Report for the Hearing delivered in Case 77/86

I — Facts and written procedure

1. The National Dried Fruit Trade Association (hereinafter referred to as ‘the Association’), representing the majority of importers and distributors of dried fruit in the United Kingdom, brought the action in the main proceedings on behalf of its members, who claim to have suffered loss or expense on account of the minimum prices and countervailing charges fixed by the aforesaid regulations on the importation of dried grapes. The Association has argued in the main proceedings that those regulations are unlawful on a number of grounds and are therefore unenforceable.

2. By an order of 3 March 1986, lodged at the Court Registry on 13 March 1986, the Queen's Bench Division of the High Court of Justice stayed the proceedings until the Court of Justice had delivered a preliminary ruling on the following questions:

‘(1) Was Commission Regulation (EEC) No 2742/82 (as amended from time to time), when introduced or as continued at any time (and if so when), invalid and unlawful because it provided for measures which were not authorized by Council Regulations (EEC) Nos 516/77 (and in particular Article 14 thereof) and 521/77 and/or as containing provisions and having effects which were disproportionate to the aims of those regulations and/or because it was not adequately reasoned?’

2) Are Council Regulation (EEC) No 2089/85 and Commission Regulation (EEC) No 2237/75 and/or Commission Regulation (EEC) No 2238/85 (as amended) invalid and unlawful as containing provisions and having effects which are disproportionate to any aims for which those regulations were introduced and/or as being inadequately reasoned?'

A — The Community regulations concerned

3. Council Regulation No 516/77 of 14 March 1977 (Official Journal 1977, L 73, p. 1) governs the common organization of the market in products processed from fruit and vegetables. As modified by Annex I to the Act of Accession of the Hellenic Republic, this regulation applies inter alia to ‘dried grapes’ which fall under subheading 08.04 B of the Common Customs Tariff.

4. Article 14 of Council Regulation No 516/77 allows appropriate measures to be applied in trade with nonmember countries if the market in one or more of the products covered by the regulation is exposed to serious disturbances which might endanger the objectives set out in Article 39 of the Treaty. In general, the Council, acting by a qualified majority on a proposal from the Commission, adopts the rules for the application of Article 14.

5. Pursuant to that article the Council adopted Regulation No 521/77 (Official Journal 1977, L 73, p. 28), laying down detailed rules for applying protective measures in the market concerned. In order to assess whether the market in one or more products is experiencing or is threatened with serious disturbances, Article 1 thereof requires particular account to be taken of:

‘(a) the volume of imports or exports effected or foreseen;

b) the quantities of products available on the Community market;

c) the prices for Community products on the Community market or the foreseeable trend of these prices and in particular any excessive upward or downward trend thereof in relation to prices in the years immediately preceding;

d) where the abovementioned situation arises as a result of imports, the prices obtaining on the Community market, at a comparable stage, for products from third countries, and in particular any excessive downward trend in these prices.’

6. Article 2 of Regulation No 521/77 provides as follows: (1) Should the situation referred to in Article 14 (1) of Regulation (EEC) No 516/77 arise, the measures which may be taken under paragraphs 2 and 3 of that article shall be: ... (c) for all products : (i) the introduction of arrangements under which, if the price for an imported product falls below a certain minimum, a condition may be imposed whereby that product may be imported only at a price which is at least equal to such minimum, (ii) the total or partial suspension of exports. (2) The measures referred to in paragraph 1 may be taken only to such extent and for such length of time as is strictly necessary... ߣ.

7. Pursuant to Article 14 (2) of Council Regulation (EEC) No 516/77, the Commission adopted, on 13 October 1982, Regulation No 2742/82 (mentioned above) on protective measures applicable to imports of dried grapes. Article 2 of that regulation provides as follows: That regulation remained in force, by virtue of successive amendments, until 31 August 1985.

‘(1) On imports into the Community of dried grapes, other than currants, falling within subheading 08.04 B I and B II of the Common Customs Tariff, a minimum price of ECU 106.7 per 100 kilograms net shall be respected.

2) If the minimum price is not respected a countervailing charge of ECU 16.0 per 100 kilograms net shall be applied.

3) After having converted the minimum price and the countervailing charge into national currency, by applying the representation rate, the resulting amount shall be multiplied by the following coefficient: for DM: 0.906 for HFL: 0.936 for UKL: 0.883 for BFR/LFR: 1.046 for FF: 1.068 for Lit: 1.025 for DKR, IRL and DR: 1.00’

8. On 31 March 1984 the Council introduced a new system by adopting Regulation No 988/84 (Official Journal 1984, L 103, p. 11) amending Regulation No 516/77 and inserting into that regulation a new Article 4a worded as follows: Annex la (a), referred to in Article 4a (1), covers dried grapes classified under subheading 08.04 B of the Common Customs Tariff.

‘(1) A minimum import price for each marketing year is hereby introduced for the products listed in Annex la (a).

2) Minimum import prices shall be determined having regard to:

i) the free-at-frontier prices on import into the Community,

ii) the prices obtaining in international trade,

iii) the situation on the internal Community market,

iv) the trend of trade with third countries.

3) Where the minimum import price is not observed, a countervailing charge in addition to customs duty shall be imposed, based on the prices of the main supplier countries outside the Community.

4) ...

5) The Council, acting by a qualified majority on a proposal from the Commission:

i) may decide to amend the list of products for which the minimum prices have been introduced,

ii) shall adopt general rules implementing this article, which may, in particular, provide for a system of advance fixing of the minimum import price.

6) Minimum import prices and the amount of the countervailing charge shall be fixed in accordance with the procedure provided for in Article 20.

7) Detailed rules implementing this article shall be adopted in accordance with the procedure provided for in Article 20.’

9. The general rules on the system of minimum import prices for dried grapes were laid down by the Council in Regulation (EEC) No 2089/85. Article 1 provides that a minimum import price is to be fixed both for currants and for other dried grapes. Article 2 lays down countervailing charges by reference to a scale of import prices. Article 2 (2) provides as follows :

‘The maximum countervailing charge to be fixed shall not exceed the difference between the minimum price and an amount determined on the basis of the most favourable prices applied on the world market for significant quantities by the most representative nonmember countries.’

10. On 23 July 1985 the Commission laid down detailed rules in Regulation No 2237/85 for the application of the system and in Regulation No 2238/85 fixed the minimum import price and countervailing charges for the marketing year 1985/86.

B — Procedure

11. In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted, on 6 June 1986, by the Council of the European Communities, represented by John Carbery, Adviser in the Legal Service of the General Secretariat of the Council, acting as Agent; on 9 June 1986, by the Commission of the European Communities, represented by D. Grant Lawrence, a member of its Legal Department, acting as Agent; on 12 June 1986, by the Netherlands Government, represented by the Secretary-General of the Ministry of Foreign Affairs; on 24 June 1986, by the National Dried Fruit Trade Association, represented by David Vaughan QC and Gerald Barling, acting as Agents; and on 30 June 1986, by the Government of the Hellenic Republic, represented by Fotis Spathopoulos, Legal Adviser at the Office of the Permanent Representative of Greece to the European Communities.

12. 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.

13. By a decision of 22 December 1986 the Court assigned the case to the Sixth Chamber.

II — Written observations submitted to the Court

The first question

As is apparent from the wording of the question, the validity of Regulation No 2742/82 is contested on the grounds that (i) the Commission exceeded the limits of its powers under Regulations No 516/77 and No 521/77, (ii) the regulation offends the principle of proportionality, and (iii) the statement of the reasons on which the regulation is based is inadequate.

1. The Commission's powers

1. According to the Association, the Commission exceeded the limits of its powers inasmuch as (a) the conditions for the introduction of protective measures were not satisfied, (b) they were in any event not satisfied throughout the period from 1982 to 1985, and (c) the imposition of a countervailing charge was not provided for by the empowering regulations.

A — Conditions to be met for the imposition of protective measures

2. The Association states that there are three categories of dried grapes, namely currants, sultanas and raisins. These three products are distinct from one another owing to their physical characteristics, which make them suitable for different end-uses, in which they are not interchangeable. However, whereas the Community production of currants (which came exclusively from Greece before the accession of Spain and Portugal) fully satisfies demand within the Community, the same does not apply to the other two categories; the production of sultanas is only sufficient to meet 50% of Community demand, while raisins are not produced anywhere within the Community. Consequently, there are no serious disturbances of the market — existing or threatened — which might warrant the adoption of protective measures. In particular, the Association maintains that there cannot be a disturbance on the market for a product which does not exist in the Community.

3. Furthermore, the duration of the protective measures extended throughout the period from 1982 to 1985 although there was ‘no threat of serious disturbances’ to justify them. Quite apart from the fact that in the case of raisins Community production was nonexistent, the Community (Greek) crop of sultanas, for instance, was exhausted or virtually exhausted by the beginning of 1983, and no further produce was available until the new crop was ready in September or October.

4. Finally, the minimum import price was kept in force during periods in which the world market prices for sultanas were higher than those in the Community.

5. The observations of the Netherlands Government appear to support the arguments put forward by the Association.

6. The Netherlands Government is in no doubt that throughout the period in question the market in dried grapes, with the exception of currants, was exposed to severe pressure, since 60% of the annual sultana crop could not be disposed of. Consequently, measures could legitimately be adopted. Nevertheless, the Netherlands Government has serious doubts as to the reasons cited by the Commission for adopting them. It seems that the Commission adopted the protective measures in order to keep prices within the Community at a high level, which was contrary to the purpose of Article 14 of Regulation No 516/77 since the Commission changed a protective measure, which by its nature is temporary, into a normal instrument of market regulation. The Netherlands Government points out that the Commission used a system which had previously proved impracticable because it was difficult to control and prevent evasion of it. It cited the example of the system of minimum import prices for the importation of tomato purée, which was abolished because of those shortcomings. The Netherlands delegation to the Management Committee had stressed that point.

7. The Netherlands Government considers that the Commission was not empowered to impose the countervailing charge. It further considers that there can be no question of a serious disturbance of the market in raisins, since they are not produced in the Community.

8. The Commission argues that Community law recognizes only two categories of dried grapes, namely currants and others. This is provided for in the Common Customs Tariff, in the Nimexe Code 1 in heading 08.04 and in Regulation No 516/77. Sultanas, it contends, are merely a type of raisin and interchangeable with it for consumption purposes. The Community is more than 100% self-sufficient in currants and is approximately 50% self-sufficient in other dried grapes, most of them being produced in Greece.

9. According to the Commission, there was a major risk of disturbance of the market at the end of the 1981/82 marketing year, when stocks of dried grapes other than currants amounted to 52500 tonnes. During that period imports from Turkey were increasing and prices were falling steadily to levels appreciably below Community prices. As a result of the introduction of protective measures, stocks were reduced to 7000 tonnes by the end of the 1982 marketing year and to 1000 tonnes by the end of the 1983 marketing year and at the same time prices within the Community were held at a satisfactory level.

10. Lastly, the Commission claims that the maintenance of the measures in force throughout the period from 1982 to 1985 was justified by the continuing threat of a serious disturbance of the market due to the fact that the situation which existed in 1981 and 1982 could recur owing to the low level of prices, especially in Turkey.

11. The Council made no observations on the validity of the Commission regulation.

12. The Government of the Hellenic Republic takes roughly the same line of argument as the Commission. As regards the product market, it regards the distinction between raisins and sultanas as arbitrary, unproven and not supported either by Community law or by international commercial practice, and therefore incapable of supporting any legal inferences. Moreover, there was a serious disturbance at the time when the protective measures were adopted and it had persisted throughout the period of their application. Far from disproving the existence of a disturbance or of a serious threat of disturbance of the market, the fact that the Greek production of sultanas for 1984 had been totally absorbed before the end of the commercial year is proof that the protective measures were effective.

B — The illegality of the countervailing charge

13. According to the Association, the introduction of the countervailing charge was unlawful because it was not authorized by Article 2 (1) of Council Regulation No 521/77, either expressly or by implication. It could not be regarded as authorized by implication because it was not less restrictive than the measures provided for by the regulation but was, on the contrary, penal, arbitrary, uncertain and wholly unreasonable in its effects. Lastly, the flat rate of the charge which was payable even if import prices were below the minimum price only by a slight amount and through no fault of the importer, was unjustified and gave rise to uncertainty and to financial losses for traders.

14. The Netherlands Government agrees that Regulation No 516/77 contains no express authorization for the introduction of a countervailing charge and for that reason it wonders whether the Commission exceeded its powers. In order to ensure that its rules remained effective when the minimum price was not observed, the Commission could have availed itself of the possibility provided for in Article 2 (1) of Regulation No 521/77 of suspending imports, totally or partially.

15. The Commission argues that the imposition of the charge was a less restrictive measure than the suspension of imports. The fact that no express provision was made for the charge did not mean that it could not be imposed. The level of the charge represented the difference between the minimum price and the lowest price on the world market and was intended to ensure Community preference and the stability of the Community market.

16. In the view of the Greek Government, the countervailing charge constitutes an essential component of the minimum-price system; it is indispensable if that system is to function properly and be consistent with the case-law of the Court.

2. The principle of proportionality

17. The Association maintains that the original minimum-price system and the introduction of the countervailing charge contravened the principle of proportionality inasmuch as the measures were wider in their scope, longer in their duration and in many respects more draconian than anything which could have been justified by reference to the aim of the legislation. The system applied not only to sultanas but also to raisins, which were not produced in the Community in any significant quantity. The system remained in force for almost three years without any disturbance, or threatened disturbance, being recorded on the market in sultanas.

18. Secondly, the system was difficult to comply with because it was impossible to foresee at the time when each contract was made what the import price would be on completion of the customs formalities. That difficulty was accentuated by the system of convening the price from ecus into the various national currencies.

19. Thirdly, even a slight undercutting of the minimum price resulted in the levy of the whole countervailing charge at the fixed rate, with disproportionate consequences.

20. Lastly, the minimum price drew no distinction between imports in bulk and imports in retail packs, despite the appreciable difference in value between the two forms of consignment.

21. The Netherlands Government regards the setting of a fixed-rate countervailing charge as a breach of the principle of proportionality, because it penalizes a marginal undercutting of the minimum price no less severely than a more serious one.

22. The Commission takes the view that the measures adopted are less unfavourable to importers than a total suspension of imports. It is thus somewhat contradictory to assert that the minimum-price system was a disproportionate measure whilst at the same time advocating the adoption of the most unfavourable solution, the suspension of imports.

23. The Government of the Hellenic Republic maintains that the protective measures adopted are not disproportionate and remain within the limits of the Commission's discretionary powers. It refers to the previous arguments regarding the products in question and the duration of the threat of a serious disturbance of the market.

24. As regards, more particularly, the level of the minimum import price fixed by the Commission, the Greek Government submits that the criterion is not the difference between the minimum price and the production price in the Community but the relationship between the minimum price and the price charged by traders in nonmember countries.

25. Similarly, the criticism of the application of a countervailing charge at a fixed rate is unfounded in view of the aim of that charge, namely to ensure that the minimum import price is observed.

3. The statement of reasons for Regulation No 2742/82

26. The Association maintains that the reasons recited in the preamble to Regulation No 2742/82 and the other regulations which kept it in force for three years are unparticularized, superficial and inadequate. Although the protective measures covered both raisins and sultanas, the only specific reference to any market situation to be found in the preamble related only to sultanas; there was no mention of the market situation as regards raisins. Even in the case of sultanas, the Commission failed to mention any consideration other than that ‘import prices remain too low’; that reasoning is particularly deficient.

27. The statement of reasons was also defective inasmuch as the countervailing charge was fixed at levels which bore no logical relation to the prices charged in nonmember countries.

28. The Netherlands Government considers that there are possible deficiencies in the statement of reasons for the measures, since it does not afford answers to all the questions raised.

29. The Commission considers that the statement of the reasons on which its regulation is based is perfectly clear and detailed. The recitals show that the factors which Regulation No 521/77, and in particular Article 1 thereof, requires the Commission to take into account were carefully considered. Similarly, each of the regulations amending the original system set out clearly the reasons which had induced the Commission to make the amendments.

30. The Government of the Hellenic Republic takes the same view; it considers the reasoning in Regulation No 2742/82 and its amending regulations sufficient.

The second question

31. The Association submits that Council Regulation No 2089/85 and Commission Regulations Nos 2237/85 and 2238/85 are invalid for two reasons: (i) breach of the principle of proportionality, and (ii) inadequate reasoning.

1. The principle of proportionality

32. The Association describes the changes which the new Council regulation made to the system of protective measures: the express provision for a countervailing charge on a sliding scale in the event that the minimum import price is not observed, the inclusion of currants in the system, and the possibility of taking account of the effects which the packaging of dried grapes might have on their price.

33. However, the Association claims that the new system also offends the principle of proportionality. In the first place, it imposes protective measures in respect of raisins, which are not produced in the Community.

34. In the second place, the measures apply even during periods in which Community production has been exhausted, as occurred in March and April 1986.

35. In the third place, the absence of any effective provisions to counteract changes in the minimum price due to frequent currency fluctuations continues to create enormous uncertainties and to disrupt normal trading practices.

36. In the fourth place, the scale of the countervailing charges is excessively high.

37. In the fifth place, the level of the minimum price was significantly increased so that it is still too high in relation to the Greek market price.

38. In the sixth place, the Commission has still not taken account of price differences due to the packaging of the product.

39. Lastly, if and in so far as the new minimum price system, and in particular Article 1 (2) of Commission Regulation No 2237/85, has the effect of excluding from the ‘import price’ any part of the transport and insurance costs incurred in transporting the goods to the Community port of destination, then the new system in this respect too offends against the principle of proportionality.

40. The Netherlands Government takes the view that the new system of protective measures differs in its aims from the former system. Whereas the former system sought to safeguard the Community market in dried grapes from serious disturbances caused by imports, the new system is designed to enhance the stability of the market and ensure the proper functioning of the aid system. The minimum price scheme has thus become a permanent, standard instrument of market control, in keeping with the basic principle underlying Regulation No 988/84.

41. In view of that goal, the Netherlands Government believes that there is now less doubt as to the legality of the scheme covered by the first question. Its reservations relate only to the excessively high level of the minimum price and the absence of any distinction between raisins and sultanas. The measures in question are disproportionate to their stated aim; they give more protection to the Community market than is necessary. Nevertheless, the Netherlands Government is unsure whether those reservations are so weighty as to cast doubt on the validity of the regulations concerned.

42. The Commission observes that the arguments invoked against the validity of the new system are so succint and general that it is unable to answer them. It refers to its observations on the first question and reserves the right to reply in detail during the oral procedure.

43. The Government of the Hellenic Republic also reserves the right to reply in detail during the oral procedure. For the time being it argues that the fact that the new system makes express provision, in the interests of legal certainty, for a countervailing charge does not in itself constitute an a contrario argument with which to contest the validity of Regulation No 2742/82, which was not based on any such express provision.

44. Furthermore, the setting of the minimum price at a higher level than the Greek market price is proportionate to the intended purpose mentioned in the preamble to Council Regulation No 2089/85, namely to relate it to the aid system provided for in Article 3 of Regulation No 516/77.

45. The Council confines its observations to the question of the legality of Council Regulation No 2089/85. It submits that the general aim of the framework regulation, Council Regulation No 516/77, was to compensate processors who pay higher prices to Community producers, thereby safeguarding the fundamental principle of Community preference. Its regulation lays down general rules for giving effect to that principle. Even on the assumption that no raisins were produced in the Community, they are nevertheless a very close substitute which, if freely imported, could rapidly flood the market in currants and sultanas produced within the Community, thereby endangering the stability of the market. The Council therefore maintains that, in adopting the regulation, it did not introduce any measures going beyond what was necessary to achieve the aim of market stability for the product in question. In any event, it has a wide discretionary power in that regard, as the Court has held in previous judgments.

2. Statement of reasons for the regulations in question

46. The Association submits in the first place that there is a total lack of reasons for the inclusion of raisins in the new system of protective measures. Secondly, Regulation No 2238/85 provides no indication of the considerations which the Commission took into account when fixing the minimum price in the light of the factors to which regard must be had in accordance with Article 4a of Regulation No 516/77. Thirdly, Regulation No 2237/85 gives no reason for the absence of differentiation between products in bulk and packaged products, despite the fact that such a distinction is now expressly provided for in Council Regulation No 2089/85.

47. The Netherlands Government considers that the reasons given for the measures in question may be deficient.

48. The Commission considers that it is not in a position to reply to such cursory and general allegations and reserves the right to state its views during the oral procedure.

49. The Commission's opinion is shared by the Government of the Hellenic Republic, which considers that the reasons given for the regulations are quite adequate.

50. The Council considers that the reasons given for its regulation are adequate and respect the previous decisions of the Court, in particular its judgments of 12 July 1979 in Case 166/78 Italy v Council [1979] ECR 2575, and 30 September 1982 in Case 110/81 Roquette frères SA v Council [1982], ECR 3182.

3. The answers to be given to the questions referred to the Court

51. The Association proposes the following answers :

‘(1) Commission Regulation (EEC) No 2742/82 (as amended from time to time), together with its provisions for a countervailing charge, was unlawful and invalid as from the time of its introduction.

2) Council Regulation (EEC) No 2089/85 and Commission Regulations (EEC) Nos 2237/85 and 2238/85 (as amended) together with their provisions for the imposition of countervailing charges are unlawful and invalid as from the time of their introduction.’

52. The Commission proposes the following answer:

‘Consideration of the questions submitted has disclosed no factor of such a nature as to affect the validity of Regulations (EEC) Nos 2742/82, 2089/85, 2237/85 and 2238/85.’

53. The Government of the Hellenic Republic proposes that the Court should rule:

‘Consideration of the questions raised has revealed no factor of such a nature as to affect the validity of Commission Regulation No 2742/82, Council Regulation No 2089/85 and Commission Regulations Nos 2237/85 and 2238/85.’

54. The Council requests the Court to rule that Regulation No 2089/85 is both lawful and valid.

C. Kakouris

Judge-Rapporteur

1 Language of the Case: English.