OPINION OF MR ADVOCATE-GENERAL GAND

DELIVERED ON 30 NOVEMBER 1967 (1)

Mr President,

Members of the Court,

It is my task today to present some further observations on the request made to you by the Finanzgericht, Munich, for a preliminary ruling on the validity of Regulation No 144/65 of the Commission of the EEC. Your order of 6 July 1967 did more than reopen the oral procedure. It asked the Commission to explain in writing the exact machinery for the calculation of reference and entry prices, as laid down in Regulation No 99/65 of 7 July 1965. In so doing, the Court in fact set in motion an inquiry as provided for by Article 45 et seq. of the Rules of Procedure, which had not at first seemed necessary. The detailed reply given by the Commission caused the Beus company to submit further observations.

Carrying the analysis further, you asked the Commission by telex of 24 October to give certain information on the tonnage by year and variety of the harvest of table grapes within the Community. You asked them, in addition, to explain the criteria which it used in applying Article 11(2) of Regulation No 23, by which the only products to be taken into account in order to calculate the reference price are the ‘products or varieties which represent a considerable part of the marketed output throughout the year’. It was no doubt a slip of the pen which led you to quote a phrase which makes reference to ‘the marketed output throughout the year or during a part thereof’. However that may be, it was on the basis of that complete version of the wording as I have just quoted it that the Commission provided the information requested, which it enlarged at the hearing.

1.One preliminary matter arises. Because of the preparatory inquiries set in motion by the Court and the statements of case exchanged, the issues of the present case were enlarged. The countervailing charge introduced by Regulation No 144/65 is equal to the difference between the reference price and the entry price. The legality of that regulation was disputed both before the national court and before you on the ground that the entry price had been wrongly calculated. In its observations of 28 September last the Beus company for the first time took the point that Regulation No 104/65, which fixed the reference price, was itself invalid and inadequately reasoned. Is such a departure from the original issues permissible? The Commission disputes this because it considers that the objection thus raised by the Beus company is inadmissible because of the nature of proceedings under Article 177 of the Treaty.

I consider that a problem in fact arises but in terms somewhat different from those used by the Commission.

As you have had occasion to mention, the procedure of a preliminary ruling in both its forms — whether it is a matter of the interpretation of a Community measure or of its validity — possesses special characteristics. It is used by a national court within limits set by that court. It brings about direct cooperation between it and you. No initiative by the parties to the case can affect it. They are merely invited to be heard (Case 44/65 Hessische Knappschaft v Maison Singer et Fils [1965] E.C.R. 971). You have held, as the Commission pointed out, that when there is before you a request for interpretation, a party may not add to that question a further question concerning the validity of the measure to be interpreted (ibid).

But when it is the national court which asks the Court of Justice to pronounce on the validity of a measure, as in the present case, the real problem is the extent of that court's duties and of your powers of inquiry and review. It is not sufficient for the national court to ask you to pronounce on the validity of a particular provision. It must also indicate the possible objections to it, the soundness of which it is for you to determine. Otherwise the issues would not be clearly defined, unlike the situation in an application for annulment. You cannot be expected to make exhaustive inquiries into every fault of substance or form which might possibly invalidate the measure at issue. The objections may have been raised by the national court of its own motion. More often, they will have been raised by the parties before it. But it is only to the extent to which the national court has considered them not devoid of relevance that it will refer them to you for your ruling. If such is the principle, there is nothing to prevent you from using the flexibility which you usually have within the sphere of Article 177. In the present case the Finanzgericht sets out various reasons for which the Beus company considers Regulation No 144/65 to be invalid, together with the customs authority's views to the contrary. Then, without expressing a formal opinion on the weight of the various grounds of argument, it states that a reference is necessary, the applicant's arguments not being a priori totally unfounded. It is not difficult to conclude therefore that it was in the light of those arguments that the court asked you to consider the validity of the regulation at issue, and in fact the debate both in the written and oral procedure, which was closed on 22 June last, was concerned with them. In the result then, if the decision to make the reference and the definition of the issues are matters for the national court alone, the parties heard by you cannot alter the framework of that definition by raising new grounds of complaint.

Nevertheless — and here I disagree with the Commission — that principle needs to be modified by analogy with the situation in a direct application for annulment. Even if the objections raised before you are groundless, you cannot hold a measure to be valid if it appears to you to be vitiated by a defect of such gravity that it ought to be raised by you of your own motion. That is clearly illustrated by your judgment in Joined Cases 73 and 74/63 ([1964] E.C.R. 1). There, after giving your decision on that issues expressly mentioned by the national court, you note that you have been asked also to state whether the validity of the decisions in issue is affected by any ‘failure to state reasons’, and say that it is enough to examine whether they ‘contain a defect which can be removed by action taken… of its own motion’. A little further on, after the applicants had raised before you the question of the decisions' being defective for want of publicity, you consider that question, because, you say, it involves the type of defect which may be raised by the Court of its own motion.

It then remains to state which complaints are of this type. Lack of capacity is clearly the first (see Case 14/59 Société des Fonderies de Pont-a-Mousson v High Authority of the ECSC, Rec. 1959, p. 450, for the division between the powers conferred on the High Authority alone and those conferred jointly on the High Authority and the Council).

There is also the infringement of an essential procedural requirement, (see Case 6/54, Government of the Kingdom of the Netherlands v High Authority of the ECSC, Rec. 1955, p. 201, concerning consultation of the Consultative Committee). Whilst, on the other hand, it is clear that the Court will not of its own motion raise misuse of powers, because of the subjective judgment which this presupposes, there is doubt about the situation where there is a question of a breach of the Treaty or a rule of law, and that is precisely the issue in the present case. It may be that, if the Court were to raise matters of this kind of its own motion, it would result in limiting excessively the responsibility which is normally the parties' for the conduct of the case and the choice of the arguments with which they support their conclusions. Should the distinction be between those grounds which depend on questions of pure law and those which entail the consideration of facts as well? Must different answers be expected according to whether you are making a decision within the framework of Article 173 or that of Article 177? For my part, I would tend to adopt a fairly restrictive view of the submissions which may be raised by the Court of its own motion. In the present case, however, bearing in mind that you have yourselves already taken the initiative in examining the reference price, I have felt obliged to consider whether that price was legally fixed, and therefore to consider the arguments recently developed by the Beus company.

2.The two bases for Regulation No 104/65, which fixed the reference price for outdoor table grapes, were Article 11(2) of Regulation No 23 on the progressive establishment of a common organization of the market in fruit and vegetables, as amended by Regulation No 65/65, and Regulation No 99/65, which defined the conditions for the application of that article.

The Commission gave a detailed explanation of the machinery for calculating the reference price, and of the various operations as a result of which it fixed a reference price of 15.9 u.a. for the month of October 1965. To assist its explanation it produced a ‘working document’ tracing the various stages in the fixing of the price.

Without repeating its explanation in detail, I would recall that by Article 11 (2) of Regulation No 23 the reference price is in principle fixed for one year, but that each year may be divided into several periods for which there is relative stability of prices, and the reference price is equal to the arithmetical average of the producer prices of each Member State, increased by a certain amount. In each Member State the producer prices are recorded for products or varieties which represent a considerable part of the marketed output throughout the year or during a part thereof (in fact for table grapes only France and Italy are concerned). The records are made from the representative market or markets in the areas of production where prices are lowest, and the markets may vary according to the variety. The price is the average of the prices recorded for the three years preceding the date when the reference price is fixed, but this average is fixed taking no account of prices which appear excessively high or excessively low compared with the normal fluctuations recorded on the relevant market.

First the average of the producer prices for a period and a variety is obtained in one Member State and then, from the prices of the varieties, the average is obtained for each Member State of the producer prices of the product for which a reference price is to be fixed. Finally the arithmetical mean of the averages thus arrived at for each Member State is the reference price, as defined in Article 11(2) of Regulation No 23.

The mechanism is therefore particularly complicated, but in fact the legal issues are concerned only with how account came to be taken of one given variety of grape, the Ohanez, for the purposes of fixing the Italian producer price for October, and therefore the reference price in force for the whole of the Community. The various varieties of grape are classified as early, normal and late. Ohanez is a late variety of which the average production according to the estimates of the Minister of Agriculture of the Italian Republic — which are however disputed by the Beus company — amounts to about 10000 metric tons or a little more than a quarter of all the late varieties of that country, which correspond to 4.5 % of the total annual production.

This variety which comes to maturity in the middle of September was regarded as representing a considerable part of the marketed output during a part of the year and therefore was used in this way in spite of its quite small tonnage. It appeared important from the point of view of the common agricultural policy to favour the late varieties which are less widespread, and thus to extend the period during which ‘Community’ grapes are offered on the market, both in the interest of the producer and of the consumer. The Commission emphasizes on this subject that the concept of ‘considerable part of the marketed output’ (‘partie considérable de la production commercialisée’), used in the French version of Regulation No 23 is not merely quantitative but refers also to the more or less interesting nature which this part displays from the point of view of the objectives of the agricultural policy, which presupposes a real value-judgment. That argument might in fact find certain support in the German version where the expression ‘wesentlichen Teil’ appears.

The ‘working document’ appearing in the file shows you to what extent the Ohanez variety was used in the fixing of the reference price for the month of October 1965 on the basis of the prices in the three preceding years: it is not disputed that it was used in the same way as the Regina variety in the sense that, if one or the other were used, the arithmetical average of their prices was taken and not the weighted average. The Regina variety, which is the most widespread of the normal varieties (this description is used here as opposed to the early or late varieties), represents at least 50 % of the annual total of Italian production; even for the month of October and in the absence of exact figures it does not appear to be disputed that its production is much greater than that of the Ohanez variety. Further more, the examination of a number of prices recorded during that period for both varieties confirms if it were necessary that quantitatively there is no common ground between the Regina variety and the Ohanez variety.

Starting from these facts, the criticism of Regulation No 104/65 is developed on two planes which are distinct but not without a mutual relationship. First, there is a dispute as to the method of calculation used for the fixing of the reference price, although it is not possible to see clearly the positions adopted by the Beus company if it intends to maintain that the Ohanez variety does not constitute a variety to be used as representing a considerable part of the marketed output, or only that the average of prices of this variety and of the Regina variety should have been weighted.

On the first point it should be recalled that quite clearly it is within the framework of the period in question, that is to say, of the month of October and not of the complete year, that it is necessary to decide whether the variety represents a considerable part of the marketed output; I think, in addition, that his decision is not exclusively quantitative but must take into account the objectives of the agricultural policy: it is not unreasonable a priori for the reasons indicated above to seek particularly to develop the late varieties like the early varieties, but I would hesitate a long time before reviewing the value of this policy which appears to me a matter for consideration by the Commission. Despite its relatively small tonnage during the month of October, it appears to me consequently not contrary to Article 11(2) of Regulation No 23 to make the Ohanez variety appear among those which should be taken into account for the reference price for the month of October.

It is necessary, on the other hand — this is the second point — to take the arithmetical average between the Ohanez or Regina varieties as has been done, or to weight this average? In support of the second opinion one is immediately tempted to rely on the clear disproportion between the two varieties and what appears at first to be the shocking nature in the light of common sense of the system which puts them on the same footing. Article 11 of Regulation No 23 on which Regulation No 104/65 is founded is worded thus: ‘The reference price shall be equal to the arithmetic average, increased by the amount defined in the fourth subparagraph, of the producer price in each Member State. These producer prices shall correspond to the average of the prices recorded during the three years prior to the date of fixing the reference price’. Thus whilst the average is, in the first argument, arithmetically adjusted, that requirement does not appear in the second case, which concerns us, and the Beus company concludes from it that it is a matter therefore of a weighted average. One might regret with the Commission that the disputed wording was not made the subject of more precise drafting, but it appears to me that the argument of the Beus company should be set aside because it conflicts with current language. The expression ‘average’ used without an adjective refers to the arithmetical average; when one wishes on the contrary to: bring in a weighted average one says so and one says on what basis the weighting should be done. For, although everybody knows how to calculate an arithmetical average, weighted averages vary infinitely according to the methods adopted and the values given to the various factors. The Beus company, which would like to see the average of producer prices weighted, has however never given details of the method of such weighting: in accordance with the respective tonnage of each variety during the year, or only during the period in question? But although the prices of each variety are known it would be very difficult to state the tonnages exactly. Or would it be necessary to adopt another method of calculation? The Commission advances also a reason based on agricultural policy which should favour the exclusion of weighting: this operates to the detriment of early or late varieties which always amount to a relatively small part of total production and which must however be encouraged. I do not think therefore that the wording of Article 11 can lead to setting aside the system used.

But you will remember that at the hearing counsel for the Beus company did not confine himself to disputing the legality of the system which takes account of the Ohanez variety but to a certain extent criticized the advisability of it, basing his arguments in the publication by Mr Vivona ‘Vitigni di Mensa’. It appears from that work that the late varieties have no future: they have a high cost of production and they arrive on the market at a time when the consumer is turning towards other fruits such as oranges or apples. To this discouraging picture he adds. the opinion formed by the Süddeutsche Zeitung to the effect that consumers do not appreciate the Ohanez variety because it has a skin which is too hard… All that is very interesting and has taught me much, but it has no direct influence on the question put before you, because the Commission may overestimate the value of late varieties or be mistaken as to the presumed tastes of consumers without its decision being vitiated by illegality for all that.

Lastly a criticism of another type was made concerning Regulation No 104/65; namely that its statement of reasons was insufficient. I have already had occasion last June to discuss the reasoning of legislative measures in connexion with Regulation No 144/65. I would add that the regulation criticized today analyses the provisions of Article 11(2) of Regulation No 23 and mentions the Ohanez variety among the more important varieties cultivated in the Community and used for deciding the arithmetical average of the producer price. Such reasoning, taking into account the nature of the measure, appears to me sufficient unless one requires in addition a mention of all the data which appears in the ‘working document’.

Thus Regulation No 104/65, criticized as serving as the basis of Regulation No 144/65, appears to me to have been a proper application of Regulation Nos 23, as redrafted, and 99/65. It was next objected that on this argument it is Regulation No 23 itself which was illegal as being irreconcilable with the Treaty, especially with Articles 39 and 110 thereof. This is a question on which I will say a word in ending.

II

I must in fact now return to certain points already mentioned in June last and concerning which the exchange of pleadings has provided new information. It is a matter of the calculation of the entry price which led to the introduction of the countervailing charge by Regulation No 144/65.

1.First point — which is also the most delicate. We know that the entry price is determined on the basis of the lowest prices recorded on the representative import markets less in particular ‘other taxes on imports’. Among those duties the Umsatzausgleichssteur (German turnover equalization tax) was included. I had considered that this deduction was justified because, as the Community countervailing charge to be imposed represented the difference between the entry and reference prices, those two prices ought to be made comparable and examined at the same stage of the economic process. The turnover equalization tax charged on importation ought to have been substracted from the entry price, because, as I stated, the reference price, which is a producer price, did not include turnover tax. But that argument, which I adopted on the strength of an incomplete statement made at the hearing, cannot now be sustained in the light of the Commission's recent written observations.

It emerges in fact from this document that, although the reference price does not include internal taxation imposed directly on domestic products (except for market dues, which are not relevant), it does include the amount of internal taxation imposed indirectly on the product, because it increases the costs of production. All Member States have such fiscal charges imposed at an earlier stage, but the amounts vary. Only two Member States, Germany with the ‘Umsatzausgleichssteuer’ and Italy with the ‘tassa di conguaglio’ have taxes, imposed on imports, to compensate for the differences in such prior fiscal charges. It must be admitted, therefore, that the system is unsatisfactory, and it is hard to see what method can be used to ensure that the reference and entry prices, as envisaged by the fourth subparagraph of Article 11(2) of Regulation No 23, are comparable. It is made especially difficult by the fact that the reference price is calculated for the whole of the Community, but on the basis of producer prices in some only of the Member States (here, France and Italy), whilst in the present case the entry price is calculated from prices in another State, Germany.

In its most recent written observations the Commission endeavoured to show that if the Council had intended to exclude the prior fiscal charge in calculating the reference price, Article 11(2) would have been formulated in different terms. For each reference price the average of the prior fiscal charges in the States whose producer prices were used would be calculated (France and Italy in the present case). Then the sum thus arrived at would, for example, have been added to the prices ruling on the representative import markets; from these prices, on the other hand, import duties, and in particular the German turnover equalization tax would have been deducted. That is a method which would have made the reference and the import prices comparable, and one wonders why it was not used.

The Commission went on to show that, if the German turnover equalization tax and Italian entry price tax were not deducted in order to ensure comparability, it would be impossible to use prices in the other four States, in which there is no compensation for the prior fiscal charges, for the calculation of the entry price, and that would appear to be correct. It concludes that, as Article 11(2) cannot be construed to mean that the entry prices must be based only on German and Italian prices, the logic of the system demands that the Umsatzausgleichssteuer and the tassa di conguaglio be deducted. That may be logical, but it means once more that the reference and entry prices are not fully comparable. Since the German equalization tax is a cost element which is present in the import price as well as in the reference price, it cannot simply be deducted in calculating the import price.

The Agent of the Commission conceded at the hearing that the results of the system which he was defending were not entirely satisfactory, but it appeared inevitable to him, where an uncoordinated fiscal system is in conflict with a uniform system of external trade, since the taxes and their rates are in fact determined by Member States without the intervention of the Community. If you share that view, and find that the maximum amount of comparability between the prices is at present ensured, having regard to the absence of a uniform fiscal system, you may reject the objection made to the method of calculating the entry price in that connexion.

For my part I consider that it is very hard to do so. The sovereignty of the Member States in the sphere of taxation does not prevent the Community institution competent to implement the common organization of the market in fruit from establishing a method of calculating the entry price, which will make it properly comparable with the reference price, and we have seen already that this is technically possible. Because it was made on a basis which does not ensure such comparability, Regulation No 144/65 is, in my view, invalid.

2.The other issues call for very little further observation from me. In particular I continue to think that the countervailing charge previously imposed by Regulation No 138/65 ought to have been deducted from the lowest prices recorded on the representative markets. It is true, as the Beus company has pointed out, that on 18 October 1965 that charge was no longer in force, and that the prices for that date must therefore be increased by 3 u.a., but on the Düsseldorf and Munich markets they were still lower than the reference price and the Commission's error therefore had no practical effect on the legality of the introduction of the new countervailing charge.

3.In the same way, on the question whether Article 11 of Regulation No 23 in its present form should be considered as incompatible with the Treaty on the ground that it took insufficient account of the objectives of the agricultural policy and hindered the development of trade, a point raised in connexion with the entry price and again taken up in respect of the reference price, my previous observations appear to me still to be valid, and favour rejecting this complaint.

Nevertheless, for the reasons given above, my final opinion is as follows: the fact that, in the calculation of the entry price, the turnover equalization tax is deducted in circumstances which do not ensure that the entry and reference prices are comparable does affect the validity of Regulation No 144/65.

I am of the opinion, finally, that it is for the Finanzgericht to decide upon the costs.

(1) Translated from the French.