OPINION OF ADVOCATE GENERAL SIR GORDON SLYNN

My Lords,

This is a reference for a preliminary ruling from the Hessischer Verwaltungsgerichtshof. The proceedings before it were commenced by a German undertaking which I shall call “Edeka”. Edeka is a large German food retailer and, among its other commercial activities, it imports preserved mushrooms from Taiwan and South Korea. The dispute before the referring court arises from the virtual exclusion of imports of preserved mushrooms into the Community from those two countries in 1979, and a severe restriction in respect of Taiwan for 1980 as a result of measures taken by the Commission in order to avoid a serious disturbance in the Community market for preserved mushrooms. The background to those measures is set out in my Opinion in Case 52/81 Fault v Commission to which I refer without repeating. Since, however, the issues raised in the two cases are not identical, and since different arguments have been put forward in the two cases, it seems to me right, and more convenient to the Court making this reference, that I should set out in this opinion the facts and matters upon which the arguments have been based even though this involves some repetition.

In brief the facts of the present case are as follows.

On 3 April 1978 a trade agreement was signed between the Community and China. Article 3 of the agreement provides, inter alia, that the two contracting parties “will make every effort to foster the harmonious expansion of their reciprocal trade”. The agreement was published in the Official Journal on 11 May (OJ 1978, L 123, p. 2) and a fortnight later the Commission adopted Regulation No 1102/78 (OJ L 139, 26. 5. 1978, p. 26). This measure was based on Article 14 (2) of Regulation No. 516/77, of 14 March 1977 (OJ L 73, 21. 3. 1977, p. 1) which gives the Commission power to adopt “what measures are necessary” where there is or is likely to be serious disturbance of the market in one or more of the products covered by the common organization of the market in products processed from fruit and vegetables. Article 1 (1) of Regulation No 1102/78 suspended the issue of import licences for preserved mushrooms. Article 2 (1) exempted from the suspension products originating in third countries “which the Commission accepts as being able to ensure that their exports to the Community do not exceed a level agreed by the Commission”. Article 3 states that China “shall benefit under the terms of Article 2”.

Commission Regulation No 1213/78 of 5 June 1978 (OJ L 150, 6. 6. 1978, p. 5) extended the benefit of exemption to products from Taiwan, but it was repealed just over three weeks later by Commission Regulation No 1449/78 of 28 June 1978 (OJ L 173, 29. 6. 1978, p. 25). Thereafter imports from Taiwan remained prohibited until April 1980. As far as preserved mushrooms from South Korea are concerned, it was not until November 1979 that the suspension of the issue of import licences was lifted (see Commission Regulation No 2447/79 of 7 November 1979, OJ L 279, 8. 11. 1979, p. 11). China, Taiwan and South Korea were at that time the three principal exporters of preserved mushrooms to the Community so that, with the exclusion of imports from Taiwan and South Korea for most of 1979, China was left as the sole substantial supplier. On 25 September 1979, at a time when imports from both those countries were still banned pursuant to Regulation No 1102/78, Edeka applied to the competent German authority for the grant of import licences in respect of two part-consignments of preserved mushrooms, one from Taiwan of 73920 kilogrammes and one from South Korea of 18480 kilogrammes. The applications were refused on 4 October on the ground that their issue had been suspended by Article 1 of Regulation No 1102/78. Edeka objected, the objection was in its turn rejected, and, on 15 November 1979, it brought an action before the Verwaltungsgericht at Frankfurt against the Federal Republic of Germany, in the person of the Bundesamt für Ernährung und Forstwirtschaft.

The lawfulness of the decision rejecting the application for the import licences depended on Regulation No 1102/78 which Edeka argued was itself unlawful for the following reasons:

(a) Article 1 violated the prohibition on discrimination contained in Article 40 (3) of the Treaty in so far as it ended the equal access of each importer to the market of third countries;

(b) it infringed the principle of the freedom of external trade to be found in Articles 39 and 110 of the EEC Treaty;

(c) it violated the principle of proportionality;

(d) it violated the principle of equal competition with regard to restrictions on supplier countries.

The Verwaltungsgericht rejected Edeka's case and the latter appealed to the Verwaltungsgerichtshof which decided to make the order for reference. Clarification is required, the order for reference says, as to whether the regulation was wholly appropriate and necessary in order to protect the Community market from being seriously disturbed by the importation of preserved mushrooms from Taiwan and South Korea or whether the measure offended against the prohibition of discrimination contained in Article 40 (3) of the Treaty because it introduced a general ban on the importation of preserved mushrooms from those countries without having regard to the traditional trade relations of individual importers. It is the national court's view that the general exclusion of importers from access to their previous suppliers could constitute an infringement of Article 40 (3) which might have been avoided if the protective measures introduced by the Commission had simply consisted of minimum import quotas for the importers concerned.

The question referred to the Court is in these terms: “Was Commission Regulation (EEC) No 1102/78 ... valid or did it offend against the prohibition of discrimination because, as the plaintiff believes, certain importers were in practice generally barred by the regulation from effecting imports from non-member countries?”

Edeka does not challenge the justification in fact for applying some protective measures at the material time. It accepts that it does not have, and never has had, an inalienable right to import goods from Taiwan and South Korea; and that the Commission could take account of a reorientation in the Communities' external trade policy when applying protective measures. Edeka's complaint is that, in the application of protective measures, it was unlawfully excluded from obtaining supplies of preserved mushrooms from Taiwan and South Korea. This constitutes, it is said, “massive discrimination” against itself. The grounds relied on in support of this assertion are the following:

(1) Edeka and other German importers of preserved mushrooms are in the same or a comparable position;

(2) the effect of the protective measures was that Edeka could import nothing in 1979 whereas three of its competitors, who traded with China, were able to import almost 29,000 tonnes;

(3) the measures adopted by the Commission provoked an imbalance in the conditions of competition as between Edeka itself and those of its competitors who traded with China because it gave them a virtual monopoly of the trade in preserved mushrooms;

(4) there was no objective justification for this.

The only question raised in the Order for Reference concerns the validity of Regulation No 1102/78. Edeka, however, does not challenge the basic scheme of the regulation, i.e. Articles 1, 2 and 4. Its attack is directed, it seems, at the Commission's failure to exercise its power of exemption under Article 2 (1) at the time of the adoption of the regulation and later or, in other words, to include Taiwan and South Korea in Article 3.

It is agreed by the parties that the Commission considered exemption under Article 2 (1) on a yearly basis. That is to say, the inclusion of China in Article 3 was based on an agreement as to the level of Chinese exports in 1978 only. A second agreement was reached for the year 1979 and a third for 1980. The same practice was followed in relation to Taiwan and South Korea. The exemption granted to Taiwan by Regulation No 1213/78 was based on an agreement covering the quantity of exports to be made in that year only. It was withdrawn by Regulation No 1449/79 because the Commission believed that the agreement had not been followed. No agreement was made with South Korea in 1978 because that country refused to limit its exports to the Community in that year to the amount proposed by the Commission. So far as can be seen, a second round of negotiations took place in 1979, but no agreement was at first reached with either Taiwan or South Korea. An agreement was made with China, it seems on 23 January 1979, and that is why Article 3 of Regulation No 1102/78 remained in force. In consequence, it seems that Edeka is really complaining not so much of the regulation itself but about the Commission's attitude to its negotiations with third country suppliers and its policy in regard to the exercise of its power under Article 2 (1) in 1979.

The Commission was asked certain questions concerning its application of Regulation No 1102/78 in the years 1978-1980 and it is on the information produced in answer to those questions that I base my opinion. If the facts ultimately found by the national court are different it will be necessary for it to consider whether the conclusions reached are affected.

In the Commission's view, the Community market could, under normal conditions, absorb about 32,000 tonnes of preserved mushrooms yearly from third countries without risking any serious disturbances caused by imports alone (this amounted to about one third of the total imports into the Federal Republic of Germany). This assessment has not been challenged by Edeka. Negotiations on a limitation to the quantities to be exported to the Community took place at the beginning of 1978 with South Korea, in April with Taiwan and in May with China. The amounts initially offered by the Commission were 5,500, 11,500 and 15,500 tonnes respectively, which comes to 32,500 tonnes. South Korea made a counter offer of 7,000 tonnes, but licences had been granted for more than this amount by 24 May 1978. South Korea was not, apparently, prepared to limit its exports to the amount then reached and so no agreement was made in that year. It did in fact export some 9,831.4 tonnes to the Community in 1978, over three times the amount imported in the previous year and the average amount of each of the three previous years.

As far as China is concerned, the offer of 15,500 tonnes appears to have been based on the amount imported in 1977 (which was in fact 15,318.8 tonnes). China made a counter offer of 20,000 and an agreement was finally reached on 17 May 1978, just over a week before Regulation No 1102/78 was adopted, on an amount of 17,100 tonnes. According to counsel for the Commission, the following factors were taken into account when reaching agreement on this figure:

(i) China had exported on average in each of the three previous years 18,000 tonnes (in fact, according to the figures submitted to the Court, the yearly average in 1975 to 1977 was only 15,931.3);

(ii) China was the only country which had accepted a limitation on its exports;

(iii) the trade agreement with China envisaged an increase in trade between it and the Community;

(iv)

the amouni of the Communing expon. :o China exceeded imports trom China

In the event, China exponed some IS 218.9 tonnes to the Communitv in 1978. This was an increase of some 18.9% over the amouni exponed in 1977 and 14.4 7: over the vearly average in 1975 to 1977.

As far as Taiwan is concerned, negotiations started in April 1978 with a Commission offer of 11300 tonnes, which was the amount in respect of which impon licences had alreadv been issued. In other words, the Commission wanted Taiwan to cease funher exports to the Community. Taiwan refused to accept this unless all other supplying countries agreed to a similar restriction. Bv 24 Mai 1978 impon licences for a total of 17528 tonnes had been applied for. It was not until after the adoption of Regulation No 1102/78 that Taiwan agreed not to expon more than had already been exponed. At the hearing, however, counsel for the Commission accepted that, before it adopted Regulation No 11C2/7S. the Commission was aware of a telex, or its contents, sent on 23 Mav bv the Taiwan producers' organization, TMPL'EC (“TM”), to its European representative. This telex said. inter aha, “in order to show our good cooperation to EC (the Commissioni we assure there will be no active selling to WG (West Germany) at present time and we promise will consult with EC if wc will take any new step”. In that telex, TM accepted that it had sold 11711 tonnes to the Community. The telex was sent in reply to one from its representative in which he had said that the Commission wanted a guarantee that there would be no further exports as from August, otherwise protective measures would be adopted.

Counsel for the Commission said that the 23 May telex came “too late” and that, had the Commission refrained from imposing protective measures, it would have had to allow into the Community all the 17528 tonnes of Taiwan preserved mushrooms for which impon licences had been applied up to 25 May. “Too late” may have meant that it was administratively impossible to include Taiwan alongside China in Article 3 of the regulation. If this was the case, the suspension of the issue of import licences in respect of goods from Taiwan that applied from 26 May until the position was remedied with the adoption of Regulation No 1213/78 on 5 June, was not, in my view, invalid. The validity of legislation, particularly in the field of economic law, cannot be considered in a vacuum. It would be both unrealistic and unduly formalistic to ignore the administrative practicalities of the legislative process.

Even if the real explanation is the Commission's fear that, if it accepted the Taiwan guarantee, it could not prevent the importation of 17528 tonnes of preserved mushrooms, as opposed to the 11711 mentioned in the 23 May telex, the regulation is still, in my opinion, to be considered valid. It is true, as has been urged on behalf of Edeka, that under the import licensing system then in force there was no necessary correlation between the quantities in respect of which import licences had been applied for and the quantities actually sold and exponed by a given third country supplier. It was onlv in Regulation No 547/80 of 4 March 1980 (OJ L 60, 5. 3. 1980, p. 16) that the Commission resolved this problem by requiring applications for impon licences to be accompanied by a document issued by, or under the authority of, the government of the exporting country, authorizing the expon of a specified quantity of preserved mushrooms. However, in 1978, the only indicator of the possible level of imports that the Commission possessed vas the number of applications for impon licences. When the Commission compared the Taiwan guarantee, which mentioned sales of only 11711 tonnes, with the quantities for which impon licences had been applied, it was, in my opinion, entitled to have regard to the latter, at least until it could verify the figure by contacting the Taiwan producers. That would take time and, given the urgency of the situation, it was permissible for the Commission to act, as long as it took steps to check the guarantee. This it seems to have done within a reasonable time because Regulation No 1213/78 was adopted less than a fonnight after Regulation No 1102/78.

Turning to the question of discrimination, there is no indication that, in the conduct of negotiations with third countries in 1978 for the limitation of their exports to the Community, the Commission discriminated against Taiwan and South Korea. If one takes the Commission's April offer to Taiwan of 11500 tonnes, that was 11.1% above the amount exponed by Taiwan to the Community in 1977 and 5.1% less than the yearly average in 1975-1977. The Commission's offer to China was 1.2% above the level of its exports to the Community in 1977 and 2.7% less than the yearly average in 1975-1977. In contrast, the offer to South Korea, which was turned down, represented an increase of 85.7% and 118.3% respectively. The amount eventually agreed with China (17100 tonnes) was 11.6% above the level of exports in 1977 and 7.3% above the yearly average in 1975-1977. If one takes as the amount agreed with Taiwan the figure of 12600 tonnes, which was accepted in the Faust case, that represented an increase of 21.7% and 4% respectively.

At the end of the day, of course, there was different treatment of the third country suppliers because one, China, was exempted from the suspension of the issue of impon licences while the other two, Taiwan and South Korea, were not. It follows from Case 55/75 Balkan-Import-Export v HZA Berlin-Packhof [1976] ECR 19 that the Commission was not, however, under a duty to accord equal treatment to them. The Court held in that case, at paragraph 14 of the judgment, that “in the Treaty there exists no general principle obliging the Community, in its external relations, to accord to third countries equal treatment in all respects and in any event traders do not have the right to rely on the existence of such a general principle”. Any different treatment could, in any event, only constitute wrongful discrimination if the position of the countries in question were the same or comparable. Under the system adopted in the regulation, the factor determining their different treatment was the existence or otherwise of an agreement on the self-limitation of exports. Exemption from the suspension of the issue of impon licences which is justified on this basis is not discriminatory in itself because the respective positions of countries which have accepted a limitation on the level of their expons io the Community and those which have not are dissimilar. It is objectively justifiable to impose restrictions on imports from the latter and not the former because only imports from countries that have refused to limit their expons continue to constitute a threat to the market.

Edeka seeks to avoid this by relying on the second paragraph of Article 40 (3) of the Treaty, which provides that common organizations of agricultural markets “shall exclude any discrimination between producers or consumers within the Community”. It is said that the discrimination is felt by imponers and other operators based in the Community, some of whom trade with China and some with Taiwan and South Korea. The discrimination takes the form of a change in the conditions of competition within the Community with the effect that imponers of preserved mushrooms from China are favoured by being given a vinual monopoly of trade in such goods.

That an imponer may rely on the second paragraph of Article 40 (3) is clear from, for example, Case 112/80 Diirbeck v HZA Frankfurt-am-Main [1981] ECR 1095, but, in any event, as the Court pointed out in Joined Cases 117/76 and 16/77 Ruckdeschel v HZA Hamburg-St. Annen [1977] ECR 1753 at paragraph 7 of the judgment. Article 40 (3) only sets out “a specific enunciation of the general principle of equality which is one of the fundamental principles of Community law”.

The crucial element in the circumstances of the present case, however, is the fact that some importers have dealings with countries which accept a limitation on their exports, while others have dealings with countries which do not. This shows that their respective positions are not in truth either the same or comparable; in addition it can, in my opinion, be regarded as an objective justification for any different treatment as between such importers and as an indication that it is not arbitrary. In consequence I do not think that the treatment of which Edeka complains can rightly be described as discrimination between consumers within the Community which is prohibited by the Treaty.

It is then said that Taiwan and South Korea could not be totally excluded from supplying the Community because this would be contrary to international law (sc. Article 4 (5) (c) of the Agreement relating to the interpretation and application of Articles VI, XVI and XXIII of the GATT) and the interests of those undertakings in the Community which have been supplied from these two countries since 1961. As far as they are concerned, the total exclusion of imports is contrary to (i) the freedom of external trade (see Article 12 of the German Constitution and Articles 110 and 222 of the Treaty); (ii) the principle of proportionality (see Article 14 of Regulation No 516/77); and (iii) the general principle that traditional trading links must be maintained (see Article 12 (2) of Council Regulation No 926/79 of 8 Mai 1979, OJ L 131, 29. 5. 1979, p. 15 and Article XIII (2) of the GATT).

The Agreement relating to the interpretation and application of Anieles VI, XVI and XXIII of the GATT was made on 12 April 1979 and was not therefore in force at the material time. In any event, there is nothing in it which, in my opinion, establishes the existence of a principle of international law relevant to this case. Moreover, it is well established that the spirit, general scheme and terms of the GATT indicate that it does not confer on the citizens of the Community rights on which they can rely when challenging the validity of a measure adopted by a Community institution (see, for example, Joined Cases 21-24/72 International Fruit Company v Produktschap voor Groenten en Fruit [1972] ECR 1219, and Case 9/73 Schlüter v HZA Lörrach (1973) ECR 1135) so the last point made must also, to this extent, be rejected. The adoption of Regulation No 1102/78 was notified to the contracting parties to the GATT pursuant to Article XIX but, according to counsel for the Commission, no objection was ever raised to it. No right to trade with third countries can in my view be derived from Article 110 of the Treaty (see the Diirbeck case at paragraph 44 of the judgment) or from Article 222. Even if such a principle can be drawn from Article 12 of the German Constitution, which is by no means agreed, it is well established that the validity of a measure adopted by a Community institution is to be determined in the light of Community law, not the law of one particular Member State (see, for example, Joined Cases 41, 121 and 796/79 Testa v Bundesanstalt jur Arbeit (1980) ECR 1979). In the absence of any conclusive authority in Community law, the existence of such a right must be rejected. In the same way, Article 12 (2) of Regulation No 926/79 is insufficient authority for the existence of a general principle that traditional trading links must be maintained.

That leaves the principle of proportionality.

In brief, it is said that, if the Commission was prepared to let in imports at all, it should have done so by using a reference quantity system, thus giving every importer a fair chance. By excluding imports altogether from South Korea and Taiwan it imposed an excessive and unnecessary burden on importers from those countries. Since China is a Statetrading country, it was in practice impossible for them to import at all and the result of the Commission's measures was to create a monopoly of trade in preserved mushrooms with adverse effects on the competitive structure of the Community.

In the Diirbeck case the Court accepted that it was compatible with the principle of proportionality to attempt to secure the agreement of exporting countries to a voluntary restriction of their exports to the Community before resorting to coercive measures (see paragraphs 39 and 40 of the judgment). Clearly, if an exporting country has agreed to limit its exports, the imposition of protective measures is not strictly necessary in order to avoid a serious disturbance of the market. It could therefore be contrary to the principle of proportionality to adopt a reference quantity or quota system in so far as goods from that country are concerned. Moreover, it cannot be said, from the information concerning the negotiations conducted by the Commission in 1978, that it was seeking to impose a disproportionate burden on importers from Taiwan or South Korea.

Next it is argued that the regulation violated the principle of the protection of legitimate expectations because traders were entitled to expect that existing trade flows would be respected when protective measures were imposed. This, too, must be rejected. The trade agreement with China, which was published in the Official Journal, put traders on notice that commercial relations between it and the Community were on a different footing to those between the Community and other third countries, such as Taiwan and South Korea, with whom there were no such agreements. This, coupled with the absence of a duty to accord equal treatment in relations with third countries (see the Balkan-Import-Export case) negatives the existence of any such legitimate expectation.

Then it is said that the reasons for treating China differently from other exporting countries should have been set out in the preamble to Regulation No 1102/78 in accordance with Article 190 of the Treaty. The Commission should have mentioned the quantities which it would accept from supplying countries as the basis for lifting the suspension of the issue on impon licences and should have given details of the agreement that had been reached with China and of the failure to reach agreement with Taiwan and South Korea. It was not in my view necessary to mention any of these fanors in the preamble in order to give a sufficient indication of the reasons which prompted the Commission to adopt the regulation. The quantities which it might accept as the basis for lifting import restrictions cannot be considered part of the reasoning which led to the adoption of the regulation and could in any event be expected to change in accordance with developments in the market so it is understandable why the Commission declined to tie itself down to a specific figure. For the purposes of explaining Article 3 of the regulation it was sufficient to state, as was done, that China had agreed to limit its exports to the Community.

In its written observations Edeka raised the point that the Commission could not take account of external trade policy considerations when exercising its powers to impose protective measures. At the hearing counsel for Edeka did not pursue that argument, relying rather on the proposition that a reorientation of the Community's external trade policy cannot completely exclude traditional trading partners. As I have already indicated, no authority has been produced which, in my view, establishes the existence of a principle of Community law that traditional trading links must be maintained. The question whether the Commission is entitled to take external trade policy considerations into account when adopting protective measures is dealt with in my Opinion in the Faust case and I do not think it necessary to repeat what I said there.