Report for the Hearing delivered in Case 203/86

I — Facts

A— The milk sector in the European Economic Community

1. The common organization of the market in milk and milk products is governed by Regulation No 804/68 of the Council of 17 June 1968 (Official Journal L 148, p. 13), which has been the subject of several amendments. The market organization in question is a ‘complete’ organization because it provides a very firm guarantee to producers in the form of intervention mechanisms operating under an ‘open window’ system and ensuring that any milk which has not found a more attractive economic outlet is purchased as butter or powdered skimmed milk by the national intervention agencies. The cost of paying the intervention prices fixed by the Council for each milk year is borne by the European Agricultural Guidance and Guarantee Fund, Guarantee Section. The guarantee provided by the ‘open window’ system or system of unlimited purchase of the product resulted in substantial structural surpluses. In this connection, in tables set out in annex 4 to its application, the applicant, the Kingdom of Spain, draws attention to the following statistics: (a) ECU 6553 million spent in intervention by the EAGGF (Guarantee Section) in 1985 (compared with 3300 million in 1982); (b) 890000 metric tonnes of butter and 405000 tonnes of milk powder stocked in 1985. The applicant notes that in practice the Community producers, with the exception of the small percentage of direct sales to the consumer, deliver the majority of their production to central dairies (annex 5 to the application) which decide, on the basis of their commercial outlets, to process the surpluses into intervention products. The applicant stresses that numerous attempts to increase the awareness and sense of responsibility of producers with regard to the problem of surpluses failed up until 1984. It draws particular attention to the co-responsibility levy introduced by Council Regulation No 1079/77 of 17 May 1977 on a co-responsibility levy and measures intended to expand the markets in milk and milk products (Official Journal 1977, L 131, p. 6), according to which producers were to pay a levy corresponding to a percentage of the target price fixed for each milk year. In 1984, in view of the upward trend of production, the Council adopted Regulation No 856/84 of 31 March 1984 amending Regulation No 804/68 on the common organization of the market in milk and milk products (Official Journal L 90, 1.4.1984, p. 10), which introduces, for a period of five years, an additional levy, applying to the quantities of milk produced and sold exceeding a fixed guarantee threshold, in other words a total guaranteed quantity for each Member State, which divides the quantity in question between the producers by allocating to each producer an annual reference quantity for the milk delivered to purchasers who are not final consumers. The Council also adopted, on 31 March 1984, Council Regulation No 857/84 adopting general rules for the application of the levy referred to in Article 5 c of Regulation (EEC) No 804/68 in the milk and milk products sector (Official Journal 1984, L 90, p. 13), which fixes the amount of the additional levy at a percentage corresponding to 75 or 100% of the target price of milk, as the case may be. This regulation also allocates to each Member State a quantity which indicates the limit of direct sales to consumers in each State, this limit being determined by the sum of the individual reference quantities of each producer. Consequently, Regulations Nos 856/84 and 857/84 establish in practice for each Member State a system of production limits which is constituted by a total guaranteed quantity for all the milk delivered to purchasers and a quantity equivalent to the sum of the reference quantities for the producers who sell directly to consumers. The sum of these two figures represents what are commonly referred to as the ‘milk quotas’ for each Member State, the term used in practice and in the application.

2. The Council considers that the incomplete nature of the description given by the applicant of the measures introduced by the abovementioned regulations does not accurately reflect the true situation. Accordingly, it feels that it is necessary to make the following observations. With a view to collecting the additional levy, a total guaranteed quantity for the whole Community was introduced. For the purposes of the administration of this system, this total quantity was divided up between the Member States on the basis of the quantities of milk delivered on their territories over the reference period which was 1981 for all the Member States, except Italy and Ireland, for which the reference period was 1983 because of the special features of their milk sector. The Council observes that the total quantities thus divided up between the Member States were fixed, as far as deliveries to dairies were concerned, in Regulation No 856/84. This regulation provides further that the additional levy is also payable in respect of the quantities of milk sold directly to consumers in excess of a reference quantity to be determined. As regards direct sales, the total quantities were fixed in the implementing regulation, Regulation No 857/84. This distinction between products delivered to dairies and products sold directly to consumers was necessary because direct sales are part of a specific economic and commercial structure, although representing only a very small percentage of milk produced in the Community. According to the Council, the total quantities per Member State, whether relating to sales to dairies or direct sales, in fact correspond to the sum of the reference quantities calculated for each producer or for each dairy in each Member State. In other words, when the applicant speaks of guaranteed production quantities, this expression corresponds to the true situation only in relation to farmers or dairies which buy from those farmers and the notion of total quantity per Member State simply represents the sum of the basic quantities on which the system is founded. Consequently, the Council notes that, even though it is true that the additional levy system is commonly referred to as the ‘milk quotas system’, it has to be understood that there is no question, either in legal or practical terms, of there being ‘milk quotas per Member State’, but only milk quotas per farmer or dairy.

3. In its reply, the applicant states that it uses the expression ‘milk quotas’ in its accepted usage and not as a basic legal concept and that in employing the expression total guaranteed quantity for Spain or ‘milk quota’ for Spain to refer to the delivery to the central dairies, or the expression reference quantity to indicate direct sales, it uses the terminology appearing in the contested regulations. Furthermore, the applicant denies that the concept of ‘milk quota’ is a nonexistent concept, since it is clear that a number of total guaranteed quantities, allocated or fixed for each Member State, were established, whatever they were called (‘total quantities’, ‘reference quantities’ or ‘milk quotas’), and that ultimately each Member State has a milk production quota.

4. The Council states in its rejoinder that it stressed the inaccuracy of the expression ‘milk quota per Member State’ in order to draw attention to the two practical and legal implications of the applicant's action. In the Council's view, by arguing, in its reply, that the implementation of the system for purchasing milk quotas presupposes inevitably, from the point of view of the national economy taken as a whole, a reduction in Spanish milk production and, consequently, an increase in unemployment, the applicant contests in the first place the macroeconomic effects which this decrease will entail for the Spanish economy taken as a whole, quite independently of any effects on the quotas of individual producers.

5. The Commission, which fully supports the account of the facts submitted by the Council, merely states its position on the aspects on which the parties are not in agreement as to the facts. As regards the notion of ‘milk quota per Member State’, it notes that in using this concept the applicant falls into the trap of terminological and conceptual imprecision identified by the Council and uses it as a synonym for other expressions, in particular ‘reference quantity for direct sale’. In this respect, the Commission wishes to state that the reference quantities are those allocated to economic operators, purchasers or producers and, as far as the latter are concerned, both to those who deliver to dairies and to those who sell directly to consumers. It also mentions the notion of total guaranteed quantity for the Member States, a notion which takes the form of two total guaranteed quantities, one for the deliveries of each Member State, governed by Article 5 c of Regulation No 804/68 amended by Regulation No 1335/86, and the other, the total quantity for direct sales, the amount of which is fixed in the annex to Regulation No 857/84, amended most recently by Regulation No 1343/86. According to the Commission, these two quantities are not identical and should therefore not be confused. This was the technique used by those who drafted the Community regulations in order to reconcile the obligation, on the one hand, to fix for producers or purchasers specific quantities for deliveries and purchases and, on the other, to allow Member States a certain discretion without, understandably, their being able under any circumstances to exceed the total guaranteed quantities. The Commission considers that it is necessary to emphasize this point in so far as the applicant's arguments are based on the overall situation of the Member States and not that of their producers. This approach disregards the fact that there are considerable differences within the Community between different types of holding, not only from one Member State to another, but also within the individual Member States themselves. Thus different categories of producers can be established irrespective of their nationality. It is, consequently, impossible to accept the overall approach which the applicant seeks to impose and which would appear to lead to the conclusion that the reduction in the percentage of certain milk quantities, under the regulations in question, had the effect of placing all Spanish producers at a disadvantage in relation to those of other Member States.

B — The milk sector in Spain and accession to the European Communities

1. According to the applicant, the situation in the milk sector in Spain prior to its accession to the European Community was notable essentially for the following features: deficiencies in the production and commercialization structures; lack of surpluses (domestic production covering 92% of national consumption); and the concentration of production in very limited areas which were heavily dependent on that production. The applicant notes that throughout the conference on negotiation for accession to the EEC, Spain requested the fixing of quotas covering at least the production for the year immediately preceding that of the Agreement (1984), with foreseeable increases agreed in the course of the last year of negotiation to take account of programmes under way to develop and improve existing structures. During the last session of the negotiation conference held on 6 and 7 June 1985, the Spanish delegation accepted the quotas proposed by the representatives of the ‘Community of Ten’, quotas which were fixed below the production level for 1983, as it appeared in the statistics available at the time. In addition, it issued a detailed declaration concerning the milk sector in which it referred to its concern regarding the negative consequences that the conditions agreed upon would entail for producers and it reserved the right to increase the quantities which had been fixed (annex 9 to the application).

2. The Council notes in this respect, that in the course of the accession negotiations, Spain never contested the system of intervention prices or the system limiting milk production in the Community. According to the Council, these negotiations concerned only the agreement relating to the fixing of the level of total guaranteed quantities for Spanish farmers and dairies, these quantities having been fixed on the basis of the total milk production in Spain in 1983. In the Council's view, the choice of the year 1983, which was taken as the reference year, was favourable to Spain because the quantities guaranteed to other Member States had been fixed in 1984 on the basis of 1981, with the exception of Italy and Ireland, for which the year 1983 had also been chosen. Spain had therefore received more favourable treatment than the majority of the Member States, treatment comparable to that accorded to Italy and Ireland. The Council maintains further, contrary to what is alleged in the application, that the Kingdom of Spain in the declaration issued by the Spanish delegation in the course of the last session of the Negotiation Conference, neither expressed opposition to the total quantities fixed for the Spanish territory nor reserved the right to increase those quantities. It maintains that the Spanish delegation merely mentioned that it was possible that the statistics used to fix the total quantities were significantly lower than the quantity of milk produced in Spain over the reference year, and it also reserved the right to request that the quantities fixed for sales direct to the consumer be transferred to the reference quantities fixed for dairies. The Council adds that the Community delegation replied to this declaration by indicating that the figures for milk quotas applicable to Spain ‘represent a compromise between the Member States of the Community and Spain’.

3. In its reply, the applicant argues, in the first place, that if the total guaranteed quantities for each Member State were fixed in 1984 on the basis of quantities of milk delivered in 1981, plus 1%, and if, for Spain, the total guaranteed quantity is to come into force in 1986 and if 1983 production is taken as the reference year, Spain did not receive more favourable treatment, in particular because 1 % was not added to its 1983 production in order to fix the total quantity for 1986, as had been the case for the 1981 production in other Member States. Secondly, in relation to Italy and Ireland, Spain's position is much more unfavourable. By fixing the total quantity guaranteed for 1984 on the basis of the 1983 production, Italy and Ireland did not have to reduce their production but merely maintain it at the same level. On the other hand, Spain will have to reduce its production to the 1983 level by eliminating the production increases of 1984 and 1985. The applicant then argues that the distribution of the Community reserve referred to in Article 5 c (4) of Regulation No 804/68 is further evidence of the discriminatory treatment meted out to Spain. This reserve is constituted with a view to supplementing the guaranteed quantities of Member States in which the implementation of the levy system gives rise to difficulties which may affect their supply and production structures. The applicant notes that it is precisely such difficulties which Spain will face as a result of the reduction of production quotas, which means that it would have been reasonable to authorize Spain to participate in the distribution of the Community reserve. Nevertheless, at the meeting on 5 March 1986 of the ‘Milk Products’ working party, the application submitted by the Spanish delegation for an increase of the total quantity allocated to Spain of between 100000 and 200000 tonnes, with a view to making good certain errors in the figures of Spanish production and an increase in Spanish production, was rejected. Finally, the applicant reaffirms, in relation to the declaration issued by the Spanish delegation at the last session of the negotiation conference, that it is clear that Spain reserved the right to ask the Community institutions to increase the quantities fixed if there appeared to be a significant difference between the figures available at the time of the negotiation and the figures resulting from the introduction of VAT and the mechanisms of the common organization of the market.

4. The Council repeats in its rejoinder that the applicant was accorded more favourable treatment than the majority of the Member States as regards the determination of the reference production, because for 1986 it was allocated a guaranteed total quantity equivalent to its actual production for 1983, whereas for the same year the production of other countries of the Community (with the exception of Italy and Ireland) was limited to the quantities produced in 1981 plus 1%. In the Council's view, the production for the year 1981 plus 1%, used as the reference production, meant in the Member States in question a decrease in real terms in the order of 4% in relation to the 1983 production. The producers concerned were thus allocated production quotas which were on average 4% lower than their 1983 production. On the other hand, in Spain, as in Italy and in Ireland, the producers were allocated a quota which amounted to 100% of their actual production for 1983. The Council takes the view that the distribution of the Community reserve is the responsibility of the Commission and that it has no competence to examine whether this distribution was effected appropriately. In fact, it considers that this question is entirely outside the ambit of the present application. Finally, according to the Council, in the declaration made during the last session of the negotiation conference, the Spanish delegation merely reserved the right to review the figures which had been supplied as figures for 1983 should it appear from new statistics that these figures were the result of an error of calculation; they did not reserve the right to seek an increase in the total quantities fixed for Spanish territory.

5. The Commission notes that the applicant's argument regarding the negotiations relating to the Act of Accession, which in reality is directed against the contents of the Act of Accession itself, is not relevant in determining the lawfulness of subsequent legislation. It considers it nevertheless helpful to make the following observations. (a) With regard to the question of the reference year taken for Spain, the Commission states that the choice of the year 1983 was in no way intended to place Spain at a disadvantage in relation to the other Member States. The Commission draws attention to the fact that the Council decided that the guarantee threshold for milk would be fixed each year in order to ‘achieve a better organization of production and relieve the burden on the Community budget’. It states that: (i) the guarantee threshold for 1982 was fixed by Article 2 of Council Regulation No 1184/82 of 18 May 1982 (Official Journal 1972, L 140, p. 2) at the level of the quantity of milk delivered during the civil year 1981 to the undertakings effecting the processing of milk, plus 5%, corresponding to the forecasts of annual increase in consumption; (ii) the following year, an identical procedure was followed under Article 2 of Regulation No 1205/83 of 17 May 1983 (Official Journal 1983, L 132, p. 1). The Council had fixed the guarantee threshold for 1983 at the level of deliveries for 1981 plus 1%, in other words an increase of 0.5% in relation to the level established for 1982; (iii) with the introduction of the additional levy under Council Regulation No 856/84, the guarantee threshold fixed for 1983, in other words that of 1981, plus 1%, served as the basis for determining the total quantities guaranteed per Member State, since an additional annual increase of 0.5% had not been considered appropriate in view of the stabilization of production. The Commission concludes that the choice of the reference year for the additional levy system was made strictly with reference to the objective of stabilizing the markets as set out in Article 39 (1) of the EEC Treaty, as was the fixing of the guarantee threshold from which that choice derives. Thus it is not the case that 1983 was chosen for some, and 1981 for others. In fact the quantity was fixed as a notional amount for certain States and at the real amount for others (Italy and Ireland, and, in this case, Spain). (b) The Commission considers that the Spanish request to have access to the Community reserve was one which did not succeed at the time although, on a formal level, distribution of this reserve had not yet been decided for the period between April 1986 and March 1987. It does not think that the situation in Spain was so unfavourable that such a request was justified. In any event, the Commission notes that this question is totally unrelated to that of the regulations whose annulment is sought. (c) The Commission maintains in addition that the declaration made by the Spanish declaration at the last negotiating session, which puts on record Spain's disagreement regarding the figures for the total quantities established for milk has, as such, solely the legal force which may be attributed to declarations of an international nature made by States in the course of Treaty negotiations. The Commission notes that the Court of Justice has repeatedly held, most recently in its judgment of 30 January 1985 in Case 143/83 Commission v Denmark [1985] ECR 427, at pp. 432 to 437, that unilateral declarations of Member States may not be taken into consideration in interpreting rules adopted by the Communities inasmuch as the objective field of application established by the common institutions cannot be modified by any reservations and objections that the Member States might have formulated when the rules in question were adopted. Furthermore, the Spanish delegation's declaration, which does not express a view contrary either to the system of total quantities as such or to the actual method adopted in determining them, merely indicates the possibility that Spain may reserve the right to request the Community authorities to review the quantities established if it appeared that there were a significant difference between the statistics after specific factors have been taken into account, such as the introduction of VAT or the setting-up of the mechanisms for the common organization of the market. The Commission observes that the applicant has not provided, either in its application or its reply, statistics which, after the influence of the abovementioned factors has been taken into account, are such as to justify the alteration or increase of the quantities fixed.

C — The contested regulations

1. Two years after the reduced quotas were fixed under Regulations Nos 856/84 and 857/84, the Council, on the basis of new proposals from the Commission resulting from the realization that the level of quotas was higher than was desirable to achieve a balance between supply and demand, adopted on 6 May 1986 Regulation No 1335/86 amending Regulation (EEC) No 804/68 on the common organization of the market in milk and milk products (Official Journal 1986, L 199, p. 19) and Regulation No 1343/86 amending Regulation (EEC) No 857/84 adopting general rules for the application of the levy referred to in Article 5 c of Regulation (EEC) No 804/68 in the milk and milk products sector (Official Journal 1986, L 119, p. 34), which are the subject of this action. Council Regulations Nos 1335/86 and 1343/86 in substance provide for a reduction of 3% in the total quantities guaranteed to each Member State respectively for the quantities fixed in Regulation No 856/84 for the milk delivered to purchasers who are not final consumers and for the quantities sold directly to consumers. These reductions were to take effect from 1 April 1987. According to the applicant, this situation will affect the Spanish producers. In the first place, in 1986 they will feel the effects of a first reduction exceeding 5%, in other words the percentage by which the 1985 production exceeded that of 1983, the reference date for determining Spanish quotas in the Act of Accession and, secondly, an additional reduction of 3% will apply from 1987, as a result of the application of the contested regulations. The damaging effects of those measures and the unlawfulness of the procedure under which they were adopted forced the Spanish representative to vote against them at the Council session during which the two regulations were adopted. This negative vote was preceded by the declaration submitted at the session of 21 and 22 April 1986, which is produced as annex 10 to the application.

2. The Council maintains that, with a view to avoiding traumatic effects for farmers, it planned that the reduction of 3% would take effect one year after the publication of Regulations Nos 1335/86 and 1343/86 and in two stages, namely a first reduction of 2% for the period between 1 April 1987 and 31 March 1988 and a second reduction for the period between 1 April 1988 and 31 March 1989. In addition, Council Regulation No 1336/86 of 6 May 1986 fixing compensation for the definitive discontinuation of milk production (Official Journal 1986, L 119, p. 21) provides that the reduction of total quantities is to be facilitated by a Community system of repurchasing milk quotas. The Council observes that, if 3% of the total quantity is repurchased under Regulation No 1336/86, no compulsory reduction will in fact be imposed on the level of quotas of individual producers.

3. The Commission notes in the first place that the proposals which it submitted to the Council and which led to the adoption of the contested regulations were based on a number of measures for the voluntary discontinuation of milk production by producers, measures intended to reduce the total production by 3% with a view to resolving the problems experienced by the Community's milk sector. In the course of the discussions concerning the abovementioned proposals within the Council, the participants reached an agreement that, if) the reduction in question were not attained, the Member States would have to reduce the reference quantities allocated to their producers by an amount for which a maximum ceiling was fixed. In the Commission's view, doubts on the question whether the system of voluntary reduction would succeed and the insistence of the Member States on securing an absolute guarantee that the reductions would be the same for each Member State with a view to attaining the necessary overall objectives led to this necessary reinforcing of the system. The Commission notes that the measures adopted by the Council included Council Regulation No 1336/86 under which compensation is fixed for the voluntary and definitive discontinuation of milk production which may have a significant effect with regard to the achievement of the overall objective pursued. In addition, the system is sufficiently flexible to allow the Member States to use, not at the level of the reduction of the production but at that of the restructuring of the sector, the possibilities available to them under Regulation No 857/84. The Commission observes further that the various measures referred to above continued to be insufficient to remedy the situation of the Community's milk sector and that, following the adoption of the regulations in question, it found itself obliged to propose new provisions. On 16 December 1986 the Council reached agreement (the relevant regulations have not yet been adopted) on a solution consisting of, first, the introduction of permanent derogation for intervention purchases and, secondly, the imposition of an additional decrease in the overall production, in addition to the reductions already fixed by the contested regulations, this decrease being 6% (2% and 4%) on 1 April 1987 and 2.5% (1% and 1.5%) on 1 April 1988. The Commission points out that these decisions confirm that the measures adopted in May 1986 are permanent — unlike the situation with regard to the new suspension accorded provisionally of 4 and 1.5% — and general inasmuch as they apply to all the Member States (whereas the new measures contain various derogations or specific solutions).

II — Written procedure and submissions of the parties

1. The Kingdom of Spain's application was registered at the Court Registry on 4 August 1986.

2. By an order of 3 December 1986 the Court granted the Commission of the European Communities leave to intervene in support of the Council's conclusions.

3. The written procedure followed the normal course. Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without a preparatory inquiry.

4. The applicant claims that the Court should: Declare void Council Regulations Nos 1335/86 and 1343/86 of 6 May 1986; Order the defendant to pay the costs.

5. The Council contends that the Court should: Dismiss the Kingdom of Spain's application; Order the applicant to pay the costs.

6. The Commission, as intervener, contends that the Court should: Dismiss the Kingdom of Spain's application; Order the applicant to pay the costs.

III — Submissions and arguments of the parties

The applicant's submissions in support of its action, which are contested by the Council, defendant, and the Commission, as intervener, are as follows:

A— Infringement of Article 43 (2) of the EEC Treaty

1. The applicant claims that Council Regulation No 1343/86 infringes Article 43 (2) of the EEC Treaty on the ground that the European Parliament was not consulted on the occasion of the preparation and adoption of that regulation. The applicant refers to Article 43 (2) of the EEC Treaty, which constitutes the legal basis on which powers are conferred on the Council for the implementation of the common agricultural policy. It stresses the importance of this policy for all the Community's activities and the social repercussions of measures adopted in this field which, in its view, made it necessary to establish a procedure for adopting provisions which provides a strict guarantee of the institutional balance and secures respect of the different interests at stake. The applicant considers that the attribution of powers to the Council is balanced by the duty to consult first the Parliament which, in accordance with the first subparagraph of Article 43 (2), must give its opinion on all the ‘proposals for working out and implementing the common agricultural policy’. In this connection, the applicant cites the Court's judgments of 29 October 1980 in Case 138/79 Roquette Frères [1980] ECR 3333 and in Case 139/79 Maizena [1980] ECR 3393, according to which ‘the consultation provided for in the third subparagraph of Article 43 (2) ... is the means which allows the Parliament to play an actual part in the legislative process of the Community. Such power represents an essential factor in the institutional balance intended by the Treaty. Although limited, it reflects at Community level the fundamental democratic principle that the peoples should take part in the exercise of power through the intermediary of a representative assembly. Due consultation of the Parliament in the cases provided for by the Treaty therefore constitute an essential formality disregard of which means that the measure concerned is void.’ The applicant points out that Council Regulation No 1343/86 essentially contains two types of measures, in the first place those providing for compensation for producers who wish voluntarily to abandon milk production and, secondly, as far as direct sales are concerned, measures establishing a substantial reduction in the total reference quantities for each Member State. The applicant stresses that Council Regulation No 1335/86, which constitutes the legal expression of a measure having similar effects, was adopted following consultation with the European Parliament, which gave its opinion on 17 April 1986. The applicant points finally to the particularly immediate effects which these measures entailed for Spanish producers, since, in percentage terms, their deliveries to final consumers amount to more than 16% of sales to dairies.

2. The Council considers that it was not under a duty to consult the European Parliament. In the first place, it maintains that Regulations Nos 1343/86 and 857/84 are implementing regulations giving effect to rules laid down by the basic legislation. These two regulations were adopted on the basis of Article 5 c (6) of Regulation No 804/68 which empowers the Council to lay down ‘the general rules for the implementation of this article, and in particular those relating to the fixing of the reference quantities’. In a line of decisions and in particular in its judgment of 17 December 1970 in Case 25/70 Koster [1970] ECR 1161, the Court, basing itself on legal concepts common to all the Member States, has accepted the use by the Council of a simplified procedure for adopting implementing regulations. According to the Court, it is necessary to distinguish between measures based directly on the EEC Treaty and secondary law intended to implement them. As regards the application of this principle to the sector of the common organization of agricultural markets, the Council cites the judgment of 27 September 1979 in Case 230/78 Eridania I [1979] ECR 2749 in which the Court upheld the validity of an agricultural regulation adopted without prior consultation of the Parliament on the ground that ‘it cannot be a requirement that all the details of the regulations concerning the common agricultural policy be drawn up by the Council according to the procedure laid down in Article 43; it is sufficient for the purposes of that provision that the basic elements of the matter to be dealt with have been adopted in accordance with that procedure; on the other hand, the provisions implementing basic regulations may be adopted by the Council according to a procedure different from that under Article 43’. Secondly, the Council considers that the European Parliament did in fact express its views on the reduction of milk quotas. In the opinion which it gave on the ‘1986/87 price package’, the Parliament ‘suggests that there should be a further all-round cut of 3% in the milk quota’ (Official Journal 1986, C 120, p. 88, point 76). Consequently, the Council takes the view that even if it accepted the proposition that the reduction of total quantities for direct sales should have been based directly on Article 43 of the EEC Treaty —and it does not —it cannot be claimed that the Parliament did not give its opinion on this matter.

3. In its reply, the applicant, which considers that Regulations Nos 1343/86 and 1335/86 lay down measures with identical features, raises the question as to why the Parliament was consulted beforehand in the case of Regulation No 1335/86 and not in that of Regulation No 1343/86. It asks in particular where is the fundamental difference between the two regulations which enables the first to be regarded as the basic regulation and the second as the implementing regulation. According to the applicant the fact that the total guaranteed quantities for deliveries are much higher than the total guaranteed quantities for direct sales makes no difference to the identical nature of the measures in question. As regards the Council's argument based on the opinion given by the Parliament on the ‘1986/87 price package’, the applicant argues that the Parliament's opinion on a proposal for a regulation taken as a whole and an opinion issued on a different ground are not the same thing and that accordingly it is impossible to attribute the same legal force to the two opinions.

4. The Council maintains in its rejoinder that the applicant concedes by implication that second-generation regulations which implement the rules laid down by the basic regulations do not necessarily require prior consultation of the European Parliament. As regards the alleged failure to apply this principle in the case of Regulation No 1343/86, on the grounds that Regulations Nos 1335/86 and 1343/86 contain measures having the same characteristics, the Council notes, first, that in formal terms, Regulation No 1335/86 constitutes an amendment of Regulation No 804/68, whereas Regulation No 1343/86 implements Article 5 c of Regulation No 804/68. Secondly, on the substantive level, the Council disputes the applicant's claim that the contents of the regulations are identical. The fact that the annex to Regulation No 1343/86 alters the reference quantities for direct sales of milk by producers, quantities which had been established by Regulation No 857/84, can under no circumstances have the effect of elevating the status of Regulation No 1343/86, which is merely an implementing regulation. Contrary to the applicant's assertion, the fact that, in one case, the total guaranteed quantity appears in a regulation amending the basic regulation (in the case of deliveries to dairies) and, in the other, in an implementing regulation (in the case of direct sales) is not evidence of arbitrariness and is explained essentially by the fact that the signifance of the two figures in economic terms and, consequently, their relative importance for the desired stabilization of the milk market is in no way comparable. In this respect, the Council notes that the total guaranteed quantity for deliveries to dairies is approximately 104 million tonnes for the Community of Twelve, as compared with a total quantity of 4 million tonnes for direct sales. In those circumstances, in view of the importance of the total limit for deliveries in the context of the stabilization of a market with structural surpluses, it appeared necessary that the figure in question should be stipulated in the basic regulation, whereas no such necessity was felt with regard to the total limit for direct sales, which is only of secondary importance. Finally, the Council reaffirms that the European Parliament in any event expressed its view on the reduction of the milk quotas in question. As regards the distinction put forward by the applicant, which the Council considers to be of a formal or indeed formalistic nature, the latter notes that the Court has ruled on cases in which the Parliament was consulted on the basis of draft legislation which the Council had the intention of amending subsequently. It observes that the Court has consistently held that it is sufficient that the Parliament gave its opinion with knowledge of the substantive aspects of the measure to be adopted, and that in particular the changes of method or procedure which have not altered the basic substance of aspects which had been the subject of a consultation do not require a new consultation (see, inter alia, Case 41/69 Chemiefarma NV v Commission [1970] ECR 661 and Case 817/79 Roger Buyl and Others v Commission [1982] ECR 245). This principle, which is moreover entirely consistent with the usual practice adopted by the institutions, was complied with in this case. The 3% all-round cut in quotas on which the Parliament expressed its views in its Opinion regarding the ‘1986/87 price package’ must clearly apply both to the ‘deliveries’ quotas and to the ‘direct sales’quotas.

5. The Commission considers, in support of the Council's argument, that Regulation No 1343/86 is a ‘second generation’ regulation which amends Regulation No 857/84 adopting general rules for the application of the levy referred to in Article 5 c of Regulation (EEC) No 804/68 and that, consequently, as the Court of Justice has repeatedly held — in the cases cited by the Council — there cannot be a requirement that all the deuils of the regulations concerning the common agricultural policy be drawn up by the Council according to the procedure laid down in Article 43 of the EEC Treaty. In the Commission's view, Article 43 of the Treaty was in no way infringed. Regulation No 804/68, which set up the common organization of the market in milk and milk products and which contains the basic principles of that common organization of the market was adopted after the European Parliament had been consulted. The Commission points out that it is solely for reasons of formal parallelism, relating to the technique used in Regulations Nos 856/84 and 857/84, that, like the regulations amending them, Regulations Nos 1335/86 and 1343/86 contain respectively the total quantities for deliveries and those for direct sales per Member State. It maintains that it is because of the low level, in overall terms, of direct sales in the Community in 1984 that the amount of such sales was fixed in the implementing regulation (Regulation No 857/84) rather than in the basic regulation (Regulation No 856/84) which was in any event the measure which established the system, as a whole by amending Regulation No 804/68, and which laid down, in particular, the principle that direct sales should also be subject to the new system. When the two regulations were adopted in 1986, naturally enough the earlier legislative procedure had been followed. In any event, the Commission regards the argument put forward by the applicant as purely and exclusively formalistic inasmuch as, as the Council pointed out, the European Parliament had already expressed its opinion previously on the question whether it was appropriate to adopt a new all-round 3% cut in milk quotas.

B — Infringement of Article 190 of the EEC Treaty

1. The applicant maintains that the statement of the reasons on which Regulation No 1343/86 is based contains no reference to Article 43 (2) of the EEC Treaty which is the basis of the power to adopt a measure reducing the reference quantities allocated to producers in Member States with regard to direct sales. In its opinion, a measure of this nature constitutes one of the fundamental components of the common organization of the market in question and any such action must therefore follow the procedure laid down in Article 43 (2) of the EEC Treaty and reference to that article must be made in the preamble to the regulation in question.

2. The Council challenges this view by maintaining that neither Regulation No 1343/86 nor the Council's power to adopt it are founded directly upon Article 43 (2) of the EEC Treaty. It argues that the regulation's legal basis is to be found in Article 5 c (6) of Regulation No 804/68, expressly referred to in the preamble to the contested regulation in the same way that the said preamble also refers to Regulation No 857/84, amended by the Regulation No 1343/86, and the reasons for that amendment. Nevertheless, the Council contends that in the unlikely eventuality of this statement of reasons being regarded as insufficient, it is enough to have regard to the fact that the Court of Justice has accepted in numerous decisions a so-called per relationem statement of reasons, in particular in the judgment of 20 June 1973 in Case 80/72 Koninklijke Lassiefabrieken [1973] ECR 635, at p. 652 and of 18 March 1975 in Case 78/74 Deuka [1975] ECR 421, and most recently in the judgment of 22 January 1986 in Case 250/84 Eridania II [1986] ECR 117 in which the Court applied this principle to the sector of the common organization of agricultural markets, holding that ‘the statement of the reasons on which regulations are based is not required to specify the often very numerous and complex matters of fact or of law dealt with in the regulation, provided that the latter fall within the general scheme of the body of measures of which they form part.’ In this respect the Council draws attention to the second recital in the preambles to Regulations Nos 1335/86 and 1343/86, and to the first and second recitals in the preamble to Regulation No 1336/86, to show that the reasons for the reduction of the milk quotas appear conspicuously clear in the general scheme of the body of measures of which Regulation No 1343/86 forms part.

3. The applicant maintains in its reply that it has not denied that the preamble to the contested regulation contained all the necessary information in order to determine the reasons leading to its adoption. It takes the view nevertheless that Article 190 of the EEC Treaty also requires that the legal basis on which the power of the institutions to adopt each of the measures which they issue is founded should also be specified. The applicant considers, furthermore, that its view in this respect was endorsed by the Commission which brough: an action against the Council on 17 February 1986 (Case 45/86 [1987] ECR 1493) for a declaration that a number of Council regulations were void on the ground that they were contrary to Article 190 of the EEC Treaty, since the Commission considered that the use of the expression ‘having regard to the Treaty’ amounted to a total failure to state the legal basis of those regulations.

4. The Commission denies in particular the applicant's claim that the Commission accepted its argument on this point, as was allegedly shown by the action brought on 17 February 1986 against the Council in Case 45/86 seeking a declaration that various Council regulations were void on the ground that the expression ‘having regard to the Treaty’ amounted to a total failure to state the legal basis of those regulations. The Commission states that the case referred to concerned a totally different question which bore no relation to the present case. Its view is that every lawmaking measure must have a clear legal basis and that, where a basic regulation is concerned, it is not sufficient to refer to the Treaty in general. The case referred to raises an institutional problem of the interpretation of various articles of the Treaty, in particular Article 113 concerning commercial policy. The Commission nevertheless maintains that in the case of a second-generation regulation, the legal basis of such a measure is an article of a regulation which it amends. In those circumstances, the expression ‘having regard to the Treaty’, which usually appears at the head of the measure in question, serves solely to set the measure in its context by stating whether it falls within the sphere of the EEC Treaty, the ECSC Treaty or the EAEC Treaty.

C — Infringement of essential procedural requirements in the procedure for the adoption of the decision

1. Referring to Article 237 of the EEC Treaty and Article 400 of the Act of Accession, the applicant maintains that the total guaranteed quantity of milk for sales to intermediaries and the total reference quantities of direct sales to final consumers as allocated to Spain in the Act of Accession form part of the body of conditions for the admission of a new Member State, such conditions having been the subject of an agreement between the Member States and the candidate State. It is in its view therefore difficult to accept that part of the conditions for admission, freely agreed between the Member States and the acceding State, can be altered unilaterally by one of the negotiating parties without the other having the opportunity to object thereto. In such circumstances, there is a risk that the overall balance achieved by the negotiation with a view to accession might be upset and jeopardized, thereby establishing an impermissible situation of inequality between two parties to a negotation. In the applicant's opinion, the impermissible nature of such an alteration, because of the overall imbalance to which it would give rise, is particularly clear with regard to the guaranteed milk production quota allocated to Spain. The fixing of this quota was one of the questions discussed at the greatest length and the figures adopted were accepted by Spain only to bring the negotiations to a conclusion. It was for that reason that the Spanish delegation had made a declaration in which it referred to its intention to seek an increase in the quotas. In those circumstances, by reducing by 3%, on a majority vote and against the Spanish vote, the quotas which had been accepted by one of the parties to a treaty as an absolute minimum, the Council committed, according to the applicant, an infringement of the essential procedural rule which requires, for the amendment of a provision included in a reciprocal agreement, the making of a fresh agreement between the parties.

2. The Council maintains, in the first place, that although it is true that Article 6 of the Act of Accession provides that the provisions of that Act may not be amended other than by means of procedures laid down in the original Treaties enabling those Treaties to be revised, Article 8, on the other hand, expressly provides for a derogation from that principle. Article 8 of the Act of Accession provides that the provisions of the Act which amend secondary law are to have the same status in law as the amended provisions and are to be subject to the same rules as those provisions. This procedural provision is intended to reserve to the institutions the power to amend in the future, under the procedure normally applicable to amendments of provisions of secondary law, the measures which they adopted and which were amended by the Act of Accession. This is the case as regards the reference quantities applicable to Spain, which are set out in Annex I, Chapter XIV of the Act of Accession in the form of amendments to Regulations Nos 804/68 and 857/84 and which therefore form an integral part of the adaptations of secondary law referred to in Article 26 of the Act of Accession. The Council notes further that the argument to the effect that the fact that Spain found itself in a minority in a Council vote requiring a qualified majority amounts to an infringement of a reciprocal agreement disregards the fact that Spain became a Member State of the Community as from 1 January 1986 and that its representative in the Council is now in a situation identical to that of all the other members of the Council. In addition, the Council rejects the argument that the amendments provided for in the contested regulations resulted in the upsetting of the overall balance achieved in the accession negotiations. In the first place, it cannot accept that a decision adopted by a majority, even if only a qualified majority, be regarded as an ‘impermissible unilateral alteration’ and, in addition, the Council notes that the reduction of reference quantities was effected in a uniform manner for all the farmers and all the dairies in the different Member States. Finally, the Council stresses that in the Spanish delegation's declaration of 6 and 7 June 1985, the Kingdom of Spain did not contest the total reference quantities which had been fixed and merely raised the possibility that statistical errors had been made and that it might be necessary to transfer quantities destined for direct sale to dairies, as is clear from annex IX to the application.

3. According to the applicant, Article 8 of the Act of Accession is intended to prevent the lawmaking activity of the Community from being paralysed but it applies only to amendments of measures of secondary law which are not transitional in nature, in other words, to mere technical adaptations. The applicant considers that it is not only the measures provided for in the fourth part of the Act of Accession which are transitional in nature, but that a measure such as that fixing a total guaranteed quantity to milk production, which amends a regulation intended to be transitional and to be of limited duration, must be regarded as a transitional measure for the purposes of the procedure for the amendment of such a measure. It states that it is not permissible to put to a majority vote one of the fundamental conditions for accession, which was intended to allow the Spanish milk sector to adapt to its new situation on the Community market. To this end, it was indispensable to complete the period provided for in Regulation No 857/84. Otherwise, the overall balance achieved by the negotiation would be upset. In its view, this overall balance is not limited to a comparison of the situation of operators in the Spanish milk sector with that of operators in other countries of the Community. On the contrary, it must take account of the conditions established not only for the whole of the agricultural sector, but also for all the sectors of general economic activity. From this point of view, there can be no doubt that the reduction of the reference quantity fixed for Spain alters the abovementioned balance. In the applicant's opinion, the Council has misunderstood and failed to read in full the Spanish declaration of 6 and 7 June 1985. Spain clearly expressed its intention to request an increase in the quantity allocated to it if its doubts regarding the accuracy of the figures used to fix the total reference quantity were confirmed and if the real figures were significantly different from the fragmentary data on the basis of which the statistics had been drawn up. The applicant repeats that the fixing of the reference quantities in the Act of Accession had been a transitional measure and that it was precisely for that reason that the quantities in question could not suddenly be altered without Spain's consent.

4. The Council states in its rejoinder that it cannot accept the extension of the concept of transitional measures as put forward by the applicant, which amounts to depriving Article 8 of the Act of Accession of its substance, and, accordingly, of any possibility of concrete application; such an extension would mean that Article 8 of the Act of Accession, contrary to its letter and spirit, would confer on almost all the amendments of secondary law effected by the Act of Accession the character of primary law. In the Council's view it is clear that transitional measures properly so called (the provisions provisionally amending secondary law) are set out solely in the fourth part of the Act of Accession (Articles 28 to 308). On the other hand, the adaptations listed, pursuant to Article 26, in Annex I to the Act of Accession are definitive adaptations of the provisions which are referred to therein. In the present case, it is plain that the amendments made to Regulations Nos 804/68 and 857/84 and those contained in Annex I to the Act of Accession are not transitional provisions. They are provisions amending the regulations in question for the entire duration of the application of the milk quotas system, as the applicant itself recognizes in its reply. As regards the balance created by the Act of Accession, the Council agrees with the applicant when the latter describes it as an overall balance. This balance must be maintained in all spheres, whether in the milk sector or any other sector of the Community economy and, generally, any sacrifice or reduction requested of one of the contracting parties must go hand in hand with the adoption of equivalent solutions or the fixing of equivalent requirements for the other party. On the question of the Spanish declaration of 6 and 7 June 1985, the Council states that this document raised the possibility that there may have been errors in the statistics provided. At no time did the Spanish delegation contest the adoption of the total reference quantities; nor did it reserve the right to request their increase, except in connection with the possibility of statistical errors.

5. The Commission, which fully supports the position adopted by the Council, points, in relation to the claim that the overall balance achieved by the negotiation had been modified and that the contested regulations constituted a unilateral alteration, to what it considers to be the fundamental contradiction underlying the applicant's reasoning in relation to Regulation No 1343/86. It considers inexplicable the fact that, in connection with the procedural submission raised in its application and its reply, the applicant requires reference to Article 43 (2) of the EEC Treaty in the statement of the reasons on which the regulation whose annulment it seeks is based and that subsequently it states categorically, in connection with the next ground for annulment which it puts forward, that the Council could not approve the measures in question on a qualified majority with a negative vote by Spain. In fact it is precisely Article 43 (2) of the EEC Treaty itself which lays down the procedure for approval by a qualified majority in the Council, and following Spain's accession, no express lawmaking provision whatsoever was adopted such as might support the applicant's claim. The Commission considers consequently that this represents an irreconcilable contradiction in the applicant's reasoning.

D — The contested regulations run counter to the objective of ensuring an adequate standard of living for the agricultural community

1. In the applicant's opinion, the 3% cut in the milk production quotas allocated to Spain under the Act of Accession is contrary to one of the fundamental aims of the common agricultural policy laid down in Article 39 of the EEC Treaty, namely, to ensure a fair standard of living to the agricultural community, an aim which the Court has recognized as being particularly important by ruling that it takes precedence in the event of conflict with other common aims such as that of stabilizing the market (judgment of 24 October 1973 in Case 5/73 Balkan-Import-Export [1973] ECR 1091). It points out that small-scale family farms which can produce nothing else will be affected and that the social cost will be enormous in certain regions of Spain in which the milk sector of this type accounts for approximately 70% of agricultural activity, whereas the economic weight of agriculture in relation to all the economic sectors is approximately 30%.

2. The Council notes that the applicant has not submitted any evidence that the contested regulations would prevent Spanish farmers from attaining a fair standard of living. In addition, it has failed to mention the positive effects of the common agricultural policy and has not taken into consideration the application of the system of buying milk quotas. The Council notes that in accordance with its obligation to reconcile the different objectives laid down in Article 39, it may be forced to accept provisionally ‘conflicts between these objectives taken individually and, where necessary, allow any one of them temporary priority in order to satisfy the demands of the economic factors or conditions ... ’ (judgment of 13 March 1968 in Case 5/67 Bens [1968] ECR 125, at p. 147; judgment of 24 October 1973 in Case 5/73 Balkan v Hauptzollamt Berlin-Packhof [1973] ECR 1091, at p. 1112, paragraph 24 of the decision; and judgment of 20 October 1977 in Case 29/77 Roquette [1977] ECR 1835, at p. 1844, paragraph 30 of the decision) and that, as regards the co-responsibility levy, the Court has held that the Council has a discretionary power corresponding to the political responsibilities imposed on it under Articles 40 and 43 (judgment of 9 July 1985 in Case 179/84 Bozetti [1985] ECR 2301). The Council states further that in 1984, in introducing the additional levy, it chose, from the various possible alternatives the one which it regarded as the best adapted to the objective pursued, namely the stabilization of the market. At the same time it represented the ‘method which was both the most effective and which also was the least drastic in its effect on producers’ income.‘ The only alternative solution, which consisted in reducing intervention prices for milk products by ’15% according to the Commission's calculation, would have had a much more negative effect on agricultural incomes than the measure intended to limit milk production, which was not to enter into force until one year after its publication and only progressively, in order to enable farmers to adapt progressively to the new situation.

3. The applicant replies that the system of buying milk quotas, set up under Regulation No 1336/86, presupposes a decrease in milk production which is liable to have negative economic effects for the producer who ceases production, and it makes no difference that the decision in question is voluntary or that compensation is paid in exchange. It is therefore the lesser evil for a large number of producers who, if they do not opt for this solution, risk being ruined. In addition, from the point of view of the national economy in general, the success of the development of the system of buying quotas presupposes necessarily a fall in Spanish milk production, entailing inevitably an increase in unemployment and, accordingly, an increase in poverty and social tension.

4. In its rejoinder, the Council points out that the system of buying back or of voluntarily abandoning, by agricultural operators, of milk production in return for the payment of compensation is one of the measures taken by the Council in order to facilitate the reduction of quotas in order to avoid possible negative consequences for individual producers. If this system operates satisfactorily so that it makes it possible to buy back, on a voluntary basis, 3% of the total guaranteed quantity, a compulsory reduction of individual quotas of producers who continue production could be avoided. Furthermore, such a system may constitute a not insignificant aid to agricultural operators who decide voluntarily to cease their production and the fact that they abandon milk production will enable other producers to obtain more easily an adequate income.

5. The Commission considers that the applicant appears in reality to be attacking the whole Community system of total quantities in the milk sector, which was set up not by the two contested regulations but by the earlier regulations, namely Council Regulations Nos 856/84 and 857/84. The applicant cannot show that a 3% cut in the global guaranteed quantities for the Member States can have an effect which is necessarily, generally and uniformly negative for all producers. If it cannot have such an effect, it is because the reduction provided for in the contested regulation is a residual reduction of the total quantities per Member State, should the objective fixed not be attained by the means of other measures provided for, including Regulation No 1336/86. The Commission is able to accept that taken as a whole the situation may become more difficult and one in which there will be producers who, in economic terms, will be more or less affected according to the financial position of each farm, but it considers that it is not possible, for this reason, to challenge the legal validity of the whole system, which moreover, was not introduced by the contested regulations. The applicant does not — and cannot — challenge the regulations preceding those which it contests in this case and which were in conformity with the objectives of Article 39 of the EEC Treaty when the system in question was set up.

E — Breach of the principle of legitimate expectations

1. According to the applicant, the milk quotas constitute one of the conditions for Spain's admission to the European Economic Community, which are set out in the Act of Accession and which are intended, according to the terms used by the Court itself, to enable the adaptation of the acceding State to the new economic conditions resulting from integration into an economic community. The unilateral alteration of one of these conditions a few months after its negotiation constitutes, in the applicant's view, a serious breach, first, of the expectations which Spain and Spanish economic operators were entitled to have as regards the application of the Community rules and, secondly, of the foreseeable observance of those conditions of accession during, at least, the adjustment period of the acceding State (this period being seven years in the milk sector) or, in any event, during the five-year period provided for in Regulations Nos 856/84 and 857/84. In this respect the applicant cites as authority the Court's judgments of 27 May 1975 in Case 2/75 Mackprang [1975] ECR 607, of 18 November 1975 in Case 100/74 CAM [1975] ECR 1393, of 3 May 1978 in Case 112/77 Töpfer [1978] ECR 1019, of 30 November 1978 in Case 88/78 Kendermann [1978] ECR 2477 and of 16 May 1979 in Case 84/78 Tomadini [1979] ECR 1801.

2. The Council states that the applicant's interpretation of the principle of legitimate expectations is erroneous. This principle, as it has been consistently laid down in decisions of the Court of Justice, concerns, in principle, only individual situations in which an economic operator has taken on firm contractual obligations towards a third party or possesses an interest meriting protection in relation to a public authority under the legislation in force at the time. Thus, in the judgment of 16 May 1979 in Case 84/78 Tomadini [1979] ECR 1801, at p. 1815, cited above, the Court stated that the scope of the principle of legitimate expectations could not be extended to the point of generally preventing the adoption of new rules applicable to situations which arose under the earlier rules. The Court stated further that this restriction on the principle applied particularly in a field such as the common organization of the markets, the purpose of which necessarily involved constant adjustment to the variations of the economic situation in the various agricultural sectors. Referring to the judgment of 25 October 1978 in Case 125/77 Koninklijke Scholten-Honig [1978] ECR 1991, at p. 2005, paragraph 37 of the decision, the Council maintains that this limitation on the principle of legitimate expectations is also to be found in the legal systems of all the Member States. Indeed it is impossible to legislate with the aim of enacting rules applicable to society without injuring, in certain cases, generally, the interests of one or other category of persons.

3. In its reply, the applicant maintains that Spanish operators possess interests meriting protection under legislation in force, which the Spanish authorities adopted with a view to encouraging the development of the sector. The Spanish milk sector had begun a process of increasing exports with a view to improving the efficiency of production and the quality of the product and to maintaining the balance between producers and consumers. To this end, the Spanish Government approved the ‘regulations restructuring milk production’ by Decree No 2466/1981 of 3 July 1981.

4. In the Council's view, the existence of Spanish legislation predating Spain's entry into the common market and designed to promote the expansion of milk production in that country cannot prevent the adoption of measures required by the adjustment of the economic situation of the milk sector to current realities or create a legitimate expectation on the part of Spanish producers. Furthermore, the Council notes that the expansion of Spanish milk production, which was the object of the abovementioned restructuring regulation, was financed by a system of national aids, and that, consequently, the argument that an interest meriting protection was vested in the Spanish operators can have no force in this context since the principle of legitimate expectations cannot apply to relations between States. Finally, the existence of such legitimate expectations on the part of operators is to be ruled out in particular because the Community's difficulties with regard to milk production were well known, not only to the Spanish Government, but also to the operators. Accession to a Community having large milk-product surpluses did not suggest favourable opportunities for the expansion of Spanish milk production, but rather the contrary.

5. The Commission considers that the applicant cannot request at this stage a transitional period on the basis of an alleged legitimate expectation. As regards the contractual undertakings obtained by Spanish farmers and the national measures intended to improve the situation of the sector which were adopted by Spain, the Commission draws attention to the principle of the primacy of Community law laid down in the decisions of the Court of Justice. It observes further that when Regulations Nos 856/84 and 857/84 entered into force, other Member States had expansion schemes which were affected and that therefore the situation in question was not specifically or peculiarly linked to Spain.

F — Breach of the principle of nondiscrimination

1. The applicant stresses in the first place that the principle of nondiscrimination, which is set out in general terms in Article 7 of the EEC Treaty and which applies in particular to the common agricultural policy by virtue of the second subparagraph of Article 40 (3) of the EEC Treaty, constitutes one of the fundamental principles of the Community legal order, as has been held by the Court of Justice; it cites the judgments of 19 October 1977 in Joined Cases 117/76 and 16/77 Quellmebl [1977] ECR 1753, of 13 July 1978 in Case 8/78 Milac v Hauptzollamt Freiburg [1978] ECR 1721, at p. 1733 and of 23 February 1983 in Case 8/82 Wagner v BALM [1983] ECR 371, at p. 387. According to the Court's decisions, discrimination consists in treating differently situations which are identical, or identically situations which are different. In the applicant's view, the contested regulations are contrary to the principles of equality and nondiscrimination inasmuch as they provide for an identical measure applicable to all the milk producers and milk products of the 12 Member States of the Community, without taking into consideration the fact that the Spanish situation is completely different to that of the other Member States and, consequently, required different treatment corresponding to the specific situation of the Spanish milk sector. The situation of the milk sector in Spain differs from that of the Community in three respects. In the first place, Spain has no milk surplus, but, on the contrary, a deficit of approximately 8% in milk and milk products. In addition, Spain did not contribute to the building-up of Community surpluses and its accession to the EEC means a reduction in the imbalance of the Community market. Secondly, Spain has not had the benefit of the price maintenance mechanisms set up by the common organization of the market in milk and milk products established by Regulation No 804/68 of the Council of 27 June 1968. It was these mechanisms which were at the origin of the spectacular increase in production and the building-up of the enormous surpluses which necessitated the introduction of production quotas. Finally, the applicant draws attention to the difference in the production structures of the Spanish milk sector in relation to those of the other Member States. This difference is reflected not only in the lower level of production in Spain but also in the inadequate machinery on the farms and the difficult conditions in terms of climate and soil which result, in this sector, in a level of efficiency which is greatly inferior to the Community average. The sharply differentiated nature of the sector in question was recognized at the negotiation conference for the accession of Spain to the European Communities. Thus the Act of Accession includes various features intended to allow a period for the Spanish sector to adjust without severe shock. In those circumstances, the principle of nondiscrimination required, in the applicant's view, that the 3% cut in production quotas should not be applied to Spain or that the reduction fixed in the contested regulations should not have been uniform, but proportionate in relation to the surpluses of each Member State. The applicant considers that the contested regulations possess the three characteristics which, as the Court has established in its decisions, must be present for a discriminatory measure to be contrary to the principle of nondiscrimination, namely: (a) it must be arbitrary (judgment of 13 June 1978 in Case 139/77 Denkavit v Finanzamt Warendorf [1978] ECR 1317); (b) it must cause actual damage to an economic operator (judgment of 21 January 1976 in Case 40/75 Produits Bertrand v Commission [1976] ECR 1, at p. 8); and (c) it must be intended to be permanent (judgment of 2 December 1971 in Case 5/71 Zuckerfabrik Schöppenstedt v Council [1971] ECR 975, at p. 985). (a) In its view, the contested regulations constitute arbitrary action by the Council. They do not comply with the provisions of Article 39 (2) of the EEC Treaty and the Council, by treating different situations in the same manner, acted in an arbitrary way. By reducing the milk production quota allocated to Spain in the same proportions as that of other Community countries, the Council failed to take into account the objective factor of the difference between the situation of Spain and that of the other countries of the Community. In this respect, the applicant cites the judgment of 11 June 1974 in Case 11/74 Minotiers de Za Champagne v France [1974] ECR 877, at pp. 886 and 887, in which the Court found discrimination to be arbitrary where the competent authority has not acted on the ground of strictly objective criteria. It notes, further, that the terms of the judgment of 29 October 1980 in Case 138/79 Roquette Frères v Council [1980] ECR 3333, at pp. 3358 and 3359 cannot be cited to refute this argument. According to this judgment, where the implementation by the Council of the Community's agricultural policy makes it necessary to assess a complex economic situation, the discretionary power vested in the Council applies equally to the establishment of basic data. If that is true it was precisely in the assessment of the statistics of the true economic situation in Spain that, in the applicant's view, the Council acted arbitrarily, exceeding the limits of its discretion in that respect. (b) The applicant party also considers that the contested regulations cause actual damage to the Spanish operators, as a result of the reduction of their production, which will lead to a lowering of their standard of living, and, in a large number of cases, to their abandoning their activity although they have no other realistic employment opportunities. This situation may give rise to social and political tension in regions such as northern Spain where the milk sector represents 70% of agricultural activity. (c) Finally, the applicant stresses that the regulations constitute discrimination which is intended to be permanent. They do not provide that the 3% reduction of the milk production quota is to be applied for a transitional and clearly defined period. On the contrary, the intention appears to be that the regulations should apply indefinitely since they fix permanent production quotas which are to apply for as long as the regulations apply.

2. The Council observes in the first place that the Court of Justice has already analysed on several occasions the question of the application of the principle of equal treatment and of nondiscrimination in regard to the common agricultural policy. It considers that two fundamental characteristics may be derived from the Court's decisions: (a) in the first place, the various components of the common organization of the markets cannot be applied differently only on the basis of the advantages and disadvantages which they secure to the parties concerned, without distinction between the territories of the Member States (judgment of 13 December 1984 in Case 106/83 Sermide [1984] ECR 4209, at p. 4231, paragraph 28 of the decision, and of 13 July 1978 in Case 8/78 Milac [1978] ECR 1721, at p. 1732, paragraph 18 of the decision); (b) in addition, in assessing the Council's activity in the field of the Community's agricultural policy, it is necessary to take account of the discretion vested in the Council as regards assessing the economic data and the situations of fact and ‘the Court must confine itself to examining whether it contains a manifest error or constitutes a misuse of power or whether the authority in question did not clearly exceed the bounds of its discretion’ (judgment of 29 October 1980 in Case 138/79 Roquette [1980] ECR 3558, paragraph 25 of the decision, cited above). The Council denies further that the Spanish milk sector is ‘totally different’ to that of the other Member States. It is comparable to that of the southern European countries. Italy and Greece are moreover also countries with milk-product deficits and were, nevertheless, subject to the same reductions as the other Member States. Furthermore, the Council considers that the notion of a Member State is not relevant for the purpose of fixing various reference quantities guaranteed to the farmers and dairies of the Community. The Court of Justice endorsed this view in its judgment of 22 January 1986 in Case 250/84 Eridania II, ECR 117, cited above, when it held that ‘such a view is incompatible with the very principle of the common market, in which the undertaking or the Member State responsible for any surplus production cannot be identified’. In the Bozzetti case, the Court of Justice rejected, at paragraph 32 of the decision, the allegation of discrimination against Italian producers, holding that the problem of the imbalance of the milk market in the context of the common organization of the markets had to be resolved by a concerted effort on the part of all the Community's producers in equal measure regardless of the quality of their products and their destination. Secondly, the Council maintains that obviously all the Spanish agricultural and industrial sectors were subject to conditions different to those of the same sectors in the Community, but it points out that this factor, like the different nature of the production structures of the Spanish milk sector, was taken into consideration in fixing the conditions of accession and establishing the transitional measures adopted under the Act of Accession. Finally, the Council denies that the contested regulations are arbitrary, cause damage to Spanish farmers and are intended to be permanent. In its view, the contested regulations are not arbitrary because, by reducing the milk production quotas by an identical percentage for all the Community producers, the Council took into consideration the economic realities of the entire milk sector of the common market, including the Spanish milk sector, and it respected the balance of the system of the additional levy introduced by Regulation Nos 856/84 and 857/84, as supplemented by the Act of Accession. As regards the economic damage suffered by Spanish farmers, resulting from an alleged reduction in their production, the Council maintains that it is impossible to carry out a specific assessment for each economic sector of Spain or of the Community of Ten and to establish whether this sector has or has not suffered damage as the result of the accession process. The Council points out finally, that the measures in question cannot be said to be intended to be permanent since, in the first place, the additional levy was introduced for a limited period of five years (from 1 April 1984 to 31 March 1989) and, secondly, the duration of the contested regulations was even more limited (from 1 April 1987 to 31 March 1989, this period including in addition a transitional period from 1 April 1987 to 31 March 1988).

3. In its reply, the applicant reiterates the arguments set out in its application.

4. The Council adheres to what it says in its defence and states that a common organization of the agricultural market requires an effort of solidarity from all the agricultural producers of the Community and that the concept of deficits at the level of a Member State, with its implicit but inevitable corollary of an alleged right of this Member State to make up this deficit, amounts to affirming the thesis of self-sufficiency at the level of the Member States and accordingly to denying the existence of a common market.

5. The Commission expresses its agreement with all the arguments put forward by the Council and merely adds one final comment. In its view, in determining whether the adoption of the Community measures which it is sought to have declared void actually resulted in discrimination against certain producers it is important not to analyse the position of the Member States but that of the producers. The Commission can only repeat that the contested regulations were adopted as part of a satisfactory general system for establishing rules, which takes account of the specific situations in which the producers may find themselves. It cites in this respect the situations provided for in Article 3 of Regulation No 857/84. The Member States may accord specific reference quantities for producers who are in those situations. They are responsible for determining such measures and empowered to adopt them, this being expressly provided for in the Community legislation. The Commission wishes to stress the fundamental principle set out in the Court's judgment of 25 November 1986 in Joined Cases 201 and 202/85 Marthe Klensch and Others v Secretary of State for Agriculture and Viticulture [1986] ECR 3477, at p. 3503, according to which it falls to the Member States to guarantee the observance of the principle of nondiscrimination set out in Article 40 (3) of the EEC Treaty in connection with the measures implementing the Community legislation for the common organization of the market in the sector of milk and milk products. Where the Community legislation leaves the Member States to choose between various methods of implementation, the latter cannot use this option in such a way that they continue to create, directly or indirectly, discrimination between the producers concerned. Consequently the Commission stresses the fact that observance of the principle of nondiscrimination constitutes an obligation for the Member States and that this principle must be understood as meaning discrimination between producers, including between producers of the same Member State, regardless of their nationality. As regards the claim that the Council acted arbitrarily, the Commission emphasizes in the first place the seriousness of the situation in the sector within the Community and the overriding necessity of reducing production. This reduction, fixed for total quantities in the contested regulations, was to be applicable throughout the Community, including its new members. Since the Council assessed existing economic data and figures, which are objective factors, the Commission takes the view that its action can scarcely be regarded as arbitrary. The contested measures maintain the balance agreed upon and remain in conformity with the spirit and the philosophy of the system which is rooted in the necessary solidarity of all the farmers of the Community, regardless of their nationality, in order to resolve the serious problems of the sector in question.

J. C. Moitinho de Almeida

Judge-Rapporteur

1 Language of the Case: Spanish.