility between an internal rule of law such as the Belgian Arrêté Ministériel of 27 March 1975, fixing maximum retail prices, and the price system laid down by the common organization of the market, it is not required that such rules should have an actual effect on the aforesaid price system; it suffices that there should be a risk of such an effect.

Where, as in this case, the profit margin is so limited, it does not allow the costs of the importation of pigmeat into Belgium to be taken into account.

Moreover, since the fixing of maximum prices has repercussions on imports and exports, the problem of the compatibility with Community law of national rules fixing such prices must also be approached from the angle of the prohibition laid down in the Treaty against measures having an effect equivalent to quantitative restrictions.

The Advocate General delivered his opinion at the hearing on 1 June 1978.

Decision

1. By a judgment of 17 November 1977, which was received at the Court on 19 December 1977, the Tribunal de Premiere Instance, Neufchâteau, submitted a question to the Court of Justice under Article 177 of the EEC Treaty on the interpretation of Regulation No 121/67/EEC of the Council of 13 June 1967 on the common organization of the market in pigmeat (Official Journal, English Special Edition 1967, p. 46), in order in particular to define its scope in relation to national measures affecting prices.

2. The question was raised in the course of criminal proceedings against a retail butcher and pork-butcher, who is charged with failing to observe the selling prices to the consumer of pigmeat as they result from the Belgian Arrêté Ministériel of 27 March 1975 (Moniteur Belge of 29 March 1975), fixing the selling price to the consumer of beef and veal and pigmeat.

3. Article 2 of the said Arrêté, which was adopted pursuant to the Belgian Law of 30 July 1971 on economic regulation and prices (Moniteur Belge of 31 August 1971), provides that the selling prices of pigmeat to the consumer charged by retail butchers may not exceed the sum of the weighted average purchase price and a maximum profit margin of Bfr 22.

4. To that end, Article 3 (2) of the Arrêté defines the profit margin as being the weighted average of the differences established by type of purchase between the weighted average selling price and the weighted average purchase price.

5. Article 3 (4) provides that the weighted average purchase price shall be calculated by dividing the total of the invoices by type of purchase, not inclusive of value-added tax, for the four preceding weeks, by the corresponding number of kilograms less 2.5 %.

6. The accused in the main action pleaded that the aforesaid provisions are incompatible with the Community regulations which introduced the common organization of the market in beef and veal and in pigmeat, and therefore cannot be applied to him.

7. The national court trying the case decided to stay the proceedings and ask the Court of Justice whether ‘the Arrêté Ministériel of 27 March 1975 fixing the selling price to the consumer of pigmeat involved an infringement of Regulation No 121/67/EEC of the Council on the common organization of the market in pigmeat, and in particular of Articles 3, 4 and 5 thereof, and of the regulations which established the basic price for pigmeat’.

8. Within the framework of proceedings brought under Article 177 of the Treaty, it is not for the Court to give a ruling on the compatibility of rules of internal law with provisions of Community law.

9. On the other hand, the Court is competent to supply the national court with any criteria coming within Community law enabling that court to determine whether such rules are compatible with the Community rule evoked.

10. Therefore the question submitted must be taken as asking whether and to what extent Regulation No 121/67/EEC of the Council of 13 June 1967 on the common organization of the market in pigmeat allows a power to continue to exist on the part of Member States to regulate by means of internal rules selling prices to the consumer in this sector.

11. Regulation No 121/67 on pigmeat, adopted within the framework of the common agricultural policy and last amended, at the time of the facts material to the main action, by Regulation No 1861/74 of the Council of 15 July 1974 (Official Journal 1974, L 197, p. 3), is intended to establish a common organization of the market within the meaning of Article 40 of the EEC Treaty.

12. This common organization of the market is intended, as is emphasized repeatedly in the preamble to the regulation, to create for the Community a single market in pigmeat subject to common administration.

13. In order to bring about this single market, the regulation established a system comprising a set of material rules and of powers, including a framework of organization calculated to meet all foreseeable situations.

14. A central place in this system is held by the price system provided for by Articles 4 and 5 of the regulation and applicable, under Article 4 (1) and (2), at the slaughtering stage, that is the production and wholesale stage.

15. So as to ensure the freedom of internal trade Regulation No 121/67 also comprises a set of rules intended to eliminate, as laid down in Article 19, all the obstacles to free movement of goods and all distortions in intra-Community trade due to market intervention by Member States.

16. As the Court held in its judgment of 23 January 1975 (Case 31/74 Galli [1975] 1 ECR 47) and in its judgments of 26 February 1976 (Case 65/75 Tasca and Joined Cases 88 to 90/75 Sadam [1976] ECR 291 and 323), in sectors covered by a common organization of the market, and a fortiori when this organization is based on a common price system, Member States can no longer take action, through national provisions adopted unilaterally, affecting the machinery of price formation as established under the common organization.

17. It was held in the same judgments that provisions of a Community agricultural regulation which comprise a price system applicable at the production and wholesale stages leave Member States free — without prejudice to other provisions of the Treaty — to take the appropriate measures relating to price formation at the retail and consumption stages, on condition that they do not jeopardize the aims or functioning of the common organization of the market in question.

18. In principle the fixing of a maximum profit margin for retailers to charge when selling to the ultimate consumer is not apt to jeopardize the aims or functioning of such an organization, so long as the profit margin is calculated essentially on purchase prices as charged at the production and wholesale stages.

19. This is especially true where the profit margin takes sufficient account of the marketing and importing costs which the retailer must bear both at the supply stage and at the stage of sale to consumers, and where it is fixed at a level suitable to ensure that the retailer obtains fair remuneration for his activity.

20. On the other hand a profit margin which does not fulfil these conditions could freeze maximum retail selling prices, and this would be apt to affect at prior stages of marketing the price mechanism resulting from the common organization of the market, or to affect intra-Community trade by an appreciable reduction in imports.

21. A Member State cannot base the justification for fixing such a margin on the need to deal with an undesirable tendency observed in price trends on the market, such as a rise in prices to the consumer, by way of the provisions of Article 103 of the Treaty relating to conjunctural policy.

22. Article 103, which refers to Member States' conjunctural policies, does not relate to those areas already subject to common rules, such as the organization of agricultural markets.

23. For these reasons, the answer to the national court should be that Regulation No 121/67 must be interpreted as not preventing the unilateral fixing by a Member State of a maximum profit margin for retail sale of pigmeat, calculated essentially on purchase prices as charged at prior stages of marketing and varying according to the trend of such prices, provided that the margin is fixed at a level which does not impede intra-Community trade.

Costs

24. The costs incurred by the Government of the Kingdom of Belgium, the Government of the United Kingdom and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable.

25. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of 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 question submitted to it by the Tribunal de Premiere Instance, Neufchâteau, pursuant to the judgment of that court of 17 November 1977, hereby rules: