JUDGMENT OF 21. 2. 1984 — CASE 337/82 ST. NIKOLAUS BRENNEREI ν HAUPTZOLLAMT KREFELD

In Case 337/82

THE COURT composed of: J. Mertens de Wilmars, President, T. Koopmans, K. Bahlmann and Y. Galmot (Presidents of Chambers), P. Pescatore, Lord Mackenzie Stuart, A. O'Keeffe, G. Bosco, O. Due, U. Everling and C. Kakouris, Judges, Advocate General: G. Reischl Registrar: P. Heim

gives the following

JUDGMENT

Facts and Issues

I — Facts and procedure

On 21 April 1976 the plaintiff in the main proceedings imported into. the Federal Republic of Germany agricultural ethyl alcolol of French origin. At the time of importation the competent customs office demanded payment of countervailing charges amounting to DM 11166.70. Those charges were payable under Commission Regulation (EEC No 851/76 of 9 April 1976 fixing ŕ countervailing charge for imports into Belgium, Germany, Luxembourg and the Netherlands of ethyl alcohol of agricultural origin produced in France (Official Journal 1976, L 96, p. 41).

Regulation No 851/76 came into force on 15 April 1976 and was subsequently replaced by Commission Regulation (EEC) No 1407/78 of 26 June 1978 (Official Journal 1976, L 170, p. 24). That regulation was repealed by Commission Regulation (EEC) No 841/80 of 2 April 1980 (Official Journal 1980, L 90, p. 30).

The charges provided for by those regulations were intended to compensate for the disturbances, or the threat of disturbances, of the German and Benelux markets caused by imports from France of agricultural alcohol at prices lower than the prices prevailing on those markets.

Those cheap imports were a direct result of the pricing policy applied by France, by means of its national monopoly. That policy consisted in selling for export at a price which was on average FF 280 lower than the price of the same alcohol intended for consumption on the French domestic market.

According to the preamble to Regulation No 851/76, it became necessary to introduce a countervailing charge as a result of the absence of a common organization of the alcohol market and because the Council had not given a ruling, under Article 42 of the Treaty, on the applicability to agricultural ethyl alcohol of the provisions of the Treaty relating to State aid.

In so far as they provided for that countervailing charge, the regulations were founded on Article 46 of the EEC Treaty.

Following the decision of the competent customs office requiring it to pay the countervailing charges, the plaintiff in the main proceedings brought an action before the Finanzgericht Düsseldorf in which it questioned the validity of Regulation No 851/76 in the light of the EEC Treaty.

The Finanzgericht Düsseldorf took the view that Article 46 of the Treaty — and the regulations based on that provision — had become devoid of purpose after the expiry of the transitional period and that the French monopoly ought to have been adjusted pursuant to Article 37 of the Treaty. By order of 8 September 1982, it therefore referred to the Court the following questions:

“1. Is Commission Regulation (EEC) No 851/76 of 9 April 1976 void in so far as it is based on Article 46 of the EEC Treaty, which is no longer applicable after the expiry of the transitional period. 2. If the answer to Question 1 is in the affirmative, what legal consequences arise from the invalidity of the regulation?”

The order making the reference was registered at the Court on 23 December 1982.

In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by the plaintiff in the main proceedings, represented by P. Müller-Kemler, Rechtsanwalt, Hanover, by the United Kingdom, represented by J. D. Howes, of the Treasury Solicitor's Department, acting as Agent, assisted by C. Bellamy, of Gray's Inn, Barrister, and by the Commission of the European Communities, represented by Jörn Sack, a member of its Legal Department, acting as Agent.

Upon 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.

II — Written observations submitted to the Court

The plaintiff in the main proceedings claims that when the Commission adopted Regulation No 851/76 it clearly regarded Article 46 of the EEC Treaty as the only possible legal basis for that regulation. However, it disregarded the fact that Article 46 of the EEC Treaty became redundant on the expiry of the transitional period. The application of Article 46 presupposes that the competitive situation of similar products in another Member State is affected by a national market organization which is itself still authorized. In this instance, in accordance with the decisions of the Court, the market organization ought to have been adapted so as to conform to the rules laid down for the establishment of the common market before the end of the transitional period.

Moreover, the Commission ought to have instituted proceedings for breach of the Treaty under Articles 155 and 169 of the EEC Treaty against France, whose actions had clearly been contrary to the Treaty. It is true that from a strictly economic point of view there are certain advantages in the purely practical approach, according to which the adoption of a countervailing charge neutralizes with immediate effect the consequences of the subsidy granted contrary to the Treaty, whereas proceedings to establish a breach of the Treaty require a considerably longer period, during which the conduct contrary to the Treaty could be perpetuated with discriminatory effect. However, the Treaty does not provide any basis for such an approach. The only course of action which might have provided a quick solution would have been an application for the adoption of interim measures.

The United Kingdom considers, on the other hand, that Regulation No 851/76 was lawfully adopted pursuant to Article 46 of the EEC Treaty, for the following reasons :

i) Article 46 is not expressly limited to the transitional period, in which respect it differs from Articles 44 and 45 of the Treaty. Article 46 is closely linked to the existence of national market organizations, which are not required to be totally abolished by the end of the transitional period.

ii) Article 46 continues to perform an important function where no common organization of the market exists. Until a common organization is established, Member States may grant aid of such a kind as is compatible with the provisions of the Treaty (judgment of 25 September 1979, Case 232/78 Commission v France [1979] ECR 2729). Thus the Treaty provisions on State aids have only limited application pending the establishment of the common organization of the market (Article 42 of the Treaty and Article 4 of Regulation No 26 of the Council (Official Journal, English Special Edition 1959-1962, p. 129)). Moreover, the Court has recognized that, even after the expiry of the transitional period, special measures to protect producers may be necessary and desirable prior to the setting-up of a common organization of the market, provided that such measures are taken by the Community, and not unilaterally by the Member States concerned (judgment of 25 September 1979, Commission v France cited above).

iii) Whilst it is true that the Community may not impose charges having an effect equivalent to customs duties in trade within the Community (judgment of 20 April 1978, Joined Cases 80 and 81/77 Ramel [1978] ECR 927), that is so only if a common organization of the market exists. In that case, Articles 39 to 46 of the Treaty do not contain any exception to the application of the general rule prohibiting charges having an effect equivalent to customs duties. On the other hand, in the present circumstances Articles 38 (2) and 46 of the Treaty authorize the levying of countervailing charges in view of the absence of a common organization of the market.

iv) Furthermore, there are no grounds for considering that, by implication, Article 46 became “spent” after the expiry of the transitional period since that provision still performs an independent function.

v) Article 37 cannot be regarded as a substitute for Article 46 in all cases. Thus Article 46 may be applicable where aid is granted in States in which there is no monopoly of a commercial character. Moreover, even if such a monopoly exists, the measure is not necessarily contrary to Article 37. Finally, it is not inconsistent for the Commission to take immediate protective measures under Article 46, whilst, at the same time, instituting proceedings to establish a breach of Article 37.

vi) Article 46 enables quick and effective action to be taken, whilst the procedure under Article 169 is time-consuming and may involve complex questions of fact and of law.

The Commission of the European Communities puts forward arguments which are similar to those advanced by the United Kingdom, in particular as regards the wording of Article 46 and the interpretation of the judgment of the Court of 25 September 1979 (Commission v France, cited above). In addition, it maintains that:

i) The Court has so far only dealt with Article 46 summarily and the reference which it has made to the transitory character of the provision must not be overestimated (judgments of 20 April 1978 in Joined Cases 80 and 81/77 Ramel [1978] ECR 927, and of 29 March 1979 in Case 231/78 Commission v Uni/ed Kingdom [1979] ECR 1460).

ii) The economic interests of the agricultural producers concerned in certain regions of the Community require imperatively that they should not suffer as a result of the Council's inability to create a common organization of the market with due expedition. Further, Member States may not be prevented from adopting domestic measures granting aid. In those circumstances, Article 46 is the only solution which permits the attainment of maximum free movement of goods, without adversely affecting the economic interests of the producers. It must be permissible to adopt domestic measures granting aid, if the safeguards for the employment and the standard of living of the producers concerned, offered by Article 43 (3), are not to be rendered meaningless. Indeed it is precisely as a result of the unrestricted application of rules relating to the free movement of goods that an increased need for national aid might make itself felt.Moreover, the Court of Justice has acknowledged that even within the framework of a common organization of the market, it is possible in principle to create appropriate mechanisms for the neutralization of trade between Member States, when, as a result of the different agricultural structures, it proves necessary to establish different intervention measures in certain regions of the Community (judgment of 15 September 1982, Case 106/81 Kind v Council and Commission [1982] ECR 2885).

iii) If the provisions of Articles 92 to 94 were fully applicable to agriculture even in the absence of special provisions, any measure implementing Article 46 would be deprived of its legal basis, inasmuch as it is only reasonable to have recourse to that provision with a view to neutralizing lawful measures adopted by Member States. It would be very dangerous to apply Article 46 in the event of unlawful national measures, because that would help to consolidate such measures. Nevertheless, it is clear from Article 42 of the Treaty that the rules relating to aid are applicable to agriculture only to the extent determined by the Council. In the absence of a decision making all the rules relating to aid applicable to ethyl alcohol of agricultural origin, the Commission, at this stage, merely has the right to be informed of aid which has been granted but not to compel the Member State to abolish or to modify the aid (Article 4 of Regulaton No 26 applying certain rules of competition to production of and trade in agricultural products, Official Journal, English Special Edition 1959-1962, p. 129). Article 5 of the Treaty cannot deprive Member States of the discretion which the Council has expressly left them.

iv) In his Opinion in Case 91/78 (Hansen II, [1979] ECR 935, at p. 959) Mr Advocate General Capotorti considered that, after the end of the transitional period, Articles 92 to 94 of the EEC Treaty also apply in their entirety to agricultural products for which a market organization has yet to be introduced. If the rules on the free movement of goods are fully applied to products for which no common organization of the market exists, it is scarcely possible to suggest that Member States should be left complete discretion to grant aids, in view of the fact that such a state of affairs might result in dangerous and reciprocal disturbances of the markets. However, it is only necessary to resolve the problem of the full application of Articles 92 to 94 if it is not possible to have recourse to Article 46.

In its judgment of 29 October 1980 (Case 139/79 Maizena [1980] ECR 3393, at p. 3421) the Court emphasized that the agricultural policy takes precedence over the general aims of the Treaty in relation to competition and it recognized that the Council has “a wide discretion” in the exercise of its powers in pursuance of Article 42.

If the Court of Justice were to hold that Article 46 is no longer applicable after the end of the transitional period, which, in the Commission's view, would be quite possible from a legal point of view, although, in the light of the wording of Artcile 42, it would represent a far-reaching step, it should then also acknowledge that Articles 92 to 94 of the Treaty apply, after the end of the transitional period, to all agricultural products.

As regards the second question submitted for a preliminary ruling, relating to the consequences which might arise if Regulation No 851/76 were declared void, the Commission takes the view that if the Court considers the regulation invalid, it should at least, by analogy, apply the second paragraph of Article 174 of the EEC Treaty and declare that the legal effects of the regulation are definitive, despite its invalidity. As, in any event, the regulation is no longer in force, such a decision would only have an effect on the past. In fact, a considerable number of arguments now support the validity of the regulation. Moreover, the levying of the charge, in the final analysis, merely removed an unjustified competitive advantage for importers. In that respect, since the Member States and the Commission considered Article 46 applicable, no serious attempt was made to find an alternative means of removing the unjustified advantage accorded to French alcohol exports. Finally, the Commission does not know how many actions for the repayment of charges levied under Regulation No 851/76 are pending or may still be brought in Member States.

III — Question put to the Commission by the Court

The Court requested the Commission to state briefly in writing why, when Regulation No 851/76 was adopted, it did not commence proceedings under Article 169 of the EEC Treaty against France for infringement of Article 37 of the Treaty, in view of the fact that the Commission had emphasized that Article 46 was applicable only in order to neutralize lawful measures adopted by Member States.

In reply the Commission stated that it considered in 1976 that after the expiry of the transitional period Article 37 of the Treaty had only a very limited field of application.

However, in its judgement of 13 March 1979 in Case 91/78 (Hansen v Hauptzollamt Flensburg [1979] ECR 935) the Court took a different view. It considered that Article 37 of the EEC Treaty was a lex specialis which took priority over Article 92 et seq. On the basis of that judgment, the Commission repealed Regulation No 1408/78 at the beginning of 1980, after France had ceased its practice of granting aids for the export of agricultural alcohol,

When the Commission was again asked to deal with the question of aids granted by the French monopoly for the export of alcohol, it decided not to apply Article 46 of the Treaty and preferred to institute proceedings against France under Article 169.

IV — Oral procedure

At the sitting on 11 Octobre 1983 oral argument was presented by the following: P. Müller-Kemier, Rechtsanwalt, for the plaintiff in the main proceedings; Christopher Bellamy, acting as Agent, for the United Kingdom; Jörn Sack, acting as Agent, for the Commission.

With reference to the question put by the Court, the parties discussed in greater depth whether Article 46 must apply only to lawful measures.

Mr Müller-Kemier, for the plaintiff in the main proceedings, took the view that the Commission could not perpetuate a situation contrary to the Treaty by acting as if the French organization of the market was still compatible with Article 37 of the Treaty. Articles 169 and 46 are not applicable simultaneously because the Commission does not have the power to impose sanctions on a Member State within the context of proceedings under Article 169.

For the United Kingdom, Mr Bellamy submitted that Article 46 was an effective means of intervention, because in 1976 it brought about an immediate solution to the problem of the distortions created by French aids and thus made it possible to safeguard the interests of agricultural producers and to stabilize the markets. On the other hand, when French aids were again introduced in 1982 and 1983, the Commission was in some doubt as to the applicability of Article 46 and instead instituted proceedings against France under Article 169 (Case 57/83). Those proceedings failed to provide a rapid and preventive solution. The purpose of Article 169 is to obtain a declaration that there has been an infringement; it does not offer any protection. It follows that Articles 46 and 169 are not mutually exclusive.

An application for the adoption of interim measures is not a satisfactory alternative since it is not suitable for resolving problems, except where the problems are conspicuous.

Article 46 does not apply exclusively in respect of lawful measures because :

a) the question of legality is rarely clear, especially within the context of Article 37;

b) The legality would have to be assessed by the Commission; the Court might subsequently take a different view and in the meantime the producers would have suffered irreparable damage;

c) The Commission's fear that it would be dangerous to use Article 46 against unlawful measures is unfounded since the Commission has complete control over the use of Article 46.

Article 46 has been used continually since the end of the transitional period and it cannot be maintained that that use has always been erroneous.

With regard to the continued applicability of Article 46, Mr Bellamy cited Smith and Herzog, Law of the European Economic Community, at p. 2443.

With the Commission, Mr Sack stated that, in his view, Article 46 could apply only to lawful national measures and that therefore Regulation No 851/76 must be declared void. He advanced the following arguments in support of that view:

a) The procedure under article 169 serves to mitigate the effects of unlawful situations. Article 46 is of course quicker and more effective, but there is no reason why, when national aids are adopted, a particularly advantageous situation should be created for certain agricultural products in respect of which the Council has not yet established common organizations of the market. For other products only Articles 92 et seq. are applicable. In the past it has been argued that a provision similar to Article 46 should be inserted in the section on aids.

b) If Article 46 were applicable in a field in which the Council has not fulfilled its obligations, certain Member States would no longer have an incentive to create a common organization of the market.

c) Where Article 46 has neutralized the effect of certain unlawful measures, the Commission is no longer compelled to obtain a decision of the Court declaring that the Member State in question has failed to fulfil its obligations; that might lead to the prolongation of unlawful national measures.

For the plaintiff in the main proceedings, in reply to the argument that Article 46 should continue to be applicable because the Commission might at a later stage fail in the proceedings brought under Article 169, Mr Müller-Kemier submitted that the failure of an action brought by the Commission under Article 169 would suggest that the fixing of a countervailing charge is not permissible.

Moreover, the application for the adoption of interim measures in Case 57/83 was withdrawn, not because there was any doubt as to the outcome of that case, but because the French Government had in the meantime ceased the conduct which was the subject of the application.

Mr Bellamy, for the United Kingdom, considered that the question is not why someone should be in a better position in the absence of a common organization of the market, but why in that case that person should be in a worse position.

In a reply to a question from the Judge-Rapporteur, Mr Sack, for the Commission, expressed the view that if the regulation of 1976 should be considered invalid, it would be appropriate to apply, by analogy, Article 174 of the Treaty, not in order to avoid legal uncertainty, but so as to prevent anyone from obtaining an advantage by virtue of the fact that the Commission failed to choose the correct procedure.

The Advocate General delivered his opinion on 23 November 1983.

Decision

1. By an order dated 8 September 1982, which was received at the Court on 23 December 1982, the Finanzgericht [Finance Court] Düsseldorf referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty two questions on the validity of Commission Regulation (EEC) No 851/76 of 9 April 1976 fixing a countervailing charge for imports into Belgium, Germany, Luxembourg and the Netherlands of ethyl alcohol of agricultural origin produced in France (Official Journal 1976, L 96, p. 41).

2. The plaintiff in the main proceedings imported into the Federal Republic of Germany ethyl alcohol of French origin and was required to pay a countervailing charge under Regulation No 851/76. Questioning the compatibility of that regulation with the EEC Treaty, it contested the demand for payment in proceedings before the Finanzgericht.

3. According to the preamble to the regulation, the countervailing charges were intended to mitigate the effects of the disturbance, or the threat of disturbance, of the German and Benelux markets caused by imports from France of agricultural alcohol at prices considerably lower than the prices prevailing on those markets. Those supplies of cheap alcohol were a result, in particular, of the pricing policy applied by the French alcohol monopoly.

4. Regulation No 851/76 is based on Article 46 of the EEC Treaty, according to which:

“Where in a Member State a product is subject to a national market organization or to internal rules having equivalent effect which affect the competitive position of similar production in another Member State, a countervailing charge shall be applied by Member States to imports of this product coming from the Member State where such organization or rules exist, unless that State applies a countervailing charge on export.

The Commission shall fix the amount of these charges at the level required to redress the balance; it may also authorize other measures, the conditions and details of which it shall determine.”

5. The Finanzgericht Düsseldorf took the view that Article 46 of the Treaty and the regulations based on that provision had become devoid of purpose after the expiry of the transitional period and that the French monopoly ought to have been adjusted pursuant to Article 37 of the Treaty. It therefore referred to the Court the following questions :

“1) Is Commission Regulation (EEC) No 851/76 of 9 April 1976 void in so far as it is based on Article 46 of the EEC Treaty, which is no longer applicable after the expiiy of the transitional period?

2) If the answer to Question 1 is in the affirmative, what legal consequences arise from the invalidity of the regulation?”

The first question

6. The first question is intended essentially to establish whether Article 46 of the EEC Treaty is still applicable after the expiry of the transitional period and consequently whether or not Regulation No 851/76. adopted in pursuance of that article, is valid.

7. According to the plaintiff in the main proceedings, Article 46 no longer constituted a valid basis for the adoption of Regulation No 851/76 after the expiry of the transitional period, by which time all the national organizations of the market should have been adjusted to the rules laid down for the establishment of the common market. The plaintiff considers that the only legal remedy which the Commission was entitled to make use of, in order to mitigate the distortions of competition caused in this instance by France, was an action under Article 169 for infringement of the rules laid clown in the Treaty.

8. The Commission considers that Article 46 can now apply only with regard to lawful national measures, in view of the fact that the procedure under Article 169 represents an adequate means of countering national measures which are contrary to the Treaty. The Commission takes the view that the imposition of a countervailing charge may be justified only where it represents the sole means of redressing the balance, since such a charge has the effect of creating a barrier to the free movement of goods, which is one of the fundamental principles of the common market.

9. Finally, the United Kingdom considers that Article 46 retains a fundamental role, even after the expiiy of the transitional period, where there is no common organization of the market, irrespective of whether the national measures in question are lawful or unlawful.

10. In view of the problems raised by the interpretation of Article 46 of the Treaty, it is necessary, in order to determine the scope of that provision, to consider its wording, its context and its aims.

11. Even though the scope of Article 46 is bound to be reduced gradually, as the common organizations of the market are established, there is no mention in that provision of its application being limited to the transitional period. On the contrary, it follows from the working of Article 46 that it applies whenever in a Member State a product is subject to a national market organization or to internal rules having equivalent effect, which is the case here.

12. Moreover, pursuant to Article 42 of the Treaty, the provisions of the chapter relating to rules on competition, and in particular those concerning State aids, do not apply to agricultural products, unless the Council has adopted a specific decision within the framework of the development of common organizations of the market. For products which are not subject to such an organization, Regulation No, 26 of the Council of 4 April 1962 applying certain rules of competition to production of and trade in agricultural products (Official Journal, English Special Edition 1959-1962, p. 129) provides that only Article 93 (1) and the first sentence of Article 93 (3) apply. Under those provisions the Commission has the right to be informed of such. aids. The Commission is therefore deprived of the power to institute proceedings under Article 93 (2) of the Treaty in respect of those aids.

13. On the other hand, Article 37 only partly fills the lacuna resulting from the limited applicability to those products of the rules relating to aids. Only if the particular conditions specified in Article 37 are satisfied may the Commission act against national aids affecting competition within the Community.

14. It follows from the foregoing that, so long as an agricultural product has not been made subject to a common organization of the market, Article 46 constitutes for the Commission a useful instrument which allows it to adopt immediate safeguards against distortions of competition created by a Member State. The introduction of a countervailing charge pursuant to that article thus facilitates the achievement — by the maintenance of normal trade patterns in the exceptional and temporary circumstances which justify the measure — of the aims of Article 39 of the Treaty, which seeks inter alia to stabilize the markets and to ensure a fair standard of living for the agricultural population concerned.

15. Moreover, although such a countervailing charge appears to be an impediment to intra-Community trade, it cannot be compared to a charge having an effect equivalent to a customs duty. It is a charge imposed in the general interest, the amount of which is fixed by the Commission and not unilaterally by a Member State. It enables products from States where aids are granted to be exported to other Member States without disturbing their markets and thus prevents artificial differences between prices in the exporting Member State and those in the importing Member State, resulting from disparities in the national markets before the establishment of a common organization, from creating imbalances in trade. In each case it is for the Commission to ensure that the duration and the amount of the charge remain within the limits circumscribed by the need to re-establish equilibrium.

16. Finally, it follows from the reasons set out above that Article 46 is not deprived of its raison d'être, even if other provisions of the Treaty serve to mitigate the effects of distortions of competition thus created. On the contraiy, in so far as a common organization of the markets creating harmonious conditions of competition has not been established, Article 46 makes it possible to counter, with the utmost alacrity, the imbalances caused by certain national support measures. Such a mechanism is rendered necessary solely by the disturbance of competition caused by a Member State, regardless of the view that may be taken of the legality of the national measures which create that disturbance. It is therefore the task of the Commission, subject to the review of the Court, to assess solely, according to the terms of Article 46, whether the rules of a Member State affect the competitive position of the products of another Member State and therefore justify the imposition of a countervailing charge.

17. It also follows that, contraiy to the Commission's view, it is not necessary to make a distinction according to whether or not the imbalances which it is sought to redress are the consequences of measures which are in conformity with Community law.

18. Moreover, if the Commission considers that the Member State in question has failed to fulfil its obligations under the Treaty, the introduction of a countervailing charge does not relieve it of its duty to exercise the power conferred upon it by Articles 155 and 169 of the Treaty and thus to commence the procedure laid down in the latter provision.

19. In reply to the national court it must therefore be stated that Article 46 of the EEC Treaty may be applied after the expiry of the transitional period to products which have not yet been made subject to a common organization of the market. In consequence the validity of Commission Regulation No 851/76 of 9 April 1976 fixing a countervailing charge for imports into Belgium, Germany, Luxembourg and the Netherlands of ethyl alcohol of agricultural origin produced in France (Official Journal 1976, L 96, p. 41) cannot be called in question on the ground that it is based on Article 46.

The second question

20. It is not necessary to reply to the second question since it related solely to the possibility that Regulation No 851/76 might be found to be invalid.

Costs

21. The costs incurred by the United Kingdom and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main proceedings 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 questions referred to it by the Finanzgericht Düsseldorf by order of 8 September 1982, hereby rules: