JUDGMENT OF 30. 10. 1980 — CASE 3/80 MILCHFUTTER v HAUFTZOLLAMT GRONAU

In Case 3/80 REFERENCE to the Court under Article 177 of the EEC Treaty by the Finanzgericht (Finance Court), Münster, for a preliminary ruling in the action pending before that court between

THE COURT (Second Chamber) composed of: P. Pescatore, President of Chamber, A. Touffait and O. Due, Judges, Advocate General: G. Reischl Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

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

I — Facts and written procedure

On 14 and 20 January and 19, 20, 25, 26 and 27 March 1975 Milchfutter GmbH & Co. KG of Diepholz imported from the Netherlands into the Federal Republic of Germany several consignments of milk-based compound feedingstuffs intended for fattening calves, having a starch content by weight of less than 10 % and falling within tariff subheading 23.07 B I a of the Common Customs Tariff.

Milchfutter obtained customs clearance into free circulation for the goods at the customs office at Oeding, declaring that the goods fall within tariff subheading 23.07 B I a 3 of the Common Customs Tariff (preparations of a kind used in animal feeding, containing starch and containing not less than 50 % but less than 75 % by weight of milk products).

The customs office, however, classified the product under tariff subheading 23.07 B I a 4, finding a milk product content of more than 75 %. It made that finding in application of Article 11 (1) of Regulation No 823/68 of the Council of 28 June 1968 determining the groups of products and the special provisions for calculating levies on milk and milk products (Official Journal, English Special Edition 1968 (I), p. 199), which provides that the milk product content of products falling within tariff subheading ex 23.07 B are to be determined by applying a coefficient of 2 to the lactose content per 100 kilograms of the product in question, and in application of Regulation No 1216/68 of the Commission of 9 August 1968 laying down the method for determining the lactose content of compound feedingstuffs imported from third countries (Official Journal, English Special Edition 1968 (II), p. 421).

Consequently, and in accordance with Article 1 of Regulation No 2547/74 of the Commission of 4 October 1974 and Article 1 of Regulation No 539/75 of the Commission of 28 February 1975 fixing the monetary compensatory amounts and certain rates for their application (Official Journal L 272, p. 1 and Official Journal L 57, p. 2), the customs office at Oeding levied monetary compensatory amounts at the rate of 169.90 DM per 1000 kilograms net weight in respect of the imports carried out in January 1975 and at the rate of 149.40 DM in respect of the imports carried out in March 1975 (instead of the rates of 127.40 DM and 112.10 DM respectively applying in the case of tariff subheading 23.07 B I a 3).

Objections lodged by Milchfutter against that decision were rejected by the Hauptzollamt (Principal Customs Office) Gronau on 25 August 1975.

On 19 September 1975 Milchfutter brought proceedings before the Finanzgericht (Finance Court) Münster which, by its order of 29 September 1977 received at the Court of Justice on 5 January 1978, referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty several questions on the interpretation of the regulations of the Council and of the Commission concerned respectively with the calculation of levies on milk and milk products and the method of determining the lactose content of compound feedingstuffs imported from third countries with regard to the rate of monetary compensatory amounts levied on those products.

In its judgment of 4 July 1978 (Case 5/78 [1978] ECR 1597) the Court (Second Chamber) ruled inter alia that:

The method of calculating the “milk product” content which results from the application of Article 11 (1) of Regulation No 823/68 of the Council of 28 June 1968 determining the groups of products and the special provisions for calculating levies on milk and milk products is decisive with regard to the amount of the monetary compensatory amounts which must be charged on compound feedingstuffs coming under tariff subheadings 23.07 B I a 3 or 23.07 B I a 4 of the Common Customs Tariff which were imported from the Netherlands into the Federal Republic of Germany during the period from January to March 1975.

Prior to the issue of that judgment the Court had held in its judgment given on 3 May 1978 in Case 131/77 Milac [1978] ECR 1041, a reference from the Finanzgericht des Saarlandes for a preliminary ruling, that Article 1 of Regulation No 539/75 of the Commission is invalid in so far as it fixes compensatory amounts in respect of trade in powdered whey. The Court had held that the price of powdered whey, a product derived from the processing of milk, did not depend on the price of skimmed-milk powder. However, under Regulation No 974/71 of the Council of 12 May 1971 on certain measures of conjunctural policy to be taken in agriculture following the temporary widening of the margins of fluctuation for the currencies of certain Member States (Official Journal, English Special Edition 1971 (I), p. 257) monetary compensatory amounts may be charged or granted in respect only of products the price of which depends on products covered by intervention arrangements under the common organization of agricultural markets.

Milchfutter consequently submitted before the Finanzgericht Münster that the charging of monetary compensatory amounts in application, in particular, of Regulations Nos 2547/74 and 539/75 of the Commission is contrary to Regulation No 974/71 of the Council in so far as account is taken, in the calculation of those amounts, of the quantity of powdered whey contained in the milk-based compound feedingstuffs imported by it.

By an order of its Fourth Senate dated 20 November 1979 the Finanzgericht Münster decided, under Article 177 of the EEC Treaty, to stay the proceedings again until the Court of Justice has delivered a preliminary ruling on the following question:

In so far as they include in the basis of assessment for monetary compensation the content by weight of any whey in compound feedingstuffs within tariff subheadings 23.07 B I a 3 and 4 of the Common Customs Tariff, are Article 1 of Regulation (EEC) No 2547/74 of the Commission of 4 October 1974 and Article 1 of Regulation (EEC) No 539/75 of the Commission of 28 February 1975 invalid in that they infringe higher ranking Community law, in particular Article 2 (2) of Regulation (EEC) No 974/71 of the Council of 12 May 1971?

The order of the Finanzgericht Münster was registered at the Court Registry on 8 January 1980.

In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted on 19 March 1980 by the Commission of the European Communities, represented by its Legal Adviser, Peter Gilsdorf, acting as Agent, assisted by Albrecht Stockburger, of the Frankfurt am Main Bar, and on 27 March 1980 by Milchfutter, the Plaintiff in the main action, represented by Dietrich Ehle, of the Cologne Bar.

After the hearing 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.

By order of 21 May 1980 the Court, under Article 95 (1) and (2) of its Rules of Procedure, decided to assign the case to the Second Chamber.

II — Written observations submitted to the Court

Milchfutter GmbH & Co. KG, the plaintiff in the main action, makes, in essence, the following observations.

A — Matters of fact

(a). It is appropriate to recall that, by its Regulation No 1824/77 of 4 August 1977 altering the monetary compensatory amounts applicable to milk and milk products (Official Journal L 203, p. 7), the Commission, as from 1977, ceased to apply monetary compensatory amounts to whey and that, by Regulation No 3005/77 of 22 December 1977 altering the monetary compensatory amounts for certain milk products and cereals (Official Journal L 354, p. 1), it excluded the powdered whey content from the calculation determining monetary compensatory amounts for animal feedingstuffs containing powdered whey. As from that date monetary compensatory amounts have been calculated by taking account of the actual percentage of skimmed-milk powder contained in the finished product, without other products derived from milk also being taken into consideration by means of a flat-rate calculation.

(b). Following upon the judgment of the Court of 3 May 1978 in Case 131/77 Milac, the Commission, by its Regulation No 1733/78 of 24 July 1978 amending Regulation No 1036/78 (Official Journal L 201, p. 36), excluded the whey content in milk and cream from the calculation of the monetary compensatory amount.

(c). The dairy constituents of the compound feedingstuffs imported by Milchfutter, amounting in all to 74-7 % by weight, included 65 2 % of skimmed-milk powder and 9-5 % of powdered whey.

(d). All these matters ought to be of decisive importance to the answer to be given in the main action.

B — Matters of law

(a). The answer to be given to the question put by the Finanzgericht Münster must be based upon Regulation No 974/71 of the Council: the issue is to determine the manner of calculating the monetary compensatory amount applicable to the products in question and thus, at the same time to pronounce upon the interpretation and the application of Article 2 (2) of Regulation No 974/71 in terms of which, for products the price of which depends on that of products covered by intervention arrangements under the common organization of agricultural markets, the compensatory amount shall be equal to the incidence, on the price of the product concerned, of the application of the compensatory amount to the price of the product on which they depend. The monetary compensatory amount for a product intended for animal feeding which contains both skimmed-milk powder and powdered whey may therefore not be calculated only on the basis of the skimmed-milk powder; in particular, the same monetary compensatory amount may not be charged on both the powdered whey content and the skimmed-milk powder content.

(b). In its judgment of 4 July 1978 in Case 5/78 Milchfutter the Court recalled that the rules governing the determination of the products subject to the system of compensatory amounts are to be sought in the provisions of the regulations on the organization of the various agricultural markets, given that the products in question are designated according to the headings and subheadings of the Common Customs Tariff. The Court thus expressed the view that a flat-rate charge by way of monetary compensatory amounts which did not take account of the nature of the product is unlawful. In fact, under Regulation No 974/71, in principle only products covered by intervention arrangements under the common organization of agricultural markets are subject to the system of monetary compensatory amounts. That principle accords with the objective of monetary compensatory amounts which do not seek to provide an additional protection for the level of Community prices but seek rather to maintain uniform prices, which are the foundation of the present organization of agricultural markets. The payment or the charging of monetary compensatory amounts is only lawful where their non-application is such as to involve disturbances in the movement of the goods concerned. No monetary compensatory amount may be charged on a product the price of which is not referable to an intervention product. That is the case with powdered whey. In such a case the charging of a monetary compensatory amount is equivalent to the levying on trade within the Community of a charge having an effect equivalent to a customs duty, which is strictly prohibited. It matters little in any given case whether the product in question is a simple product or a component of a compound product; in either case it must not be made subject to the system of monetary compensatory amounts. The Commission has accepted this conclusion, which is the only correct one, in Regulations Nos 1824/77, 3005/77 and 1733/78.

(c). Having regard to the higher authority of the rules of Regulation No 974/71, that conclusion, which is valid for the future, must be equally valid for the past. In so far as the Commission is not itself prepared to undertake the necessary corrections for products intended for animal feeding, it is incumbent upon the Court of Justice to do so in cases which are the subject of individual proceedings. That correction may be effected in two ways: either by excluding from animal feedingstuffs subject to the system of monetary compensatory amounts the powdered whey content or by excluding, in the definition of “milk product content” in tariff heading 23.07 of the Common Customs Tariff, expressed in parts per 100 by weight, the content by weight of the whey. Both methods produce the same result: in neither case is the monetary compensatory amount applied to compound animal feeding-stuffs higher than that provided for tariff subheading 23.07 B I a 3 of the Common Customs Tariff. The first method is certainly the more correct one, powdered whey being generally excluded from the determination of the monetary compensatory amount for a compound product.

(d). The question put by the Finanzgericht Münster may properly be given the following answer: Article 1 of Regulation No 2547/74 and Article 1 of Regulation No 539/75 are not valid in so far as they include in the basis of calculation of the rate of the monetary compensatory amount any whey content which may go to make up a compound animal feedingstuff within the meaning of tariff subheadings 23.07 B I a 3 and 4 of the Common Customs Tariff.

The Commission disputes that the finding, made in the judgment of the Court in the Milac case that, given that the price of powdered whey is not dependent on that of skimmed-milk powder which is an intervention product, the fixing of monetary compensatory amounts for powdered whey is contrary to Regulation No 974/71, leads to the result that powdered whey must be excluded from the calculation of monetary compensatory amounts applicable to compound foods.

(a). According to Regulation No 974/71 the price of compound foods, containing milk products and falling within tariff subheading 23.07 B I a 3 or 23.07 B I a 4 depends essentially on the content of the principal component, more precisely, the “milk product” content within the meaning of Article 11 (1) of Regulation No 823/68 and, especially, of skimmed-milk powder, being a product subject to the common organization of the market and covered by intervention measures. Originally, skimmed-milk powder represented the main part, in value and in quantity, of the “milk product” in compound foods. However, more and more, the manufacturers of compound foods are having recourse to the addition of whey, which is much less expensive. Whey is also a milk product. From the point of view of its composition, it is distinguishable from skimmed-milk powder by a lower protein and fat content as well as by a considerably higher lactose content. Mixed with skimmed-milk powder and other ingredients, whey, having similar characteristics, blends with the skimmed-milk powder. In 1974 and 1975, but also even later, it was impossible in practice to determine with sufficient accuracy, by means of chemical analyses or other equivalent methods of control, the actual quantity of powdered milk as opposed to other milk constituents, including powdered whey, in a given quantity of compound foods. A simple calculation of the powdered whey content was therefore not possible for the purpose of fixing monetary compensatory amounts. The reliable method of calculation provided for by Community regulations rested on the determination of lactose in accordance with Regulation No 823/68, which, in the nature of things, made no distinction between the lactose emanating from the skimmed-milk powder and the lactose emanating from a mixture with powdered whey. Accordingly, in the absence of effective methods of control capable of easy application in practice, the Commission's unwillingness in the first years of the application of monetary compensatory amounts to take account in fixing them of the powdered whey content should not be criticized. The necessity of relying exclusively on information furnished by manufacturers and importers and the opportunities for falsification would have involved difficulties for the system of monetary compensatory amounts, particularly in the powdered milk sector. In view of the impossibility in practice of determining in a reliable manner the powdered whey content, the only alternative would have been to dispense with applying any monetary compensatory amount to compound foods. That solution would not have been acceptable having regard to the importance in quality and value of the milk product content of compound foods.

(b). The method of calculation which was applied also had favourable effects for parties concerned. Until the beginning of 1978 the Community tolerated a situation in which, by reason of the powdered whey content of animal feedingstuffs, excessive monetary compensatory amounts had been granted. That fact confirms that the Commission's practice was not unilaterally directed against the trade but was motivated by objective difficulties of control.

(c). The fact that, at the end of 1977, the Commission decided no longer to take account of the powdered whey content in determining the monetary compensatory amounts applicable to compound foods does not call in question the validity of the system which applied until then. Because of the widening of the obligation to make the appropriate declarations imposed on exporters and importers, improvements in methods of analysis which had meantime taken place and the fact that the group of manufacturers and traders concerned is limited and may be regarded as trustworthy, the Commission considered it appropriate to draw distinctions between the constituents of the milk products on the basis of which compensatory amounts are calculated for compound foods and thenceforward to calculate those amounts only on the basis of the percentage powdered milk content of the final product.

(d). The question put by the Finanzgericht Münster admits of the following answer: Consideration of Article 1 of Regulation No 2547/74 of the Commission of 4 October 1974 and Article 1 of Regulation No 539/75 of the Commission of 28 February 1975 has disclosed no factor of such a kind as to effect their validity.

III — Oral procedure

Milchfutter GmbH & Co. KG, The plaintiff in the main action, represented by Dietrich Ehle and the Commission, represented by Albrecht Stockburger, submitted oral argument and answered questions from the Court at the sitting on 10 July 1980.

The Advocate General delivered his opinion at the sitting on 2 October 1980.

Decision

1. By order of 20 November 1979, which was received at the Court on 8 January 1980, the Finanzgericht Münster submitted for a preliminary ruling under Article 177 of the EEC Treaty a question on the validity of certain provisions of Regulation No 2547/74 of the Commission of 4 October 1974 (Official Journal L 272, p. 1) and Regulation No 539/75 of the Commission of 28 February 1975 (Official Journal L 57, P. 2) fixing the monetary compensatory amounts and certain rates for their application.

2. That question has been raised in the context of a dispute concerning the determination of the monetary compensatory amounts applicable on the importation into Germany of a consignment of compound feedingstuffs from the Netherlands which falls within tariff subheading 23.07 BI a of the Common Customs Tariff.

3. It should be recalled that at an earlier stage in the same dispute the Finanzgericht submitted certain questions on the tariff classification of the product concerned, which the Court answered in its judgment of 4 July 1978 in Case 5/78 Milchfutter GmbH & Co. KG v Hauptzollamt Gronau [1978] ECR 1597.

4. The classification of the product being now settled, the plaintiff in the main action has raised an issue concerning the calculation of the monetary compensatory amounts applicable in this case. From the order seeking the preliminary ruling, it appears that the plaintiff considers, with reference to the judgment of the Court of 3 May 1978 in Case 131/77 Milac v Hauptzollamt Saarbrücken [1978] ECR 1041, that the charging of a monetary compensatory amount is contrary to Regulation No 974/71 of the Council of 12 May 1971 on certain measures of conjunctural policy to be taken in agriculture following the temporary widening of the margins of fluctuation for the currencies of certain Member States (Official Journal, English Special Edition 1971 (I), p. 257), in so far as account is taken, in the calculation of that amount, of the quantity of powdered whey contained in the compound feedingstuffs in question. According to information supplied by the plaintiff, those feedingstuffs contain 652% skimmed-milk powder and 95% powdered whey.

5. The plaintiff considers that, in accordance with the principle which emerges from the Milac judgment, the whey content ought to be excluded from the calculation of the monetary compensatory amounts applicable to compound feedingstuffs.

6. It is with a view to deciding this dispute that the Finanzgericht has submitted the following question: In so far as they include in the basis of assessment for monetary compensation the content by weight of any whey in compound feedingstuffs within tariff subheadings 23.07 B I a 3 and 4 of the Common Customs Tariff, are Article 1 of Regulation (EEC) No 2547/74 of the Commission of 4 October 1974 and Article 1 of Regulation (EEC) No 539/75 of the Commission of 28 February 1975 invalid in that they infringe higher ranking Community law, in particular Article 2 (2) of Regulation (EEC) No 974/71 of the Council of 12 May 1971?

7. In the proceedings before this Court the Commission argued, in substance, that the principles of the Milac judgment, which is concerned with the application of monetary compensatory amounts to pure whey falling within tariff heading 04.02, may not be extended to fodder preparations. In fact, even if those feedingstuffs contain a more or less significant proportion of whey, their price is essentially dependent on other basic products which are subject to the common organization of the market. Moreover, according to the Commission, account must be taken of the fact that the classification of those mixtures for the purpose of applying monetary compensatory amounts gives rise to very special problems of assessment and control. It is for that twofold reason that, for an initial period, the Commission followed the trend in the prices of the feedingstuffs in question without permitting the whey content to be excluded in applying monetary compensatory amounts. It was only following observations which had been made and as a result of recent improvements in methods of analysis and control that, as from the beginning of 1978, the Commission introduced differentiating rules which permitted the proportion of whey to be left out of the calculation of monetary compensatory amounts.

8. The question put by the Finanzgericht must be answered in the light of the guidance provided by Regulation No 974/71, Article 1 (2) of which makes the application of monetary compensatory amounts subject to a twofold condition. In effect, it is necessary on the one hand, that the product involved should be a product covered by intervention arrangements under the common organization of agricultural markets or one the price of which is dependent on that of such a product; on the other hand, that it should be established that monetary fluctuations are capable of leading to disturbances in trade in the agricultural product in question.

9. Having regard to the criteria adopted by the regulation, the implementation by the Commission of that provision in accordance with the provisions of Article 6 implies a wide discretionary power as respects the dependence of the price of the products in question in the price of one or more agricultural products covered by intervention arrangements in the context of the common organization of the market and as respects the ascertainment or anticipation of disturbances in trade in the product or products concerned.

10. Precisely because of the nature of compound feedingstuffs falling within tariff subheading 23.07 Bla, evaluation of these matters gives rise to special difficulty, not only as regards the assessment of economic data, but also as regards the opportunities for practical application and control. The fact that particular feedingstuffs contain a more or less substantial percentage of a product which does not satisfy the condition of dependence contained in Article 1 (2) (b) of Regulation No 974/71 does not have the result of imposing on the Commission an automatic duty to exclude that element from the calculation of monetary compensatory amounts. In fact, the determination of those amounts is subject to a complex assessment made up of various factors related to the nature of the feedingstuffs and the relationship, in terms of volume and value, of their various constituents.

11. It therefore appears that the Commission did not exceed its discretionary power by refraining from excluding the whey content from the basis of calculation of the monetary compensatory amount applicable to fodder preparations falling within tariff subheading 23.07 Bla, even at a time at which it had become apparent that whey falling within tariff heading 04.02 must be exempt from the application of such an amount. The fact that the Commission subsequently introduced methods of fixing which drew finer distinctions and permitted the whey content to be excluded from the calculation is the result of an assessment which is both economic and practical and which the Commission properly carried out within the framework of its discretionary power in this matter.

12. Accordingly, neither the principles underlying the Milac judgment nor even the fact that the Commission subsequently introduced a method of calculation which allowed the whey content in fodder mixes to be excluded from the fixing of monetary compensatory amounts can provide any argument which allows the validity of the statutory provisions disputed before the national court to be called in question.

13. The answer to the question raised should therefore be that consideration of the provisions of Commission Regulations Nos 2547/74 of 4 October 1974 and 539/75 of 28 February 1975 has disclosed no factor of such kind as to affect the validity of those provisions in so far as, in the calculations of the monetary compensatory amounts, they do not make it possible to eliminate the content by weight of any whey in compound feedingstuffs falling within tariff subheadings 23.07 B I a 3 and 4 of the Common Customs Tariff.

Costs

14. The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable. 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 (Second Chamber) in answer to the question submitted to it by the Finanzgericht Münster by-order of 20 November 1979, hereby rules: