OPINION OF ADVOCATE GENERAL

LEGER

delivered on on 21 February 2002 (1)

(EAGGF ─ Clearance of accounts ─ 1993)

Table of contents

I – Facts

II – General legal background

A – Rules on verification of operations financed by the EAGGF

B – Establishment of a supervisory agency for the olive oil sector

III – Olive oil production aid

A – Legal background

B – Financial corrections applied to olive oil production aid

a) Arguments of the parties

b) Assessment

i) Conditions for withdrawing recognition from RPGs

ii) Irregularities justifying withdrawal of recognition

iii) The extent of the individual correction applied to the Kingdom of Spain

a) Conditions leading to application of the 10% flat-rate correction

i) Arguments of the parties

ii) Assessment

b) Relations between the AAO and the autonomous communities

i) Arguments of the parties

ii) Assessment

c) Lack of a register of olive cultivation

i) Arguments of the parties

ii) Assessment

d) Lack of computerised files of olive and olive oil production data

i) Arguments of the parties

ii) Assessment

e) Inadequacy of checks on mills

i) Arguments of the parties

ii) Assessment

f) Legal propriety of the Spanish practice of using flat-rate yields

i) Arguments of the parties

ii) Assessment

g) Payment of aid not due to producers marketing part of their production as table olives

i) Arguments of the parties

ii) Assessment

h) Whether there is a loss to the Community budget

i) Arguments of the parties

ii) Assessment

C – Financial corrections owing to the fact that certain expenditure for the olive cultivation register is not to be charged to the EAGGF

a) Introductory remarks

b) The legal form of Tragsa

c) The 10% flat-rate correction of eligible expenditure on the ground that the works were awarded without a call for tenders

d) The refusal to finance all of the overhead expenses

e) The refusal to finance the profits of Tragsa

IV – Olive oil consumption aid

A – Legal background

B – Individual financial correction of the aid paid to two approved oil-packaging undertakings

a) Arguments of the parties

b) Assessment

a) Arguments of the parties

b) Assessment

C – Flat-rate financial correction of 2% of the total expenditure declared by the Kingdom of Spain for olive oil consumption aid during marketing year 1992/93

V – Production aid for dried fodder

A – Legal background

a) keep stock accounts which include at least details:

b) supply, where necessary, other supporting documents required for checking their entitlement to aid.’

B – The flat-rate correction in respect of production aid for dried fodder

VI – Infringement of certain principles of Community law

A – Arguments of the parties

B – Assessment

VII – Costs

Conclusion

I – Facts

(1) Production aid for olive oil:

– a flat-rate financial correction of 10% of the aid paid by Spain during marketing year 1992/93, or ESP 5 939 261 511;

– a financial correction of ESP 224 414 161, corresponding to the amount of aid granted to two approved producer organisations and their members;

– a financial correction of ESP 217 007 368 of the expenditure relating to the register of olive cultivation.

(2) Consumption aid for olive oil:

– a financial correction of ESP 26 849 245, corresponding to the amount of aid granted to two approved oil-packaging plants;

– a flat-rate financial correction of 2% of the aid paid by Spain during marketing year 1992/93, or ESP 811 514 867.

(3) Dried-fodder production aid:

– a flat-rate financial correction of 2% of the expenditure declared by Spain, or ESP 384 545 035.

II – General legal background

A – Rules on verification of operations financed by the EAGGF

5. Regulation (EEC) No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy (6) provides, in Article 3(1), that through the Guarantee Section of the EAGGF the Community is to finance intervention intended to stabilise the agricultural markets, undertaken according to Community rules within the framework of the common organisation of agricultural markets.

6. Article 4(2) of Regulation No 729/70 requires the Commission to make available to Member States the necessary credits so that the authorities and bodies designated by the Member States may, in accordance with Community rules and national legislation, make such intervention payments. Under Article 5(2)(b) of the regulation, the Commission is to clear the accounts of the authorities and bodies of the Member States before the end of the following year, on the basis of the annual accounts accompanied by the documents required for their clearance.

8. Article 8(2) provides that, in the absence of total recovery, the financial consequences of irregularities or negligence are to be borne by the Community, with the exception of the consequences of irregularities or negligence attributable to administrative authorities or other bodies of the Member States. The sums recovered are to be paid to the paying authorities or bodies and deducted by them from the expenditure financed by the EAGGF.

10. Under Article 9(2), officials appointed by the Commission to carry out inspections on the spot are to have access to the books and all other documents relating to expenditure financed by the EAGGF. At the request of the Commission and with the agreement of the Member State, inspections or inquiries concerning the transactions referred to in the regulation are to be carried out by the competent authorities of that Member State. Officials of the Commission may also participate.

11. Council Regulation (EEC) No 4045/89 of 21 December 1989 on scrutiny by Member States of transactions forming part of the system of financing by the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (7) and repealing Directive 77/435/EEC (8) relates ─ as set out in Article 1(1) ─ to scrutiny of the commercial documents of entities receiving or making payments, referred to as ‘undertakings’, in order to ascertain whether transactions relating directly or indirectly to the system of financing by the Guarantee Section of the EAGGF have actually been carried out and have been executed correctly. Article 2(1) of Regulation No 4045/89 requires Member States to carry out systematic scrutiny of the commercial documents of undertakings, taking account of the nature of the transactions to be scrutinised. The detailed rules for such scrutiny are governed by paragraph 2 et seq. of this article.

12. As regards the financial consequences for clearance of the accounts of the EAGGF Guarantee Section of deficiencies in the verifications effected by Member States, a Commission interdepartmental working party has adopted criteria (9) which have been approved by the Commission and communicated to all Member States at the EAGGF Management Committee, where they were received favourably. These criteria lay down three categories of flat-rate correction:

‘A. 2% of expenditure where the deficiency is limited to parts of the control system of lesser importance, or to the operation of controls which are not essential to the assurance of the regularity of the expenditure, such that it can reasonably be concluded that the risk of loss to the EAGGF was minor.

13. The Belle Report points out that the entire expenditure can be disallowed, and that therefore a higher level of correction may be considered appropriate in exceptional circumstances.

14. The Commission adopted Decision 94/442 on 1 July 1994. Article 1(1)(b) and (c) thereof provides that the Conciliation Body is to try to reconcile the divergent positions of the Commission and the Member State concerned, and, at the end of its investigations, draw up a report on the outcome of its efforts at reconciliation. Article 1(2)(a) provides that, for the purposes of the subsequent stages of the accounts clearance procedure, the position of the Body is to be without prejudice to the Commission's final decision on the clearance of the accounts and is not to affect the Member State's right under Article 173 of the Treaty to institute proceedings to challenge that decision.

B – Establishment of a supervisory agency for the olive oil sector

15. Experience had shown that, despite the existence of rules providing for numerous specific controls, there were problems in ensuring timely and effective performance of those controls, that this could lead to unwarranted expenditure for Community funds and that administrative structures in the producer Member States were not adequate to implement the controls provided for in the Community rules. On 17 July 1984, therefore, the Council adopted Regulation (EEC) No 2262/84 laying down special measures in respect of olive oil. (10) The first subparagraph of Article 1(1) thereof, as amended by Council Regulation (EEC) No 593/92 of 3 March 1992 (11), provides that each producer Member State is to set up, in accordance with its legal structure, a specific agency for the purpose of carrying out certain activities and checks in connection with Community aid for olive oil, except for export refunds. Article 1(2) provides among other things that, in order to ensure that the production-aid arrangements are correctly applied, the agency shall:

– check that the work of the producer organisations and associations complies with Council Regulation (EEC) No 2261/84 of 17 July 1984 laying down general rules on the granting of aid for the production of olive oil and of aid to olive oil producer organisations; (12)

– verify the accuracy of the data set out in the crop declarations and aid applications, without prejudice to the checks carried out by the Member State pursuant to Article 14 of Regulation No 2261/84;

– conduct checks of approved mills; and

– monitor the approved packaging plants, in accordance with Article 7 of Council Regulation (EEC) No 3089/78 of 19 December 1978 laying down general rules in respect of aid for the consumption of olive oil (13) and, where necessary, the professional bodies recognised under Article 11(3) of Regulation No 136/66/EEC (14). Lastly, under the fourth subparagraph of Article 1(4) of Regulation No 2262/84, as amended by Regulation No 593/92, Member States shall act upon the agency's findings as promptly as possible and, under the fifth subparagraph, they shall regularly communicate to the Commission details of the action taken and the sanctions applied as a result of the agency's findings on the basis of its checks.

16. By Law No 28/1987 of 11 December 1987, (15) the Kingdom of Spain created the olive oil agency (16), whose functions include checking that the activities of the producer organisations comply with Community legislation.

17. The Servicio Nacional de Productos Agrarios (SENPA) (now the Fondo Español de Garantía Agraria (17), by contrast, is the body responsible for approving beneficiary undertakings, making direct aid payments and advances against the deposit required, and imposing penalties.

18. The pleas relied on by the Spanish Government relate to three different categories of Community aid: olive oil production aid, olive oil consumption aid and aid for the production of dried fodder. The Spanish Government also alleges that the Commission has infringed certain principles of Community law. Below I shall examine the pleas relied on, arranged under these subjects.

III – Olive oil production aid

A – Legal background

22. Under Article 20c(1)(b) of Regulation No 136/66, as amended by Regulation No 1413/82, the recognised producer groups (22) must be capable of verifying the olive and olive oil production of their members. Under paragraph 2(b) of the same article, associations of RPGs must also be able to coordinate and to verify the activities of the groups which make up the associations. Article 20c(3) provides that recognition is to be withdrawn from a group or association where the conditions for recognition have not been fulfilled or are no longer fulfilled.

23. In that context Article 5(3) of Regulation No 2261/84 provides that all RPGs must by 30 June of each year declare to the competent authority any changes made in their structure since their recognition or last annual declaration and report any notices of withdrawal of or application for membership received. The competent authority must ascertain, on the basis of this statement and of any appropriate enquiries, whether the conditions for recognition are still met. If they are no longer met or if the structure of an organisation does not allow for its members' production to be verified, the competent authority must, without delay and at the latest before the beginning of the following marketing year, withdraw recognition and notify its decision to do so to the Commission.

24. Finally, in accordance with Article 11(2) of Regulation No 2261/84, Member States are to ensure that the sums made over to the associations and to producer organisations in application of Article 11(1) are used by them only for financing the activities for which they are responsible under that regulation. Article 11(3) provides that if sums withheld by a producer group are not used, in whole or in part, for financing the activities for which they are responsible they are to be deducted from the expenditure financed by the EAGGF.

25. Under Article 2(3) of Regulation No 2261/84, aid is to be granted on application by the parties concerned to the Member State in which the oil has been produced. The first subparagraph of Article 2(4) of that regulation, as amended by Council Regulation (EEC) No 3500/90 of 27 November 1990, (23) provides that in the case of olive growers whose average production is at least 500 kg of oil per marketing year the aid is to be granted in respect of the quantity of oil actually produced at an approved mill. Article 5(1) of Commission Regulation (EEC) No 3061/84 of 31 October 1984 laying down detailed rules for the application of the system of production aid for olive oil (24) requires applications for aid submitted by each olive grower to include certain particulars, including the approved mill or mills at which the oil was produced, together with details for each mill of the quantity of olives used and the quantity of oil produced. The application must be accompanied by a declaration from the mill to corroborate the particulars supplied by the olive grower.

26. For the purposes of approval, participating mills must comply with certain conditions listed in Article 13 of Regulation No 2261/84 and in Article 9 of Regulation No 3061/84. In Regulation No 2261/84, Article 13(4) provides that if one of the conditions for approval is no longer fulfilled approval is to be withdrawn for a period in keeping with the gravity of infringement, but Article 13(6) provides that, should the withdrawal of a mill's approval have serious consequences on the pressing capacity in a given production zone, it may be decided to approve the mill under special control arrangements. For this purpose Article 9(4) of Regulation No 3061/84 requires the Member State to submit a reasoned request to the Commission specifying the type of control which it undertakes to exercise over the mill in question.

27. Article 14(1) of Regulation No 2261/84 requires each producer Member State to introduce a system of checks to ensure that the product in respect of which aid is granted is eligible for such aid.

28. In that connection, Article 1(2)(d) of Regulation No 3061/84 requires the crop declaration to state the number of olive trees producing olives for the manufacture of oil, and Article 1(5) requires the aid to be paid in proportion to the olives intended for the production of olive oil, where some of the olives have been used for purposes other than the production of olive oil.

29. Article 14(3) of Regulation No 2261/84 requires producer Member States to carry out on-the-spot checks on the activities and stock records of a percentage of approved mills. Paragraph 3a of Article 14 (added by Regulation No 3500/90) provides that, for the purposes of paying aid to olive growers whose average production is at least 500 kg of olive oil per marketing year, the producer Member States are to check the accuracy of the crop declarations on the basis of criteria to be determined, the correspondence between the quantity of oil entered in the aid application and that stated in the stock records of approved mills, and the compatibility between the olive production declared by each olive grower as having been pressed in an approved mill and the particulars given in his crop declaration on the basis of criteria to be determined. For olive growers whose average production is less than 500 kg of olive oil per marketing year, Article 14(4) of Regulation No 2261/84, as amended by Regulation No 3500/90, provides that the checks should verify the accuracy of the crop declarations on the basis of criteria to be determined and the existence of evidence of the olives having been pressed in an approved mill.

30. Under Article 10(1) of Regulation No 3061/84, as amended by Commission Regulation (EEC) No 928/91 of 15 April 1991, (25) the checks provided for in Article 14(3) of Regulation No 2261/84 are to cover at least 10% of the approved mills operating during the marketing year concerned. Article 10(3) provides that, in checking the accuracy of crop declarations as indicated in Article 14(3a) and (4) of Regulation No 2261/84, as amended by Regulation No 3500/90, producer Member States are to make use inter alia of data in the register of olive cultivation and the computerised files, the figures from on-the-spot checks made on the grower and the yields of olives and oil set for the zone in which the holding or holdings are located.

31. Article 15(3) of Regulation No 2261/84, as amended by Regulation No 3500/90, provides that where the checks specified in Articles 13 and 14 do not confirm the figures in the stock records of an approved mill the Member State concerned must determine, without prejudice to any sanctions which may be imposed on the mill, for each producer whose average production is at least 500 kg of olive oil per marketing year and who has had his olive crop pressed in the mill in question, the quantity of oil for which aid is to be given. Under Article 15(4), for the purpose of determining the quantity eligible for aid, the Member State must use in particular the olive yields and oil yields fixed in accordance with the standard method of Article 18, which provides that these shall be fixed by homogeneous production zones.

32.In order to obtain the information needed to determine the Community's potential production of olives and olive oil and to improve the operation of the Community aid system for the latter product, the Council adopted Regulation (EEC) No 154/75 of 21 January 1975 on the establishment of a register of olive cultivation in the Member States producing olive oil.(26)

33.Article 1(1) of Regulation No 154/75 provides that the Member States producing olive oil are to establish a register of olive cultivation to cover all olive-growing holdings within their territory. For Spain, the time allowed for establishing this register expired on 1 November 1988, in accordance with Article 1(2) of that regulation, as amended by Council Regulation (EEC) No 3788/85 of 20 December 1985 amending, on account of the accession of Spain and Portugal, certain regulations in the oils and fats sector.(27)

34.In Regulation (EEC) No 2276/79 of 16 October 1979, the Commission laid down the detailed rules for drawing up a register of olive cultivation in the Member States producing olive oil.(28) Commission Regulation (EEC) No 586/88 of 2 March 1988, amending Regulation No 2276/79,(29) added Articles 6a and 6b. Under Article 6a, Member States producing olives must undertake, in accordance with the procedure laid down in Article 6(1), an annual updating of the register of olive cultivation, taking account in particular of any changes in cultivation declarations submitted by olive growers. Article 6b(1) provides that the olive-producing Member States which acceded to the Community after the entry into force of the regulation may carry out trials to determine what method for obtaining information is best suited to olive cultivation as practised in those Member States. To that end, the Member States concerned must submit a programme of trials to the Commission for approval. Under Article 6b(2), the Commission must notify the Member State of its decision on the programme submitted, with any changes which it considers desirable. After approval by the Commission, the programme is to be carried out with all speed under the responsibility of the Member State concerned.

35.Regulation No 154/75 was amended by Council Regulation (EEC) No 1794/79 of 9 August 1979 as regards the financing of the register of olive cultivation.(30) In accordance with the second subparagraph of the new Article 3(3), the procedure to be used for financing, by means of a deduction from production aid, is the same as is specified for the expenditure referred to in Articles 2 and 3 of Regulation No 729/70. Under Article 3(5), eligible expenditure is that incurred under contracts between the competent authority of the producer Member State and natural or legal persons entrusted with the relevant work, or, where the Member State has the work done by its own official departments, the costs incurred other than administrative and supervision costs. The Member State must notify the Commission beforehand of the terms of the contracts or the estimated cost of the work.

36.Article 16(1) of Regulation No 2261/84 also requires each producer Member State to draw up and keep up to date permanent computerised files of olive and olive oil production data. Under Article 17(2), the information files set up and the processing systems used in checking them must be compatible with the computerised systems used by each producer Member State for the register of olive cultivation.

37.The first subparagraph of Article 14(5) of Regulation No 2261/84 requires Member States to use these data files for the checks and verifications specified in the regulation. Article 16(2) of the same regulation requires that they contain all the information needed to facilitate checking and the prompt detection of irregularities, including information on the production of oil mills. In addition, the second subparagraph of Article 11(1) of Regulation No 3061/84, as amended by Commission Regulation (EEC) No 98/89 of 17 January 1989, (31) provides that Member States are to enter in the files the basic data contained in the register of olive cultivation as soon as such data become available.

38.The first subparagraph of Article 11(2) of Regulation No 3061/84, as amended by Regulation No 98/89, provides that all the components of the computerised files must be operational before 31 October 1990.

B – Financial corrections applied to olive oil production aid

a) Arguments of the parties

39.The Spanish Government challenges the correction of ESP 224 414 161 imposed on it in respect of the aid paid to the RPGs OPROL (Toledo) and APROL-JJAA (Badajoz).

40.It claims that there are no reasons for refusing aid to a Member State where it shows that its system of controls is acceptable.

41.Responding to the Commission's argument that communication between the autonomous communities and FEGA is inadequate, the Spanish Government states that the control exercised over the RPGs is in fact exhaustive and that there are reasons for the formal notices to the AAO not always leading to automatic withdrawal of recognition of the RPG, as the Commission would wish. Firstly, the procedures for the application of penalties are governed by the laws of the Member States, in accordance with Article 2(4) of Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities' financial interests,(32) which, in the case of the Kingdom of Spain, requires the initiation of a lengthy and complicated procedure between the parties. Thus no speedy penalty can be imposed forthwith. Secondly, withdrawal of recognition is quite a serious measure and should not occur where the infringement is minor.

42.It points out that recognition was withdrawn from OPROL by an order of 25 April 1995 of the Consejería de Agricultura de la Junta de Comunidades de Castilla-La Mancha, upon a proposal from the AAO. In the case of APROL-JJAA, it acknowledges that the proposal for withdrawal made by the AAO was not acted upon but adds that this proposal was based on mere suspicion or doubt and not on adequate grounds.

43.The Spanish Government denies that it failed to notify to the Commission the information which the latter had asked it for and which it claims it did not receive.

44.It also notes that the only instance in which Community legislation has provided that sums are to be deducted from the expenditure financed by the EAGGF is where it has been confirmed that the sums withheld by the RPG have not been used, in whole or in part, for financing the activities for which they are responsible, in accordance with Article 11(3) of Regulation No 2261/84.

45.The Spanish Government adds that the contested decision would still be illegal even if it were shown that certain RPGs operated incorrectly. The correction must be applied in any event to the aid withheld by the RPG for its own operation, and not to all its member olive growers. That is required by the principle that a penalty is an ad personam measure, and above all by the principle of proportionality. The Spanish Government also points out that the Commission's decisions do not always relate to the aid paid to all olive growers, and that raises the question of the criteria used by the Commission and of the potentially arbitrary nature of its decisions.

46.It alleges that the Commission has created significant legal uncertainty by failing to identify the conditions that justify the withdrawal of recognition. Since that is a measure which restricts individual rights, it is important for it to be taken where evidence of irregularities has been assembled under the applicable procedure. The Spanish Government denies the existence of any infringement, considering that the matters identified are individual deficiencies which justify monitoring the RPGs.

47.The Spanish Government considers that it is disproportionate for the consequences of an irregularity attributable to an RPG to be extended to the aid received by all members of an RPG, especially since the majority of those members have committed no infringement.

48.The Commission explains that the individual financial correction applied represents both the aid granted to OPROL and to APROL-JJAA and the aid granted through those two organisations to olive oil producers in 1993.

49.It notes that this correction, like the other corrections applied in the contested decision, is the result of the information ─ or the lack of information ─ from the various Spanish authorities, of the inspections by the AAO and of the various checks carried out on the spot by EAGGF inspection officers.(33)

50.These verification procedures revealed serious and persistent irregularities in the management and operation of six RPGs, including the two specified in the disputed correction. The latter RPGs are the only ones acted against here, as it was possible to gather the data needed to quantify the correction in respect of them.

51.The Commission stresses that the RPGs are an essential component of management and supervision of the common market organisation because, in return for the financial compensation and aid that they receive, actual obligations and specific tasks are assigned to them by the Community rules as regards the management and supervision of the Community aid received by their member producers.

52.In order to be recognised, these organisations must fulfil all the requirements and conditions laid down by Community legislation; these are set out primarily in Article 20c of Regulation No 136/66, as amended by Regulation No 1413/82, and in Regulation No 2261/84, particularly in Article 5(3) of the latter. The Commission adds that it is essential for all these organisations to fulfil all the obligations, conditions and tasks imposed by Community legislation, not only when they are established but throughout their existence.

53.The Commission maintains that these provisions show that, where the conditions for recognition are no longer observed, the competent authority must withdraw recognition without delay, and it is allowed no discretion. Such a measure is not a penalty but is the outcome of failure to observe the conditions necessary for remaining an RPG. Recognition must be withdrawn without prejudice to any penalties incurred. The Spanish autonomous communities refused to withdraw recognition from the RPGs concerned, as proposed by the AAO, although they essentially acknowledged that the irregularities detected did exist.

54.According to the Commission, the Kingdom of Spain failed to communicate most of the information relating to the RPGs proceeded against, which had been asked for several times.

b) Assessment

55.The arguments submitted by the Spanish Government relate to the legal conditions for withdrawing recognition from RPGs, to the evidence for the irregularities committed and to the scale of the correction imposed on the Kingdom of Spain because of those irregularities.

56.I shall examine each of those points in turn.

i) Conditions for withdrawing recognition from RPGs

57.Regulation No 1413/82, as I said, established a special system based on the activity of olive-grower groups or associations thereof, responsible for carrying out more rigorous checks on the production of growers who are members of the groups belonging to such associations.

58.Article 20c(1)(b) of Regulation No 136/66, as amended by Regulation No 1413/82, lays down the conditions governing recognition of producer groups. In particular, RPGs must be capable of verifying the olive and olive oil production of their members.

59.Article 20c(2)(b) of the same regulation states unambiguously the consequence that must follow when the conditions for recognition are no longer fulfilled: in such a case, the RPG or association of RPGs must forfeit recognition.

60.Article 5(3) of Regulation No 2261/84 lays down detailed rules for the withdrawal of recognition. It provides that, on the basis of the annual declaration required from RPGs, reporting to the competent authority any changes made in their structure since their recognition, and of the results of any enquiries, the competent authority is to ascertain whether the conditions for recognition continue to be met. If not, ‘the competent authority must, without delay and at the latest before the beginning of the following marketing year, withdraw recognition ...’.

61.It seems to me that four conclusions are to be drawn from this requirement.

62.First, it is easy to identify the conditions for recognition of an RPG. They include the ability to verify the olive and olive oil production of their members, and it is precisely that shortcoming of the RPGs concerned which is complained of.

63.The conditions which must lead to withdrawal of recognition are laid down explicitly by the Community legislation. I therefore think it improper to complain, as the Spanish Government does, that the Commission has created legal uncertainty by not stating those conditions. Furthermore, we shall see that the reason for the financial corrections applied by the Commission, that is, the inability of the RPGs to verify production, was clearly explained by the Commission.(34)

64.Next, the RPG's recognised status must be withdrawn as soon as one of the conditions for recognition is not met. Article 20c of Regulation No 136/66, as amended by Regulation No 1413/82, lists the conditions upon which recognition depends, so that the absence of any one of them is sufficient to compromise it. In this instance, verification of production by the RPGs must be effective and consistent for the RPG to retain its original status.

65.Thus, if it is shown that the verification operations required of the RPG are not carried out or that the organisation or operation of the RPG does not allow it to carry them out, the organisation's RPG status is compromised.

66.Furthermore, in the provisions cited above there is no limit relating to the scale of the facts giving rise to derecognition. The provisions of Article 20c of Regulation No 136/66, as amended by Regulation No 1413/82, show that if it is established that the RPG is not sufficiently able to conduct verification operations, that is enough to justify withdrawing recognition. That reading is confirmed by the object of the Community legislation applicable, which is to introduce, for the purpose of ensuring effective management of the aid system, more rigorous checks on the production of growers who are members of the groups belonging to professional associations (35) and to make the latter responsible for those checks.(36) Where it has been established, I believe that the inability to verify production cannot be regarded as a minor ground which allows national authorities not to order derecognition.

The Spanish Government cannot maintain therefore that the matters complained of in respect of the RPGs concerned are not important enough to justify a measure withdrawing recognition.

67.Lastly, derecognition must be effected speedily. The latest time provided for in Article 5(3) of Regulation No 2261/84 is the beginning of the following marketing year.(37)

68.Member States' powers as regards the derecognition procedure are thus subject to a very precise temporal limit. Although, when irregularities have been established but before any adverse decision such as derecognition has been taken, there must unquestionably be an exchange of views between the competent authority and the RPG concerned, there is nothing to justify that decision being taken after the legal time-limit. The Kingdom of Spain is subject, like all the other Member States, to the obligation to observe the timing prescribed in Article 5(3) of Regulation No 2261/84: it must adapt its internal procedures to comply with that provision and apply them in such a manner that they do not exceed the limit so established.

69.The Spanish Government admits that formal notices from the AAO did not always lead to automatic withdrawal of recognition from the RPG. It also states that recognition was withdrawn from OPROL on 25 April 1995, after a year of observation had failed to establish an improvement.

70.The time-limit in Article 5(3) of Regulation No 2261/84 was therefore clearly not observed.

71.In the case of APROL-JJAA, the Spanish Government does not deny that the AAO's proposal to withdraw recognition, dated 24 January 1994, was not acted upon.

72.However, the Spanish Government maintains that the original request for derecognition was based upon mere suspicion or doubt and not on adequate grounds.

73.We therefore need to examine the argument set out by the applicant government regarding APROL-JJAA and OPROL that the irregularities established were not serious enough to justify derecognition.

ii) Irregularities justifying withdrawal of recognition

74.We have seen that withdrawal of the recognition enjoyed by these two RPGs was either not carried out or decided upon out of time. But derecognition was mandatory, since the conditions enabling them to retain their original status had not been observed.

75.In fact, a number of documents in the case refute the Spanish Government's assertion that there was not sufficient evidence to support the original request to withdraw recognition from APROL-JJAA.

76.In the letter of 14 June 1994 to the AAO, the competent authorities of the Autonomous Community of Extremadura stated that they had carried out two inspections at APROL-JJAA, on 3 March and 10 March 1994. The letter shows that the AAO had carried out an inspection at the same RPG on 23 September 1993, and the outcome of that had served to justify the derecognition proposal of 24 January 1994. The inspections in March 1994 showed certain improvements compared with the position described by the AAO, and that led the officers of the Autonomous Community of Extremadura, although certain shortcomings persisted, to propose ‘monitoring of the management of APROL Jovenes Agricultores de Badajoz until it is established that all the conditions which justified recognition are again met and that the provisions of the legislation applying to this type of organisation are complied with’.(38) The letter states that the AAO's inspection took place at a time when the RPG was without its manager, who had not yet been replaced, so that staff at APROL-JJAA had not been in a position to take account of the warnings notified by the AAO.

77.The letter of 14 June 1994 confirms that there were shortcomings at the time of the AAO's inspection, and also that some of these persisted at the time of the inspections by the officers of the Autonomous Community of Extremadura. On the date of the latter inspections inadequacies were found regarding the specific management records, there were no copies of titles of ownership, there were gaps in the quarterly reports of operations and, for certain marketing years, it was not possible to verify compliance with the deadlines prescribed for transferring aid.

78.But recognition was not withdrawn at that stage, nor had it been after the inspection carried out by the AAO, although more serious and more numerous irregularities had been recorded.(39)

79.Furthermore, the lack of a manager at that date does not seem sufficient on its own to justify these shortcomings, as is shown by the checks by the EAGGF officers: the report written by them following an inspection mission carried out from 20 to 24 June 1994 shows that a number of RPGs visited by the AAO were not complying with the most basic conditions prescribed by Regulation No 2261/84 for continued recognition. Among them is APROL-JJAA. (40) The EAGGF inspectors state that this RPG had been the subject of a number of inspections by the AAO since 1989 and that the various recommendations formulated and the proposed penalties had never been taken into account by the authorities of the Autonomous Community of Extremadura. (41)

80.Thus the irregularities reported by the AAO pre-dated the inspection of September 1993 and therefore the absence of a manager at APROL-JJAA.

81.Clearly, therefore, the failure to derecognise after these long-standing shortcomings were established is a fact that justifies the contested individual correction in respect of APROL-JJAA.

82.As regards the existence of irregularities justifying the withdrawal of recognition, the position of OPROL is even clearer. The order of 25 April 1995, cited above, for withdrawal of recognition from that producer organisation is proof that OPROL had failed to fulfil its obligations as an RPG. The year of observation which the competent national authorities granted to it, in vain, as we have seen, shows that the complaints made against the organisation were genuine and of long standing. In any case those points are not disputed.

83.Sections (i) and (ii) above show that the Kingdom of Spain did not withdraw the recognition granted to OPROL and APROL-JJAA in the manner prescribed by the Community legislation, notwithstanding the irregularities recorded. These considerations are sufficient to justify the financial correction applied by the Commission.

84.However, the Spanish Government denies that the Commission is entitled, on the basis of those facts, to make a correction other than where it is shown that the sums withheld by the RPGs have not been used, in whole or in part, for financing the activities for which they are responsible, in accordance with Article 11(3) of Regulation No 2261/84.

85.In adopting this position, the Spanish Government is restricting the Commission's right to disallow all or part of the expenditure incurred by the Member State to a single situation, contrary to the settled case-law of the Court of Justice on this matter.

86.The provision invoked by the Spanish Government is very specific. Regulation No 2261/84 shows that RPGs are entitled to withhold a contribution from the amount of production aid made over to them, to contribute towards the expenditure resulting from the checking operations for which they are responsible.(42) Article 11(3) of that regulation provides for a deduction from the expenditure financed by the EAGGF where the sums withheld are not used for that purpose.

87.There is no doubt that that is but one of the situations in which the Community is authorised to disallow expenditure improperly incurred by a Member State. As the Court has often ruled, the EAGGF finances only intervention undertaken in accordance with the Community rules in the framework of the common organisation of agricultural markets(43). That is how we must construe Articles 2 and 3(1) of Regulation No 729/70(44), the scope of which also includes situations other than misallocation of the contribution withheld by an RPG.

88.As the Commission has rightly noted, it follows from these provisions that if a Member State continues to recognise a producer organisation and grants it aid after the competent authorities have established that that RPG is not or is no longer fulfilling the conditions needed for it to be recognised, then, to the failure to fulfil obligations consisting of a failure to withdraw approval, it is adding the failure of paying aid which is not due. Such is the position here of the Kingdom of Spain.

iii) The extent of the individual correction applied to the Kingdom of Spain

89.We now have to define the extent of the financial correction in dispute. For that, we need to examine the Spanish Government's argument that, in any event, this correction should be restricted to the aid withheld by the RPG for its operations and should not be extended to all its member olive growers. After invoking the principle that penalties are ad personam, the government has relied on the principle of proportionality, considering that extending the consequences of an irregularity attributable to an RPG, at the cost of the producers themselves, disregards that principle. It also complains of the arbitrary nature of the corrections made by the Commission.

90.In order to determine whether a provision of Community law, in particular in the sphere of the common organisations of agricultural markets, is in conformity with the principle of proportionality, it is necessary to consider whether the measures introduced by that provision exceed the limit of what is appropriate and necessary in order to attain the objective pursued by the rules at issue. More particularly, it is necessary to ascertain whether the means which the provision applies in order to achieve its aim correspond to the importance of that aim and whether they are necessary in order to achieve it.(45)

91.The rule which has to be considered as regards the principle of proportionality is the rule ─ drawn from the consistent case-law of the Court ─ which I referred to earlier:(46) the Commission may charge to the EAGGF only sums paid in accordance with the rules laid down in the various sectors of agricultural production, leaving the Member States to bear any other sum paid, and in particular any amounts which the national authorities wrongly believed themselves authorised to pay in the context of the common organisation of the markets. (47) As I said, the failure by the competent Spanish authorities to apply the relevant rules gives rise to application of the financial correction in dispute and the immediate consequence of that is to require the Kingdom of Spain to exclude from Community financing the whole of the sums paid to the RPGs concerned, including the amount of aid intended for the producers themselves.

92.According to the seventh recital in the preamble, the intention of Regulation No 729/70 is that measures are to be taken to prevent and deal with any irregularities and to recover the amounts lost as a result of such irregularities.

93.The measures introduced in the oils and fats sector include the financing of producers through RPGs and also the supervision of producers by those organisations. Where supervision is defective, the Community is deprived of the means of ensuring that the conditions for financing of the relevant agricultural sector are fulfilled. Exclusion from financing represents the most appropriate measure to prevent aid being used for purposes other than those for which it was granted, except where it is shown that the olive-grower members of the RPGs are not the source of any irregularity likely to compromise all or part of the Community financing.

94.On this, the Spanish Government maintains that the breach of the principle of proportionality is established by the checks carried out on the member olive growers, which showed that the payments were made in accordance with Community legislation, with 22 olive growers out of 26 having committed no irregularity.

95.Like the Commission, I feel that these are not conclusive points, chiefly because the checks described in the reports produced by the Spanish Government were carried out during 1995. In the contested decision, the Commission's complaint concerns the operation of the RPGs and their member producers as established during the year for which the accounts in dispute were cleared. The failures noted within the organisations themselves create a strong presumption of irregularity in the activity of the producers during the 1993 marketing year. The reports in the case-file do not remove those presumptions since the observations which they describe may reflect improvements that came about after the period in dispute.

96.We should also recall that the RPGs' task is to check production, so that where serious shortcomings in carrying out those checks are observed there is a high probability of substantial irregularity in the activity of the producers.

97.We may indeed accept that it has been shown that certain producers did not commit any irregularity. Under the system of financing that has been established for oils and fats, aid may be paid by means other than through the RPGs(48).If the RPGs had been derecognised within the proper time, that would probably have enabled those olive growers to obtain aid through some other legal route without suffering the negative consequences of the failures by the RPGs to which they belonged.

98.It should be pointed out here that the financing wrongly paid to these two RPGs arises from the indulgence shown them by the Spanish authorities, who refused to withdraw recognition from APROL-JJAA and took over a full marketing year to derecognise OPROL. They therefore took the step of financing them on the same basis as the other RPGs in the full knowledge that these RPGs were continuing to enjoy recognition that was no longer justified by their operation. The proof of the existence of the irregularities complained of, in combination with the failure to withdraw recognition as prescribed by law, justifies the inclusion of the sums paid in respect of 1993, for the Community cannot be held liable for losses to the olive-growing members of either RPG when action by the Spanish authorities might have prevented them.

99.For all of the above reasons, it is my view that the financial correction concerned in no way disregards the principle of proportionality.

100.Similarly, the Spanish Government has claimed that applying the consequences of an irregularity detected within an organisation to the aid received by all its members is also not in accordance with Article 7 of Regulation No 2988/95. The Commission denies that this regulation is applicable to financial year 1993.

101. Article 7 of Regulation No 2988/95 provides that Community administrative measures and penalties may be applied to the natural or legal persons who have committed the irregularity, to those who have participated in committing the irregularity and to those who are under a duty to take responsibility for the irregularity or to ensure that it is not committed.

102. It should be remembered that proceedings in respect of the clearance of Member States' accounts for the expenditure financed by the EAGGF are proceedings for annulment, between the Member States and the Community. They are not intended to apportion liability among national economic operators except to the extent that such liability serves to identify the irregularities attributable to the competent national authorities, for the origin of any financial measures ordered against a Member State is to be found in the deficiencies of the systems of supervision introduced by each Member State (49) and those measures do not prejudge the allocation of ultimate liability among the operators concerned which, in any event, must be in accordance with the principle of Article 7 of Regulation No 2988/95 to the extent that it applies at the date of the facts at issue.

103. Lastly, according to the Spanish Government, the corrections made by the Commission are arbitrary because they were not extended to olive oil producers in the previous year, unlike in the year in dispute.

104. We should be mindful of the consistent case-law of the Court stating that if the Commission does not take financial action in one year on deficiencies established, that does not preclude it from doing so in subsequent years, particularly if those deficiencies have persisted, and that, in addition, newly established deficiencies can also be taken into account in determining the level of the flat-rate correction (50).

105. It should be emphasised that, as the Commission has stated, the seriousness and the extent of the irregularities established in the operation and management of the RPGs are capable of justifying extending the financial correction to all of the expenditure incurred through those organisations.

106. It follows from the above that the plea based on the irregularity of the individual financial correction to the aid paid to OPROL and APROL-JJAA must be rejected.

107. According to the Summary Report, the EAGGF officers carried out two checks at the AAO, relating in particular to olive oil production aid, in September and October 1993 and in March 1994. (51)

108. The real focus of those checks was the work of the AAO but they were supplemented by the mission conducted from 20 to 24 June 1994 in the Autonomous Communities of Andalusia and Extremadura, and also by a second EAGGF mission, from 30 January to 3 February 1995, with the object of analysing the checks conducted by the AAO, in particular at the mills.

109. On a subsequent mission, from 17 to 21 June 1996, in respect of 1993 and the years following, it was possible to supplement the earlier findings.

110. All these operations, together with the explanations provided by the Spanish authorities, enabled the EAGGF to demonstrate the existence of a number of shortcomings or irregularities.

111. According to the EAGGF, ‘in the system of management and control of olive oil production aids in Spain there are very many deficiencies as regards its general effectiveness (the part played by FEGA, application of penalties proposed by the AAO, payment on trees used for table olives), and the most important checks involved (register of olive cultivation, computerised files, flat-rate yield attributed to producers, checks at mills and RPGs).

In particular, in Spain the lack of basic regulatory instruments (the register and the files) and the weakness of all the checking procedures in force make it impossible to prevent systematically the risk of misuse in a particularly sensitive sector.’ (52)

112. On the basis of the details in the Summary Report, the Commission complains in respect of the Kingdom of Spain that relations between the AAO and the autonomous communities were too limited, that there was no register of olive cultivation and there were no computerised files of olive cultivation data, that the checks on oil mills and yields were inadequate and that aid had been wrongly paid to producers who had marketed part of their production as table olives.

113. The Kingdom of Spain challenges the correction of ESP 5 939 261 511 which was applied to it in consequence.

a) Conditions leading to application of the 10% flat-rate correction

i) Arguments of the parties

114. The Spanish Government argues that it is only possible to concede that the checks on the expenditure giving rise to the contested financial correction applied by the Commission were inadequate if three conditions are met: it must be shown that the general operation of the Member State's system of control is defective, that serious shortcomings have been established and that there are sufficient grounds to claim that the deficiency in the control system has caused the misappropriation of substantial sums for purposes other than those provided for by the Community legislature.

115. According to the Commission, responsibility for the checking of expenditure lies primarily with the Member States. Consequently, failure to apply the checking mechanisms prescribed by Community legislation is an infringement obliging the Commission to make the requisite financial corrections.

ii) Assessment

116. The conditions relied upon by the Spanish Government disregard the relevant case-law of the Court, according to which the EAGGF finances only interventions undertaken in accordance with the Community rules in the framework of the common organisation of agricultural markets. (53) Where the Commission refuses to charge certain expenditure to the EAGGF on the ground that it was incurred as a result of a breach of Community rules for which a Member State can be held responsible, it is for that State to show that the conditions for obtaining the financing refused are fulfilled. (54)

117. The reason for this mitigation of the burden of proof on the Commission is that it is the State which is best placed to collect and check the data required for the clearance of EAGGF accounts, and which is consequently required to adduce the most detailed and comprehensive evidence that its figures are accurate and, if appropriate, that the Commission's calculations are incorrect (55). In the event of a dispute, it is for the Commission to prove that the rules of the common organisation of the agricultural markets have been infringed, and once it has established such an infringement the Member State concerned must then, if appropriate, demonstrate that the Commission made an error as to the financial consequences to be inferred from that infringement (56).

118. We see that for the EAGGF to refuse, in the context of the procedure for clearing accounts, to accept certain expenditure incurred by the Member State concerned it is by no means necessary to show that the infringement is serious. It is sufficient that the expenditure has been incurred in breach of the Community rules and for the Community budget thereby to be exposed to the risk of loss.

119. On the question whether the shortcomings found were sufficient to justify application of a flat-rate correction of 10%, we should recall that the relevant criterion is that set out in Section C of the Belle Report, which states that the rate of 10% of the expenditure is to be used where the deficiency relates to the whole of, or fundamental elements of, the control system or to the operation of controls essential for ensuring the regularity of the expenditure, so that it can reasonably be concluded that there was a high risk of widespread loss to the EAGGF.

120. It is in the light of these considerations that the evidence provided by the Spanish Government to challenge the findings upon which the Commission based the contested decision must be examined.

b) Relations between the AAO and the autonomous communities

i) Arguments of the parties

121. According to the Commission, the Summary Report shows that relations between the AAO, one of whose functions is to supervise production aid, and the autonomous communities, responsible for managing the aid, are too limited. That creates the risk of management decisions being taken without access to the outcome of the checks conducted by the AAO. In addition, there is a risk that checks may not be effective, as the AAO is not informed of certain fundamental details of management, and, according to the Summary Report, in respect of both mills and RPGs the AAO does not receive systematic information regarding action taken on its proposal to withdraw recognition and does not intervene during the process of further verification undertaken by the inspectors of the autonomous communities (57).

122. The Spanish Government denies that communication between the AAO and the autonomous communities is inadequate. It considers that those relations are constant and easy.

123. The Commission replies that the AAO does not have those facilities necessary for performing tasks which, in accordance with the Community rules, are needed by the olive oil agencies set up in the Member States. It complains that information is not adequately forwarded by the autonomous communities to the AAO, and also that the former adopt decisions unilaterally without prior consultation with the AAO. According to the Commission, all of the AAO's proposals for derecognition are founded on the existence of serious irregularities and on disregard of the legal conditions for the grant of aid. However, whilst the autonomous communities do not dispute the majority of the irregularities, they do not withdraw recognition, simply for reasons of convenience.

ii) Assessment

124. The complaints made by the Commission are borne out both by the Summary Report and by the reports made by the EAGGF inspection officers following the mission carried out on the spot from 20 to 24 June 1994 (58) and the documentary checks prior to clearance for 1993. (59)

125. Thus, according to the Summary Report, the AAO does not have knowledge of the criteria used by the autonomous communities to identify producers whose yield is abnormal, or of the method for and extent of the verifications conducted by the autonomous communities at mills to confirm the findings which gave rise to the proposal made by the AAO to withdraw recognition. (60) The EAGGF inspection officers noted ‘a strong spirit of rivalry between [the AAO and the autonomous communities], which greatly weakens collaboration and the exchange of information between the two organisations’. (61) SENPA, the central organisation in charge of the payment of production aid, does not seem to be able to resolve the disagreements between the AAO and the autonomous communities. The EAGGF's officers recommend that the conclusions to be drawn from the results be made centrally. (62) That communication is inadequate and is shown by the fact that, for example, ‘they do not refer to the outcome of the documentary checks on producers with an abnormal yield’ (63) or to the discrepancies established as between the tree count shown in the application for aid and that shown in the crop declaration.

126. These findings point to the existence of malfunctioning and inadequate cooperation between the principal national authorities responsible within the olive oil production sector which, I believe, the explanations offered by the Spanish Government are not sufficient to refute.

127. The Spanish Government describes the various items of information communicated to the AAO by the autonomous communities for 1993. They include information on the holdings suspected of excessive yields and on progress on the cases opened by the autonomous communities receiving proposals to withdraw recognition. But it produces no evidence at all that these collaborative relations among the various institutions were genuine and permanent.

128. The Spanish Government refers to the letter of 13 September 1995 in which the Autonomous Community of Andalusia gives the AAO the names of olive growers obtaining yields higher than those generally accepted within the production zone. (64) Apart from the limited scope of the document, which relates only to olive growers counted by just one autonomous community, the letter of 13 September 1995 relates to a financial year later than that in dispute, being for 1994/95.

129. Furthermore, the fact that the Spanish competent authorities took action during 1995 to improve cooperation between the AAO and the autonomous communities shows that there was an earlier significant structural problem.

Thus, FEGA letter 18759, sent in response to EAGGF letter 14826, of 3 April 1996, shows that a coordinating working group was set up on 10 July 1995, consisting of representatives from the various national institutions, including the AAO and the autonomous communities, to carry out management, supervision and coordination of production aid. (65) Its objective is ‘to ensure smooth relations between all the organisations involved in any way in aid for olive oil, by coordinating their activity and by means of regular monitoring of their management’. (66) It is relevant to note that the preliminary draft agreement on cooperation between the Spanish Ministry of Agriculture, Fisheries and Food and the autonomous communities on application of the system of control of olive oil production aid was to be signed on 1 June 1996, well after the year in dispute. In association with the other findings by the EAGGF officers, reported in the documents cited above, this reform confirms that there were difficulties affecting coordination of the various national competent authorities.

130. The Commission also points out that, according to the Summary Report, the autonomous communities do not follow all the recommendations to withdraw approval from oil mills and RPGs of the AAO after serious operating irregularities have been found. As regards the RPGs, more than 50% of the recommendations were not followed; 10% of the proposals made by the AAO to withdraw approval from mills were not implemented by the various autonomous communities.

131. The Spanish Government maintains that the complaint made by the Commission was already raised in support of the previous financial correction; thus a single argument is being used to justify the application of a double penalty.

132. As noted previously, the Spanish Government does not deny that RPGs were not automatically derecognised. (67) I therefore refer back to my discussion of this subject, noting the obligation on the Member States to effect immediate withdrawal of recognition when one of the conditions for derecognition is fulfilled. (68)

133. As regards the inference made by the applicant government that a double penalty is being applied for the same conduct, we must recall that the lack of systematic derecognition gives rise to two financial corrections not in respect of a single series of irregularities, but in respect of two types of irregularities. The irregularities found at OPROL and APROL-JJAA are grounds for an individual financial correction. The irregularities alleged against four other RPGs are counted as an additional matter, relating to the inadequacies of the national system of control, when making the present flat-rate correction. The Commission is therefore not applying two financial correction measures by way of penalties for the same conduct.

c) Lack of a register of olive cultivation

134. According to the Summary Report, the Spanish register of olive cultivation (registro oléicola español) (69) fails to achieve the purpose of the establishment of an olive cultivation register, which is the systematic identification of all mistaken or fraudulent declarations and, thereby, of all aid which is not due. The exhaustive administrative check on aid applications which a register of olive cultivation affords is not carried out, and that creates a high risk of irregularities. In addition, the mission carried out in 1996 noted difficulties in operating the ROE which cast doubt on its use. The land-registry references for the parcels enumerated in the crop declarations and in the ROE do not always match, following the revisions of the land register which occurred between the date of filing of the initial crop declaration and the date of the work on the olive cultivation register. Furthermore, it is not known whether the declarations of changes filed for each marketing year are to supplement or to replace the earlier declarations. Lastly, the data in the ROE had not been validated by the date of the Summary Report, and therefore could not be relied upon as against producers.

i) Arguments of the parties

135. The Spanish Government maintains that the Commission's complaint that the ROE does not permit systematic identification of every mistaken or fraudulent declaration is unreasonable: a Member State cannot be penalised for failing to achieve perfection in the exercise of its function of supervising aid, particularly if account is taken of the complexity of the matter.

136. The Spanish Government argues that the Commission relies on the need to check the aid granted as a function of the tree count, whereas under Community legislation that type of aid is restricted to small growers. In Spain, 90% of aid is granted to olive growers producing more than 500 kg of oil, so that the criterion on which aid is granted should be the oil produced and not the tree count.

137. The Spanish Government adds that the lack of or imperfect operation of the register of olive cultivation is not enough to show that there are no checks. The fact that the ROE was not completed for the 1992/93 marketing year cannot be grounds for a financial correction. Furthermore, the ROE was not required to be operational by that time.

138. Nor does the doubt expressed by the EAGGF as to the possibility of using the ROE justify the correction applied: the Spanish Government maintains that no register is able to reflect the position systematically. It is necessarily an approximation and is primarily an aid to checking, and does not have the absolute effectiveness which the Commission attaches to it.

139. Lastly, the Spanish Government considers that the complaint based on interpretation of the amending declarations submitted for each marketing year is exaggerated. It explains that crop declarations are not modified for each marketing year and that supplementary declarations are submitted only when changes have taken place on the holding. It is not inconceivable that errors may be found in these declarations, but it considers that such occurrences cannot be regarded as creating serious difficulties.

140. The Commission replies that Article 1 of Regulation No 154/75 requires the ROE to be established by 1 November 1992, and it should have been usable during the marketing year corresponding to financial year 1993. The infringement of Community legislation is therefore proved, since it was not so at that date. The lack of an olive cultivation register of itself constitutes an essential shortcoming in the system for checking aid to olive oil production, requiring the Commission to adopt the financial corrections.

141. The Commission adds that, contrary to what the Spanish Government maintains, the controls conducted in Spain are inadequate and reveal substantial deficiencies, so that they do not make it possible to offset the absence and the poor operation of the ROE.

142. It also points out that the operational difficulties of the ROE described in the Summary Report compromise its ability to fulfil its task of verification.

143. The Spanish Government replies that, in seeking to rely on the existence of a deadline for implementation of the ROE, the Commission is flouting the procedure for establishing the ROE which it undertook itself together with the Kingdom of Spain, subject to a detailed timetable and in accordance with Article 6b of Regulation No 2276/79 as amended by Regulation No 586/88. The Commission was fully aware of the deadline set for final completion of the work, that is, 1998.

144. According to the Spanish Government, there is no such thing as a fully effective register, capable of systematically identifying every mistaken or fraudulent crop declaration and thus any aid not due. Furthermore, the Commission's observations reveal implicit acknowledgement that the ROE was being used. Lastly, the recent completion of the process of establishment of the ROE is not compatible with updating it immediately.

145. The Commission argues that Regulation No 2276/79, as amended by Regulation No 586/88, relates to a pilot programme of method trials which in no way reduces the need to establish the ROE within the time-limit provided for by Community legislation. It considers that the Spanish Government has not shown that the delay in establishing the ROE was due to absolute impossibility. It adds that the fact that it assisted the Spanish Government to perform its obligations after the end of the period allowed for establishing the ROE does not nullify the infringement complained of, nor does it prove that it was absolutely impossible for the Kingdom of Spain to meet the deadline at issue. Even less should that situation be read as implicit acceptance of the delay and its consequences for the system of supervision of aid.

146. According to the Commission, the lack of an olive cultivation register is itself an essential deficiency in the system for checking olive oil production aid, giving further justification for the financial correction, because, in terms of both quality and quantity, the checks conducted by the Kingdom of Spain were below the level necessary to remedy that lack. The risk of fraud is thus substantial. The Commission adds that under Article 6a of Regulation No 2276/79, as amended by Regulation No 586/88, Member States must undertake an annual updating of the register of olive cultivation. That requirement cannot be regarded as the cause of the present difficulties in operating the ROE.

ii) Assessment

147. Article 1(1) of Regulation No 154/75 requires Member States producing olive oil to establish a register of olive cultivation relating to all olive-growing holdings within their territory. Article 1(2)(b) of that regulation, as amended by Regulation No 3788/85, shows that the olive cultivation register ─ the function of which is to provide the necessary data on potential production and to improve the operation of the aid system ─ was to have been fully established in the Kingdom of Spain by 1 November 1992.

148. The Spanish Government admits that the ROE was not completed by that date (70). It refers to the right acknowledged by the Court to rely on the absolute impossibility of executing a Community decision correctly, but it does not produce evidence of such impossibility. Furthermore, the technical assistance given by the Commission cannot be interpreted as relieving the Spanish Government of the obligation to comply with the legal time-limit, for no provision in the applicable Community legislation gives the Commission such a power. Nor has it been shown that the Commission implied that it had the power to derogate from the applicable rules.

149. We must reject the argument submitted by the Spanish Government that the olive cultivation register is less usable in Spain as a means of supervision because of the average profile of Spanish olive growers. It maintains that because most are large-scale producers, who therefore receive aid according to the quantity of oil produced and not according to the number of olive trees and their yield, priority should be given to checking the mills, in accordance with the applicable Community legislation.

150. As the Commission observes, checks on the oil mills, regardless of their extent, cannot make up for failure to complete the register of olive cultivation. Since Community aid is paid to the olive growers and not to the mills, it is not sufficient to direct the controls chiefly to the latter. The data in the olive cultivation register are of real importance, particularly for the tree count, because the determination of the quantity of olive oil produced and eligible for aid depends on the olive yield and the oil yield; these are set on a flat-rate basis, which requires an accurate knowledge of the number of trees.

151. I would add that the operational difficulties with the ROE are not disputed by the Spanish Government, which states that the reason for the lack of the annual update prescribed by Article 6a of Regulation No 2276/79, as amended by Regulation No 586/88, is the process of installing the ROE.

152. The Spanish Government has therefore not shown that the data collected by the EAGGF inspection officers were inaccurate.

d) Lack of computerised files of olive and olive oil production data

153. The Summary Report shows that there was no central computerised file at the time of the inspections carried out by the EAGGF officers. Because of the large number of beneficiaries, therefore, no effective verification was reasonably possible. According to the EAGGF officers, certain improvements presented by the competent national authorities in 1996 and certain supplementary checks could only have had effect in marketing year 1995/96 and not in marketing year 1992/93, the time at issue here.

i) Arguments of the parties

154. The Commission stresses that the absence of central computerised files, in breach of Article 16 of Regulation No 2261/84 and Article 11 of Regulation No 3061/84, as amended by Regulation No 98/89, prevents systematic advance checking of all crop declarations and all applications for aid. According to Article 11 of Regulation No 3061/84, as amended by Regulation No 98/89, all the components of the computerised files should have been operational by 31 October 1990, but that did not happen. This serious infringement is a major shortcoming of the control system, since it affects one of its essential resources, and a flat-rate financial correction is therefore justified.

155. For the Spanish Government, the computerised files were only partly lacking. The file content provided for in Article 16 of Regulation No 2261/84 was already included within the part-files giving the outcome of the checks conducted, the data relating to crop declarations, and the data contained in the homogeneous-zone programmes. Furthermore, the autonomous communities were in a position to detect abnormal yields from their computerised files. Since Regulation No 3061/84 allowed six years for the installation of the computerised files, it is reasonable that the Kingdom of Spain should have an equivalent period, counting from the date of its accession to the Community. Lastly, for financial year 1993, the autonomous communities were in possession of all the details that had to be shown in the computerised files referred to in Regulation No 2261/84.

156. The Commission maintains that the computer records of the reports on checks carried out in marketing years 1992/93 and 1993/94, provided by the Kingdom of Spain to support this latter point, cannot serve to refute existence of infringements found. It cannot be confirmed from those records that all the information which must be collected under the applicable Community legislation is actually there. The tolerance thresholds in the files of the autonomous communities are too high and were set without consulting FEGA or the AAO, although that body was responsible for checking the yields obtained.

ii) Assessment

157. Under Article 16 of Regulation No 2261/84, each producer Member State is required to draw up and keep up to date permanent computerised files of olive and olive oil production data. Under Article 11 of Regulation No 3061/84, as amended by Regulation No 98/89, all the components of the computerised files had to be operational before 31 October 1990.

158. The Spanish Government has admitted that the computerised files were incomplete on expiry of the legal time-limit. It should be said that the time-limit applies to all Member States, regardless of when they joined the European Community. The Kingdom of Spain, like the other Member States, is therefore bound by this. The computerised records produced by the Spanish Government relate to only a part of the information that should be held on the computerised files prescribed by the Community legislation. As the Commission notes, there is no information relating to stock-keeping. Consequently, their incomplete nature means that they cannot be used to refute the details set out in the Summary Report regarding the lack of central computerised records complying with the applicable Community legislation.

e) Inadequacy of checks on mills

159. According to the Summary Report, because mills belonging to cooperatives have a number of interests and activities within the olive oil sector, they present prima facie a higher level of risk than single-activity mills. The EAGGF officers noted that checks on mills were defective as regards determination of the sample to be checked, because the computerised files were not available. The same shortcomings occurred in preparing for the checks, which were prepared only from earlier checks conducted by the AAO. The EAGGF officers also consider that there are not enough cross-checks, although the use of an outside source of evidence is a basic principle of audits and of checks generally. According to the Summary Report, in the absence of an olive cultivation register and computerised files, the Kingdom of Spain should have conducted more detailed checks at the mills.

i) Arguments of the parties

160. The Spanish Government argues that the risk of irregularities is not higher at cooperative mills, and argues that, on the contrary, this legal form gives protection against the risks of fraud. As regards the choice of which mills are to be checked, it maintains that the criteria for selecting mills are shown in each year's operational programmes, which are sent to the Commission. It considers that the criteria adopted are secondary when, as here, the total number of mills checked is substantial and leads to all mills being checked every two or three years. The concern expressed by the Commission to link the quantity of olives pressed at a mill and the number of trees declared by the producers is scarcely relevant because most producers take their olives to more than one mill for pressing, and they change mills each marketing year. The Spanish Government points out that all mills have had at least one on-the-spot inspection and that the checks are meticulously prepared.

161. Regarding cross-checks, the Spanish Government maintains that there are physical obstacles to making them, such as (with reference to electricity consumption at mills) the fact that electricity is used for purposes other than pressing olives. It does acknowledge the importance of cross-checks, however, in particular those on the intended use of the oil obtained and, where there is doubt, the accounts.

162. The Commission replies that the absence of an olive cultivation register and of computerised files meant that more complete checks were required of oil mills and, in particular, certain cross-checks that were not carried out. It explains that mills organised as cooperatives create more risk because the producer and the mill-owner are one and the same person, which assumes an identity of interest that makes it easier to overestimate the quantity of oil.

163. The lack of computerised files means that the Spanish authorities do not have information on the production of each oil mill and prevents an effective selection of the mills requiring a check. The criteria referred to by the Spanish Government were set for marketing year 1995/96 and therefore cannot be used to refute the Commission's position regarding financial year 1993. With reference to the Spanish Government's argument on sample size, the Commission explains that it has not been shown that a substantial number of the mills checked each year are not the same as those checked already. The Commission reiterates the need for a check that uses an external source of evidence. Cross-checks are required by Community legislation. The fact that it is difficult to do them does not alter the need to carry them out. It cannot be denied that no list was produced of the cross-checks carried out by the AAO on the spot as from marketing year 1992/93.

164. The Spanish Government replies that the absence of part of the register and of certain files was compensated for by increased checks on parcels of olive trees and on mills in respect of both quality and quantity. It cannot be claimed that there are serious gaps in the checks on mills, nor can it be assumed that the oil mills checked annually are always the same.

165. The Spanish Government challenges the Commission's argument that checking the mills is of secondary importance because the olive growers and not the mills receive the aid. It maintains that, for an olive grower to be able to receive aid fraudulently, he must necessarily collude with the mill and get it to supply him with an attestation for oil which has not been produced. Thus, the main purpose of checking the mill is not to detect fraud there but to inquire into possible fraud by the olive grower.

166. Regarding the supposed greater risk of irregularities inherent in the status of cooperative mill, the Spanish Government states that it is not accurate to claim that the producer and the mill-owner are the same person, for the mill is owned by an association of producers, not one producer. For fraud to exist there is an absolute requirement of confidentiality and secrecy, which is unlikely within a cooperative. If fraud occurs, it will be public and widespread. According to the Spanish Government, although cooperatives are the rule in Andalusia, the proposals to withdraw approval in this autonomous community relate to only a minority of them.

167. The Commission considers that increasing the number of checks cannot be a substitute for an improvement in quality, in the absence of an olive cultivation register and computerised files. It recalls that the Community rules on the procedure for clearance of accounts are not intended to restrict refusals to charge expenditure by the EAGGF to cases where the existence of fraud has been clearly demonstrated.

ii) Assessment

168. Where no register of olive cultivation has been finally established and computerised files are not complete, it is undeniably necessary to carry out a greater number of controls and to make them highly effective.

169. The register of olive cultivation and the computerised files in fact bring together a great many particulars relating both to the olive-growing holdings themselves and to the quantity of olives and olive oil produced and for which aid is sought, and also to the checks already carried out. The range and the extent of the information brought together here, all computer-processed, help to make checking and detection of fraudulent practices anywhere in the national territory very effective. Without such resources, it becomes necessary to ensure that checks are more thorough.

170. This is required particularly because ─ as the Commission states ─ the chiefly cooperative structure of Spanish oil mills increases the risk of fraud. Although the Spanish Government disputes this point, FEGA admits that the specific purpose of a cooperative mill, within the olive and olive oil sector, is generally to press the olives of the members and to sell the oil in bulk on a joint basis. (71) That confirms the Commission's view that the operations of growing the olives, and of production and sale of the olive oil, are in the hands of a single operator or group of operators. Because self-inspection by the members is strictly internal to the economic unit itself, I do not think that it can entirely offset the increased risk of fraud which must arise where activities are combined. Therefore I believe that this situation is likely to encourage fraud by declarations of quantities greater than they really are.

171. It has to be noted that the lack of an olive cultivation register and of computerised files cannot be entirely offset by a significant increase in the number of checks.

172. The various documents drawn up by the EAGGF officers following inspections on the spot show that the absence of these resources makes it impossible to specify exactly the sample mills to be checked. The plausibility check on the data used by those responsible for checking to identify suspect mills cannot be carried out satisfactorily because the data on holdings and on the production declared is not complete.(72)

173. The EAGGF officers considered that the AAO's preparation of checks was likewise inadequate. Without central computerised files, using only the particulars from previous checks reduces the effectiveness of the procedure for inspecting mills considerably.(73)

174. Even if the increase in the number of checks leads, as the Spanish Government claims, to all mills having been inspected after two or three years, the most flagrant irregularities that would have been detected already in the first marketing year, using centralised data, might not be identified, particularly since the checks which it is claimed have been augmented are not as detailed as desired, as is shown by the acknowledgement of impotence made by the Spanish Government itself in respect of cross-checks, which it regards as pointless or impracticable.

175. But these controls, which enable the plausibility of the declarations which serve as a basis for aid applications to be verified by comparing data of different types, are required by the Community legislation itself. Article 13 of Regulation No 2261/84 and Article 9 of Regulation No 3061/84 prescribe the data which oil mills must forward to the Member State to obtain approval.(74)

176. It follows from the above that the applicant government has not shown that the checks on mills reached a satisfactory level.

f) Legal propriety of the Spanish practice of using flat-rate yields

177. In the Summary Report, the EAGGF officers consider that the approach adopted by the Spanish authorities, allowing the quantity of olive oil produced by each olive grower to be assigned on a flat-rate basis at the end of the marketing year, does not comply with Article 9(2) and the last subparagraph of Article 5(1) of Regulation No 3061/84. That practice, in combination with the absence of an olive cultivation register and of computerised files, prevents an effective, systematic check of the data specific to each producer and cross-checking of the actual data from the site with that from the daily records of the mills, creating a substantial risk of fraud.

i) Arguments of the parties

178. The Spanish Government points out that flat-rate assignment of the quantity of oil produced by each olive grower happens only in very few cases and that, even in those cases, Article 9(2) of Regulation No 3061/84 authorises it. It states that most mills do not assign the same yields to the producers and adds that for technical reasons the yield cannot be assigned in such a way as to make it possible to isolate each batch of olives and weigh the oil produced by that batch. The physical impossibility of finding the quantity of oil in each batch of olives by weighing does not mean that the overall yield obtained at the mill is assigned to all producers. There is a method for determining very accurately the oil corresponding to each batch and finding a separate yield for each producer. It asserts that the autonomous communities notify abnormal yields to the AAO.

179. The Commission states that it has established that the administrative checks on yields were inadequate. It criticises the fact that most oil mills issue all pressing certificates only at the end of the marketing year, on the basis of the total oil produced during the entire period, which leads to the same yield being assigned to each producer. These facts were established by the EAGGF inspection officers during a number of inspections. It maintains that it does not have evidence enabling it to estimate the extent of this practice but notes that on all occasions when a Community unit inspected the records of a Spanish oil mill it found that this was the position.

180. The Spanish Government denies that most mills assign the same yield to all producers. It maintains that at most producer mills the yield is taken from the laboratory yield for each input, corrected by a coefficient. The Spanish Government regrets that the documents referred to by the Commission in support of its argument were not communicated to it, and concludes that the Commission has infringed the right to a fair hearing.

181. The Commission repeats its assertion that in the marketing year corresponding to financial year 1993 some Spanish oil mills assigned the same yield to all producers. It claims that no evidence has been produced to the contrary. The financial correction was based on no information or finding that was not officially and formally communicated to the Spanish authorities during the procedure between the parties, and the most important items in the reports of inquiries were communicated to them.

ii) Assessment

182. It must be observed, first, that in accordance with Articles 5(1)(d) and 9(2) of Regulation No 3061/84, as amended by Regulation (EEC) No 828/90, (75) the quantities of olives entering an approved mill and the quantities of oil obtained from those olives must be accurately identified and recorded, so that for each batch of olives there is the corresponding batch of oil. That must enable the yields for each of the producers concerned to be quantified.

183. Article 9(2)(e) of Regulation No 3061/84, as amended by Regulation No 828/90, restricts the exceptions to that principle to cases in which the quantity of olives crushed comprises several batches of less than the minimum quantity required to make up a pressing in the case of both mills with a traditional production cycle and mills with a continuous production cycle. In such circumstances, the stock records must include the overall quantity of oil leaving the mill, broken down between the consignees in proportion to the quantities of olives crushed by each of them.

184. It must be noted that the Spanish Government submits two, apparently conflicting, types of arguments.

First it maintains that ‘the yield cannot ... be allotted, interpreting the Community legislation literally, in a way that makes it possible to isolate ... each batch of olives and to weigh the oil produced by that batch’.(76) It had also replied to the Commission that ‘such a system would ... add no substantial item of information to the current procedure’(77) and that, in certain cases, ‘it is no longer possible to discover the extraction line in which each olive grower's olives are, nor which batch of the oil obtained at a given time derives from a given batch of olives’.(78)

At the same time, the Spanish Government maintains that the physical impossibility of finding the quantity of oil in each batch of olives by weighing does not mean that the overall yield obtained at the mill is assigned to all producers. It describes the method for determining the oil corresponding to each batch.

185. As I have said, these arguments are only apparently incompatible. The first must be read as reflecting the difficulty for the Spanish authorities to apply Community legislation, because of what they regard as the special nature of the Spanish olive and olive oil sector. The technique described next seems to have been the content of a response from FEGA to the EAGGF officers in which ─ even assuming that the technique worked ─ it was not in any way alleged that the Spanish authorities actually applied it.(79) In any event, it must be noted that the Spanish Government produces no evidence to show that the global yields noted by the EAGGF inspection officers are not applied in the majority of cases. The report of the visit to the Pedro Valera Garía mill does not provide such evidence: first, it contains data for marketing year 1993/94 and not for 1992/93, and secondly, that item is restricted to the data for one mill and is not wide enough to counter the broader observations made by the EAGGF officers.

186. It should be added that the documents, written by the EAGGF officers and which the Spanish Government maintains were not sent to it, add nothing of consequence to the Summary Report or to letter 23271, in which the Commission explained to the Spanish authorities in detail the principal objections that might be made against them. We may therefore disregard these in assessing the well-foundedness of the complaint made by the Commission against the Spanish authorities.

g) Payment of aid not due to producers marketing part of their production as table olives

187. In the Summary Report and in letter 23271, the EAGGF inspection officers found that the Autonomous Community of Andalusia allows the payment of olive oil production aid to small producers who have marketed part of their harvest as table olives. No check was made of the documentation relating to the possible marketing of table olives. Furthermore, the Spanish authorities did not make any recalculation for the Autonomous Community of Andalusia and all other autonomous communities acting in the same manner of the aid paid to small producers during 1992, 1993 and 1994, to make it possible to recover the amounts paid when not due, on the basis of the crop declarations and the pressing declarations from the mills. The Spanish authorities were also requested to modify the national instructions so as to make it compulsory to state the intended use of the production on the crop declaration.

i) Arguments of the parties

188. The Spanish Government points out that it is not possible to specify the intended use of a crop in the crop declaration because at the time when such declarations are submitted the olive growers cannot forecast the intended use of the olives, which may be used for producing oil or as condiments. Nor was it possible to recalculate the aid paid to small producers, as the payment dossiers took account only of the tree count and the estimated yield for the relevant zone. The Spanish Government maintains that it proposed to modify the Community rules so that all olive growers receive aid for the oil actually produced, since small olive growers generally receive ‘flat-rate’ aid, under the rules in force, regardless of the actual production. It adds that the risk of fraud by small olive growers is minimal, because the olives sold as table olives are harvested earlier than those intended for producing oil, and only the latter are still on the trees at the time of quantifying the yields used for calculating ‘flat-rate’ aid.

189. For the Commission, the amount of olive oil production aid granted by the Spanish authorities to olive growers infringes Article 2 of Regulation No 2261/84 and Article 1(5) of Regulation No 3061/84 inasmuch as it includes the portion of the harvest marketed as table olives. It maintains that the Spanish authorities carried out no check to verify that these Community provisions were being observed. The checks should also have been carried out on large-scale olive growers.

ii) Assessment

190. In accordance with Article 2(1) of Regulation No 2261/84, as amended by Regulation (EEC) No 892/88,(80) and Article 1(5) of Regulation No 3061/84, aid for the production of olive oil may not be granted in respect of the production of olives used for purposes other than the production of olive oil and, in those cases, the aid must be paid in proportion to the olives intended only for the production of olive oil. Article 1(2) of Regulation No 3061/84 provides that the first crop declaration must indicate the number of olive trees producing olives for the manufacture of oil.

191. The Community legislation is therefore entirely unambiguous as to the nature of the obligations incumbent upon Member States: they must require the operators concerned to declare the intended use of the olives produced on their holdings. In stating that no crop declaration can indicate the intended use of the olives, the Spanish Government therefore adopts a position clearly at odds with the Community legislation, particularly since this requirement applies regardless of the size of holding.

192. Given these proven irregularities, the Spanish Government should have made a calculation enabling the EAGGF officers to assess that portion of the aid paid when not due. The latter do not deny that they did not make that assessment, citing the impossibility of determining the intended use of the olives harvested.

193. Indeed, it is not easy to understand the Spanish Government's position: while saying that it is impossible to show this intended use at the time of making the crop declaration, it points out that there is in Spain a ‘legal obligation to declare the use made ─ in each marketing year ─ of the olives harvested [which] applies to all producers and does not exist only in exceptional cases’. (81) In those circumstances, I cannot see why it was not possible to calculate the aid wrongly paid, nor why the Spanish authorities regard this shortcoming as legitimate.

194. In any event, for the reasons stated above the flat-rate correction appears to be justified.

h) Whether there is a loss to the Community budget

i) Arguments of the parties

195. The Spanish Government points out that supervision is not an end in itself but is the means of avoiding financial loss to the Community. It maintains that the absence of loss in this case precludes the application of a financial correction. The total quantity of oil obtained from olives pressed in the mills corresponds to the quantity for which aid applications were received from producers. The amount of aid paid was for less than the total quantity of oil and of oil residues produced, which precludes any possibility of fraud and removes any basis for the financial correction set for the Kingdom of Spain.

196. The Commission objects that the figures referred to by the Spanish Government were requested of it in the context of the procedure for clearing accounts for 1994. The Spanish authorities were required to calculate those figures on the basis of data supplied, on request, by Spanish oil mills. The Commission considers that these data are unreliable, in the light of the method used. For the agricultural marketing year corresponding to financial year 1993, the data that were used were requested from the oil mills in March 1997. The Commission notes that the European Parliament has complained of the lack of progress by Member States in applying the rules in the olive oil sector, asking it to make use of all the supervisory resources available to it and to suspend payments unless Member States are able to conduct satisfactory checks within a reasonable time.

197. The Spanish Government states that its reading of the case-law of the Court, in respect of financial corrections ordered against Member States in the context of procedures to clear the EAGGF accounts, differs from that of the Commission. It considers that such a correction requires an active infringement on the part of the Member State concerned and not simply inadequate controls. Furthermore, the Commission's view that it may reject the whole of the relevant Community expenditure, if a national measure infringing Community law leads to an increase in Community expenditure but it is not possible to quantify that increase, effectively gives it unlimited power. The Spanish Government maintains that it has shown that the total aid paid was for a quantity less than the total of oil and oil residues produced, and draws the Court's attention to the content of FEGA's letter 25002, of 30 September 1997, which contains information and explanations supporting its position. It also refers to a resolution of the Parliament making the application of financial corrections subject to objective evaluation of the actual loss to the Community budget. The Spanish Government challenges the Commission's interpretation of the case-law of the Court to mean that information supplied by a Member State after the deadline set by the Commission can no longer be taken into account.

198. The Commission replies that non-application or misapplication of the rules and control mechanisms imposed by the Community agricultural rules is regarded by the Court as an infringement of the Community legislation, requiring the Commission to make the relevant financial corrections. According to the case-law, where it is impossible to determine precisely the extent by which the EAGGF expenditure has been increased because of the irregularities attributable to the national authorities, the Commission is entitled to refuse financing for the whole of the relevant expenditure. The Commission questions the reliability of the figures for olive oil production that were produced by the applicant government: none of the data provides sufficient proof that there was no loss. With reference to FEGA letter 25002, the Commission objects that this document relates to clearance of the accounts for 1994 and therefore has nothing to do with the financial correction at issue. It maintains that data relating to the procedure to clear the accounts for 1993 communicated after 29 February 1996 cannot be taken into account.

ii) Assessment

201. The management of EAGGF financing is principally in the hands of the national administrative authorities responsible for ensuring that the Community rules are strictly observed. That system, based on trust between national and Community authorities, does not involve any systematic supervision by the Commission, which would in any case be impossible for it to carry out in practice. Only the Member State is in a position to know and to determine precisely the information necessary for drawing up EAGGF accounts, since the Commission is not close enough to obtain the information it needs from the economic operators.(84)

202. The limits to the extent of the evidence which the Commission must provide are confirmed by the guidelines laid down in the Belle Report, according to which, for those difficult cases where the extent of the losses cannot be ascertained, ‘the losses to the Community funds must ... be determined by an evaluation of the risk to which they are exposed by the control deficiency’.(85)

203. But although, in the event of a dispute, it is for the Commission to prove that the rules of the common organisation of the agricultural markets have been infringed, once it has established such an infringement, the Member State concerned must, if appropriate, demonstrate that the Commission made an error as to the financial consequences to be inferred from that infringement.(86) It is then required to adduce the most detailed and comprehensive evidence that its figures are accurate and, if appropriate, that the Commission's calculations are incorrect.(87)

204. Regarding the justification given by the Commission for the financial correction at issue, we should remember the earlier discussion of the shortcomings in the Spanish authorities' system of controls for olive oil production aid in the areas mentioned in this Opinion,(88) which are sufficient to establish that there was a significant risk of loss to the Community budget.

205. We should remember that, in its final report ─ forwarded to the Spanish authorities in a letter of 3 March 1997 ─ the Conciliation Body gave its opinion that the flat-rate financial correction of 10% proposed by the EAGGF in respect of olive oil production aid appeared to be reasonable and that there was no reason to challenge it. The Conciliation Body noted that, notwithstanding certain later improvements, although the positive effect of these could not have been noticed before 1995/96, ‘the Spanish procedures for checking production aid ... did not fully comply with Community rules in 1993’(89). The Conciliation Body did correct certain estimates by the EAGGF officers of the effect of the AAO inspections on producers, which it felt had been underestimated, but it considered that ‘this adjustment does not question ... the general conclusion by the EAGGF that, although the Spanish system of checks does have a number of positive features, it does not entirely make up for the chronic lack of a national olive cultivation register and computerised files on producers’.(90)

206. The Spanish Government bases its denial of actual loss to the Community budget on the details supplied to the Commission in FEGA's letter 14973, of 29 May 1997, (91)following the AAO's collection of information from the mills involved in marketing year 1992/93, and on the detailed data in FEGA's letter 25002, of 30 September 1997.(92)

207. It should be pointed out that in Decision C (96) 153 final, notified to the Kingdom of Spain by letter SG (96) D/1598 of 21 January 1996, the Commission specified 29 February 1996 as the deadline for sending additional information for clearance of the EAGGF accounts. The Spanish Government does not deny the existence of that deadline. The documents cited above were communicated after 29 February 1996 and therefore cannot be taken into account in assessing the merits of its objections.

208. Although the Spanish Government does not deny that there was a date set by the Commission, it does question the applicability to this case of one of the judgments relied on by the Commission in support of its claim that the time-limit was not observed.

209. The judgment in Germany v Commission,(93) which the Commission cites, is not an isolated reference but an example of the consistent case-law. According to that case-law, the Commission has power under Article 1(3) of Regulation (EEC) No 1723/72,(94) as amended by Regulation (EEC) No 422/86,(95) to set a deadline for forwarding the additional information requested from Member States. If that information is not forwarded by the deadline, the Commission is to take its decision on the basis of the information in its possession at the deadline, except in cases where the late submission of information is justified by exceptional circumstances. (96) Regarding the Commission's power to set a deadline, the first recital in the preamble to Regulation No 422/86 refers to the need for rapid scrutiny of the accounts and states that the Commission must take account of the progress made on clearance of the accounts(97).

210. As we have seen, the reference date specified in Article 1(3) of Regulation No 1723/72, as amended by Regulation No 422/86, was set by the Commission as 29 February 1996. Since the Spanish Government has not sought to rely on the existence of exceptional circumstances, additional information produced after that date must be regarded as out of time.

211. The Spanish Government's argument that the judgment of 1996 in Case C-41/94 Germany v Commission does not apply here, because the Commission rejected all explanations given by that government, forcing it to add new evidence, must be rejected.

212. We should remember that in the 1996 judgment the Court held that the production of a survey conducted before the deadline which the Commission set for producing additional information but relied on by the applicant government after the deadline, without any exceptional circumstances that might justify the delay, was out of time.

213. These procedural details do not differ essentially from those in the other judgments interpreting Article 1(3) of Regulation No 1723/72, as amended by Regulation No 422/86. At all events, the judgment at issue has in common with these others that the deadline set by the Commission had not been observed by the applicant government at the time it intended to make use of evidence not previously cited.

214. For the sake of completeness, it should be pointed out that FEGA letter 14973 is presented as containing the information ─ provided by the Spanish authorities ─ establishing that the total quantity of oil corresponds to that for which aid applications were submitted by the producers, information already to be found in FEGA note 4047, of 12 February 1997, sent to the Conciliation Body.(98) But it is relevant to observe that this latter document, which was communicated before the deadline, failed to alter that body's support of the financial correction at issue.

215. It has already been established that the evidence which the Spanish Government produced regarding production aid was not such as to invalidate the Commission's conclusion that the Spanish authorities' controls were defective. The alleged refusal by the Commission to take account of the explanations given throughout the procedure cannot therefore be regarded as compromising the applicant government's right to a fair hearing.

216. It follows from all those considerations that the plea challenging the regularity of the flat-rate financial correction to the olive oil production aid must be rejected.

C – Financial corrections owing to the fact that certain expenditure for the olive cultivation register is not to be charged to the EAGGF

217. The Summary Report shows that the total expenditure for the register of olive cultivation includes overhead expenses at a rate of 15% of the total budget. That figure is noticeably higher than the portion generally reserved for this type of expenditure in other work carried out in the name of or on behalf of the Commission. Tragsa is the undertaking to which the work was awarded and Tragsatec is one of the subcontracting undertakings. Tragsatec does not keep analytical accounts for each project. There are no checks of the invoices issued as between the latter or other subcontracting companies and Tragsa to confirm that no contingent charge has been added to subcontracted work, in spite of repeated requests from the Commission.

218. The expenditure declared for financial year 1993 includes profit at 10% of the value of the contract, which is not authorised by Community rules and therefore not to be financed by the EAGGF. The position is made more irregular by the public nature of the undertaking in charge of the work and by the lack of a call for tenders.

219. On the basis of the Summary Report, the Commission proposes a financial correction of ESP 217 007 368 to the expenditure for the register of olive cultivation.

This falls into three parts:

–the refusal of financing for overheads in excess of 2% of the total budget;

–the refusal of financing for the profits of the undertaking to which the work was awarded, that is, 10% of the total budget, and

–a flat-rate correction of 10% of total eligible expenditure, because the work was awarded without a call for tenders.

220. This correction is challenged by the Spanish Government.

221. It considers that the figure of 15% for overheads is not excessive and is the same as the percentage authorised for work of this type. The lack of project-based accounts does not justify rejection of this figure, as no such obligation was imposed on the undertaking concerned.

222. The Spanish Government disputes the use of the customary procedure for clearing EAGGF accounts to clear the expenditure for establishment of the olive cultivation register. That expenditure is not aid that is granted subject to the beneficiary complying with criteria set by Community legislation: it is payment for a pre-defined service, supplied at a specified price. The Community legislation does not provide for any special procedure. The expenditure necessary for establishment of the olive cultivation register is eligible, however, provided that the contracts, contract documents or estimated cost of work are notified to the Commission beforehand. Those details were notified to the Commission for authorisation of the work and the expenditure. The authorisation, given for 1993, confirms that the expenditure proposed does meet the criteria in Article 3(5) of Regulation No 154/75, as amended by Regulation No 1794/79. No reference was made in the authorisation to the level of overheads. The special nature of this type of expenditure is acknowledged in Article 3(6) of Regulation No 154/75, as amended by Regulation No 1794/79, which provides that detailed rules may be adopted for the application of the relevant legislation. It is not known why those measures were not adopted, and the Spanish Government considers that provision should be made for them in order to settle problems of the type which has now arisen.

223. As to the argument that the public undertakings responsible for the olive cultivation register are departments of the administration, the Spanish Government maintains that, even though they have public capital, Tragsa and Tragsatec are limited companies whose operation is subject to commercial law. Contracts made with those undertakings for execution of the work are therefore entirely chargeable to the funds for setting up the olive cultivation register.

224. As to the refusal to finance the profits of the contractor undertaking, the Spanish Government argues that the Commission takes the position it does because the company is an undertaking controlled by the public administration. It maintains that the Commission's refusal stems from the direct award of the work to the contractor undertaking.

225. But the reasons for which the Spanish Government did not arrange a call for tenders for setting up the register of olive cultivation are perfectly legitimate under Community law. Developers from other Member States made their offers of collaboration at prices two or three times higher than those recorded for similar work in Spain. Furthermore, because of the confidential nature of the information which the register is intended to obtain, the power under Spanish law to organise work without a call for tenders, and Tragsa's technical competence, the Spanish Government decided to commission the work from that undertaking under a direct award. The Commission was given advance information of this contract and the procedure used.

226. The Spanish Government maintains, lastly, that the Commission cannot disallow part of the Community financing on the ground that the work concerned was awarded unlawfully but must make use of the resources open to it to prevent the situation arising, rather than impose an illegal penalty.

227. The Commission points out that under the relevant Community rules a part of the aid to producers is intended for the operations required to set up the register. Under Article 3(5) of Regulation No 154/75, as amended by Regulation No 1794/79, where the Member State has the work done by its own official departments, only the costs incurred other than administrative and supervision costs are eligible. Under the same provision, the Member State must notify the Commission beforehand of the terms of the contracts or contract documents or the estimated cost of the work. But the Community legislation does not introduce special accounting or financial systems for the expenditure, which is thus cleared in accordance with the customary procedure for EAGGF accounts.

228. The Commission maintains that the financing of overheads greater than 2% of the total budget was not accepted because the percentage of overheads declared by the Spanish Government is excessive, and the latter has not justified it.

229. The Commission adds that the Community rules do not make provision for financing the profit of an undertaking where it is equal to 10% of the value of the contract, and that the irregularity of declaring this profit as expenditure is aggravated by the fact that the undertaking is public and was awarded the work without a prior call for tenders.

230. For the latter reason, a flat-rate correction of 10% of the total expenditure must be applied, for it has to be assumed that the absence of competition automatically makes the price higher.

231. Having examined the legislation to which Tragsa is subject in Spanish law, the Commission maintains that this undertaking is a public administration. It adds that although, as the Spanish Government claims, Tragsa is an independent undertaking, there is no justification for making a direct award to it of the contract for setting up the olive cultivation register.

232. The Spanish Government considers that there is a contradiction in the argument whereby the Commission regards Tragsa as a department of the State. Tragsa either is or is not a part of the Spanish administration: if it is, as the Commission claims, it cannot be argued that unless the contract was awarded by a public call for tenders the Member State would be liable for the loss resulting from that irregularity.

233. But the Spanish Government maintains that neither Tragsa nor Tragsatec is a part of the administration, even though their capital is public. The direct selection was not in breach of the Community rules on public contracting, it was in accordance with the exceptions provided for in those rules, and the Commission has not shown that the relevant provisions of the rules were not complied with. There were, the Spanish Government maintains, exceptional circumstances which justified the failure to call a competition.

234. The Commission does not consider that its arguments are contradictory. The fact that Tragsa is a department of the administration does not mean that the Community rules on public contracts have been observed. Replying to the Court, the Commission stated that Council Directive 77/62/EEC of 21 December 1976 coordinating procedures for the award of public supply contracts (99) applied here and that the Spanish Government had not complied with Article 9 thereof(100).

235. The Spanish Government also failed to comply with the last subparagraph of Article 3(5) of Regulation No 154/75, as amended by Regulation No 1794/79, under which the Member State is to inform the Commission beforehand of the terms of contracts or the contract documents or the estimated cost of work.

a) Introductory remarks

236. The grounds for the three financial corrections at issue are of different kinds, the essential basis being, depending on the case, the failure of the Spanish Government to provide justification, the fact that the silence of the Community rules amounts to a prohibition, or failure to comply with the Community rules.

237. Although these grounds are different, I think that a preliminary answer to the question of whether Tragsa, the contractor undertaking, is public or private may assist us in identifying the criteria, albeit to a different extent for each, to be used in adjudicating on the grounds of the contested decision and on the Spanish Government's objections to it, however diverse those objections are.

238. Whether the point at issue is for the Community budget to be charged with a high level of overheads, or with the profit made by the contractor undertaking, or the requirement for the awarding authority to follow the Community procedures on public contracts, the response on these points depends partly or entirely on the legal classification applicable to Tragsa for the purposes of Article 3(5) of Regulation No 154/75, as amended by Regulation No 1794/79.

239. We should remember that this provision defines the expenditure regarded as eligible according to whether the operator in charge of carrying out the work of setting up the olive cultivation register is public or private. Finance is thus available either for expenditure incurred under contracts made with private operators or, where the administration carries out the work itself, for the costs other than administrative and supervision costs.

b) The legal form of Tragsa

240. From the documents in the case, we must determine whether Tragsa comes among the ‘natural or legal persons entrusted with the ... work’, within the meaning of Article 3(5) of Regulation No 154/75, as amended by Regulation No 1794/79, or among the ‘own official departments’ of the Member State so entrusted, within the meaning of the same provision.

241. In the former instance, eligible expenditure shall be ‘that incurred under contracts’ with the Member State and, in the latter, the ‘costs incurred other than administrative and supervision costs’.

242. Since this provision gives no guidance on the matter, we may take it that the rationale for the distinction thus made between expenditure and costs, according to whether the operator in charge of the work is a department of the State or not, is the concern of the Community legislature not to charge to the Community budget the whole of the expenditure incurred by public administrations for their ordinary public service tasks. These tasks in any case generate costs chargeable to the traditional operations of administration and supervision of the activities for which the public administrations are responsible and, in those circumstances, the only expenditure stated to be eligible is that directly incurred for such projects, among which we may thus count the setting-up of the register of olive cultivation.

243. I believe that the line must therefore be drawn as between tasks entrusted to third parties and those which the Member State's competent authorities decide to carry out themselves. This interpretation is confirmed by the wording used in Article 3(5) of Regulation No 154/75, as amended by Regulation No 1794/79, which makes a distinction between natural or legal persons and the Member State's own official departments. This provision also refers to contracts, so expressing the idea that consent is exchanged between two separate entities with the legal capacity to commit themselves.

244. We have seen that the information communicated by the Spanish Government and by the Commission is incomplete and the conclusions which they draw from it conflict. None the less, the Court must give a ruling on the basis of those details.

245. From these data, it seems that the chief characteristics of Tragsa are as follows.

246. Tragsa was incorporated as a limited company subject to the rules of private law, particularly commercial law; its capital is public. Under Article 88 of Spanish Law No 66/97 of 30 December 1997,(101) regarding fiscal, administrative and social measures, Tragsa is regarded as a means of implementation and a ‘technical department of the administration’.(102) It ‘shall be required to execute, itself or using its subsidiaries, solely the work entrusted to it by the general administration of the State, the autonomous communities or the public bodies subject to them ...’.(103) As the Commission stated in the defence, and the Spanish Government did not deny, this recent provision confirms the special legal status that that undertaking has held since it was established.(104)

247. I do not think it is important that the operator in charge of the work has close links to the public administration or that it appears to have some of the characteristics of a unit of that administration. In principle, the limited company status given to Tragsa gives it financial and accounting independence, resulting in the need for formal acceptance of the expenditure arising from performance of the projects entrusted to it, and also legal capacity to commit itself in its own name.

248. Certain consequences therefore follow from the need to regard Tragsa as a contractor engaged by the Spanish authorities to set up the register of olive cultivation, and not as one of the official departments of the Spanish administration. The most obvious effect of that status relates to the applicability of the Community rules on public contracts.

c) The 10% flat-rate correction of eligible expenditure on the ground that the works were awarded without a call for tenders

249. The Spanish Government admits that no call for tenders was organised. It considers that it ‘did not fail to apply [the Community] legislation [applicable to public contracts but that], in its direct selection of the undertaking concerned, it relied on the exceptions provided for, properly stating the ground for its choice’(105), and does not venture to deny that the Community rules on public contracts are applicable.

250. The issue that the Court will have to settle is whether the Spanish Government could in fact base the direct award of the contract to Tragsa on any of the exceptions provided for by Directive 77/62, since there is no argument as to whether this directive applies.(106)

251. The Spanish Government justified the direct award of the contract to Tragsa by citing the confidential nature of the data obtained for setting up the register of olive cultivation.

252. Although the Spanish Government cites no specific provision of Community law in support of this argument, we can assume that it intended to rely on Article 6(1)(g) of Directive 77/62. That article allows contracting authorities not to apply the procedures laid down in Article 4(1) and (2) ‘when supplies are declared secret or when their delivery must be accompanied by special security measures in accordance with the provisions laid down by law, regulation or administrative action in force in the Member State concerned, or when the protection of the basic interests of that State's security so requires’.

253. It should be noted that the provisions of Article 6 of Directive 77/62, authorising derogations from the rules to ensure that the rights afforded by the Treaty in the sector of public supply contracts are effective, must be interpreted strictly.(107) For the same reasons, those provisions which specify when contracts may be negotiated privately must be taken to be exhaustive.(108)

254. Furthermore, the Spanish Government has not said why it believes that the confidential nature which it attaches to the data communicated for setting up the olive cultivation register would be less well guaranteed if other companies were charged with setting it up, whether they were Spanish or from other Member States of the Community.

255. In a judgment given in 1989, Commission v Italy,(109) the Court gave a ruling on the propriety of the means used by a Member State to ensure observance of the need for confidentiality of data processed by computer systems, as regards freedom of establishment, freedom to supply services and the Community rules on public contracts. I think the burden of that judgment must be transposed, subject to the necessary changes, to the present circumstances: as the Court has noted, the confidential nature of data can be protected by measures less restrictive of the principles governing the operation of the internal market than that which prevents all competition from other economic operators.(110) By way of example, the Court cited a duty of secrecy imposed on the staff of the companies concerned, breach of which might give rise to criminal proceedings.(111) It is clearly possible to introduce that requirement into the contractual terms binding upon tenderers.

256. As regards the other selection criteria cited by the Spanish Government, that is, the level of price and the specialisation, technical capacity and reliability of the undertaking selected, we need only note that these criteria are precisely those which Directive 77/62 allows contracting authorities to adopt in awarding contracts.(112) The Community rules applicable thus enabled the Spanish authorities to attain the objectives lawfully sought in compliance with the principles of free competition and free movement of goods.

257. I would add that, as the Commission rightly says, the failure to use the Community rules on public contracts and the resulting absence of a call for tenders justify the presumption of an unjustified increase in price.

258. For the reasons set out above, the complaint made by the Spanish Government against the Commission must be rejected and the direct award of the disputed contract to Tragsa without observing the rules of procedure imposed by Directive 77/62 must be considered to justify the application of a flat-rate correction of 10% of the eligible expenditure.

d) The refusal to finance all of the overhead expenses

259. It must be remembered that under Article 3(1) and (3) of Regulation No 154/75, as amended by Regulation No 1794/79, part of the production aid is intended for financing establishment of the register of olive cultivation.

260. The financing is given under the procedure for clearing the EAGGF accounts because, under Article 3(3) of the regulation, the procedure to be used is that specified for the expenditure referred to in Articles 2 and 3 of Regulation No 729/70.

261. As is noted in the Belle Report, the clearance procedure must be based on ‘a reasonable guarantee that the expenditure met by the payment bodies on behalf of the EAGGF, and set out in the annual declarations of the Member States, has been incurred in accordance with the Community rules and is not materially overvalued. Furthermore, the expenditure must derive from real operations and the payments must have been received by the lawful beneficiaries or their assigns’.(113)

262. The status of Tragsa has been acknowledged to be that of a contractor and not of an in-house department of a Spanish administration and it is therefore proper that overheads incurred in executing the project to set up the olive cultivation register are charged to the EAGGF. Therefore the Commission cannot be criticised for making financing of the expenditure incurred for that purpose subject to production of the appropriate justification.

263. The Summary Report shows that the proportion of the budget used for overheads is substantially greater than the level of overheads in other work which the Commission has ordered. The Spanish Government has not established the plausibility of the disputed level of the overheads for the project. It does not deny the lack of project-based analytical accounts at Tragsatec, a subcontractor which manages about 200 projects. Nor has it communicated tangible details that might justify the overheads concerned.

264. Letter 34278 of 18 October 1993,(114) in which the Commission notified the Spanish authorities that the expenditure which they were planning complied with the criteria in Article 3(5) of Regulation No 154/75, as amended by Regulation No 1794/79, cannot be regarded as prior authorisation excusing the Spanish Government from subsequently detailing the expenditure, to show that it had actually been incurred and what its nature was.

265. That requirement is the essential guarantee of the proper assignment of Community aid in the sector concerned.

266. The refusal to finance overheads in excess of 2% of the total budget therefore appears justified.

e) The refusal to finance the profits of Tragsa

267. According to the conclusions of the Summary Report, with which the Commission concurred, the EAGGF could not finance a company profit of 10% of the value of the contract, as it was not provided for by the Community rules.

268. The reasons which the Commission puts forward for refusing any such financing are not entirely clear to me.

269. Article 3(5) of Regulation No 154/75, as amended by Regulation No 1794/79, defines the expenditure regarded as eligible according to the legal classification of the operator in charge of the work of setting up the olive cultivation register, who may be either a contractor to the administration or the administration itself.

270. Under that provision, refusal to finance the profit made by the contractor undertaking might be considered only if it were shown that the undertaking is an in-house department of the Spanish public administration for the purposes of Article 3(5) of Regulation No 154/75, as amended by Regulation No 1794/79. Only in this case does that provision limit the eligible expenditure to the costs incurred for the work and, more particularly, to certain of those costs. It is therefore too restrictive a reading of the Community rules to interpret ‘expenditure ... incurred under contracts between the competent authority of the producer Member State and natural or legal persons entrusted with the relevant work’ as being restricted to the costs incurred by such persons, excluding the profit which is the very purpose of engaging in their economic activity.

271. As the Community rules stand, I do not see what would preclude the principle of financing the profit made by economic operators who, as in this instance, have the status of ‘natural or legal persons entrusted with the relevant work’ for the purposes of Article 3(5) of Regulation No 154/75, as amended by Regulation No 1794/79.

272. From the papers in the case-file, it is also difficult to see whether the irregularity complained of by the Commission arises from the impossibility of charging to the Community budget any profit whatever made by the contractor undertaking or whether it is financing a profit of 10% that is regarded as beyond what may reasonably be borne by the Community. In the latter case, it was for the Commission to show in fact that the rate is manifestly above what is allowed in this type of contract.

273. The Spanish Government's plea in this respect must therefore be accepted, for lack of an unarguable legal basis and appropriate justification from the Commission. The contested decision must therefore be annulled in this respect.

IV – Olive oil consumption aid

A – Legal background

274. The general rules on olive oil consumption aid are laid down in Council Regulation No 3089/78.(115) Article 1 provides that consumption aid for olive oil is to be granted only to approved olive oil packaging plants. Under Article 2(1), approval is to be given by the Member State concerned only to undertakings which have a minimum packaging capacity to be determined, carry out packaging activities for a minimum period to be determined, keep stock records according to rules to be determined and agree to undergo any checks laid down for the purposes of the application of the aid system. In accordance with Article 3(1), approval shall be withdrawn if, except in the case of force majeure, one of the conditions for approval laid down in Article 2(1) is no longer met. Under Article 3(2), the Member State concerned is to decide to withdraw approval temporarily from any packaging plant which has applied for aid for a quantity of olive oil in excess of the quantity for which entitlement to aid has been agreed.

275. Under the first subparagraph of Article 7 of Regulation No 3089/78, the Member States are to institute a system of supervision to ensure that the product for which aid has been sought qualifies for such aid. Under the second subparagraph of Article 7, such supervision must in particular make it possible to ascertain whether the amount of olive oil for which aid has been sought corresponds to the amount of olive oil of Community origin which entered the packaging plant and the amount of olive oil of Community origin which left the plant after being packaged in accordance with Article 4(1)(b) of that regulation and which was placed on the market in the Community.

276. The Commission laid down the rules for implementing the system of consumption aid for olive oil in Regulation (EEC) No 2677/85 of 24 September 1985.(116) Article 1 provides that, for the purposes of approval, a packaging plant must have a packaging capacity of at least six tonnes of oil per eight-hour working day. Article 2 lays down the conditions for granting approval. The detailed rules for submitting applications and for payment of aid are laid down in Articles 9 and 11: under Article 9(3), as amended by Commission Regulation (EEC) No 643/93 of 19 March 1993,(117) the Member State is to pay the aid within 150 days of submission of the application for the quantities for which entitlement to aid has been recognised following on-the-spot checks. However, this period may be extended if further enquiries become necessary as a result of those checks.

277. Article 12 of Regulation No 2677/85, as amended by Commission Regulation (EEC) No 571/91 of 8 March 1991,(118) relates to the content of the checks. The first subparagraph of Article 12(1) states that, for the purposes of the checks referred to in Article 7 of Regulation No 3089/78, Member States must inspect the stock records of all approved undertakings. They must also carry out random checks on the financial supporting documents relating to the transactions carried out by these undertakings. Under the fourth subparagraph of Article 12(1), if any doubt arises as to the accuracy of the information given in the application for aid, Member States must also check the accounts of approved undertakings.

278. Article 12(6) of Regulation No 2677/85, as amended by Regulation No 571/91, provides that, where it is found by the competent authority that an application for aid relates to a quantity greater than that for which the entitlement to aid was recognised, the Member State must immediately withdraw approval for a period of from one to five years, depending on the seriousness of the infringement, without prejudice to any other penalties. That provision was amended in Regulation No 643/93: in the amended version, Article 12(6) provides that the penalty imposed on the undertaking is to be between three and eight times the aid improperly applied for or, where the quantity for which aid has been improperly applied for exceeds the checked quantity for which entitlement to aid has been recognised by at least 20%, the Member State, in addition to imposing a financial penalty, must withdraw approval for a period of from one to three years depending on the seriousness of the infringement.

B – Individual financial correction of the aid paid to two approved oil-packaging undertakings

279. The Summary Report shows that, in line with the position adopted by the EAGGF regarding 1992 and as communicated to the Spanish authorities in respect of that year, an individual financial correction was proposed for two undertakings of the 15 which were examined in respect of 1992 but where the applications related to aid paid in 1993.

280. Under the contested decision, a correction of ESP 26 849 245 was imposed on the Kingdom of Spain in this respect.

281. According to the Commission, various infringements had been found in the application of the system of olive oil consumption aid, and these had resulted in a financial correction in respect of 1992. Following that correction, the EAGGF made a number of recommendations to the Kingdom of Spain in letter 22798 of 13 June 1995. However, a mission by the EAGGF from 22 to 26 January 1996, to check application of Regulation No 4045/89, led to the conclusion that there had been no improvement in checking procedures.

282. The letter of 13 June 1995 shows that the EAGGF inspection officers proposed that financial corrections be applied against 15 undertakings which had received payments of olive oil consumption aid, including the undertakings F. Fernández and N. Sevillano.(119)

a) Arguments of the parties

283. According to the letter of 13 June 1995, it cannot be ascertained from the information provided by the AAO whether it was checked that the stock of oil corresponded to the packagings and, if it was, what the outcome was. The EAGGF considers that aid was paid without an effective check and proposes to apply a financial correction of 10%.

284. The Spanish Government challenges the financial correction applied by the Commission, saying that a check was carried out that the physical stock corresponded to the stock records. It notes that the biggest discrepancy found related to the empty 25-litre packagings, but that these are not used for olive oil on which aid is received, which is why they are not being shown in the records. The other, minimal, discrepancies do not justify an administrative procedure to recover the amounts concerned. At a subsequent inspection visit to the undertaking, the situation was described as good.

285. The Commission points out that, following the EAGGF inspections at the AAO, particularly serious irregularities were found at 15 undertakings of the 27 checked. Financial corrections were applied to the aids granted during 1992. At F. Fernández and N. Sevillano, the irregularities persisted during 1993. In the case of F. Fernández, defects were found in the stock records, where it was not possible to check that the stock corresponded to the packagings and, when these defects were corrected, anomalies were discovered. In those circumstances, the aid should not have been granted.

286. The Spanish Government replies that the EAGGF mission to check activity in 1993 could not relate to recommendations communicated to the AAO in June 1995, adding that only one irregularity was noted, the discrepancy in the correspondence between the physical stock and the stock records for empty packagings. The amount of oil concerned accounted for only 0.01% of the aid paid to the undertaking for marketing year 1992/93, which cannot be regarded as an irregularity so serious as to justify excluding the undertaking from the aid system.

287. The Commission reiterates that its complaint concerning the Spanish authorities relates to the manner in which the checks were carried out, which was unsatisfactory because the information provided did not confirm that the stock and the packaging had been compared or what the outcome was.

b) Assessment

288. The first subparagraph of Article 7 of Regulation No 3089/78 requires the Member States to institute a system of supervision to ensure that the product for which aid has been applied for qualifies for such aid.

289. The first subparagraph of Article 12(1) of Regulation No 2677/85, as amended by Regulation No 571/91, provides that, for the purposes of the checks referred to in Article 7 of Regulation No 3089/78, Member States are to inspect the stock records of all approved undertakings, and carry out random checks on the financial supporting documents relating to the transactions carried out by these undertakings.

290. The third, fourth and fifth subparagraphs of the same article provide that, in the course of the inspections referred to in the first subparagraph, Member States are to check that the total quantities of oil stored in bulk and packaged and the empty packagings physically present at the undertaking and the storage place referred to in Article 7 correspond to the data contained in the stock records. If any doubt arises as to the accuracy of the information given in the application for aid, Member States are also to check the accounts of approved undertakings. The Member State may also subject approved undertakings to unannounced checks of the same type as those referred to above.

291. Furthermore, under subparagraphs (a), (b) and (f) of the first paragraph of Article 3 of Regulation No 2677/85, as amended by Regulation No 571/91, each packaging plant is to keep daily stock records giving information on the stocks of olive oil, by origin and packaging, existing at the date of approval and, at the beginning of each marketing year, the quantity and quality of each consignment of olive oil entering the plant, by origin and packaging, and the quantity and quality of olive oil packaged.

292. These rules mean that the stock records must include data enabling the stock of merchandise to be identified accurately.

293. In the present case, the Spanish Government does not deny that the relevant item of the stock record did not detail stock at the start of each month, which led to a request being sent to the undertaking to communicate that information. After these data had been subsequently sent, certain anomalies were noted and, although not very substantial, added further irregularities to those resulting from the shortcomings in the stock records. Nor does the Spanish Government deny the discrepancy in the correspondence between the physical stock and the stock records for empty packagings. Thus the stock records were not in accordance with the Community rules.

294. This irregularity alone is substantial enough to justify the 10% financial correction applied here.

a) Arguments of the parties

295. According to the letter of 13 June 1995, it cannot be ascertained from the documents provided by the AAO whether it was checked that the physical stock corresponded to the stock records and, if it was, what the outcome was. In addition, the EAGGF inspecting officers observed that the AAO had found that one aid application related to a quantity of oil greater than the quantity eligible. That infringement justified withdrawal of the approval granted to this undertaking. The EAGGF considers that, in these circumstances, aid was wrongly received, so that a financial correction of 100% should be applied.

296. The Spanish Government challenges the financial correction applied by the Commission, maintaining that a check was carried out that the physical stock corresponded to the stock records. The AAO corrected the aid application for February 1992 as regards the quantity of oil which was found not to be entitled to aid, and then held that the conditions for imposing the penalty of withdrawal of approval from N. Sevillano had not been fulfilled because the undertaking had not made a false declaration deliberately or through serious negligence. The Spanish Government claims that Article 12(6) of Regulation No 2677/85, as amended by Regulation No 643/93, applies. It considers that a subsequent inspection of this undertaking showed that the physical stock agreed with the stock records. It claims that the financial correction proposed infringes the principle of proportionality.

297. The Commission claims that the undertaking N. Sevillano is responsible for many irregularities; among these, an aid application for a quantity of oil greater than the quantity authorised should have brought automatic withdrawal or suspension of the undertaking's approval. The documents supplied by the Spanish authorities on this undertaking do not show whether a check was made that the physical stock and the stock records corresponded, or the outcome. The Commission adds that, at the time that the irregularity in the aid application was detected, the amendment to Article 12(6) of Regulation No 2677/85 had not come into force. In these circumstances, it was necessary for approval to be withdrawn immediately and unconditionally for a certain period. Lastly, the Commission maintains that the principle of proportionality has not been infringed, because of the extreme seriousness of the irregularities recorded.

298. For the Spanish Government, there is only one important irregularity, the aid application for a quantity of olive oil greater than the quantity giving entitlement to aid, but, since that was an error relating to a very small quantity, Article 12(6) of Regulation No 2677/85, as amended by Regulation No 643/93, relating to false declarations made deliberately or through serious negligence and not to substantive errors, precludes the immediate and automatic imposition of penalties.

299. The Commission maintains that many, serious irregularities by the undertaking N. Sevillano have been detected, and not only the one to which the applicant government is referring. It points out that the amendment of Regulation No 2677/85 was made several months after the infringement was recorded.

b) Assessment

300. As regards the application for aid relating to a quantity greater than that giving entitlement to consumption aid, it is established that the quantity for which the aid was wrongly sought is 278 kg.

301. In the judgment in Case C-45/97 Spain v Commission, cited above, the Court gave a ruling on comparable particulars: the applicability of Article 12(6) of Regulation No 2677/85 was disputed on the grounds of the principle of proportionality. The applicability of the amended version of this provision was similarly disputed. I see no reason to depart from this recent case-law.

302. It is clear from this judgment, firstly, that the original version of Article 12(6) of Regulation No 2677/85 does not breach the principle of proportionality and, secondly, that the version of the article found in Regulation No 643/93 applies to facts established before it entered into force.

303. The Court held that, under the original version of Article 12(6), the competent authority, which is required to take into consideration the seriousness of the infringement concerned, is thus obliged to comply with the principle of proportionality.(120)

304. Regarding the amended version of the article in Regulation No 643/93, the Court has held that this merely lays down the criteria which, in the Commission's view, should guide application of the principle of proportionality in the event of the prescribed penalties being imposed, as is clear from the fourth recital in the preamble to Regulation No 643/93.(121)

305. The Commission does not dispute the Spanish Government's statement that the quantity for which aid was improperly applied for amounts to 1.81% of the total of the applications submitted by the undertaking concerned. However, as the Court properly noted, even considering that in the new version of that provision the penalty of withdrawal of approval, which is imposed only where the quantity for which aid has been improperly applied for is at least 20% more than the checked quantity for which the entitlement to aid has been recognised, is accompanied by a set of financial penalties applicable to any improper aid application, which was not provided for before, it must be accepted that exceeding the quantity recognised as giving entitlement to aid by 1.81% cannot by any means justify withdrawal of approval.(122)

306. In so far as the 100% financial correction to the aid declared is essentially based on the Commission's mistaken assertion that the irregularity of the application for aid in respect of 278 kg should have led to withdrawal of approval from the undertaking N. Sevillano, the contested decision must be annulled on that point.

C – Flat-rate financial correction of 2% of the total expenditure declared by the Kingdom of Spain for olive oil consumption aid during marketing year 1992/93

307. The Summary Report and letter 14826 show that the inspection by EAGGF inspection officers from 22 to 26 January 1996 revealed that the national procedures for management and supervision of undertakings receiving olive oil consumption aid had not improved in spite of the proposals for changes that were made by the EAGGF officers in letter 22798. The EAGGF officers established the following points.

308. The checks by the national authorities were confined to verification of a sample of commercial documents referred to in the stock records, and did not include the recording of those documents in the accounts. The fact that the AAO's checks can fail to find a defect in the accounts shows the need for controls to become more effective.

309. The inaccuracies and the gaps in the stock records of the undertakings inspected should have led the AAO's inspectors to apply Article 12 of Regulation No 2677/85, which provides that if any doubt arises as to the accuracy of the information given in the aid application Member States must also verify the accounts of approved undertakings.

310. The Spanish authorities had not introduced instruments and references enabling the inspectors to identify circumstances where doubt whether the undertaking was operating in a regular manner justified extended checks.

311. Furthermore, because they are complex the checks on packaging undertakings that have other commercial activities must be more thorough and extended, as the applicable Community rules permit.

312. In the case of an inspection by the AAO at the undertaking Corporación Industrial Andaluza SA, the EAGGF officers thought it unacceptable that the inspectors only made a note in the records of the place where the accounts were, according to the managers of the undertaking, and did not demand that those accounts be available during checks.

313. The cross-checks effected by the AAO are abnormally restricted in depth and quality: according to the Summary Report, the AAO concluded from its inspection that the theoretical capacity for pressing and for storage at one of the undertakings inspected were compatible with the monthly production shown in the stock records if the undertaking had worked for more than eight hours per day. But that point, and the maximum packaging capacity, should have been systematically verified and confirmed, in particular by a comparison with the workers' pay sheets.

314. According to the Summary Report, checks on olive oil consumption aid in Spain are still unacceptably inadequate. The verification procedure used focuses on purely formal aspects and the additional detail needed to attain reasonable effectiveness is not sought. The expenditure incurred by the Kingdom of Spain for consumption aid as declared during financial year 1993 was effected using a system of supervision with shortcomings in a number of respects which are important for determining whether the expenditure is regular.

315. Under the contested decision, a financial correction of ESP 811 514 867 was imposed on the Kingdom of Spain on this ground.

316. The Spanish Government challenges the correction, pointing out that the Conciliation Body had considered that, since the checks were carried out at only two bottling plants, they did not give a sound enough basis for imposing a flat-rate financial correction which, in cash terms, is more than twice the amount of the 1992 correction.

317. The Commission therefore reduced the correction from 5% to 2% of the total amount paid.

318. According to the Spanish Government, the AAO check was conducted at an undertaking which did not receive aid for 1993 and cannot be sufficient to support a finding that the checks carried out by the authority were weak in respect of consumption aid. That undertaking should not have been mentioned in clearing the accounts for 1993. In any case, the financial documents for the transactions shown in the stock records were duly examined and the results of those checks were always regarded as sufficient for a finding that the quantity of oil for which aid was sought corresponded to the quantities entering and leaving the undertaking; that made the additional checks on the accounts unnecessary. The Community rules applicable here require a check on the accounts of packaging undertakings only where there is doubt.

319. The Spanish Government adds that the infringements noted by the Commission services regarding the generally dilapidated state of the undertaking Corporación Industrial Andaluza SA and the ‘immaculate’ appearance of the packaging plant are not sound. This undertaking had ceased to operate a year before the time of the inspection. The state of the premises was appropriate for any packaging undertaking, with the packaging plant being generally clean by reason of the nature of the activity and the need for frequent cleaning.

320. Regarding the undertaking's packaging capacity, which was questioned on the basis of the pay sheets, the Spanish Government maintains that it is likely that temporary labour was used to extend the activity of the undertaking, but will not be admitted by the proprietor, which shows why these data do not correspond. As regards the storage capacity of the undertaking, the AAO inspectors thought this was adequate, and this conclusion cannot be contradicted by the other inspection departments, which had ‘been dissuaded from proceeding to all of the installations’.

321. According to the Spanish Government, the fact that the EAGGF carried out no on-the-spot inspection during the clearance of the accounts for financial year 1993 means that it has no legal basis for applying the penalty that was set.

322. It adds that the checks made by the AAO to verify the accuracy of the data in the applications for consumption aid that were submitted by the packaging undertakings cannot be as extensive as a full audit of the accounts of the packaging undertakings in order to verify each of the aid applications submitted.

323. Lastly, the Spanish Government maintains that the measures taken by the AAO and the procedures used to supplement the system of supervision before 1993 were reported to the Commission. A mission by the Commission from 22 to 26 May 1995 showed the effectiveness of the measures reported. It is unacceptable for the Commission to refer to a risk to the EAGGF arising from defects revealed in clearing earlier accounts when a procedure relating to those alleged defects is still in progress, and measures taken on the basis of matters from a particular year must be considered completed and not be repeatedly carried forward to subsequent years.

324. The Commission's reply is that, in the light of the many serious irregularities detected during the clearance procedure for 1992 within the Spanish system of olive oil consumption aid, the EAGGF officers had told the Spanish authorities of the need for global corrections to the expenditure declared for subsequent years unless the shortcomings established could be eliminated by an effective system of control.

325. At the time of the mission in Spain from 22 to 26 January 1996 in the context of the clearance for 1993, the EAGGF inspecting officers had established that no change had been made to the mechanisms of control. Furthermore, two undertakings had been inspected and that had confirmed that the checks conducted by the AAO were ineffective and defective, as shown briefly in the Summary Report.

326. The proposal by the Conciliation Body to reduce the rate of the original financial correction did not affect what the Commission had established as regards the shortcomings of the Spanish system of control, but only the rate itself, which was considered excessive because the basis used by the EAGGF was the inspection of only two bottling undertakings.

327. The Commission denies that there was no inspection by EAGGF officers in 1993, adding that findings of infringements and financial corrections must also be based on the information supplied by national authorities. Furthermore, as the case-law states, the EAGGF system does not include any systematic control by the Commission, which would in any case be physically unable to carry it out. The individual cases are only an additional element to support the Commission's complaint that a whole range of surveillance and control measures is lacking.

328. It states further that a financial correction is still justified even where the undertaking inspected has not received consumption aid during the marketing year corresponding to the financial year checked: it must be remembered that approval must be withdrawn from such an undertaking and that time always elapses between an aid application and payment of the aid.

329. According to the Commission, irregularities found in the national system of control constitute a general infringement of the control system and this can be confirmed in any undertaking that is approved. This is a flat-rate correction and is not applied individually against one undertaking.

330. Lastly, the Commission states that the shortcomings in the control mechanisms set up by the Member States demand financial correction for such time as they are not remedied. It states that the Spanish Government has not produced the least evidence to refute its findings.

331. The Spanish Government considers that the only tangible evidence relied on by the Commission is the inspection of one packaging undertaking, and that is not enough to show the existence of serious shortcomings in the Spanish system of control. As regards the irregularities which its own departments did not detect, it adds that the Community rules then applicable placed limits on the systematic checking of accounts. Furthermore, the State's inspection departments did make such a check and found irregularities.

332. According to the Commission, there are many different arguments in support of the flat-rate correction at issue: they are not limited to the outcome of the inspection of a single packaging undertaking. But, at that undertaking, the AAO was required to check the accounts, for it was suspected that there might be irregularities.

333. As I noted several times when considering the earlier disputed financial corrections, although it is for the Commission to prove that the rules of the common organisation of the agricultural markets have been infringed, it is not required to show exhaustively that the checks carried out by the national administrations were inadequate or that the figures they have transmitted are irregular: it must produce evidence of its serious and reasonable doubt regarding such checks or figures.

334. Moreover, under the same case-law, where the Commission complains that a Member State has not set up an effective system of supervision and control, identification of the individual cases in which it has established failure to comply with the applicable agricultural rules is but one item among others supporting its complaint regarding the effectiveness of the system of supervision and control operated by the Member State.(123)

335. The Commission decided to follow the finding of the irregularities in the Spanish system of control, during the procedure to clear the accounts for 1992, with recommendations intended to improve the controls. If there were no improvements, it was envisaged that a flat-rate correction would be applied in respect of 1993(124).

336. The documents in the case-file indicate that the investigations conducted by the Commission to quantify the improvement in the Spanish control procedures for olive oil consumption aid consisted only of the inspection of two undertakings, Corporación Industrial Andaluza SA and Olior Porcuna SA.

337. This is shown by the final report of the Conciliation Body, dated 3 March 1997,(125) which also took this point as the basis for its finding on the rate of correction planned by the Commission.(126) EAGGF letter 14826 merely states that none of the improvements hoped for had been contemplated by the Spanish authorities and that no change of procedure had been considered after various, serious deficiencies had been established during the 1992 clearance.(127) But, apart from the points arising from the inspection of the two undertakings above, the letter raises no points that might support the finding. The same shortcomings are found in the Summary Report. The only deficiencies described in detail relate to the two undertakings inspected. Lastly, in its written observations, the Commission disputes the complaint made by the Spanish Government on this point but without the slightest evidence to support its assertions: it merely states that the EAGGF ‘has also inspected’(128) these two undertakings, but does not state the nature or the number of the other investigations which it is claimed were carried out. Nor has it shown that the serious irregularities described in the Summary Report were established during inspections made at premises other than those of the undertakings concerned ─ there is no evidence in any other document of the checks which the Commission claims in the defence to have made.(129)

338. In those circumstances, it is difficult to use just these two inspections, however convincing they are, as the basis for a flat-rate financial correction. I cannot agree with the Commission or the Conciliation Body that limited inspections, without any other corroborating evidence specific to 1993, are sufficient to establish that a national system of control remains defective.

339. The Court's case-law on this is clear.

340. Although the Commission is, quite properly, not required to produce exhaustive evidence that the controls effected by national administrations are inadequate, it does none the less have to show evidence of its serious and reasonable doubt as regards those controls.

341. I believe that the inspection of two undertakings cannot suffice to establish in respect of an entire marketing year that an entire control system is, even partially, defective. In the absence of other direct controls, more extensive documentary investigations at least should have been undertaken, to support that conclusion, and the documents with those findings should have been produced.

342. As regards the individual instances ─ and the Court's case-law attaches definite value to these in giving support for the complaint which the Commission makes of the effectiveness of a system of surveillance and control ─ we should note that these are but one item among others in supporting that complaint. I therefore feel that, although these individual instances do not need to represent an absolutely representative sampling of the undertakings inspected for them (in combination with other evidence) to bear out the Commission's demonstration of the deficiencies of the national system of control, they must none the less be accompanied by such additional evidence to produce their full effect as proof. Without that, they can be regarded only as individual examples of undertakings in an illegal situation and no other conclusions in the matter can be drawn from those examples.

343. For the sake of completeness, I would add that the findings reached in respect of 1992 must, in order to justify a further correction in respect of the following year, be supplemented by details specifically for that year, and that is not the case here.

344. I therefore consider that the flat-rate financial correction at issue is not justified. The contested decision must thus be annulled on this point.

V – Production aid for dried fodder

A – Legal background

345. In Regulation (EEC) No 1117/78 of 22 May 1978 the Council established a common organisation of the market in dried fodder.(130) Among the products referred to in that regulation, Article 1, as amended by Commission Regulation (EEC) No 3996/87 of 23 December 1987(131), distinguishes fodder dried artificially from that dried differently, that is to say sun-dried, the latter being referred to in the second and fourth indents of Article 1(b). For artificially dried products Article 5(1), as amended by Council Regulation (EEC) No 1960/87 of 2 July 1987,(132) provides that aid is to be granted when the guide price, which is set for each marketing year, is higher than the average world market price. Under the first subparagraph of Article 5(2), as amended by Regulation No 3996/87, this aid is to be equal to a percentage to be determined of the difference between these two prices. For sun-dried products, this aid is to be reduced by an amount fixed taking account of the difference in the cost of producing the artificially dried and the sun-dried products (second subparagraph of Article 5(2)).

346. The second subparagraph of Article 4 of Commission Regulation (EEC) No 1528/78 of 30 June 1978 laying down detailed rules for the application of the system of aid for dried fodder,(133) as amended by Commission Regulation (EEC) No 2334/87 of 31 July 1987,(134) sets the amount of the difference referred to in the second subparagraph of Article 5(2) of Regulation No 1117/78 at ECU 43/tonne. The production costs for these products have moved closer together and this difference was progressively reduced to ECU 25.(135)

347. However, as regards the position in Spain, in the third recital in the preamble to Regulation (EEC) No 2275/89 of 24 July 1989 amending Regulation No 1117/78(136) the Council noted that the application of Article 120 of the Act concerning the conditions of accession of the Kingdom of Spain and the Portuguese Republic and the adjustments to the Treaties(137) resulted in the level of the guide price for dried fodder being lower in that country than in the other Member States and that the deduction from this lower price of the amount fixed for the Community resulted in a level of aid for sun-dried fodder lower than that which would be needed to ensure the competitiveness of that product vis-à-vis artificially dried fodder. In the fourth recital, the Council noted that, as a result of this situation, Spanish operators began to transform their facilities, increasing considerably the production of artificially dried fodder and reducing that of fodder dried otherwise and that this trend was harmful to the Community budget because it increased the proportion of products qualifying for the higher level of aid. In order to avoid any risk of disturbance on the market in dried fodder, it therefore added a third subparagraph to Article 5(2) of Regulation No 1117/78, under which:

‘In the case of dried fodder produced in Spain, the amount referred to in the second subparagraph shall be reduced, until 31 December 1992, by an amount equal to the difference between the guide price applicable to that Member State and that applicable to the other Member States.’

348. Article 5(1)(a) of Regulation (EEC) No 1417/78 of 19 June 1978 on the aid system for dried fodder,(138) as amended by Council Regulation (EEC) No 2256/88 of 19 July 1988,(139) provides that the aid referred to in Article 5 of Regulation No 1117/78 is to be granted, on application by the party concerned, for dried fodder from processing plants in respect of which the maximum moisture content is between 11 and 14% and may vary according to the form of presentation of the product. Article 6, as amended, provides that the aid shall be granted only to those processing plants which:

a) keep stock accounts which include at least details:

–of the quantities of green, or, if appropriate, sun-dried fodder which is used; however, if the special situation of a processing plant so requires, the quantities may be estimated on the basis of areas sown,

–of the quantities of dried fodder produced and the amount and quality of the dried fodder leaving the plant;

b) supply, where necessary, other supporting documents required for checking their entitlement to aid.’

B – The flat-rate correction in respect of production aid for dried fodder

350. The Summary Report says that the national system of control, based exclusively or chiefly on the weighing notes issued by undertakings themselves, did not make it possible to limit the high risk of irregularities found in respect of the quantities declared upon arrival, arising from the use in Spain of contracts based on area. The only check on the operative event for aid, which is the removal of the fodder from the undertaking, was the existence of the sale invoice and the weighing note issued by the undertaking itself.

351. The EAGGF officers maintain that an effective check cannot merely record that the commercial documents exist ─ it must extend to what those documents actually recorded.

352. The Spanish authorities assert that checks were carried out on the yield for each contract compared with the yields for the producer regions, but the documents checked do not support this.

353. During several on-the-spot inspections, the EAGGF officers found that the moisture content of the dried fodder, measured on arrival at the processing undertaking, was between 20 and 25%, which is common in Spain. In agronomic and chemical terms, these products had the characteristics of sun-dried fodder. The existence of a scale of prices with reductions and increases based on a standard moisture content of 25% also encourages the practice of bringing a product that is already near-dried into the drying plant.

354. According to the Summary Report, the Spanish authorities should have regarded these products as sun-dried and have paid the corresponding aid, not the aid specified for artificially dried fodder. It is stated in the Summary Report that the processing undertaking has a financial interest in declaring as artificially dried fodder that in fact is sun-dried, because the amount of aid is double. The report also stresses that climate conditions in Spain are particularly favourable to this type of irregularity. In view of these points, in combination with the spectacular increase in the quantity produced, the Spanish authorities should have adopted the effective measures of control that are laid down in the Community legislation to avoid the risk to Community funds from these practices. The EAGGF admits that this shortcoming was facilitated by a degree of difficulty in interpreting the Community instruments.

355. In this connection, a financial correction of ESP 384 545 035, which is 2% of the expenditure declared by the Kingdom of Spain, was imposed for that reason under the contested decision.

356. The Spanish Government disputes the correction; as the Community legislation has set no minimum percentage for moisture when the fodder enters the processing undertaking, the Spanish paying body cannot impose such a requirement unilaterally. The Commission creates a requirement and then complains that a Member State has not complied with it, in breach of the principle of legal certainty. This view corresponds to the opinion given by the Conciliation Body.

357. The Commission notes that, although not sharing its view that one of the infringements found did occur, the Conciliation Body fully confirms that the other infringements did occur and confirms the flat-rate financial correction. The Commission considers in any case that the failure by the Spanish authorities to set a minimum moisture content for fodder is an infringement of the Community rules, borne out by the purpose and the fundamental reason for the aid for production of this fodder. The absence of a minimum moisture level renders the system of production aid for dry fodder meaningless and creates serious distortion in competition between operators in those Member States where a given minimum is required to obtain aid and in those where the existence of a minimum level is neither required nor checked. The Commission denies imposing a non-existent condition; it maintains that, if the system of aid for the production of dry fodder is not to be made meaningless, the national control organisations must set such a minimum.

358. We should remember that the Community legislation makes a distinction between artificially dried fodder and sun-dried fodder. The aid given for the latter is equal to that set for artificially dried products, less an amount which allows for the difference in the cost of producing each of these types of products.

359. Under Article 8(1) of Regulation No 729/70, Member States are to take the measures necessary to satisfy themselves that transactions financed by the Fund are actually carried out and are executed correctly, to prevent and deal with irregularities and to recover sums lost as a result of irregularities.

360. The systems of control which the Member States set up must therefore be able to detect fraud where processing undertakings receive production aid for artificially dried fodder but the fodder produced has been dried in the sun and the artificial-drying operation is symbolic or non-existent, like the costs generated by that operation.

361. To prescribe a minimum moisture content, in order to facilitate the identification of such fraudulent practices by setting an objective and physically measurable criterion, is but one way among others of combating the risk of improperly awarding aid for the production of dry fodder.

362. I feel that, since there is no provision under the legislation applicable which requires such a threshold to be adopted, then ─ as the Conciliation Body has properly acknowledged ─ merely finding that there is no threshold does not allow us to conclude that Spanish production consists partly of sun-dried fodder upon which there has been an improper payment of aid that is normally intended for the production of artificially dried fodder.

363. I have commented elsewhere on my reasons for believing that to place on any provision of Community law a construction which simply cannot apply to the entirely unambiguous wording of that provision, purely on the grounds of the purpose pursued by the Community legislation within which it stands, is contrary to the principle of legal certainty.

364. Here, however, the Commission is able to produce other evidence of its serious and reasonable doubt regarding the Spanish system of control and, unless the Spanish Government produces evidence to refute it, that would justify a flat-rate correction of 2%.

365. As the Conciliation Body has stressed, it was possible in fact to dispose of some of the fodder referred to, as it stood or mixed with dried fodder, without it actually being dried artificially. According to the Conciliation Body, the risk of fraud is not negligible.

366. That is shown in both the Summary Report and Annex 2 to letter 48369 of 13 December 1996 from the Conciliation Body to the Kingdom of Spain.

367. It should be noted that the proliferation of fraudulent practices complained of by the Commission seems to be borne out by the observation of a noticeable increase in the quantity of production for which aid was sought without a parallel increase in livestock, and by the rapid disappearance of sun-dried fodder displaced by artificially dried products and the appearance of new and successful drying undertakings in recent years.

368. In its written submissions, the Spanish Government has not disputed the points raised by the officers of the EAGGF, such as the crucial importance within the national control system of the use of weighing notes issued by the undertaking itself or, when products are removed, of weighing notes and the invoice issued by the processing undertaking, the failure to check what commercial documents are actually recorded, the outcome of the on-the-spot checks by the EAGGF officers showing that the fodder had a very low moisture content and the characteristics of sun-dried fodder, and that the scale of prices in use encouraged the practice of bringing products that are already near-dried into the drying plant.

369. On the basis of these points, constituting a body of consistent evidence that, furthermore, is not denied by the applicant government, I propose that the Court reject the plea of infringement of the Community legislation on aid for the production of dried fodder. Furthermore, I consider that the rate of 2% of expenditure is justified, in the light of the criteria set out in the Belle Report.

VI – Infringement of certain principles of Community law

A – Arguments of the parties

370. The Spanish Government considers that the contested decision relies on mistaken and subjective considerations, breaching the following principles of Community law:

–the principle of a fair hearing has been observed in formal terms but not in practice, for the explanations given by the Spanish Government have always been ignored. Notwithstanding the explanations and arguments supplied by the Spanish authorities, the Commission has simply dwelt on the same points, neither contradicting nor refuting the arguments set out, which effectively denies the Spanish Government the right to a fair hearing;

–the lack of evidence for the complaints made against the Member State: the Commission has based the corrections it has imposed either on indications or suspicions or on particulars that the Spanish authorities have refuted or corrected, particularly as regards consumption aid;

–the principle of good administration has been breached in every respect, and repeated explanations by the Spanish authorities have not been sufficiently taken into account or duly evaluated, in particular as regards consumption aid. The 2% correction applied here has been based upon visits and inspections for years earlier than 1993 and relies on the alleged failures of an undertaking which did not receive aid during that marketing year;

–the principle of legality of penalties, very seriously breached as regards olive oil production aid and aid for the production of dried fodder. The Spanish Government maintains that a financial correction may be imposed only where it has been established that the shortcomings in controls are serious and that one might reasonably expect serious loss to the Community budget. The financial correction was used as a penalty for facts regarding which it has not been provided that they may attract such a correction, or to compensate for lacunae in the Community rules, and

–in the alternative, the principle of proportionality. Had the Spanish Government's arguments been taken into account, the financial corrections would have been markedly less than those which were set. It has been shown that the Spanish system of control does not have shortcomings, at least to the extent alleged by the Commission.

371. The Commission rejects the complaints made by the Spanish Government.

372. As regards the principle of a fair hearing and that of good administration to which, the Commission says, the Spanish Government attaches the same subject-matter, these principles have been entirely safeguarded because the applicant government was allowed to express its point of view. The fundamental right to a hearing does not mean that one has to accept the party's arguments and allegations, and the Spanish Government may be confusing the right to a hearing with the requirement to state grounds. On this the Commission notes that the Court has always held that the duty to state grounds does not require an explicit response to each of the party's allegations. That case-law also mitigates the requirement to state grounds in respect of the procedures for clearing accounts, because it has been accepted that a detailed statement of grounds is not necessary when the relevant Member State, having been closely associated with the process of preparing the decision, is aware of the grounds for it.

373. As regards the complaint of lack of evidence for the irregularities alleged against the Kingdom of Spain, the Commission considers that it has produced evidence which is sufficiently conclusive in the light of the case-law of the Court and, furthermore, that this evidence has not been refuted by the evidence produced by the Spanish Government.

374. The Commission also maintains that the principle of legality of penalties does not apply here, because financial corrections do not count as penalties.

375. As regards the principle of proportionality, the Commission considers that, in accordance with the settled case-law of the Court, it is for the Member State concerned to show that the failing complained of has increased the costs of the EAGGF by less than the amount calculated by the Commission, and the Spanish Government has not done so here.

376. The Spanish Government challenges the Commission's treatment of the principle of a fair hearing, on which it relies, as being the same as the principle of the statement of grounds. It takes the view that the Commission has observed the latter, and purely formal, principle but not the principle of a fair hearing, which has not been observed inasmuch as the Spanish Government's allegations have not been taken into account, having been neither disputed nor refuted.

377. The Commission also denies that it infringed this principle.

378. We must examine these complaints individually.

B – Assessment

379. There is no need to dwell overlong on this complaint. There are many references in this Opinion to the rules on evidence established by the Court, both in respect of what the evidence comprises and in respect of the party on whom the burden of proof lies.

380. With the exception of those pleas by the Spanish Government which I believe give reason for annulling part of the contested decision, so demonstrating that the Commission has produced insufficient evidence, or none, there is no evidence in the application capable of challenging the contested decision where it is supported by the dossier which the Commission prepared for that purpose. The points discussed in the Opinion that support rejection of the relevant complaints are based on the case-law referred to earlier, to establish that the Spanish Government has produced insufficient evidence or none.

381. It is sufficient therefore to invite the Court to refer to the discussion of this matter in the examination of each of the pleas made by the Spanish Government.

382. As the Commission has noted, without being challenged on this point, the Spanish Government does not distinguish between these two principles in making the complaint that the Commission has failed to take account of its explanations. Nor has the Spanish Government stated what is referred to by each of these principles invoked.

383. I shall therefore examine together these two pleas on the extent of the Commission's obligations to have regard to the arguments of a Member State involved in a procedure to clear the EAGGF accounts, being aware that, according to the Spanish Government, the obligation on the Commission to state grounds is not at issue here.

384. I think that the Commission's duty falls within two bounds here: as the Commission rightly states, the right of the Member State which is the subject of financial corrections, when the EAGGF accounts are being cleared, to present arguments and evidence to challenge the corrections imposed cannot have the effect of requiring the Commission to accept its arguments; conversely, the Commission must examine them scrupulously for the purpose of verifying the soundness of the future decision in the light of the particulars adduced.

385. It is in any case for the Court to rule on the complaints made by the Member State against the contested decision, and that includes the evidence concerned. It does seem that this is identical to that submitted to the Commission by this Member State and, thus, an improper refusal by the Commission to take account of the evidence submitted to it is indirectly subject to review by the Court, which must assess for itself whether it is sound. The soundness of the plea brought is therefore closely linked to the outcome of the plea for annulment: if the contested decision is annulled, that presumes that the Commission has in some way inadequately considered the evidence submitted by the applicant government, and if it is rejected, that shows the opposite.

386. Thus, as I said regarding the plea of lack of evidence, apart from those points which give grounds for annulling the contested decision, the complaints submitted by the Spanish Government must be rejected. As a consequence, in respect of the pleas which I propose the Court should reject, it does not seem that the Commission's conduct is open to question.

387. I must therefore propose that this plea be rejected.

388. Again, I would refer to the settled case-law of the Court, as cited earlier in this Opinion, that the provisions of Articles 2 and 3 of Regulation No 729/70 allow the Commission to charge to the EAGGF only sums paid in accordance with the Community rules. Therefore, where those Community rules authorise payment of aid only on condition that certain detailed rules on inspection are observed, aid paid in breach of that condition is not in accordance with Community law.

389. The case-law applicable here does not make the refusal to charge disputed expenditure subject to the finding that there have been serious shortcomings in the system of control, and that point is confirmed by the categories of financial correction that have been drawn up by agreement with the Member States in the Belle Report, where the 2% correction is for a ‘deficiency ... limited to parts of the control system of lesser importance, or to the operation of controls which are not essential to the assurance of the regularity of the expenditure, such that it can reasonably be concluded that the risk of loss to the EAGGF was minor’.

390. The Spanish Government maintains that the likelihood of serious loss to the Community budget must first be shown, but here again we must refer to the settled case-law of the Court. The Commission is not compelled to prove that there have been losses but may simply adduce highly significant evidence to that effect. The Member State concerned may then, if appropriate, demonstrate that the Commission made an error as to the financial consequences to be inferred from the infringement.

391. I have taken account of these well-established guidelines in the case-law of the Court in my assessment of the complaints set out by the applicant government. Those complaints which I feel must be rejected are not likely to affect the contested decision on the grounds of a legal defect in the refusal to charge the expenditure incurred to the EAGGF.

392. The Spanish Government states that, had its arguments been taken into account, the financial corrections would have been markedly smaller than those which were set.

393. We need only note that, in accordance with the case-law cited above, although it is for the Commission to prove that the Community rules have been infringed, it is for the Member State to demonstrate, if appropriate, that the Commission has made an error as to the financial consequences to be inferred from the infringement.

394. The present Opinion has shown in this instance that, apart from the complaints which I propose should be accepted, the Commission has proved that the Kingdom of Spain has infringed a number of Community rules on agriculture.

395. On the other hand, the Spanish Government has not been able to show that its own culpable conduct did not cause additional expenditure in the context of the EAGGF.

396. I have also stated my position on observance of the principle of proportionality in respect of production aid paid to two RPGs and in respect of consumption aid paid to a bottling plant. There is no reason to discuss that further.

397. Regarding the other pleas, on aid for the production and the consumption of olive oil or for the production of dried fodder, it must be stated that, because of the importance of the requirements breached and the likelihood of loss to or even fraud against the Community budget, the sums not allowed by the Commission, ranging from 2% to 10% of the expenditure concerned, according to the circumstances, cannot be regarded as excessive or disproportionate.

398. The plea of infringement of the principle of proportionality must therefore be rejected.

VII – Costs

399. As provided in Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs, if this has been requested. As the Commission has asked that the Kingdom of Spain be ordered to pay the costs and the latter has been largely unsuccessful, I propose that the Kingdom of Spain be ordered to pay the costs.

Conclusion

400. On the basis of the foregoing considerations, I propose that the Court should rule as follows:

(1) Commission Decision 97/608/EC of 30 July 1997 amending Decision 97/333/EC on the clearance of the accounts presented by the Member States in respect of the expenditure for 1993 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) is annulled as regards the part relating to the Kingdom of Spain in so far as it refuses to charge to the EAGGF payment of the profit made by the undertaking Tragsa, the whole of the aid for the consumption of olive oil granted to the undertaking N. Sevillano and the whole of the expenditure declared by the Kingdom of Spain by way of aid for the consumption of olive oil during marketing year 1992/93.

(2) The remainder of the application is rejected.

(3) The Kingdom of Spain is ordered to pay the costs.

—

1 – Original language:

2 – OJ 1997 L 245, p. 20, hereinafter ‘the contested decision’

3 – OJ 1997 L 139, p. 30

4 – OJ 1994 L 182, p. 45.

5 – Document VI/5210/96, consolidated version of 15 April 1997, hereinafter the ‘Summary Report’.

6 – OJ, English Special Edition 1970(I), p. 218.

7 – OJ 1989 L 388, p. 18.

8 – Council Directive of 27 June 1977 (OJ 1977 L 172, p. 17).

9 – Document VI/216/93 of 3 June 1993, hereinafter ‘the Belle Report’ (Annex 4 to the defence, pp. 2 and 3).

10 – OJ 1984 L 208, p. 11.

11 – OJ 1992 L 64, p. 1

12 – OJ 1984 L 208, p. 3.

13 – OJ 1978 L 369, p. 12.

14 – Regulation of the Council of 22 September 1966 on the establishment of a common organisation of the market in oils and fats (OJ, English Special Edition 1965-1966, p. 221).

15 – Ley de Creación de la Agencia para el Aceite de Oliva (BOE No 297, 12 December 1987).

16 – Agencia para el Aceite de Oliva, hereinafter ‘the AAO’

17 – Hereinafter ‘FEGA’.

18 – Council Regulation of 2 July 1987 (OJ 1987 L 183, p. 7).

19 – Council Regulation of 27 November 1990 (OJ 1990 L 338, p. 1).

20 – OJ 1982 L 162, p. 6.

21 – Seventh recital.

22 – Hereinafter ‘the RPGs’

23 – OJ 1990 L 338, p. 3.

24 – OJ 1984 L 288, p. 52.

25 – OJ 1991 L 94, p. 5.

26 – OJ 1975 L 19, p. 1 (see first recital).

27 – OJ 1985 L 367, p. 1.

28 – OJ 1979 L 262, p. 11

29 – OJ 1988 L 57, p. 18, corrected in OJ 1988 L 95, p. 23.

30 – OJ 1979 L 206, p. 3.

31 – OJ 1989 L 14, p. 14.

32 – OJ 1995 L 312, p. 1.

33 –

– Missions of 20 to 24 June 1994, January and February 1995 and January 1996.

34– See paragraph 73 et seq. of this Opinion.

35– Sixth and seventh recitals in the preamble to Regulation No 1413/82.

36– Ibid., eighth recital.

37– And the Spanish Government does not dispute this (point 4.2(3) of the reply).

38– Letter from the Junta de Extremadura to the AAO, dated 14 June 1994 (Annex 2 to the defence).

39– Irregularities relating to the registers of documents received and dispatched, the register of olive-grove operational returns, the register of aid applications and the register of members (letter of 14 June 1994, at (e)).

40– Point 7 in the annex to Commission letter 23271 of 15 June 1995 (Annex 2 to the application).

41– Among the many irregularities shown in this document we find, for example, the absence of accounting records, of the report of operations, of the register of documents received and dispatched or of the register of aid applications (ibid.).

42– Tenth recital in the preamble to Regulation No 2261/84.

43– See, for example, Case C-278/98 <i>Netherlands </i>v<i> Commission</i> [2001] ECR I-1501, paragraph 38, and Case C-263/98 <i>Belgium </i>v<i> Commission</i> [2001] ECR I-6063, paragraph 35.

44– Case C-197/91 <i>FAC</i> [1993] ECR I-2639, paragraph 16.

45– See, among others, Case 266/84 <i>Denkavit France </i>[1986] ECR 149, paragraph 17; Case C-69/94 <i>France </i>v<i> Commission</i> [1997] ECR I-2599, paragraph 38; and Case C-356/97 <i>Molkereigenossenschaft Wiedergeltingen</i> [2000] ECR I-5461, paragraphs 35 and 36.

46– See paragraph 87 of this Opinion.

47– See, for example, Case 238/86 <i>Netherlands </i>v<i> Commission </i>[1988] ECR 1191, paragraph 25, and Case C-28/94 <i>Netherlands </i>v<i> Commission</i>[1999] ECR I-1973, paragraph 50.

48– Article 3(6) of Regulation No 2261/84, for example, relates to the case of an olive grower who is not a member of a producer organisation, and that does not deprive him of the right to receive production aid.

49– See paragraph 5 et seq. of this Opinion.

50– Case C-374/99 <i>Spain </i>v<i> Commission</i> [2001] I-5943, paragraph 26.

51– Section 4.7.2.2 (p. 138).

52– Summary Report, Section 4.7.2.2.9 (p. 144).

53– See, as a recent example of the consistent case-law, <i>Belgium</i> v<i> Commission</i> (cited above), paragraph 35.

54– Ibid., paragraph 36.

55– Ibid., paragraph 37.

56– Ibid.

57– Summary Report, at Section 4.7.2.2.2 (p. 139).

58– Annex to Commission letter 23271, cited above.

59– Annex to Commission letter 14826, of 3 April 1996 (Annex 7 to the application).

60– Section 4.7.2.2.1 (p. 139).

61– Annex to letter 23271, cited above, in Section 2.

62– Ibid.

63– Ibid. See also the annex to letter 14826, cited above, in Section 1.1.

64– Annex 1 to Annex 8 to the application.

65– FEGA letter 18759, of 3 June 1996, in Section 1.1 (Annex 8 to the application).

66– Ibid.

67– See paragraph 41 of this Opinion.

68– Ibid., at paragraphs 61 to 69.

69– Hereinafter ‘the ROE’.

70– Page 15 of the French translation of the application.

71– FEGA letter 18759, at page 14 (Annex 8 to the application).

72– See, for example, Commission letter 14826. The dossier shows that this type of check is conducted by comparing the quantities of olives pressed and the quantity of olives or trees for the producer concerned.

73– Commission letter 34128, at point 1.5 (Annex 11 to the application).

74– These data include (among other particulars) full information on the technical equipment of the mills and their actual pressing capacity, and any changes regarding them (Article 13 of Regulation No 2261/84).

75– Commission Regulation of 30 March 1990 (OJ 1990 L 86, p. 18).

76– Page 20 of the French translation of the application.

77– Ibid., quotation from an AAO fax of 12 June 1995.

78– Ibid., page 21, quotation from FEGA letter 18759 (Annex 8 to the application).

79– Letter 18759.

80– Council Regulation of 29 March 1988 (OJ 1988 L 89, p. 1).

81– Page 39 of the French translation of the application.

82– See paragraphs 87 and 116 et seq. of this Opinion.

83– Case C-238/96 <i>Ireland </i>v<i> Commission</i> [1998] ECR I-5801, paragraph 29.

84– Ibid., paragraph 30.

85– Cited in <i>Ireland </i>v<i> Commission</i>, paragraph 31.

86– <i>Belgium </i>v<i> Commission</i>, paragraph 37.

87– Ibid.

88– Paragraphs 110 and 111.

89– Annex 24 to the application, in Section 10.

90– Ibid., in Section 11.

91– Annex 27 to the application.

92– Annex 10 to the reply.

93– Case C-41/94 [1996] ECR I-4733.

94– Regulation of the Commission of 26 July 1972 on making up accounts for the European Agricultural Guidance and Guarantee Fund, Guarantee Section (OJ, English Special Edition, Second Series III, p. 109).

95– Commission Regulation of 25 February 1986 (OJ 1986 L 48, p. 31).

96– This paragraph was added by Regulation No 422/86 and lapsed at the same time as the other provisions of Regulation No 1723/72, on 16 October 1995 (Article 9 of Commission Regulation (EC) No 1663/95 of 7 July 1995 laying down detailed rules for the application of Council Regulation (EEC) No 729/70 regarding the procedure for the clearance of the accounts of the EAGGF Guarantee Section (OJ 1995 L 158, p. 6)). It therefore still applies to the facts in this case.

97– Case C-54/91 <i>Germany </i>v<i> Commission</i> [1993] ECR I-3399, paragraph 13. See also Case C-59/97 <i>Italy </i>v<i> Commission</i> [1999] ECR I-1683, paragraph 37, as a further example, and also Case C-413/92 <i>Germany </i>v<i> Commission</i> [1994] ECR I-3781, paragraph 26 et seq., as an example of failure to observe a deadline where, having regard to the particular circumstances, there was no consequent refusal to take into account evidence which the relevant government had produced out of time.

98– Annex 23 to the application.

99– OJ 1977 L 13, p. 1.

100– Article 9 requires contracting authorities who wish to award a public supply contract by open or restricted procedure to make known their intention by means of a notice in the <i>Official Journal of the European Communities</i>.

101– Ley de Medidas Fiscales Administrativas y de Orden Social (BOE No 313, 31 December 1997).

102– Annex 10 to the defence.

103– Ibid.

104– According to the Commission, Royal Decrees 379/77 and 1422/85 are the basic statutory provisions relating to Tragsa.

105– Point 43.3 of the reply.

106– As to whether Directive 77/62 was applicable at the relevant time, Annex 15 to the reply shows that the Ministry of Agriculture, Fisheries and Food was given authority to commission Tragsa to set up and to update the ROE, in a decision dated 23 October 1987. As to the persons covered by the directive, we have seen that Tragsa has close links with the Spanish public authorities, which might lead us to suppose that the undertaking is a unit of one of these. In the legal context of the rules on public contracts, the specific character of those links might justify us questioning what their precise nature is because, in the application of the directives on public contracting, there is an exception known as ‘in-house providing’, which relates to contracts made by a contracting authority with certain public organisations that are linked to it (Case C-94/99 ARGE [2000] ECR I-11037, paragraph 21). On this issue, I would refer to the judgment in the Teckal case (Case C-107/98 [1999] ECR I-8121), which offers a better understanding of the limits of this exception. In asking whether one of the conditions for applicability of Directive 77/62 was met ─ that there should be a contract ─ the Court satisfied itself that there was indeed an agreement between two separate persons and ruled that ‘it is ... sufficient if the contract was concluded between, on the one hand, a local authority and, on the other, a person legally distinct from that local authority’ (paragraph 50), adding ‘the position can be otherwise only in the case where the local authority exercises over the person concerned a control which is similar to that which it exercises over its own departments and, at the same time, that person carries out the essential part of its activities with the controlling local authority or authorities’ (ibid.). Apart from the fact that Tragsa is a legal person, it supplies services not only to the Spanish public authorities but also, as the Spanish Government has noted (point 43.3 of the reply) and the Commission has not denied, to private persons. I therefore think that there is no doubt that Directive 77/62 was applicable.

107– Case C-71/92 <i>Commission</i> v <i>Spain</i> [1993] ECR I-5923, paragraph 36.

108– Ibid.

109– Case C-3/88 [1989] ECR 4035.

110– Ibid., paragraph 11.

111– Ibid., paragraphs 11, 15 and 24.

112– See Chapter 1 of Title IV of Directive 77/62, on quality selection criteria.

113– Section 2, second paragraph.

114– Annex 2 to the reply.

115– Like production aid, consumption aid for olive oil is intended to support the production of olive oil in Community territory. It is intended to allow the target production price, needed for fair remuneration of the producers, to produce a retail price acceptable to the consumer. To enable the system of consumption aid to achieve its purpose in this way, the aid is to be granted at the stage closest possible to the consumer, that is, the olive oil packaging plant (second recital).

116– OJ 1985 L 254, p. 5.

117– OJ 1993 L 69, p. 19.

118– OJ 1991 L 63, p. 19.

119– The Court has already ruled on the financial applications applied against the other 13 undertakings in Case C-45/97 <i>Spain</i> v<i> Commission</i> [2000] ECR I-5333.

120– At paragraph 52.

121– Ibid., paragraph 54.

122– Ibid., paragraph 55.

123– Case C-8/88 <i>Germany </i>v<i> Commission</i> [1990] ECR I-2321, paragraph 42, and Case C-374/99 <i>Spain </i>v<i> Commission</i>, paragraph 16.

124– Apparently, the method adopted by the Commission is to take account of any positive effects from those recommendations occurring after June 1995, in order to avoid acting upon the irregularities established during 1993.

125– Annex 24 to the application.

126– Ibid., at point 12.

127– Section 2, at page 8 of the French translation.

128– Point 232 of the defence; the emphasis is the Commission's.

129– Ibid., point 237.

130– OJ 1978 L 142, p. 1.

131– OJ 1987 L 377, p. 35.

132– OJ 1987 L 184, p. 6.

133– OJ 1978 L 171, p. 1.

134– OJ 1988 L 199, p. 3.

140– See my Opinion in Case C-63/00 <i>Schilling and Nerhing </i>[2002] ECR I-4483, point 11 et seq.

141– Final report, at points 15 and 16.

142– Ibid., at point 17.

143– Annex 17 to the application.