OPINION OF ADVOCATE GENERAL SIR GORDON SLYNN

My Lords,

This is an action for damages brought by a German undertaking which I shall call “Faust”.

Faust is one of the undertakings selected by the Taiwan Mushroom Packers United Export Corporation (“TM”), a body representing all the Taiwanese producers of preserved mushrooms, to act as its agent for the distribution and marketing of preserved mushrooms in Germany, which regularly takes more than 95% of the total Community imports of preserved mushrooms. Faust is not itself an importer but earns commission on the imports passing through its hands. It alleges that, as a result of measures taken by the Commission, all of which are said to have been unlawful, it has been deprived of the commission it would have earned in 1979 and 1980 and that the Community is bound to compensate it for this loss. Instead of being, as it had been for some years, the second largest exporter of mushrooms to the Community and having averaged 13000 tonnes a year between 1974 and 1978, Taiwan was not allowed to send to the Community more than a negligible quantity in 1979 and only some 1286 tonnes in 1980 whereas in 1979 China was allowed to export 29000 tonnes, and in 1980 China 28000 tonnes and South Korea 4800.

The Commission, rightly, does not seek to challenge the admissibility of the action.

As the Court pointed out most recently in Joined Cases 197 to 200, 243, 245 and 247/80 Ludwigshafener Walzmühle Erling KG and others v Council and Commission, 17 December 1981 (as yet unreported) the non-contractual liability of the Community depends on three conditions: (i) the unlawfulness of the acts of the defendant institution, (ii) the existence of the damage alleged to have been incurred by the applicant, and (iii) a direct causal link between the unlawful act and the damage complained of.

In the present case Faust has specified as the basis of its claim the unlawfulness of Commission Regulations No 3096/76 of 17 December 1976 (OJ L 348, 18 December 1976), No 1102/78 of 25 May 1978 (OJ L 139, 26 May 1978) and No 1449/78 of 28 June 1978 (OJ L 173, 29 June 1978). All concern protective measures introduced by the Commission to prevent serious disturbances in the Community market for preserved mushrooms. The Commission plainly has a discretion in exercising its powers to legislate in the light of all the circumstances, as to whether protective measures should be imposed or lifted and as to the kind of protective measures which are required. Faust must show accordingly, that, in exercising this discretion, the Commission was guilty of a “sufficiently serious breach of a superior rule of law for the protection of the individual” in order to ground its claims in the legislative measures which it introduced (see Joined Cases 83 and 94/76, 4, 15 and 40/77 HNL v Council and Commission [1978] ECR 1209 at paragraph 4 and per Mr Advocate General Capotorti at p. 1229).

The legislative background

The terms of the legislation prior and subsequent to the regulations under attack are relied on. The salient features can be summarized as follows.

On 8 August 1974 (pursuant to its power under Council Regulation No 1427/7 J of 2 July 1971 (OJ L 151, 7 July 1971) to take protective measures in the event of a serious disturbance in the market), the Commission adopted Regulation No 2107/74 (OJ L 218, 9 August 1974) which made possession of an import licence a condition for the import into the Community of preserved mushrooms. Import licences were not required where third countries could guarantee minimum prices on importation into the Community, a requirement subsequently replaced by a requirement that maximum quantities be observed (Article 2 of Commission Regulation No 1869/75 of 22 July 1975, OJ L 190, 23 July 1975).

By Regulation No 2107/74 the Commission was given power to limit the total quantity of imports to an amount expressed as a percentage of a “reference quantity” which, after 1 August 1975, was the amount imported in the same period in 1973. Import licences were to be granted to each applicant for amounts not exceeding the percentage of the reference quantity fixed by the Commission, based on the amount he had imported in 1973. These import restrictions did not expressly relate to the country of origin of the imports.

In 1976, when the risk of a serious disturbance of the market lessened, the permitted percentage rose to 100 %. The protective measures were finally abandoned when Regulation No 3096/76 repealed Regulation No 2107/74 with effect from 1 January 1977 since the need for them was coming to an end. Thereafter imports of preserved mushrooms remained subject to the licensing system which had been introduced by Council Regulation No 1927/75 of 22 July 1975 (OJ L 198, 29 July 1975) for certain products covered by the common organization of the market in products processed from fruit and vegetables. This licensing system imposed no restrictions on applications for licences or on the import of goods but was simply used to monitor the flow of trade in the products it covered.

No protective measures were applied in 1977. In that year the basic provisions concerning the common organization of the market in products processed from fruit and vegetables were codified by Council Regulation No 516/77 of 14 March 1977 (OJ L 73, 21 March 1977). This kept in existence the import licensing system created by Regulation No 1927/75 (see Article 10 (1)) and provided in Article 14 for the adoption of protective measures where there was, or was likely to be, serious disturbance of the market in one or more of the products covered by the common organization. Article 14 (2) gave the Commission power to adopt “what measures are necessary” should there be such a disturbance.

More detailed rules for the application of protective measures were laid down in Council Regulation No 521/77 of 14 March 1977 (OJ L 73, 21 March 1977). This contemplated that the issue of licences might be discontinued, that applications for licences might be rejected and minimum import prices be imposed (Article 2). Article 2 (2) stated that these measures “may be taken only to such extent and for such length of time as is strictly necessary. They shall take account of the special situation of products which are already on their way to the Community ... They may be restricted to products imported from or originating in particular countries ...”. Article 3 of the regulation provides that its application “shall respect the Community's obligations under international agreements”.

On 3 April 1978 a trade agreement was signed between the Community and China (OJ L 123, 11 May 1978) which contained articles directed to increasing trade between the Contracting Parties, and by Article 5 provided for consultations for the purpose of seeking solutions to any trade problems which might arise and for taking measures to deal with such problems.

Just over a month after the trade agreement was signed, the Commission suspended the issue of import licences for preserved mushrooms (Regulation No 1102/78 which was based on Article 14 (2) of Regulation No 516/77). Article 2 (1) of Regulation No 1102/78 exempted from the suspension of the issue of import licences products from 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 stated that China “shall benefit under the terms of Article 2”. The “reference quantity” system was thus not readopted.

Taiwan did not benefit from such exemption until Commission Regulation No 1213/78 of 5 June 1978 (OJ L 150, 6 June 1978) was made. That, however, was repealed three weeks later by Regulation No 1449/78. Thereafter imports from Taiwan remained prohibited until April 1980. As far as South Korea is concerned, it was not until November 1979 that exemption was granted (Commission Regulation No 2447/79 of 7 November 1979, OJ L 279, 8 November 1979). This regulation was repealed with effect from 1 January 1980 by Commission Regulation No 2908/79 (OJ L 326, 22 December 1979) which in turn provided that, for the period 1 January to 29 February 1980, applications for import licences for preserved mushrooms from China or South Korea should be granted in respect of 24% of the quantity imported in 1977. The preamble stated that, while negotiations with these countries for fixing the quantities which they would undertake to export in 1980 had not yet been concluded, it was not advisable to sever trade links with them pending the outcome of the negotiations and it was therefore, appropriate to make temporary provision for the grant of import licences for limited quantities of mushrooms.

Regulation No 1102/78 was repealed by Commission Regulation No 547/80 of 4 March 1980 (OJ L 60, 5 March 1980). The preamble to the latter recited that China and South Korea were the Community's main suppliers and were able to ensure that their exports to the Community would not exceed quantities acceptable to the Commission; the issue of import licences for mushrooms from these countries should therefore be permitted as from 1 March; in addition, the market situation had eased and it was possible to relax the protective measures temporarily by permitting imports of limited quantities from countries which exported to the Community small amounts in 1977 and 1978. No relevant restriction was imposed on imports from China and South Korea. Article 2 provided for the grant of licences in respect of mushrooms from other countries for quantities up to 10% of the total imported in 1977 and 1978. However it was expressly “without prejudice” to Commission Regulation No 548/80, which was adopted on the same day (OJ L 60). The preamble to this regulation describes Taiwan as a “traditional supplier” to the Community and says that it was not yet possible to establish that it was in a position to limit its exports. Article 1 therefore suspended the issue of import licences for preserved mushrooms from Taiwan.

Regulation No 548/80 was repealed by Commission Regulation No 1002/80 of 24 April 1980 (OJ L 107, 25 April 1980). The preamble stated that “at the present time, Taiwan is in a position to ensure that its exports to the Community will not exceed quantities acceptable to the Commission” so the issue of import licences could be permitted.

The regulations challenged by Faust

The first act of the Commission impugned by Faust is Regulation No 3096/76. Two arguments in particular have been put forward to show that this measure was unlawful:

there was no market reason justifying the removal of protective measures;

the abandonment of the reference quantity system of import controls was in breach of the principle of equality and the prohibition of discrimination.

Neither argument can in my view be sustained. Faust has not sought to challenge in detail the Commission's view, expressed in the preamble to the regulation, that the need for protective measures was on the point of disappearing. The information made available to the Court in this case gives no reason to doubt the Commission's view and it can only be concluded that the Commission did not act unlawfully when it removed the protective measures. Indeed, if the Commission was right in thinking that the need for them was over it would have been wrong for it to have maintained them in force (Article 1 of Council Regulation No 1427/71).

Even if Regulation No 3096/76 were held to be unlawful, it is in my opinion impossible to establish a direct causal connection between it and the damage alleged to have been suffered by Faust in 1979 and 1980. The proximate cause of that loss was the imposition of a total ban on imports (other than from countries which agreed to limit their exports to the Community) in 1978, not the lifting of import restrictions based on a reference quantity with effect from the beginning of 1977.

As to Regulation No 1102/78, Faust first challenges the factual basis for imposing the import ban. The preamble states that the ban was justified because (i) the import licences issued and applied for up to 23 May 1978 concerned a total of 40914 tonnes, whereas in the whole of 1977 only 32900 tonnes had been imported; (ii) the offer prices for a large quantity of the imports were 20 to 30% less than the cost price of the Community producers; (iii) figures showed that the level of preserved mushroom stocks in the Community was 40 to 50% higher than in 1977.

It is not disputed that the information available to the Commission at the time Regulation No 1102/78 was adopted showed that import licences for 40914 tonnes had been applied for. This was greatly in excess of the total imported in each of the two preceding years and, according to the import figures supplied to the Court by Faust, the level of imports in 1978 was the highest since 1959, when the record begins. Faust says that the figures derived from the applications for import licences are misleading and tend to exaggerate the true level of imports. It is not certain that they were serious applications or that they were intended to refer to Taiwanese mushrooms. Even if this is correct, the Commission had at the time no other firm indication of the likely level of imports. In any event, even if they were not accurate as regards the precise level of imports, the quantities in respect of which import licences had been applied for was clear evidence of increasing import trends which could disrupt the market.

As far as price levels are concerned, Faust relies on the official German statistics which show that, in 1978, average third-country prices were marginally higher than those of Community producers. These, however, were apparently comparing sale prices (including duty) of third-country goods with Community sale prices. The Commission's recital is making a different comparison, i.e. between third-country offer prices (without duty) and French cost prices so that the one does not disprove the other. Moreover, the official German statistics relied on by Faust are annual figures whereas the Commission points out that if comparisons are made on a monthly basis of the German statistics they still show that except in May 1978 the average of third countries' sale prices is lower than that of Community sale prices.

Faust further maintains that the level of stocks was not 40 to 50% higher than in 1977. It cites for this purpose Annex II of the Commission's observations in Case 126/81 Wünsche v Germany 6 May 1982 (as yet unreported). According to Faust, 5200 tonnes were stocked in the Community in May 1977 and 5980 tonnes in May 1978. This is patently not an increase of 40 to 50%. However, it seems that these figures relate to the stocks held in France. Faust has not, therefore, shown that the level of stocks in the Community did not undergo the increase stated in the preamble.

I am not satisfied by Faust's contention that the imposition of the protective measures was unjustified in fact and that Regulation No 1102/78 is unlawful for this reason. It was suggested that the fact that the regulation was adopted just over a month after the signature of the trade agreement with China indicated that the reasons given for the protective measures were merely covering up a change in the Community's trade policy towards third countries following that agreement. I am not satisfied that the reasons given were a mere pretext or that even though the new agreement was a factor taken into account, that this means that the Commission had relied on matters which could not properly be relied on under Article 1 of Regulation No 521/77 for the purpose of deciding whether or not to impose protective measures.

Faust has also argued that, from the point of view of price and quantity, it is doubtful if imports from Taiwan were the cause of the disturbance in the market; the protective measures should not therefore have been applied to them at all, or at least not so strenuously as they were. It is true that the price of Taiwanese imports tended to be higher than that of Chinese imports but the increase in the level of imports from Taiwan in 1978 speaks for itself: by May import licences had been applied for in respect of amounts exceeding the total Taiwanese imports in 1977. Even if the level of imports from Taiwan was not the primary reason for imposing protective measures (the increase in imports from South Korea was proportionately greater), there does not seem to be any basis for the view that the Commission should have imposed protective measures only on imports from the other supplier countries.

Turning from these contentions as to the facts, it is said that, as a matter of law, the scheme adopted in Regulation No 1102/78 is unlawful. This issue can be considered in two parts: (a) the lawfulness of imposing an import ban coupled with exemption from it in the event that agreement on a self-limitation of exports is reached; (b) the lawfulness of the exclusion of Taiwan and South Korea from exemption.

The regulation has to be tested, in the first place, at the time it was made. It has been argued, first, that, under Article 40 (3) of the Treaty, a common organization of the market “may include all measures required to attain the objectives set out in Article 39” and “shall be limited to pursuit of the objectives set out” therein; none of those objectives authorize the Commission to take account of external trade policy considerations or adopt measures which relate exclusively to such a policy when exercising its powers to impose protective measures. Nevertheless, it is said, it was the Commission's intention when it adopted Regulation No 1102/78 to exclude traditional suppliers of preserved mushrooms from the Community and favour trade with China. Hence the Commission was acting outside its powers. The Commission has not denied that it was influenced by the Community's trade policy with third countries. What it says is this: the necessity to take account of commercial policy considerations when adopting protective measures lollows Irom Article 39 (2) (c) ol the Treaty, (namely: “in the Member Slates agriculture constitutes a sector closely linked with the economy as a whole”) and Irom the penultimate recital of the preamble to Regulation No 516/77 (namely: “the common organization of the market in products processed from fruit and vegetables must take appropriate account, at the same time, of the objectives set out in Articles 39 and 110 of the Treaty”); Article 3 of Regulation No 521/77 provides in substance that, when protective measures are adopted, they “shall respect the Community's obligations under international agreements” and Article 3 of the trade agreement with China states that “the two Contracting Parties will make every effort to foster the harmonious expansion of their reciprocal trade ...”. The commercial policy applied to agricultural products cannot therefore be developed independently of the general context of external trade and so the Commission was acting within its powers when it gave favourable terms to China.

The Community's trade policy towards third countries is not one of the objectives referred to in Article 39 but there is nothing in Articles 39 or 40 to suggest that account cannot be taken of the Community's trade policy in selecting the means to achieve the objectives set out in Article 39. In the nature of things, I doubt whether the operation of a common organization of the market can be divorced from the Community's trade policy towards third countries and its international obligations. The Court accepted, tacitly at least, that it was lawful to have regard to the Community's international obligations when implementing protective measures in Case 40/72 Schroeder v Germany [1973] ECR 125. This conclusion seems to be implicit in Joined Cases 21 to 24/72 International Fruit Company v Produktscbap voor Groenten en Fruit [1972] ECR 1219 and Case 112/80 Dürbeck v HZA Frankfurtam -Main [1981] ECR 1095. The Schroeder case concerned the Association Agreement with Greece which, as is clear from Case 181/73 Haegeman v Belgium [1974] ECR 449, is not of course identical with an agreement such as the trade agreement with China but the differences between them do not appear to be significant for this purpose. What would be the position in the absence of a relevant international agreement it is not necessary to consider in this case. Economic circumstances were such as to justify recourse to protective measures, and, in adopting Regulation No 1102/78, it seems to me that the Commission was entitled to take account of the Community's trade policy when deciding what protective measures to adopt. In doing so it was acting within its powers.

It is then said that the system adopted in Regulation No 1102/78 violated the principle of proportionality because it favoured those countries which were prepared to limit their exports to the Community. Article 14 (2) of Regulation No 516/77 and Article 2 (2) of Regulation No 521/77 only permit to be done what is strictly necessary and only for so long as it is necessary. If then, 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 and imposing on each of them a burden that was no more than was necessary in order to avoid a serious disturbance of the market. Instead, by excluding imports altogether from Taiwan, the Commission imposed an excessive and unnecessary burden on those trading with that country.

In the Dürbeck 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 would, 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. The excessive burden imposed in 1979 and 1980 on those who used to import from Taiwan arose not from the system adopted in Regulation No 1102/78 but from the failure of that country to reach a self-limitation agreement with the Commission.

The real complaint made by Faust is, in consequence, not that Regulation No 1102/78 ipso facto infringed the principle of proportionality but that the way the Commission administered it did. This does not, however, go to the intrinsic validity of the system adopted in the regulation.

Next it is argued that the regulation breached 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 Case 55/75 Balkan-Import-Export v HZA Berlin-Packhof [1976] ECR 19 at paragraph 14 of the judgment) negates the existence of any such legitimate expectation. In any event action following the large increase of imports from outside the Community could hardly be said to be reasonably unforeseeable by the prudent businessman.

Lastly, Faust claims that Regulation No 1102/78 is unlawful because it discriminated against Taiwan. No principle of international law has been cited which supports this argument. So far as Community law is concerned, in the Balkan-Import-Export case, the Court held 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”. Faust has sought 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 between China and Taiwan is felt by importers and other operators based in the Community, some of whom trade with China and some with Taiwan. In consequence the regulation does discriminate between “consumers within the Community”.

That an importer may rely on the second paragraph of Article 40 (3) is clear from, for example, the Dürbeck case. It is less clear that an agent of a third-country supplier, like Faust, can properly be described as a producer or consumer within the Community. In my opinion, however, Faust can rely on the principle of nondiscrimination since, 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”.

Even if it is sufficient, to constitute a breach of Article 40 (3), that the unequal treatment of operators based inside the Community results directly from the unequal treatment of third countries any different treatment could 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 import licences, which is justified on this basis, is not wrongfully discriminatory in itself, because the respective positions of countries which have accepted a limitation on the level of their exports to the Community, and those which have not, are dissimilar. It is objectively justifiable to impose restrictions on imports from the latter, but not the former, because only imports from countries that have refused to limit their exports continue to constitute a threat to the market.

In these circumstances, 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, shows that their respective positions are not in truth either the same or comparable; in addition it can in any event, 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 Faust complains can rightly be described as discrimination between consumers within the Community which is prohibited by the Treaty.

For these reasons, the scheme adopted in Regulation No 1102/78 cannot be considered to be unlawful or invalid.

I turn now to the lawfulness of the exclusion of Taiwan from exemption from Article 1 of the regulation. Faust maintains that the Commission did not want to reach an agreement on a reasonable limitation of Taiwan's exports to the Community and that this shows the Commission's prejudice against Taiwan. The Commission, on the other hand, says that negotiations only took place with T. M. at the beginning of June 1978, resulting in an agreement that no further goods would be exported to the Community. By this time, of course, Regulation No 1102/78 had already been adopted but the Commission lifted the protective measures, in so far as they applied to Taiwan, in Regulation No 1213/78.

The only evidence available to the Court is contained in a series of telexes, apparently passing between T. M. and its representative in Europe, which have been disclosed by Faust. They confirm that the Commission was seeking a limitation on Taiwanese exports to the Community in April. On 17 April a telex was sent to T. M. from its agent saying that the Commission had discovered that the quantity of Taiwanese preserved mushrooms for which import licences had been requested up to 7 April was as high as 6796 tonnes and that it was considering adopting protective measures. For the purpose of making such a decision, it wished to know T. M. 's sales plan for 1978. In a telex of 21 April T. M. was told that, by 18 April, the amount applied for had risen to 10170 tonnes and the Commission wanted it to reduce its exports. T. M. replied on 25 April saying that it wanted to know what suggestions the Commission had to make. On 17 May T. M. 's representative telexed to say that the imposition of protective measures was imminent because Taiwanese exports had reached 11200 tonnes and that the Commission had suggested that T. M. import nothing at all from August to November. He ended by requesting instructions so that there could be negotiations with the Commission.

On 19 May T. M. telexed to ask its representative to tell the Commission that it had originally intended to sell 200000 boxes from August to November but that this was dependent on the state of the market. On 21 May its representative replied, saying that the Commission wanted a guarantee that there would be no further exports as from August, otherwise protective measures would be adopted. The telex ends “Please reply urgent”. On 23 May T. M. telexed saying, inter alia,

in order to show our good cooperation to EC (the Commission) we assure there will be no active selling to W.G. (West Germany) at present time and we promise will consult with EC if we will take any new step. In that telex it accepted that it had sold 11711 tonnes to the Community.

Counsel for Faust submitted that T. M. gave the guarantee sought by the Commission in this telex. Since it had been sent to T. M. 's representative and not directly to the Commission, there was no evidence that the latter was aware that the guarantee had been given before the adoption of the regulation and I was prepared, on the basis of what was said, to assume that the Commission was not in fact aware of the telex. That being so, the failure to exempt Taiwan from the suspension of the issue of import licences was not, in my view, unlawful because the information available to the Court did not reveal that the Commission was guided by an improper motive, such as an intention to cut off trade with Taiwan altogether, as opposed to avoiding a serious disturbance of the market; nor was there any conclusive evidence that, in the negotiations that took place in 1978, the Commission was discriminating against Taiwan or seeking to impose a disproportionate burden on importers from Taiwan. For example, Counsel for Faust said at the hearing that it was agreed that T. M. could export 12600 tonnes to the Community in 1978, an increase of 21.7% over the amount exported in 1977. According to Counsel for the Commission the agreement made with China limited its exports to 18000 tonnes, an increase of just under 19% over the quantity exported to the Community in 1977.

At the hearing in Case 245/81 Edeka Zentrale v Federal Republic of Germany, Counsel for the Commission, however, accepted that the Commission had known of the 23 May telex before it adopted Regulation No 1102/78. The Commission's case was that the telex came too late and that, had the Commission refrained from imposing protective measures, it would have had to allow into the Community all the17528 tonnes of Taiwanese preserved mushrooms for which import licences had been applied up to 25 May. “Too late” apparently meant not so much that it was administratively impossible to include Taiwan alongside China in Article 3 of the regulation as that the Commission had withdrawn the offer supposedly accepted by the Taiwanese producers in the 23 May telex because of the high level of applications for import licences. I would accept that the failure to include Taiwan in Article 3 has been justified on either basis. However, even if the initial exclusion of Taiwan from Article 3 of Regulation No 1102/78 could be said to be unlawful, the illegality lasted only for a week and a half since the position was remedied when Regulation No 1213/78 was adopted on 5 June 1978 and there could be no causal connection between it and the damage allegedly suffered by Faust in 1979 and 1980.

Regulation No 1449/78

Faust contends that Regulation No 1449/78, which reimposed the suspension of the issue of import licences three weeks after the adoption of Regulation No 1213/78, is unlawful because:

(i)it infringed the prohibition against discrimination;

(ii)it gave no reasons why it repealed Regulation No 1213/78;

(iii)it was not based on a thorough appraisal of the situation but was adopted for political reasons.

The preamble to Regulation No 1449/78 states that it was adopted because the large number of applications for import licences “forces the Commission to accept that the conditions for non-application of the protective measures ... are no longer met”. What appears to have happened is that, when protective measures were lifted, importers applied for import licences. Taiwan could not stop them from applying and, in any event, there appear to have been supplies of Taiwanese preserved mushrooms on the world market whose import into the Community Taiwan could not prevent. There is, in fact, no clear evidence that T. M. was in breach of its undertaking to the Commission (although the latter seems to have thought it was at the time). But, in the face of the applications for import licences that had been made, the Commission cannot be said to have had no justification for reimposing protective measures in order to prevent further imports whilst matters were further investigated, whatever the Commission thought was the cause of the upsurge. I cannot see any real evidence for the suggestion that this particular change was based wholly on political factors. Only Taiwan und China had at this stage given undertakings to the Commission and the threat of renewed imports had arisen only in relation to preserved mushrooms from Taiwan.

The most that can be said is that the situation would probably not have occurred if the import licensing system then in force had incorporated the elements later introduced in 1980. For example, in Regulation No 547/80 the issue of import licences for mushrooms from South Korea and China was made subject to the production of a document, issued by the government of the exporting country or under its authority, authorizing the export of a specified quantity of mushrooms. Had this elementary precaution been adopted, in 1978, the Commission would have been in a position to know for certain whether the self-limitation agreement was being observed or not. As it was, there was no necessary connection between the fact that importers were applying for import licences and the inference apparently drawn by the Commission that the Taiwanese producers had agreed to export more preserved mushrooms.

The absence from the system operated by the Commission in 1978 of a provision which would have enabled that connection to be made with a reasonable and acceptable degree of certainty is, with hindsight, particularly unfortunate, but it is not, in my view, such as to invalidate the whole system.

I am not satisfied that it has been shown that Regulation No 1449/78 was unlawful. Even if it were, there is no direct causal connection between it and the loss allegedly suffered by Faust in 1979 and 1980. It was adopted in the light of T. M. 's guarantee to make no more sales in 1978. The continued application of protective measures in 1979 was due to the failure to reach an agreement on the limitation of Taiwanese exports to the Community in that year. The loss incurred in 1980 was similarly due to the fact that the negotiations only led to an agreement to export a small amount to the Community in April.

Events after 1978

If it is accepted that there is nothing to show that the system adopted in Regulation No 1102/78 was invalid at the time it was adopted, can it still be argued that the regulation could no longer be lawfully applied (or even that it ceased to have effect automatically by virtue of Article 14 (1) of Regulation No 516/77 and Article 2 (2) of Regulation No 521/77), once the situation of the market in 1979 or 1980 was such that the continued application of protective measures was not necessary in order to preserve it from a serious disturbance? It has not been suggested or established that there was no justification in fact for applying protective measures at all in those two years. Nor do I think anything has been shown to cast doubt on the original intention by reference to what happened in later years. Faust's complaints turn on the Commission's negotiations with, and the treatment of, Taiwan in 1979 and 1980. If no agreement on limiting exports was reached there was, on the face of it, no justification for applying Article 2 of Regulation No 1102/78, so as to exempt Taiwan, unless it could be said that the Commission's demands were, in respect of Taiwan as opposed to other countries, a wholly unreasonable application of the scheme.

For most of 1979 China was the only supplier exempted from the import ban. Counsel for the Commission said that this was because only China was prepared to limit its exports, to 20000 tonnes. At the end of the year, however, South Korea agreed to export 1500 tonnes and it was in consequence exempted from the import ban to that extent. The 1500 tonnes appear to have consisted of one or more consignments which had originally been exported to the United States of America but were refused entry for health reasons and had since been stored in Bremen.

The import statistics for 1979 do not indicate that they were imported into'the Community, at least in that year. It seems that the Commission was prepared to accept no more than 1000 tonnes from Taiwan, this being the amount it thought appropriate given the condition of the market. The Taiwanese producers declined to accept this and no agreement was reached that year. Even so, for one reason or another, the Commission allowed China to import almost 10000 tonnes more than the agreed quantity.

The story in 1980 is very much the same. Taiwan was once again offered 1000 tonnes and eventually accepted it. Counsel for Faust said that acceptance was not entirely voluntary and, at the hearing, Counsel for the Commission did not dissent.

In the Edeka case the Court was told that an agreement was reached with China on 23 January 1979 for a limitation of its exports to the Community to 20000 tonnes. This took account of the 1978 trade agreement and the balance of trade between the Community and China. Both parties, however, agreed that the quantity could be raised or lowered should the market allow or require it. Negotiations took place with South Korea on 11 April. South Korea initially proposed to limit itself to 6500 tonnes, but the Commission was only prepared to accept an annual limit of 4000 tonnes in the event that the market situation returned to normal. No agreement was therefore reached at this time. In July further negotiations took place with China resulting in an increase in the amount agreed by 2500 tonnes. This was due to the fact that the Commission estimated that the market could absorb a further 4000 tonnes without there being any further disturbance. It is unclear whether, but possible that, this amount was that initially offered to, and turned down by, South Korea. In August the Commission allowed the import of a further 6500 tonnes from China. This consisted of preserved mushrooms which were in the course of shipment to the Community. At the end of September, agreement was reached with South Korea on a limitation of its exports to 1500 tonnes, apparently the amount remaining after the July agreement with China. South Korea does not seem to have taken this up and at the end of the year the Commission began negotiating with Taiwan for a limitation of its exports to 1000 tonnes. The Taiwanese producers had apparently suggested exporting to the Community 11000 tonnes, but it seems they were prepared to negotiate on the figure. Nevertheless, according to the information before the Court, the Commission made no offer before the end of the year on the ground that, because of the flood of imports in the previous year, the amount agreed with China and the amounts actually delivered by it, the market situation did not warrant further imports.

According to the figures submitted to the Court, in 1979 China in fact exported some 29604.9 tonnes to the Community, South Korea 37.3 and Taiwan 55.3 tonnes.

For the year 1980 the Commission seems to have decided to limit imports to 32000 tonnes. On 4 February it agreed with South Korea a limitation of its exports to 5000 tonnes and this was followed on 22 February with a similar agreement with China for 23000 tonnes. The Commission had decided to reserve for other third-country suppliers (apart from China, South Korea and Taiwan) some 3000 tonnes and, as a result, it offered only 1000 to Taiwan. This offer was accepted on 24 April and protective measures were lifted. In 1980 China exported 27957.4 tonnes to the Community, South Korea 4408.6 and Taiwan 1286.7 tonnes.

The only explanation for these two years which has been given by the Commission is that, as a result of the reorientation in the Community's trade policy, expressed in the 1978 trade agreement with China, the Commission took the view that it was bound to favour trade with China and hence offer it the largest part of the total quantity of preserved mushrooms which it felt could be imported into the Community. The result was that there was not much left for anyone else. This is only a partial picture since the Commission was also generous to South Korea but restrictive towards Taiwan. The amount it offered as the basis of agreement in 1979 (which was not accepted by South Korea) was some 35% higher than the amount exported by South Korea to the Community in 1977, and that year showed the highest level of South Korean exports since 1974, apart from the peak year of 1978. In contrast the offers made to Taiwan in 1979 and 1980 represented a cutback in its exports of over 90% (the only year, since the early 1960s, in which Taiwan had exported less than 10000 tonnes to the Community was 1976).

Turning to the justification for its policy advanced by the Commission, it was, in my view, right for the Commission to take into account the Community's international obligations when considering its negotiating policy, just as it was right to do so, as I have indicated above, when adopting the protective measures.

Although Articles 1, 3 and 5 of the trade agreement with China do not necessarily require the degree of preferential treatment accorded to China, such fact does not of itself mean that the Commission had exceeded its discretion under Article 3 of Regulation No 521/77.

The figures set out, which show how dramatically Taiwan's share of the market fell, do, however, raise doubts as to whether Taiwan was fairly and reasonably treated by the Commission, even assuming that China was to be given the largest share. It is not enough merely to say that no self-limitation agreement was reached. The justification for Taiwan not accepting such an agreement may depend in part on the figures, and in particular the percentage of the total market offered when seen against the percentage previously enjoyed by Taiwan. I have still not found convincing the explanation given by the Commission as to the percentage accorded to Taiwan in 1980 in relation not so much to China as to South Korea. The restriction on Taiwan is not, however, in my view, so much a breach of the principle of proportionality stricto sensu, i.e. a failure to ensure that the burden imposed on operators is no greater than that required to achieve the aim sought, because the total limit sought to be imposed was not unreasonable, but it is rather the result of discrimination practised by the Commission against Taiwan in achieving the limit. For the reasons already given, I do not think that discrimination between third countries constitutes an unlawful act upon which Faust may rely.

In the ordinary way, the respective positions of importers who have dealings with third countries which accept a limitation on their exports, and those who do not, are not the same or comparable. Any different treatment is objectively justifiable by reason of the threat to the market from third countries which have not agreed to limit their exports. Even where the failure to agree a limitation of exports is the result of arbitrary discrimination on the part of the Commission, it still does not constitute unlawful discrimination as between importers because the Commission is under no legal duty to accord equal treatment to third countries. There are, of course, many cases where the Court has held that the rules regarding equality of treatment also apply to covert or indirect discrimination. These have in general concerned acts whose effects are felt solely within the Community. The result of transposing these cases to the different situation of the Community's trade relations with third countries would be to bind the Community to give equal treatment to third countries as a general rule, because the effects of any different treatment would, in the nature of things, be felt by some class of persons within the Community, whether importers, other operators or consumers, and could always be said, on this hypothesis, to constitute covert or indirect discrimination between them. None of the authorities cited supports the view that the mere effect on operators of treatment meted out to third countries which is different but not unlawful itself constitutes, without more, unlawful discrimination.

There is no doubt that Faust has suffered a commercial loss and that, if a direct link were established between it and the Commission's acts, if found to be wrongful, the Community would be liable in damages. I am not, however, satisfied that the figures put forward by Faust give the correct amount of the loss. The share of the market which it is claimed Faust would have had ignores the fact that some protective measures would have been necessary and would have been imposed. If, therefore, the conclusion is reached that Faust is entitled to damages, then an enquiry would be necessary into the likely amount of the loss.

For the reasons I have given, I am, however, of the opinion that this action should be dismissed and that Faust should bear the costs.