Report for the Hearing delivered in Case 344/85
I — Legal background to the dispute
Steel products in Category V (reinforcing bars) were made subject to a system of production quotas by Commission Decision No 1831/83/ECSC of 24 June 1981 establishing for undertakings in the iron and steel industry a monitoring system and a new system of production quotas in respect of certain products (Official Journal 1981, L 180, p. 1).
The provisions applicable to the present case are contained in Commission Decision No 2177/83/ECSC of 28 July 1983 on the extension of the system of monitoring and production quotas for certain products of undertakings in the steel industry (Official Journal 1983, L 208, p. 1). That decision, according to Article 18 (2) thereof, applies during the period from 1 July 1983 to 31 January 1984.
As is indicated in Section 2 of its preamble, the decision at issue maintains in effect, subject to certain adjustments, the production quota system established by Commission Decision No 1696/82/ECSC of 30 June 1982 (Official Journal 1982, L 191, p. 1).
The underlying principles and the provisions of Decision No 2177/83/ECSC which constitute the legislative framework of the present dispute are as follows.
1) Production quotas and that part of the quotas which may be delivered on the common market, hereinafter referred to as ‘delivery quotas’, fixed on a quarterly basis (Article 5 of Decision No 2177/83/ECSC);
2) Production or delivery in excess of quotas is tolerated within the limits laid down in Article 11 (1) and (2) of Decision No 2177/83/ECSC.
Article 11 (1) provides generally that a tolerance of 3% in excess is to be allowed on production and delivery quotas. However, production and deliveries of all categories of products (Categories I to VI) may not exceed the sum of the two corresponding quotas allocated for each of those categories.
Article 11 (2) provides, inter alia, that in the case of undertakings which produce only one category of steel products, a tolerance of 3% in excess of the delivery quota is to be allowed within the limit of the production quota for the product category concerned. However, that tolerance may not be combined with that provided for in paragraph 1.
3) Delivery quotas may be carried forward into the following quarter for the same category of products (Article 11 (3) of Decision No 2177/83/ECSC):
i) 5% of the quota allocated may be carried forward where quotas have not been used up (subparagraph (a));
ii) The entire quota may be carried forward only in cases of force majeure preventing the undertaking from using or attaining its production quotas (subparagraph 3 (c) and (d)).
4) Provisions concerning stocks. As is indicated in Section 3 of the preamble to Commission Decision No 1696/82/ECSC, ‘under Decision No 2795/80/ECSC of 31 October 1980 (Official Journal L 291, p. 30), undertakings in the steel industry are already required to keep a record of changes in stocks for inspection purposes. However, experience has shown that effective monitoring of the system of production quotas demands exact knowledge of the stock situation at the beginning of the period of application of this decision’ (namely 1 July 1982).
Article 2 (1) of Decision No 1696/82/ECSC thus imposes on undertakings, in addition to an obligation to report each month their production and deliveries of the steel products concerned by the decision (Categories I to VI), the obligation to ‘report their stock position as at 30 June 1982’.
Article 2 (1) of Decision No 2177/83/ECSC, which succeeded Decision No 1696/82/ECSC, limited the obligation to report the stock position as at 30 June 1983 to products in Categories II and III.
II — Origin and development of the dispute
By letter of 11 October 1983, the Commission informed Ferriere San Carlo of its production and delivery quotas in respect of steel products in Category V (reinforcing bars) for the fourth quarter of 1983. Those quotas were fixed on the basis of Decision No 2177/83/ECSC and consisted of production quotas of 9172 tonnes of which 6819 tonnes could be delivered on the common market.
By decisions communicated to Ferriere San Carlo on 29 December 1983, the Commission increased those quotas for the fourth quarter of 1983. In addition, in regard to the production quotas, the Commission took account of the possibility provided for in Article 11 (3) (a) of Decision No 2177/83/ECSC of carrying forward 5% of the production quota allocated for the preceding quarter which had not been entirely used up. The production quota was thus increased to 10876 tonnes and the delivery quota to 8028 tonnes.
By letter of 24 July 1984 addressed to Ferriere San Carlo, the Commission:
a) stated:
i) that it appeared from the statements made to it by the undertaking concerned that during the fourth quarter of 1983 its net production had been 10652 tonnes and it had delivered 10612 tonnes on the common market;
ii) that having regard to the 3% excess of delivery quotas tolerated under Article 11 (2) of Decision No 2177/83/ECSC (in this case, 240.84 tonnes), Ferriere San Carlo had exceeded by 2343 tonnes the part of its production quota which could be delivered on the common market;
b) called upon Ferriere San Carlo under Article 36 of the ECSC Treaty to submit its comments on the excess deliveries it was found to have made.
Ferriere San Carlo submitted its comments both in writing and orally, namely in letters of 2 August and 2 November 1984, during a meeting held on 4 December 1984 between representatives of the undertaking and the Commission departments concerned, by telex of 24 January 1985 and by letter of 20 February 1985.
Ferriere San Carlo does not contest the fact that it exceeded its delivery quotas, but claims that:
a) the excess was due to sales of part of its stocks as recorded on 30 June 1983, which were duly constituted in accordance with the quotas fixed under Decision No 1696/82/ECSC, applicable until that date;
b) it considered that it was entitled to make those sales in addition to the delivery quotas allocated to it having regard :
i) to the practice followed by the Commission between 30 June 1981 and 30 June 1982 of permitting stocks to be disposed of independently of delivery quotas;
ii) to the fact that undertakings were not informed that the Commission had changed that practice;
iii) to the impossibility of disposing of the production on the external market because of the low level of prices prevailing there (LIT 50 to 60 per kg below production costs);
iv) to unfair competition by undertakings which disposed of their production in excess of their production quota through steel companies not subject to the production quota system. That unfair competition ended only on 11 July 1984, as a result of Commission Decision No 2105/84/ECSC, amending Decision No 234/84/ECSC on the extension of the system of monitoring and production quotas for certain products of undertakings in the steel industry (Official Journal 1984, L 194, p. 18);
v) to the need to ensure its financial survival in the light of the damage suffered as a result of the snowfalls of January 1985.
The Commission considered that the observations submitted by Ferriere San Carlo were not relevant, and therefore, by decision of 9 October 1985, imposed a fine on it under Article 58 of the ECSC Treaty of ECU 117150, that is to say LIT 174800000. That decision was communicated to San Carlo on 19 October 1985.
In the statement of the reasons on which the decision was based, the Commission pointed out that the last two arguments relied on by Ferriere San Carlo could not be accepted on the grounds that the conduct of other undertakings and events which occurred in January 1985 could not justify an offence which occurred at the end of 1983.
The Commission also points out that its practice in regard to stocks of Category V steel products held by undertakings on 30 June 1981 and 30 June 1982 was justified by the concern:
i) first, to permit undertakings to dispose of stocks recorded on 30 June 1981, that is to say, immediately before the entry into force of the delivery quota system for that category of products, established by Decision No 1831/81/ECSC of 24 June 1981;
ii) secondly, to take account of the fact that the majority of undertakings had inferred from the obligation to report stocks of all categories of products laid down in Article 2 (1) of Decision No 1696/82/ECSC of 30 June 1982 a right to dispose of those stocks outside the quota system.
According to the Commission, it follows from Article 2 (1) of Decision No 2177/83/ECSC, which limits the obligation to report stocks on hand on 30 June 1983 to products in Categories II and III, that stocks of products in other categories were considered to have been definitively disposed of.
However, having regard to the uncertainty which reigned during the fourth quarter of 1983 in regard to the possible continuance of the previous practice, the Commission states that it calculated the fine in this case not at the rate of ECU 100 per tonne of excess provided for in Article 12 of Decision No 2177/83/ECSC, but on the basis of ECU 50 per tonne of excess.
The application in this case was lodged at the Court Registry on 15 November 1985.
Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to order measures of inquiry in accordance with Article 21 of the Sutu te and Article 45 of the Rules of Procedure.
By letter of 6 March 1987, the Registrar informed the Commission of the Court's questions and requested it to reply before 9 April 1987.
The Commission replied within the prescribed time-limit.
In accordance with Article 54 of the Rules of Procedure, the date for the opening of the oral procedure was fixed after the preparatory inquiry had been completed.
In accordance with Article 95 (1) of the Rules of Procedure, the Court, by order of 26 February 1987, assigned the case to the Fifth Chamber.
III — Conclusions of the parties
Ferriere San Carlo claims that the Court should :
1) Declare that the Commission's decision of 9 October 1985 (Reference No S(85) 1603/12) is void;
2) Order the Commission to pay the costs.
The Commission contends that the Court should:
1) Dismiss the application;
2) Order the applicant to pay the costs.
IV — Summary of the submissions and arguments of the parties
Ferriere San Carlo considers that the contested decision is unfounded for various reasons, which may be grouped as follows:
1) The prohibition on disposing of stocks duly constituted under the production quotas allocated for earlier quarters is not laid down in the Commission's general decisions, in this case Decision No 2177/83/ECSC. Nor can it be inferred from the Court's case-law, laid down in the judgment of 19 October 1983 in Case 179/82 Lucchini v Commission [1983] ECR 3083 and the judgments of 30 November 1983 in Case 234/82 Roè Volciano v Commission [1983] ECR 3921, and Case 235/82 Fernere San Carlo v Commission [1983] ECR 3949. It can be seen from those judgments that the Court does not require the rigorous imposition of sanctions for excess deliveries when production quotas have been respected.
2) The prohibition on disposing of stocks independently of delivery quotas is contrary to the Commission's practice in that regard between 30 June 1981 and 30 June 1982. Undertakings were not informed of a change in that practice.
3) The fact that delivery quotas are fixed quarterly, in so far as it is relied upon by the Commission in support of its argument, is contrary to the letter and spirit of the Treaty. According to the applicant, the right to dispose of stocks follows from Articles 2, 3 and 74 of the Treaty, to which Article 58 refers.
The applicant claims that the Commission's approach, establishing new situations at the beginning of each quarter without taking account of the production authorized in previous quarters, is anti-economic inasmuch as no normally managed undertaking can plan its deliveries to within one month.
That approach is also disproportionate having regard to the manner in which undertakings are penalized, inasmuch as they can use only 50% of their production capacity, precisely because of the establishment of a system of production quotas. The applicant points out in that regard that it has laid off its staff for a period of several weeks, spread out over the year, in order to comply with the production quotas allocated to it.
4) The Commission initially complained that the applicant had exceeded its delivery quotas not merely for the fourth quarter but also for the third quarter of 1983. However, it discontinued proceedings in respect of the third quarter but maintained its complaints in respect of the fourth quarter of 1983 without any reason.
The Commission states that:
1) The fact that the production quotas were respected is not relevant to the question of exceeding delivery quotas.
2) The applicant's argument is based on a contestation of the fact that, as the Court has accepted in the abovementioned decisions, quotas are allocated to undertakings on a quarterly basis. Quarterly allocation makes it possible to effectively ensure that they are observed.
3) The practice followed in regard to stocks of reinforcing bars held by undertakings on 30 June 1981 and 30 June 1982 is justified on the grounds contained in the contested decision. The Commission points out that the purpose of that practice was :
i) to permit undertakings to dispose of stocks recorded on 30 June 1981, that is to say, immediately before the entry into force of the delivery quota system covering reinforcing bars, for the first time, namely Decision No 1831/81 /ECSC of 24 June 1981;
ii) to take account of the fact that the majority of undertakings had inferred from the obligation to report stocks of all categories of products laid down in Article 2 (1) of Decision No 1696/82/ECSC that they had a right to dispose of those stocks outside the quota system.
However, the stocks in question were deemed to have been definitively exhausted when Decision No 2177/83/ECSC was adopted. That is why Article 2 (1) limits the obligation to report stocks to steel products in Categories II and III.
4) No sanctions were imposed in respect of the excess deliveries for the third quarter of 1983 because, after accounting analysis, they amounted to 505 tonnes. It is established practice to initiate proceedings only in respect of excess deliveries of greater than 650 tonnes.
V — Reply of the Commission to the questions put by the Court
First question
During the period in which Decision No 1831/81/ECSC was in force, did the Commission authorize the delivery outside the quota system of stocks of Category V products in existence on 30 June 1981?
Answer
During the period in which Decision No 1831/81/ECSC was in force, the Commission adopted no decision authorizing the delivery outside the quota system of stocks of Category V products in existence on 30 June 1981. The Commission states that it did not require undertakings to report the quantities produced before the entry into force of Decision No 1831/81/ECSC and delivered during the period in which it was in effect. That was done in order to avoid any suggestion of giving retroactive effect to Decision No 1831/81/ECSC.
Second question
During the period in which Decision No 1696/82/ECSC was in force, did the Commission authorize the delivery outside the quota system of stocks of Category V products existing on 30 June 1982, or merely stocks existing on 30 June 1981 and not yet disposed of?
Answer
During the period in which Decision No 1696/82/ECSC was in force, the Commission adopted no decision authorizing the delivery outside the quota system of stocks of Category V products. The Commission would like to draw the Court's attention to the fact that the second subparagraph of Article 2 (1) of Decision No 1696/82/ECSC provides that ‘in the case of products referred to in Article 4, undertakings shall be required to report their stock position as at 30 June 1982’, whereas Decision No 1831/81/ECSC makes no mention of stocks. The purpose of the reporting obligation is to permit monitoring of the production quota system (see Section 3 of the preamble to Decision No 1696/82/ECSC).
On the practical level, the obligation to report the stock position was advantageous for undertakings. The Commission, on the basis of the information received, was able to treat all undertakings in the same way. Even undertakings which had not reported stocks under the previous decision were allowed to take advantage of their existence.
Third question
The Commission states that after the adoption of Decision No 2177/83/ECSC no further delivery outside the quota system of stocks of Category V products was possible. Does that change of policy result from the adoption of an express regulatory provision? If so, which provision? If not, was the Commission's change of policy brought to the attention of the companies concerned, and in what way?
Answer
The Commission states that Decision No 2177/83/ECSC made no change in the policy followed in that regard. That decision applies to stocks of Category II and III products, whereas Fernere San Carlo manufactures only Category V products. Consequently, the date to which reference must be made in regard to stocks of products in that category is 30 June 1982.
Y. Galmot
Judge-Rapporteur
1 Language of the Case: French.