Report for the Hearing delivered in Joined Cases C-267/88 to C-285/88
I — Facts and written procedure
1. Relevant Community legislation
a) Council Regulation (EEC) No 856/84 of 31 March 1984 amending Regulation (EEC) No 804/68 on the common organization of the market in milk and milk products (Official Journal 1984, L 90, p. 10) inserted in Regulation No 804/68 a further provision, Article 5c. That provision introduced, during five consecutive periods of 12 months beginning on 1 April 1984, an additional levy payable by producers or purchasers of cows' milk, whose objective is to curb the increase in milk production while at the same permitting the structural developments and adjustments required. The additional levy system was subsequently extended for three years, that is to say until 31 March 1992 (Council Regulations (EEC) Nos 1109/88 and 1110/88 of 25 April 1988, Official Journal 1988, L 110, pp. 27 and 28). According to Article 5c(l) of Regulation No 804/68, the additional levy system is to be implemented ‘in each region of the territory of the Member States’ in accordance with one of the following formulas:
i) according to Formula A, the levy is payable by every milk producer on the quantities of milk delivered to a purchaser which exceed a reference quantity to be determined (the producer formula) ;
ii) according to Formula B, the levy is payable by every purchaser of milk or other milk products (dairies) on the quantities of milk delivered by a producer which exceed a reference quantity to be determined. The purchaser liable to pay the levy is to pass on the burden in the price paid only to those producers who have increased their deliveries, in proportion to their contribution to the excess over the purchaser's reference quantity (the purchaser formula).
b) The general rules for implementing the additional levy are set out in Council Regulation (EEC) No 857/84 of 31 March 1984 adopting general rules for the application of the levy referred to in Article 5c of Regulation (EEC) No 804/68 in the milk and milk products sector (Official Journal 1984, L 90, p. 13), as amended. According to Article 1(1) of that regulation, the levy had been fixed at 75% of the target price for milk where Formula A (the producer formula) is applied, and at 100% of the target price for milk where Formula B (the purchaser formula) is applied. However, Council Regulation (EEC) No 774/87 of 16 March 1987 (Official Journal 1987, L 78, p. 3) amending Regulation No 857/84 unified the rate applicable henceforth by fixing it, in the case of both Formula A and Formula B, at 100% of the target price for milk. Article 1(2) of Regulation No 857/84 defines the term ‘region’, referred to in the basic regulation (No 856/84), as follows: Regulation No 857/84 also specifies the reference quantity referred to in the basic regulation No 856/84, that is to say the quantity exempt from the additional levy. That quantity is, in principle, the quantity of milk or milk equivalent delivered by a producer (Formula A) or purchased by a purchaser (Formula B) during the 1981 calendar year, plus 1% (Article 2(1)). However, Member States may provide that on their territory the reference quantity is to be equal to the quantity of milk or milk equivalent delivered or purchased during the 1982 or 1983 calendar year, weighted by a percentage established so as not to exceed the guaranteed quantity. That percentage may be varied on the basis of the level of deliveries of certain categories of persons liable to pay the levy, of the trend in deliveries in certain regions between 1981 and 1983 or of the trend in deliveries of certain categories of persons liable during the same period (Article 2(2)). Articles 3, 4 and 4a of Regulation No 857/84 permit the Member States to take account of certain special situations in fixing the reference quantities or in allocating specific or additional reference quantities. According to Article 3, the Member States may grant specific reference quantities to producers who have adopted a milk production development plan lodged before 1 March 1984 or have carried out investments without a development plan (paragraph 1), and to young farmers setting up after 31 December 1980 (paragraph 2). Producers whose milk production during the reference year adopted has been affected by exceptional events (natural disaster, accidental destruction of the farm resources, epizootic) may, on request, obtain reference to another calendar reference year within the 1981-83 period (paragraph 3). Article 4(1) permits the Member States to complete the restructuring of milk production, amongst other things, to grant additional reference quantities to producers carrying out a milk production development plan approved after the entry into force of Regulation No 857/84 (1 April 1984) (Article 4(l)(b)), and to producers engaged in farming as their main occupation (Article 4(l)(c)). Article 4a, inserted by Council Regulation (EEC) No 590/85 of 26 February 1985 (Official Journal 1985, L 68, p. 1) amending Regulation No 857/84 authorizes Member States, for the first 12 months of the system's operation (from 1 April 1984 to 31 March 1985), to allocate the non-utilized reference quantities of producers or purchasers to producers or purchasers in the same region and, if necessary, in other regions. That authorization has been extended on several occasions, most recently for all eight periods of the additional levy system's operation by Regulation No 1110/88. It should be pointed out, moreover, that Regulation No 857/84, as amended, lays down specific rules applicable to some or all of the Member States, which either derogate from the generally applicable rules or permit the Member State concerned to derogate from them:
‘“Region” within the meaning of Article 5c(l) of Regulation (EEC) No 804/68 is defined as meaning all or part of the territory of a Member State having geographical unity and in which the natural conditions, the structures of production and the average yields of the herds are comparable.
The implementation in this region of Formula A or B shall comply with one or more of the following criteria:
i) administrative viability,
ii) the need to facilitate structural change and adaptation,
iii) regional development requirements, one consideration being the need to avoid desertification of certain areas.
The Member States shall send annually to the Commission before 1 January, but for the first time before 1 May 1984, a list of regions with indication of the formula chosen for each of these.’
i) thus, Article 1(2) of Council Regulation (EEC) No 1305/85 of 23 May 1985 (Official Journal 1985, L 137, p. 12) authorizes Italy to postpone application of Article 3(3) of Regulation No 857/84 for the first three periods of the system's operation;
ii) the second subparagraph of Article 10(2) of Regulation No 857/84 provides that in Greece, in the event of the application of Formula B, ‘all purchasers taken as a whole shall be considered as one purchaser’;
iii) Article 12 of Regulation No 857/84, as supplemented by Article 1(5) of Regulation No 590/85, provides that ‘any group of purchasers in the same geographical area which carries out administrative and accounting management operations on behalf of its members shall be regarded as a purchaser, provided that:
a) the quantity collected from each member is less than 165 tonnes of milk per day,
b) the annual average quantity collected from members is less than 30 tonnes of milk per day, and
c) the total quantity collected by the group is less than 1100000 tonnes of milk per year’;
iv) Article 7(4) of Regulation No 857/84, inserted by Regulation No 590/85, permits Member States to provide ‘in the case of rural leases due to expire, where the lessee is not entitled to an extension of the lease on similar terms... that all or part of the reference quantity corresponding to the holding which forms the subject of the lease shall be put at the disposal of the departing lessee if he intends to continue milk production’.
c) The detailed rules for implementing the additional levy were set out in Commission Regulation (EEC) No 1371/84 of 16 May 1984 laying down detailed rules for the application of the additional levy referred to in Article 5c of Regulation (EEC) No 804/68 (Official Journal 1984, L 132, P. 11).
2. The Belgian legislation implementing the Community arrangements
In connection with the implementation of the Community system imposing an additional levy on milk, the Kingdom of Belgium treated its national territory as a single region within the meaning of Article 5c(l) of Regulation No 804/68. It opted for the 1983 reference year under Formula A (the producer formula). The reference quantity is equal to the quantity of milk or other milk products delivered by the producer in 1983, weighted by a coefficient of 95% overall and of 97% for small producers.
The Belgian legislation also provides for the grant of additional reference quantities to farmers who have adopted a milk production development plan, to young farmers and to those whose milk production during the reference year adopted has been affected by exceptional events (Royal Decree of 29 June 1984 on the application of the additional levy referred to in Article 5c of Regulation (EEC) No 804/68 for the period from 2 April 1984 to 31 March 1985, Moniteur belge, 5. 7. 1984, p. 9813; Ministerial Decree of 13 September 1984 on the application of the additional levy referred to in Article 5c of Regulation (EEC) No 804/68 for the period from 2 April 1984 to 31 March 1985, Moniteur beige, 15. 9. 1984, p. 12784; the aforesaid legislation has frequently been amended).
3. The disputes in the main proceedings
The disputes in the main proceedings are between various milk producers, on the one hand, and, on the other, the dairies to which they are affiliated, the Office national du lait et ses dérivés and the Belgian State. The dairies withheld certain sums by way of the additional levy on milk from the price of the milk which the producers in question had delivered to them.
In the proceedings instituted by them, the producers concerned seek an order requiring the dairies to repay the sums withheld on the ground that the levies were unlawfully charged. A further claim is that the judgments should be declared common and capable of being relied upon as against the Office national du lait et ses dérivés and the Belgian State.
In support of their action, the plaintiffs in the main proceedings argue in the first place that the additional levy system introduced by Article 5c of Regulation No 804/68 is contrary to the prohibition of discrimination between Community producers, laid down by Article 40(3) of the EEC Treaty, in so far as, in view of the choice left to the Member States between Formula A and Formula B, producers benefit or otherwise from the possibility of offsetting within a dairy and are therefore subject, if they exceed their individual reference quantity, to the application of a different rate of levy.
The plaintiffs in the main proceedings also maintain that the derogations provided for by the Community system in favour of certain Member States are contrary to the prohibition of discrimination between Community producers and jeopardize the establishment of a common agricultural policy.
Finally, they consider that, by offering each Member State the possibility of regarding its territory as a single region, the Community rules infringe Article 39(2)(a) of the Treaty, according to which, in working out the common agricultural policy, account must be taken of structural and natural disparities between the various agricultural regions. Alternatively, they allege that the Belgian rules adopted for the implementation of the Community arrangements disregard the specific features of each production region and the specific situation of each farmer.
In order to enable it to assess those arguments, the tribunal de premier instance (Court of First Instance), Verviers, by judgments of 20 September 1988, stayed the proceedings and referred to the Court of Justice for a preliminary ruling pursuant to Article 177 of the EEC Treaty the following questions, which are identical in the 19 cases concerned:
‘(a) By allowing the Member States to choose between two formulas, under one of which (Formula A) the levy is imposed on every individual producer who has exceeded his reference quantity and no offsetting is possible, whereas under the other (Formula B) the levy is payable by the first purchaser and hence offsetting may take place between the suppliers of that purchaser, which may therefore have the effect of releasing a producer from having to pay any levy even though he exceeded his quota, does Article 5c of Regulation (EEC) No 804/68 infringe Articles 39 and 40 of the Treaty of Rome by giving rise to discrimination between Community producers? (b) Does Article 1(1) of Regulation (EEC) No 857/84, in the version in force between 2 April 1984 and 31 March 1987, infringe that same principle of non-discrimination in so far as it fixes the levy at 75% or 100% of the target price for milk depending on whether the Member States chose Formula A or Formula B? (c) Must Article 3(d) and Articles 38, 39 and 40 of the Treaty of Rome and Regulation No 13/64/EEC be interpreted as prohibiting any renationalization of agricultural policy, particularly in the milk sector, and, if so, must the following be regarded as renationalization measures contrary to those provisions and/or as measures which infringe the principle of non-discrimination between producers: (1) Regulation No 1305/85 inasmuch as it authorizes Italy to postpone application of certain provisions for the first three years of application of the milk quotas; (2) Article 10 of Regulation (EEC) No 857/84 inasmuch as it authorizes Greece to consider all its purchasers taken as a whole as one purchaser; (3) Regulation No 590/85 inasmuch as it authorizes France to derogate from the general rules by regarding a group of purchasers as a single purchaser; (4) the new fourth paragraph of Article 7 of Regulation (EEC) No 857/84, as amended by Regulation (EEC) No 590/85, inasmuch as it enables an amendment of the Community rules to be made in favour of the Federal Republic of Germany; (5) Regulations Nos 1335/86 and 1343/86 inasmuch as they grant certain special administrative arrangements to Spanish producers? (d) Is it permissible to interpret Article 1(2) of Regulation (EEC) No 857/84, which defines “region” within the meaning of Article 5c(l) of Regulation (EEC) No 804/68 as all or part of the territory of a Member State having geographical unity and in which the natural conditions, the structures of production and the average yields of the herds are comparable, as meaning that a Member State may regard itself as being a single region when it does not have geographical unity and its natural conditions, structures of production and average herd yields are not comparable, and its territory includes less-favoured farming areas? On that interpretation, is Article 1(2) contrary to the Treaty of Rome, in particular Article 39(2) thereof, and to Council Directive 75/268/EEC on mountain and hill farming and farming in certain less-favoured areas and Council Directive 75/269/EEC concerning the Community list of less-favoured farming areas within the meaning of Directive 75/268/EEC (Belgium)?’
4. Procedine before the Court
The orders for reference were lodged at the Court Registry on 29 September 1988.
By order of 18 January 1989 the Court decided to join the cases for the purposes of the procedure and the judgment.
In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were submitted by the plaintiffs in the main proceedings in the 19 cases, represented by Roger Bourgeois and Véronique Martin, of the Liège Bar, by the Belgian Government, represented by M. J. Willems, Director of the European Affairs Department at the Ministry of Foreign Affairs, Foreign Trade and Cooperation with Developing Countries, by the United Kingdom, represented by S. J. Hay of the Treasury Solicitor's Department, acting as Agent, by the Council of the European Communities, represented by Arthur Bräutigam, Principal Administrator in the Council's Legal Department, and by the Commission of the European Communities, represented by Patrick Hetsch and Derek Grant Lawrence, members of the Commission's Legal Department, acting as Agents.
On hearing the Report of the Judge-Rapporteur and the views of the Advocate General, the Court decided on 4 October 1989 to assign the case to the Third Chamber pursuant to Article 95 of the Rules of Procedure and to open the oral procedure without any preparatory inquiry.
II — Written observations
1. Questions (a) and (b) (choice of Formula A or Formula B)
a) The plaintiffs in the main proceedings maintain that the legislation at issue gives rise to discrimination between Community producers by introducing two distinct methods of collecting the levy. In some Member States (Germany, Belgium, Netherlands and, to some extent, Italy), the levy is payable by every milk producer on the quantities of milk or milk equivalent delivered to a purchaser who, during a period of 12 months, has exceeded a reference quantity to be determined. However, in other Member States (Denmark, France, Greece to some extent, the United Kingdom in part, Ireland and Luxembourg), the levy must be borne not by the producers but by the purchasers of the milk. The substantive difference between the two systems lies in the presence or absence of inbuilt offsetting within a dairy between the decreases and increases of the respective deliveries of all producers. Whilst under Formula A the producer is liable to pay the levy in respect of any excess over his reference quantity, under Formula B the extent to which he is affected by the consequences of an increase in his deliveries will depend on the overall situation — the greater or lesser extent of overproduction — of the dairy to which he delivers his milk. The counterpart of that advantage is the difference in the rates of the additional levy, fixed at 100% of the target price of milk in the case of Formula B and at 75% in the case of Formula A. In that regard, the Court of Auditors of the European Communities has pointed out, in its Special Report on the quota/additional levy system in the milk sector (Official Journal 1987, C 266, p. 21), that where Formula B was applied the effective rates of levy paid by the producer varied widely, depending on his particular circumstances: at one extreme, if a purchaser did not exceed his quota, no levy was payable, and overproducers delivering to such purchasers escaped the levy completely. Moreover, where purchasers paid the levy under Formula B, the dilution of the levy in favour of the producer was much greater than that implied by the 100%/75% levy differentiation. Thus, where Formula B and/or quota offsetting were applied, producers were able to a great extent to avoid the impact of the levy, with the result that the disincentive to deliver milk above quota was substantially reduced. Such inequality of treatment was not remedied by Regulation No 590/85 which permits a degree of offsetting by means of Article 4a inserted in Regulation No 857/84. The attempt at offsetting under Article 4a was made at the end of the marketing year, that is to say at a time when the producers had already diminished their production and it was no longer possible for them to adjust to the new rules in order to increase production as a result of probable regional offsetting. Instead, in Member States which had selected Formula B, the producers knew from the outset that they could exceed their reference quantities since any excess could be offset by underproduction on the part of their fellow producers. Formula A does not therefore offer producers the flexibility of Formula B.
b) The Belgian Government did not state its views on Questions (a) and (b).
c) The United Kingdom points out that Article 4a of Regulation No 857/84 enables Member States to reallocate unused reference quantities both within a region and between regions. That provision applies to both Formula A and Formula B; it applies to both producers' reference quantities and purchasers' reference quantities and is additional to the inbuilt offsetting of producers' reference quantities under Formula B. As a result of the insertion of Article 4a, there is now no difference in the effect of the two formulas. Any difference in the effects of the additional levy scheme between Member States therefore derives not from the existence of the two formulas but from the way in which the scheme is implemented in the Member States or from differences in the amount of overproduction in the Member States. It is true that offsetting under Formula A does not figure in the additional levy scheme as originally conceived. For that reason, a lower rate of levy was fixed for Formula A. The difference in the rates of levy was intended to compensate producers in Formula A regions for the inbuilt offsetting between producers under Formula B. Furthermore, Article 4a of Regulation No 857/84 initially applied to the first 12-month period of the system's operation. In practice, therefore, offsetting has been available under Formula A from the beginning of the scheme. Furthermore, the effective rate of levy is not the only factor to be considered when comparing the operation of the scheme in different Member States. For example, Article 9(4) of Regulation No 857/84, inserted by Regulation No 1305/85, enables Member States to use the levy collected in order to finance cessation grants to milk producers. A Member State may therefore choose to exercise that power instead of the power to offset, in which case higher effective levy rates would have to be balanced against the benefits available to producers through cessation grants. With the introduction of Article 4a of Regulation No 857/84, the availability of offsetting became an integral part of the additional levy scheme under both Formula A and Formula B. The logical step was therefore taken of harmonizing the two rates of levy. In consequence, the levy continues to be the same for both formulas and the lower rate of 75% now applies only to direct sales by producers to consumers.
d) The Council considers that the choice left to the Member States with regard to the formula for implementing the additional levy does not give rise to arbitrary discrimination between producers. Any difference in treatment which could arise therefrom is objectively justified and depends, in accordance with the case-law of the Court, on objective criteria which ensure that advantages and disadvantages are shared out proportionately amongst those concerned, without any distinction between the territories of the Member States. A Member State's decision to implement Formula A rather than Formula B, or vice versa, in each region of its territory under uniform conditions of production is based not on a discretion but on objective criteria, namely: With regard to the effectiveness criterion, it seems clear that the levy must be implemented rapidly and effectively without its application being frustrated in practice by administrative difficulties. It may therefore be objectively justified to implement Formula B rather than Formula A in certain regions, or in certain Member States, in which the implementation of Formula A would lead to administrative problems of that kind. As for the structural criterion, the Council emphasizes that Formula A is far more rigid than Formula B. That formula may therefore constitute a serious obstacle to the normal and necessary adjustment of the structure of production. Where that formula was applied, none of the milk not subject to the levy was available for redistribution amongst the producers which needed it, either for reasons of structural adjustment or because they were in a difficult situation falling outside the circumstances expressly envisaged by the specific provisions of Regulation No 857/84. Under Formula B, however, it is possible to take account, within the dairy's quota, of increases in production achieved by certain producers, or of the arrival of new producers who have not yet been allocated a quota. Accordingly, the application of Formula B could be objectively justified in regions in which it is necessary above all to facilitate the necessary structural developments and adjustments. The same consideration applies mutatis mutandis to the need to prevent undesirable regional developments. The legal basis for those structural and regional requirements is Article 39(2) of the Treaty which provides that, in working out the common agricultural policy, account is to be taken of structural and natural disparities between the various agricultural regions and of the need to effect the appropriate adjustments by degrees. It should be remembered, moreover, that Article 4a of Regulation No 857/84 enabled the Member States, under both Formula A and Formula B, to offset within the quantity produced nationally the quantities of milk in excess of the producers' or purchasers' quotas and the quantities of milk which fall short of those quotas. The experience acquired over the three years in which the additional levy was actually applied has shown that Article 4a permitted offsetting under Formula A which was comparable to that available under Formula B. Accordingly, the two different rates, which were no longer justified, were unified. It follows that the difference in the rates, far from constituting a potential source of discrimination between producers was designed, instead, under the rules that were in force in 1984, to ensure equal treatment of producers. In the absence of any experience involving the practical application of the system, the Community institutions reasonably took the view in 1984 that the higher rate applicable under Formula B would lead by and large to the same rates of levy being imposed in practice on producers under both formulas.
i) improved efficiency of the system according to the formula applied, in view of the administrative difficulties inherent in each;
ii) the need to facilitate structural developments and adjustments, in view of the degree of flexibility offered by each formula;
iii) the need to avoid desertification of certain areas as a result of excessive rigidity according to the formula applied.
e) The Commission maintains that the choice offered to the Member States with regard to the implementation of the additional levy system, between Formula A with a levy at the rate of 75% and Formula B with a levy at the rate of 100%, not only does not of itself confer discriminatory advantages on producers according to the formula selected, but also makes it possible to reconcile the objective of curbing production, pursued by the system, with equal treatment of the producers concerned. The Commission acknowledges that the application of a single formula may seem in formal terms to be more consistent with the requirement of equal treatment of Community producers in the face of the public burden represented by the additional levy. Nevertheless, the application of a uniform method for the whole Community might also in practice clash with the principle of non-discrimination in view of the diversity in the structures of milk production within the Community, the administrative difficulties to which it might give rise and considerations of regional development. It is precisely those factors which led to provision being made, in all the national regions, for a choice between two formulas for the implementation of the additional levy system. In deciding to take account, in connection with the choice between the two formulas, of the structural diversity characterizing the production and marketing of milk products in the Community, the legislature took care to specify the objective general criteria enabling the Member States to choose the most appropriate formula for a particular region within their territory. As for the possibility available to Member States of treating, in accordance with the first subparagraph of Article 1(2) of Regulation No 857/84, the whole of their territory as a region, it cannot affect that analysis since both the introduction of the two formulas and their implementation in one region or another depend on the same criteria. The choice provided therefore meets the concern that it should be permissible for situations which are not comparable to be treated differently. The advantage for producers of applying inbuilt offsetting under Formula B is neutralized, in the Commission's view, by the fixing of a higher rate of levy for excess quantities that have not been offset. It must be borne in mind that the difference in the rate of levy applicable according to the formula adopted is the direct counterpart of the advantage resulting from offsetting within the dairy. That is why, in order to obtain equivalent results, the levy payable by the purchaser (Formula B) had initially been fixed at a higher level than that payable by the producer (Formula A).
In order to mitigate the strictness of the system, the Community legislature inserted Article 4a in Regulation No 857/84, which enables Member States to allocate the non-utilized quantities of certain producers to other producers in the same region and in other regions. The difference in the rate of levy applicable and regional or interregional offsetting are factors likely to place producers in a comparable situation, whatever the formula chosen by the Member State.
Accordingly, any producer, regardless of the formula adopted, may qualify, as a result of the operation of inbuilt or optional offsetting, for exemption from the levy in respect of part of the quantities in excess of the reference quantity. The system of milk production quotas therefore leads, in the case of producers under both Formula A and Formula B, to the application of an additional levy only to quantities which exceed, after offsetting, the reference quantity established. In so doing, the system also makes it possible to limit to what is strictly necessary, that is to say to overproduction which may jeopardize efforts to curb production, the imposition of heavy penalties. In conclusion, the Commission suggests that Questions (a) and (b) should be answered as follows:
‘By providing that the choice available to Member States of implementing the additional levy system, on the basis in particular of the different structures of milk production within the Community, in accordance with two different formulas only one of which — Formula B — allows for inbuilt offsetting as from the dairy stage is to be accompanied (i) by the application, in the latter case and until 1 April 1987, of a rate of levy higher than the rate applicable in the event of production exceeding the reference quantities under Formula A, (ii) and by the possibility for Member States to allocate at regional level and then, if necessary, at national level, the non-utilized reference quantities of producers or purchasers, Article 5c(l) of Regulation (EEC) No 804/68 of the Council of 27 June 1968 and Articles 1(1) and 4a of Council Regulation (EEC) No 857/84 of 31 March 1984 are in conformity with the provisions of Article 39 and the second subparagraph of Article 40(3) of the Treaty.’
2. Question (c) (specific rules in favour of certain Member States)
a) The plaintiffs in the main proceedings consider that the rules in question also contravene the principle of non-discrimination between Community producers by favouring certain Member States and thereby jeopardizing the establishment of a common agricultural policy, which is one of the objectives referred to in Article 3 of the Treaty. Producers have accordingly been able to benefit, as a result of Regulation No 1305/85, from a postponement in the application of certain provisions for the first three years of the new system's operation. The final subparagraph of Article 10 of Regulation No 857/84 authorized Greece to treat all purchasers taken as a whole as a single purchaser, with the result that Greece enjoyed a system of offsetting at national level. France was authorized by Regulation No 590/85 to confer the status of a single purchaser on a group of purchasers located in the same geographical area and engaged in administrative and accounting management operations on behalf of its members. The Federal Republic of Germany was also able to benefit from an amendment of the Community rules by Regulation No 590/85. Finally, as a result of the operation of Council Regulations (EEC) Nos 1335/86 and 1343/86 of 6 May 1986 (Official Journal 1986, L 119, pp. 19 and 34), Spain was able to benefit from special administrative arrangements for its own territory. It follows from those examples that at present in the dairy sector there is no longer a common agricultural policy but merely a sum of national agricultural policies. The additional levy system therefore runs the risk of laying itself open to the legal objection that it does not guarantee equal treatment for Community producers and to the political objection that its aim is the ‘renationalization’ of the common agricultural policy.
b) The Belgian Government did not state its views on Question (c).
c) The United Kingdom, after recalling that Regulation No 13/64/EEC of the Council of 5 February 1964 was replaced by Regulation No 804/68, emphasizes that where a sector is subject to a common organization of the market, the scope for national activity in that sector is restricted. For that reason, national measures need to be specifically authorized by Community legislation. The United Kingdom also points out that the provisions mentioned in points 3, 4 and 5 of Question (c) are of general application and are not restricted to the Member States specified by the national court. Moreover, it considers that, whilst there may be individual cases in which a national derogation is not objectively justified and may therefore be regarded as discriminatory, that does not invalidate the principle that Community arrangements may take account of the circumstances affecting different parts of the Community. Provided that its decision is based on objective factors, the Community legislature is entitled to accord exceptional treatment to particular Member States or regions. Such an objectively justified difference of treatment does not constitute discrimination contrary to Article 40(3) of the Treaty.
d) The Council submits, with regard to the allegation of discrimination in favour of Italian producers, that Article 1(2) of Regulation No 1305/85 authorizes Italy, for objective reasons relating to a more than usually fragmented structure of production and the resultant difficulties of implementing the system, to postpone the application of Article 3(3) of Regulation No 857/84 for the first three years of the system's operation. As it is objectively justified, that temporary derogation cannot be a source of discrimination between producers. In any event, the alleged discrimination is borne by Italian producers rather than by Belgian producers. With regard to the allegation of discrimination in favour of Greek producers, the Council considers that Article 10 of Regulation No 857/84 is also objectively justified. Milk production in Greece accounts for less than 1% of Community milk production and the total number of purchasers there is very high. Furthermore, since that provision in no way adds to the possibilities of offsetting authorized by Article 4a in any Member State applying Formula B, it is hard to see in what respect Greek producers are treated especially favourably. As for the allegations of discrimination in favour of French and German producers, the Council points out that the provisions referred to by the national court are generally applicable in all the Member States. Those provisions are, moreover, objectively justified and cannot therefore be a source of arbitrary discrimination between producers. Similar considerations apply in relation to the allegation of discrimination in favour of Spanish producers; Regulations Nos 1335/86 and 1343/86 do not contain any specific provisions relating to such producers.
e) The Commission recalls that Article 3(d) of the Treaty provides for the adoption of a common policy in the sphere of agriculture. The detailed rules of that policy are laid down, in particular, by Article 40 of the Treaty, which provides, amongst other things, for the establishment of common organizations of agricultural markets. By their very nature, those organizations impose common marketing arrangements on producers from the different Member States, both internally (system of prices and intervention system) and externally (system of refunds and levies). However, those principles do not preclude account being taken in connection with the common agricultural policy of the specific circumstances of producers in certain Member States or in certain regions, on condition that the rules in question do not give rise to discrimination between Community producers. Accordingly, the term ‘renationalization’ cannot be used to describe either the delegation to the Member States of a certain discretion with regard to the implementation of the levy system or the adoption of measures providing in the case of certain producers for technical adjustments to the system, since the exercise of that discretion and the existence of those measures depend on objective criteria and are designed to take account of the differing circumstances in which Community producers may find themselves. As for the provision authorizing Italy to postpone the application of Article 3(3) of Regulation No 857/84 for the first three years of the system's operation, the Commission takes the view that this measure does not exempt Italian producers from the levy system but temporarily deprives them of the benefit of any advantage resulting from the specific situation prevailing in Italy, characterized by economic structures which are more than usually fragmented into small units of production making the direct implementation of the aforesaid adjustment scheme very difficult. In addition, the postponement so envisaged is not to the detriment of other Community producers. The provision authorizing Greece to treat all its purchasers taken as a whole as one purchaser is based on the negligible volume of Greek milk production and the very large number of purchasers, which makes it difficult to apply Formula B there. It therefore constitutes a technical adjustment, based on that State's specific production and marketing structures. With regard to the provision according to which a group of purchasers may also be regarded as one purchaser, it is designed to take account of very small dairies which are located in certain geographical regions of the Community, particularly in France and Italy. Inbuilt internal offsetting under Formula B cannot take place smoothly within that type of dairy. The aim of the measure is therefore to extend the scope of offsetting to groups of dairies so as to avoid discrimination between producers affiliated to those dairies and those affiliated to larger dairies. It must be emphasized, moreover, that this provision is generally applicable to all purchasers from the Member States who have chosen Formula B, provided they are in a comparable situation. According to the Commission, similar considerations led to the adoption of the provision on rural leases due to expire, where the lessee is not entitled to an extension of the lease. That provision is designed to meet the economic and social difficulties which could arise from the systematic application of the rule on the transfer of reference quantities to the purchaser. It is therefore a technical measure which does not affect the fact that the persons concerned are subject to the levy system. Furthermore, that system is generally applicable to all producers who are in the same situation. Finally, with regard to Regulations Nos 1335/86 and 1343/86 (further reduction in two stages by 3% of the guaranteed total quantities), it should be noted that they do not provide Spain with any specific administrative facilities. Those regulations apply to all the Member States without distinction.
In conclusion, the Commission suggests that Question (c) should be answered in the following terms:
‘The second subparagraph of Article 40(3) of the Treaty does not preclude the adoption, for the implementation of the additional levy system established by Article 5c of Regulation (EEC) No 804/68 of the Council of 27 June 1968, of measures designed to adjust its application to certain producers, provided those measures are objectively justified by the specific circumstances of the producers to whom they apply.’
3. Question (d) (concept of ‘region’)
a) The plaintiffs in the main proceedings point out that the additional levy system cannot be adapted to regional differences (‘region’ being construed in an economic sense) but merely institutionalizes the different national situations (a political criterion). Article 1(2) of Regulation No 857/84 permits a Member State to regard its entire territory as a single region. That criterion leads to the nationalization of agricultural policy in each Member State, even though there may be regional differences, contrary to Article 39(2) of the Treaty according to which, in working out the common agricultural policy, account must be taken of ‘structural and natural disparities between the various agricultural regions’. The concept of ‘region’ plays a very important part in the additional levy system as a whole. Article 1(2) of Regulation No 857/84 provides that each Member State is to choose Formula A or Formula B for each region. Article 2(2) of that regulation provides that the determination of the reference quantities may be varied from one region to another. In addition, under Article 4a of the regulation, the region is the primary criterion on the basis of which some degree of offsetting is possible. Finally, the plaintiffs note that regional variation is provided for in Article 2(2)(c) of Regulation No 1371/84. According to the Court's case-law (judgment of 25 November 1986 in Joined Cases 201 and 202/85 Klensch and Others [1986] ECR 3477), a Member State may not choose an option whose implementation in its territory would be liable to create, directly or indirectly, discrimination between the producers concerned, having regard, in particular, to the structure of the agricultural activities carried on within its territory. In the Kingdom of Belgium, natural conditions, structures of production and average herd yields differ from one region to another. Next, the plaintiffs in the main proceedings explain in detail the agricultural characteristics of, and recent changes in, the structure of holdings in the Liège and Haute Ardenne regions which, in their view, consist almost exclusively of meadows and pastures and whose system of production can be based only on cattle farming. Milk production at present accounts for the major part of such farming, namely 75% and 73% in each. That is why those two regions are extremely sensitive to the measures adopted by the Community for the absorption of milk product surpluses and, more particularly, to the establishment of milk quotas. In applying the milk quotas, therefore, the Belgian State should have taken account of the specific difficulties of those regions which, moreover, are regarded as less-favoured areas by Council Directive 75/268/EEC of 28 April 1975 on mountain and hill farming and farming in certain less-favoured areas (Official Journal 1975, L 128, p. 1).
b) According to the Belgian Government, it follows from the wording of Article 1(2) of Regulation No 857/84 that the subdivision of an area into several regions means, in the first place, that each of those regions exhibits a geographical unity in which natural conditions, structures of production and average herd yields are comparable, and secondly that the differences between those regions call for the separate implementation of Formula A or Formula B. Accordingly, even if in one Member State there are differences in natural conditions, structures of production and average herd yields, that State is authorized not to subdivide its territory into regions if, for each part of the territory, existing differences do not justify separate treatment. That interpretation, which is consistent with the wording of the regulation, is also consistent with the structure of the system. The subdivision of a Member State's territory into several regions serves no purpose unless, in connection with the choices left to Member States with regard to the implementation of the system, that State considers it justified to make, in relation to a given part of its territory, a choice distinct from that adopted for the other parts. In that case it makes sense, in the Belgian Government's view, for the part of the territory in respect of which differential treatment is reserved to constitute a homogeneous whole. If, on the other hand, a Member State considers that the choices which should, in its view, be made for each part of its territory, having regard to the criteria set out in Article 1(2), are identical, it makes just as much sense for it to treat its territory as a single region, even though natural conditions, structures of production and average herd yields are not comparable. With regard to the question whether Article 1(2) of Regulation No 857/84 is in conformity with Article 39(2) of the Treaty, Directive 75/268 and Council Directive 75/269/EEC of 28 April 1975 concerning the Community list of less-favoured farming areas within the meaning of Directive No 75/268/EEC (Belgium) (Official Journal 1975, L 128, p. 8), it must be emphasized that Article 39 of the Treaty enumerates various objectives of the common agricultural policy which the Community institutions must constantly reconcile with one another whilst pursuing them. The legislation complained of must therefore be assessed in an overall context and it cannot be criticized on the ground that, in the light of the specific objectives which it pursues, it does not take account of a particular matter in a given provision. Furthermore, that legislation in fact introduces the possibility of implementing different detailed rules of application if that is justified by disparities between agricultural regions. However, as it is easy to conceive of existing disparities not justifying the adoption of different rules of that kind, the choice given by the regulation to Member States to regard their territory as one region cannot affect its validity in the light of Article 39 of the Treaty. Article 39 can be infringed only by a Member State which regards its territory as a single region even though the disparities between its component parts are such as would necessitate the adoption by that State of different detailed rules of application. As regards, moreover, the conformity of the regulation with Directives 75/268 and 75/269, there is no order of precedence in Community law as between a regulation and a directive. Nor is it easy to see how a directive designed to introduce aid for the pursuit of farming in structurally less-favoured areas can oblige the Community legislature to reserve specific treatment to those areas under a common organization of the market for a given product. Furthermore, an area may be described as less favoured on grounds other than milk production. In conclusion, the Belgian Government suggests that the answer to Question (d) should be that Article 1(2) of Regulation No 857/84 must be interpreted as meaning that a Member State is authorized to regard its territory as a single region even if natural conditions, structures of production and average herd yields are not comparable, provided that existing differences do not justify different detailed rules of application.
c) The United Kingdom acknowledges that it is for the national court to decide whether the region designated by the Member State complies with the definition in Article 1(2) of Regulation No 857/84. In so doing, it should bear in mind that the definition is drafted so as to give a broad measure of discretion to the Member States whilst specifically envisaging that the whole of a Member State may constitute a single region. Contrary to what the national court appears to be suggesting, the legislation in question in no way supports the interpretation that it is not permissible for a region to include both less-favoured areas and other areas.
d) According to the Council, it is apparent from the terms of Article 1(2) of Regulation No 857/84, viewed in its context, that the subdivision of a Member State's territory into various regions for the purposes of the implementation of the additional levy in accordance with one of the two possible formulas is necessary only on two conditions: The selection by a Member State of the formula most suited to a given region implies that it has a discretion which must be exercised, according to the case-law of the Court, in compliance with the principle of non-discrimination. In conclusion, the Council suggests that the Court's answer to the questions submitted for a preliminary ruling should be that consideration of those questions has disclosed no factors of such a kind as to call in question the validity of Council Regulations Nos 856/84, 857/84, 590/85 and 1305/85.
i) in that Member State there must be substantial differences in the natural conditions, structures of production and average yield of the different regions which constitute that State, and
ii) it must be necessary in some of its regions, in which conditions of production are not uniform, to implement Formula A rather than Formula B, or vice versa, in view of either the overriding requirement of ensuring that the levy is effectively applied in those regions, or the overriding requirement of promoting, in particular, structural developments and adjustments in those regions, or else the overriding requirement of preventing undesirable local developments in those regions.
e) The Commission maintains that Article 1(2) of Regulation No 857/84 enables Member States either to treat their territory as a region or to treat part of their territory as such. That provision lays down a series of criteria on the basis of which a Member State may make its choice. Those criteria relate to the part of a Member State's territory which it intends to treat as a distinct region. They therefore describe the characteristics which pan of its territory must exhibit in order to enable the State to treat it as a region for the aforesaid purposes. Such a choice is left to the discretion of each Member State, since the provision in question does not require it to comply with certain criteria except where it opts for a distinct application of Formulas A and B in different parts of its territory. It follows that Article 1(2) does not compel a Member State, for the purposes of the implementation of the levy system, to treat as a region within the meaning of Article 5c of the basic regulation any part of its territory which complies with the aforesaid conditions. Nevertheless, it cannot be inferred from that interpretation that Article 1(2) is contrary to the Treaty and to Directives 75/268 and 75/269, inasmuch as it precludes account from being taken, when the levy system is applied, of the situation in less-favoured areas. In that regard, the aforesaid provision should be set in its legislative context. Regulation No 857/84 enables a Member State which decides to treat the whole of its territory as a single region to include less-favoured areas within the meaning of the two aforesaid directives. Article 2(2) of the regulation thus authorizes Member States to take account of the trend in deliveries in certain regions between 1981 and 1983 by varying the percentage reductions applied to the reference quantities. In addition, those percentages may be adjusted so as to ensure the application of Articles 3 and 4 of the regulation. Those provisions also enable account to be taken of the situation in less-favoured areas. Finally, Article 4a of Regulation No 857/84 also allows Member States to vary offsetting at national level on the basis, in particular, of the level or trend of deliveries in certain regions.
In conclusion, the Commission suggests that Question (d) should be answered as follows :
‘(i) Article 1(2) of Council Regulation (EEC) No 857/84 of 31 March 1984 must be interpreted as meaning that the criteria listed in the first subparagraph of that provision are to be applied by Member States where they decide to treat a part of their territory as a region within the meaning of Article 5c of Regulation (EEC) No 804/68 of the Council of 27 June 1968. (ii) In allowing Member States to choose whether to treat the whole of their territory as a region within the meaning of Article 5c of Regulation (EEC) No 804/68, Article 1(2) of Regulation No 857/84 does not preclude them from taking account, on the basis of Articles 2 to 5 of that regulation, of the situation of milk producers established in a less-favoured farming area within the meaning of Council Directive 75/268/EEC of 28 Avril 1975.’
M. Zuleeg
Judge-Rapporteur
1 Language of the case: French.