delivered on 22 October 1985 (*1)

Mr President,

Members of the Court,

The tribunale di Roma has referred two questions to the Court for a preliminary ruling on the validity of Articles 24 and 28 of Regulation No 1785/81 (Official Journal 1981, L 177, p. 4) regarding the quota system for sugar. Before examining those questions I consider it useful to set out the summary of the relevant facts and the written observations submitted to the Court contained in the Report for the Hearing.

I — Summary of the relevant facts

The common organization of the markets in sugar was brought into being by Council Regulation No 1009/67 of 18 December 1967 (Official Journal, English Special Edition 1967, p. 304). The system introduced by that regulation initially applied until July 1975 and provided for the allocation to each undertaking of a ‘basic quota’ and a ‘maximum quota’ for each marketing year. Any quantity of sugar exceeding the maximum quota could not be sold in the Community. Provision was also made for a Community system of financing the costs of disposing of surpluses, which were borne within certain limits by producers as a whole by means of a production levy whilst the remaining costs were borne by the Community budget. That system was extended, subject to certain modifications, by Council Regulation No 3330/74 of 19 December 1974 (Official Journal L 359, p. 1) to the 1979/80 marketing year and by Council Regulation No 1592/80 of 24 June 1980 (Official Journal L 160, p. 12) to the 1980/81 marketing year. As regards Regulation No 3330/74, it must be pointed out that it increased the basic quotas for all the Member States except for Italy, that increase corresponding to the quantity of preferential sugar imports from ACP countries under the Community's international commitments.

As from 1 July 1981 that regime was replaced by Council Regulation No 1785/81 on the common organization of the markets in the sugar sector (Official Journal 1981, L 177, p. 4). That regulation, which is at issue in this case, is based on the consideration that:

‘the reasons which have hitherto led the Community to retain a production quota system for sugar and isoglucose remain valid ... however, changes should be made in that system to take account of recent developments in production and to provide the Community with the instruments necessary to ensure, in a fair yet efficient way, that the producers themselves meet in full the cost of disposing of the surpluses of Community production over consumption ...’.

Whilst maintaining the general criteria applied under the previous regime, Regulation No 1785/81 amended them in many respects. For example, it introduced new terminology: the ‘basic quota’ has become the ‘A quota’, the difference between the basic quota and the maximum quota the ‘B quota’ and the production exceeding the sum of the A and B quotas ‘C sugar’. The new régime therefore distinguishes between three types of quota:

(i)the A quota, which may be freely marketed on the common market and the disposal of which is guaranteed by the intervention price;

(ii)the B quota, which is the quantity produced in excess of the basic quota without exceeding the ‘maximum quota’ obtained by applying a coefficient to the A quota; B quota sugar may also be freely marketed on the common market or exported with export aid; that aid, which is paid in the form of export refunds, is the difference between the intervention price and the price of sugar on the world market;

(iii)the C quota, which is the quantity produced in excess of the ‘maximum quota’ (the A quota plus the B quota); it may be marketed only in nonmember countries and no export aid may be granted.

The regime established by Regulation No 1785/81 also contained two innovations regarding the financing of the costs of exporting sugar:

Regulation No 1785/81 introduced the principle of 100% producer responsiblity — they must bear all of the costs of disposing on export markets of sugar on which refunds are granted;

For the first time since the establishment of the common organization of the market in sugar, not only sugar produced under the B quota (which was already subject to the production levy under the previous regime) but also sugar produced under the A quota became subject to a production levy.

Under Articles 24 and 28 of Regulation No 1785/81, which are at issue in this case, the system of quotas and levies is as follows:

The reference quantities (‘basic quantities’) for determining the basic quotas (the ‘A quotas’) remain the same as under the previous system, except that the basic quantity for Italy increases from 1230000 tonnes to 1320000 tonnes (Article 24 of Regulation No 1785/81);

The quotas exceeding the basic quotas but remaining within the limit of the maximum quota (the ‘B quotas’) are established on the basis of actual production but may not be less than 10% of the basic quotas. To take account of regional trends in the production of sugar beet and sugar cane, the B quotas are fixed at an amount equal to the average of the three highest annual production figures recorded in the last five marketing years (Article 24);

The costs of disposing of the surpluses resulting from the ratio between the Community's production and its consumption are financed in full by the producers themselves, the whole of production under the A and B quotas being subject to a levy to be paid in accordance with the following system (Article 28 of Regulation No 1785/81):

The total losses arising in the Community from the disposal of the surpluses in question are first of all spread over the entire production under the A and B quotas with a production levy which may not be higher than 2% of the intervention price for white sugar;

The proportion of those losses which is not covered by the yield from that levy is financed by a supplementary production levy on B quota production, which in principle may not be higher than 30% of the same intervention price. However, if this last financing method is still insufficient, the maximum may be raised to 37.5% (so that the maximum total charge on B quota production may be 2% plus 37.5% or 39.5%).

The plaintiffs in the main action, Eridania Zuccherifici Nazionali SpA, 15 other Iulian sugar-producing companies, the Consorzio Nazionale Bieticultori and the Associazione Nazionale Bieticultori sued the Cassa Conguaglio Zucchero, the Ministry of Finance and the Treasury on the ground that in 1982 they had received demands for payment of the sugar production levies provided for in Articles 24 and 28 of Regulation No 1785/81. They requested the national court to refer the case to the Court of Justice in order to have Regulation No 1785/81 declared unlawful and then to declare that the levies demanded from them were not due; they also requested that the defendant authorities be ordered to reimburse with interest the levies already paid.

Considering that the dispute raised the question of the validity of Articles 24 and 28 of Regulation No 1785/81 the tribunale di Roma stayed the proceedings and referred the following questions to the Court for a preliminary ruling under Article 177 of the EEC Treaty:

(a)Inasmuch as it requires Italian producers to pay a levy for the sale of sugar at a guaranteed price calculated on the basis of the production quotas fixed in Article 24, is Article 28 of Council Regulation (EEC) No 1785/81 unlawful as being contrary to the prohibition of discrimination laid down in Articles 7 and 40 (3) of the EEC Treaty and contrary to the principle of proportionality having regard to the aim laid down in Article 39 (1) (b) of that Treaty?

(b)In determining the Italian A production quotas and the ratio between the A quota and the B quota, is Article 24 of Regulation No 1785/81 unlawful because the reasons on which it is based are not stated, as required by Article 190 of the Treaty?

In the grounds for its order for reference the national court states in substance as follows:

Italy is the Member State with the lowest ratio between internal consumption and the A quota (85% as against a Community average of 101%, Belgium having the maximum ratio of 194%). As a result, Italy may export only B sugar (with a levy equal to 39.5% of the intervention price) whilst the other Member States may export A sugar (with a lower levy of 2%). This constitutes a breach of Article 7 of the EEC Treaty.

There is also discrimination between producers within the meaning of the second subparagraph of Article 40 (3) of the Treaty. First, the ratio between the levies on B sugar and the B quota in Italy is the highest in the Community (138 Lit/kg, as against a Community average of 113 Lit/kg). Secondly, the fixed production costs for A sugar in Italy are the highest in the Community since the average production per undertaking is the lowest (293333 quintals as against a Community average of 466471 quintals).

Furthermore, the levies which Italian producers have to pay on the B quota are disproportionate to the aim laid down in Article 39 (1) (b) of the EEC Treaty, namely of ensuring a fair standard of living for the agricultural Community.

It is also stated in the order for reference that the statement of reasons in Regulation No 1785/81 is insufficient since, as far as the production quotas are concerned, it merely states that the reasons which led to their adoption remain valid. It should have explained why the changes which had occurred in the meantime in the market situation were insignificant.

II — Written observations

The first question

The plaintiffs in the main action and the Italian Government submit that the first question should be answered in the affirmative whereas the Council and the Commission consider that examination of that question does not disclose any factor of such a kind as to affect the validity of Article 28 of Regulation No 1785/81.

The plaintiffs in the main action observe that in introducing in Regulation No 1785/81 the principle that producers bear full financial responsibility the Community legislature failed to take into account the following facts:

(i) Italy's A quota was not increased from 1968 to 1981 whereas an increase was granted to all the other Member States by Council Regulation No 3330/74. A comparison of the A quotas allocated under Regulation No 1009/67 with those allocated under Regulation No 3330/74 shows that all the Member States except Italy were granted an increase, ranging from the minimum of 13.1% for Denmark and 13.7% for Germany to 24.8% for France and 25.5% for the Netherlands, the Community average being 16.8%.

Regulation No 1785/81 did not remedy this difference in treatment since the percentage increase in the quota allocated to Italy (90000 tonnes, or 7.3%) is distinctly lower than the increase in quota of the other Member States and the Community average (which, following the increase in the Italian quota, went from 16.8% to 18%).

(ii) During the last few years Italy has shown that it is capable of producing a quantity of sugar at least equal to its quota increased by the average increase in the Community. It appears from a ‘Communication of the Member States (sugar sector)’ published in January 1984 by the Commission that in the 1981/82 marketing year Italy produced 2048000 tonnes of white sugar as against 1185000 tonnes in 1968/69 and 1339000 tonnes in 1975/76.

(iii) The increase in Italy's consumption (5.9%) is more than that of the other Member States and the Community average.

(iv) Together with Germany, Italy is the Member State in which the ratio between the A quota and internal consumption is the lowest (76% as against a Community average of 98% in 1980/81; 87% as against a Community average of 113% — including ACP sugar — in 1981/82).

(v) Italy has never created costs for the disposal of surpluses, either for the European Agricultural Guidance and Guarantee Fund or for the other Community producers. Since the costs must be borne by undertakings in the Member States which produce less than they consume and whose A quota is less than domestic demand, the situation is that an Italian producer who has never helped to create surpluses finances the disposal at a guaranteed price of the production of his Community partners who have to pay only a 2% levy on a larger portion of their production.

Only the determination of the A quota on the basis of the consumption in the various Member States would therefore have been in accordance with the principle that the producers bear the entire costs. Moreover, that principle does not justify the maintenance of the A quotas of the Member States at a higher level to compensate for the imports of preferential sugar from ACP countries.

The arguments set out above show that the system laid down in the combined provisions of Articles 28 and 24 of Regulation No 1785/81 is in breach of the prohibition of discrimination on the grounds of nationality (Article 7 of the EEC Treaty) and of discrimination between producers in the Community (second subparagraph of Article 40 (3) of the EEC Treaty) in so far as on their B quota — which does not create any export costs — the Italian producers bear the costs arising from the exports of the producers in the other Member States whose A quotas are higher than their internal consumption.

Discrimination also arises from the fact that the fixed costs which Italian producers must bear are considerably higher as a result of the fact that the average A quota to which Italian undertakings are entitled is only 29233 tonnes per undertaking, whereas the Community average is 51873 tonnes.

The combined provisions of Article 28 and 24 of Regulation No 1785/81 also constitute a breach of the principle of proportionality. That principle seeks to adapt the sacrifices demanded of the persons concerned to the attainment of the aims of the common agricultural policy. However, the levy on the Italian producers' B quota imposes a sacrifice which is disproportionate to the results achieved.

Finally, since 60% of the levy falls upon the Italian producers of sugar beet, it leads to a reduction in income, contrary to the aim of the Treaty ‘... to ensure a fair standard of living for the agricultural community, in particular by increasing ... individual earnings...’ (Article 39 (1) (b) of the EEC Treaty).

Consequently, the plaintiffs in the main action suggest that the first question should be answered as follows:

‘Article 28 of Council Regulation No 1785/81 is unlawful in so far as it requires Italian producers to pay a levy for the sale of sugar at a guaranteed price, calculated on the basis of the production quotas fixed in Article 24; moreover, with regard to some of those producers it constitutes discrimination prohibited by Article 7 and the second subparagraph of Article 40 (3) of the EEC Treaty as well as a breach of the principle of the proportionality of sacrifices.’

The Italian Government submits that the common organization of the markets in a sugar sector is based on a production quota system whose essential aim is to ensure a balance between the principle of specialization and the need to grant aid to poorer areas with high costs and low production.

That balance, achieved by Regulation No 1009/67, was later jeopardized by Regulation No 3330/74 which, in order to compensate for the adverse effects of imports of preferential sugar (from ACP countries, India and the overseas countries and territories), gave a considerable increase in the production quota only to the main sugar-producing countries, whilst the costs arising from the export of the surpluses had to be borne by all the producers as before.

Furthermore, Regulation No 1785/81 made producers fully responsible for all the costs arising from the export of the surpluses by abolishing the upper limit on the levy and the guarantee provided by the European Agricultural Guidance and Guarantee Fund. It also abandoned the full guarantee of the intervention price for A sugar by providing that the levy also applies to such sugar.

There is an unjustified difference in treatment because the levy applies to the A and B quotas alike whereas those quotas involve totally different costs; the production of B sugar is in fact treated as not involving general expenses, which are covered by the guaranteed intervention price for A sugar.

The new system has also altered the significance and function of the production quotas. They were meant to form the recognition of the technical capacity of the individual processing undertakings. However, they now only act as the parameter for financial participation in the costs arising from exports of Community surpluses. Undertakings which produce the surpluses therefore enjoy the advantages afforded in the area of production costs by greater production whereas the effects of the surplus production must be borne by all producers alike (irrespective of whether or not they produce surpluses).

Moreover, this development tends gradually to disturb the production balance in the Community because the producer of surpluses who only partially suffers the effects of his own surpluses will tend to increase his production and thereby acquire the right to an increase in his quota. On the other hand, a producer who operates at high costs (and in general does not produce surpluses — is obliged to contribute considerably towards the costs of exporting quantities for which he is not responsible and from which he obtains no benefit. This jeopardizes his maintaining his customary level of reference production.

The Italian Government therefore concludes that the division of the export costs between the various Community undertakings is discriminatory in so far as consumption in the Community is the actual parameter for financial participation of producers as a whole, whereas the total amount of the costs is divided between the various undertakings on the basis of the various production quotas and not on the basis of the consumption in the countries to which the undertakings belong. Consequently, it suggests that the first question should be answered in the affirmative.

According to the Council, Article 28 of Regulation No 1785/81 is neither discriminatory nor disproportionate to the objectives set out in Article 39 (1) (b).

(a) On the question of discrimination on the grounds of nationality, the Council makes the following points:

(i) Italy is the only Member State whose basic quantities were from the outset (Regulation No 1009/67) fixed at a higher level in relative terms than the basic quantities of the other Member States. This remained the case during the second phase of the quota system (Regulation No 3330/74), despite the fact that Italy's reference production (average production during the years 1968 to 1972) was lower than its original basic quantity. As regards the third phase of the quota system (Regulation No 1785/81), Italy was the only Member State given a greater A quota than the existing basic quantities.

(ii) As a result of the increase in the overall basic quantity allocated to Italy the individual A quotas of Italian sugar undertakings are higher than in the period 1 July 1980 to 30 June 1981, whereas the individual A quotas of the sugar undertakings of the other Member States have remained the same as the A quotas allocated to them in that period (Article 24 (3) of Regulation No 1785/81).

(iii) By paying a levy, Italian sugar producers contribute towards the financing of the costs of disposing of the surpluses arising in the Community as a whole as a result of the relationship between production and consumption. It should also be pointed out that the production levy is calculated by reference to the intervention price and not by reference to the (higher) derived intervention price applicable in Italy (a deficit area within the meaning of Article 3 of Regulation No 1785/81). For that reason the Italian sugar producers are in fact subject to a lower levy than the other producers in the Community.

(b) As regards the question of discrimination between producers, the Council observes first of all that the B quota in the Community is fixed on the basis of an objective criterion. Under Article 24 (4) of Regulation No 1785/81 the B quota of each undertaking is in fact equal to the average of the three highest annual production figures recorded in the last five marketing years. This method of determining the quota, applicable as such in all the Member States, was chosen in the light of the regulation's main aim of acquiring a degree of control over sugar production whilst at the same time enabling production to be reorientated in accordance with the specialization principle. Consequently, any difference in the burden falling upon Italian producers of B sugar compared with other producers in the Community is merely the result of a different production level in previous seasons.

In any event, there is no discrimination prohibited by Article 40 of the EEC Treaty since the alleged difference in treatment is based on objective differences arising from the underlying economic situation. In its judgment of 27 September 1979 in Case 230/78 (Eridania zuccherifici nazionali SpA and Others v The Minister of Agriculture and Forestry and Others [1979] ECR 2749, paragraph 18 at p. 2767) the Court has already ruled that ‘... the situation in the beet and sugar sectors in Italy differs appreciably from that in the other Member States. ...in certain respects the Italian undertakings enjoy more favourable arrangements than undertakings in the other Member States, for example with regard to the system of aids ...’.

Finally, the Community legislature took into account right from the outset, in Regulation No 1009/67, the differences in production costs in the Community due to structural difficulties. As regards the structural difficulties in Italy, the following measures were adopted:

(i)

(i)In 1967 Italy was allocated a higher basic quantity in relative terms than the other Member States; that situation was maintained in 1974 and in 1981 Italy was granted an A quota which was higher than the existing basic quantity (90000 tonnes, which was 7.3% more);

(ii)

(ii)By Regulation No 1009/67 Italy was authorized to grant national aid both to sugar beet producers and to sugar producers in addition to the guarantees of the regional prices (Articles 3 and 34 of that regulation);

(iii)

(iii)authorization was maintained in the subsequent regulations (the amount of authorized aid being increased) and a provision was included allowing specific aid to be granted to take account of the interest rate situation in Italy (Article 3 of Regulation No 1592/80; Article 46 of Regulation No 1785/81);

(iv)

(iv)Italy was allowed to alter without limit the quotas of undertakings in so far as this was necessary to fulfil restructuring plans (Article 25 of Regulation No 1785/81 and Regulation No 193/82, Official Journal 1982, L 21, p. 3).

(c)

(c)As regards the question of the breach of the principle of proportionality, the Council observes first of all that the minimum price of both A and B sugar beet is higher in the deficit areas of the Community (of which Italy is one) and also that the producers of sugar beet and sugar in Italy receive national aid authorized under Article 46 of Regulation No 1785/81.

The Council also makes the point that the production quota system, which was introduced as an essential element of the common organization of the markets, is a measure of general interest; in that regard to which the Court has ruled that ‘... the Council cannot be expected to have regard to the reasons, commercial choices and internal policy of each individual undertaking (Judgment of 29 October 1980 in Case 138/79 Roquette Frères v Council [1980] ECR 3333, paragraph 30 at p. 3260). The Council is of the opinion that, since the adoption of such measures involves choices of economic policy in a complex economic situation, it enjoys a wide discretion by virtue of the case-law of the Court.

4.Like the Council the Commission submits that Article 28 of Regulation No 1785/81 is not discriminatory, accords with the principle of proportionality and the aims laid down in Article 39 of the EEC Treaty.

(a)

(a)As regards the question of discrimination on the grounds of nationality (Article 7 of the EEC Treaty) or between Community producers (Article 40 (3) of the EEC Treaty), the Commission examines four aspects: the relationship between internal consumption in Italy and the A quota; the level of internal consumption in Italy and possibilities for exports; the relationship between the Italian B quotas and the levies charged on those quotas; and the level of fixed production costs for the A quota.

(i)

(i)The Commission considers that the relationship between internal consumption and the A quota (which, according to the order for reference, is 85% in Italy as against a Community average of 101%) is irrelevant in this case, since the national quantities were not fixed on the basis of internal consumption but on the basis of actual production during a reference period, in accordance with the principles of solidarity between producers, product specialization and free movement of trade in the Community. Indeed, in order to take account of the lack of competitiveness of Italian sugar beet producers, Italy was authorized to grant aid to producers of both sugar beet and sugar and to amend the quotas allocated to the undertakings without observing the maximum limits laid down in Article 25 of Regulation No 1785/81.

(ii)

(ii)As regards the level of internal consumption in Italy and the alleged impossibility for the Italian producers to export sugar other than B sugar, the Commission states that Italian producers do not export sugar produced under quota to nonmember countries and do not make full use of their B quota. Furthermore there is no relationship between the product's destination (consumption on the common market or export) and the levies which are paid on production. Finally, provision is made for export refunds to be paid in respect of sales on the world market of sugar produced under quota (A and B).

(iii)

(iii)As regards the relationship between the Italian B quotas and the levies charged on those quotas (which, according to the order for reference, are 138 Lit/kg as against a Community average of 113 Lit/kg), the Commission points out that the levy is charged at the same rate on actual production of all Community undertakings.

The Commission makes the further point that, in case the national court is not referring to the rate of levy but to the relationship between the levies paid and the B quota, that relationship is completely irrelevant since the quota is purely an abstract notion which determines the maximum limit of the price and sale guarantee, whereas the levy is charged on actual production. The undertakings in the various Member States thus make use of the B quota to a greater or lesser extent during the various seasons.

(iv)

(iv)The Commission considers that there is no reason to refer fixed production costs (cost of plant) in respect of the A quota whilst leaving the variable costs (wages, social security contributions and taxes) out of account. Moreover, the quotas are allocated to the undertakings and not to establishments. If the total of the A quota is divided by the number of undertakings, it is clear that the Italian average is the highest in the Community (1015385 quintals as against 951600 quintals in the 1982/83 season).

(b)

(b)With regard to the allegation that the principle of proportionality has been breached because the levy on the B quota is disproportionate to the needs which must be met, the Commission states that the financing of the common organization of the markets in the sugar sector is so arranged that only intervention operations are financed by the European Agricultural Guarantee and Guidance Fund, whilst since 1981 costs relating to storage and the export refunds have been borne entirely by the producers. Therefore all sugar producers benefit from the expenditure under the Community budget.

The aim of the scheme is to contain Community production whilst aligning it as closely as possible with consumption on the internal market and to promote specialization. The A quota, which represents internal consumption, attracts only a minimal levy; the B quota, on the other hand, which is mainly intended for export, is subject to a much higher levy with the aim of financing the necessary refunds whilst discouraging production. The levy is therefore charged on production which is normally intended for export and is used to make such exports possible by means of refunds. The producer who does not use his B quota is, therefore, not subject to the levy on such sugar.

(c)

(c)As regards the claim that there is a breach of Article 39 (1) (b) of the EEC Treaty because 60% of the levy on the B quota is paid by sugar beet producers, the Commission points out that the levy which the Italian producers have to pay on their production of B sugar is equal to that applying to producers in other Member States and that, moreover, production of B sugar in Italy is at the moment virtually nil. Furthermore, the levy on production (of A and B sugar) is calculated on the basis of the intervention price and not on the (higher) derived intervention price applicable in Italy. In fact, in percentage figures Italian producers pay a lower levy on their B sugar (28.8% of the intervention price in the 1981/82 season as compared with 30% in the case of sugar beet producers in other Member States).

In this regard the Commission points out that it is precisely because of the quota system that it has been possible to maintain production of sugar beet in Italy, whose usable content is markedly inferior to that of sugar beet produced in other Member States. Consequently, the system as a whole is intended to maintain the standard of living of the agricultural community.

The second question

The plaintiffs in the main action and the Italian Government also suggest that the second question should be answered in the affirmative, whereas the Council and Commission take the view that an examination of this question does not disclose any factor of such a nature as to affect the validity of Article 24 of Regulation No 1785/81.

1.The plaintiffs in the main action and the Italian Government both argue that the provision in question was adopted in contravention of Article 190 of the EEC Treaty in so far as it does not contain any adequate statement of reasons regarding the quotas allocated to Italy.

The Court has consistently ruled that the reasoning of the Community institution which adopted the measure in question should be clearly and unequivocally expressed in its statement of reasons so that the persons concerned may know the grounds for the measure adopted and so that the Court may exercise its powers of review.

Regulation No 1785/81 does not satisfy those requirements. Its preamble merely states that ‘the reasons which have hitherto led the Community to maintain a production quota system ... remain valid’ without mentioning the amount of the quotas or the fact that production and consumption in the various Member States as well as the structure of the levy have changed in the meantime.

2.The Council and the Commission point out that the statement of reasons required by Article 190 of the EEC Treaty depends on the nature of the measure in question and the context in which it is adopted.

The Court has in fact held that ‘the statement of reasons on which regulations are based is not required to specify the often very numerous and complex matters of fact or of law constituting the subject matter of the regulations, provided that those matters fall within the general scheme of the whole of which they form part... If the contested measure clearly discloses the essential objective pursued by the institution, it would be going too far to insist upon a specific statement of reasons for each of the technical choices for which it provides’ (judgment of 28 October 1982 in Joined Cases 292 and 293/81 Société Jean Lion et Cie, Société Loiret Haentjens SA and Others v Fowls d'Intervention et de Régularisation du Marché du Sucre [1982] ECR 3887, paragraph 19 at p. 3909). The Court has also held that the existence of a close link between two regulations may be a sufficient indication of the reasons which led to their adoption.

In the present case it need only be recalled that the quota system has been in existence since 1968 and that a more ample statement of reasons is contained in Regulation No 1009/67 (ninth and 10th recitals) and in Regulation No 3330/74 (11th recital).

III — Assessment of the case

At the hearing the plaintiffs in the main action once more clearly formulated their claims in answer to questions from the Court. Their main complaint is that the A quota takes no account of internal consumption, in this case Italian consumption. They contend that as a result the Italian A quota is too low to cover Italian consumption, to use production capacity in full and to recover all the fixed costs of sugar production. The 2% production levy must be paid on the quantities produced under the A quota in order to cover the costs of the intervention system, whereas the other Community producers and not the Italian producers are responsible for the surpluses which, in so far as they are produced under the B quota, must be disposed of on the world market with the assistance of export refunds. Because the B quota is fixed too low Italian sugar producers are in a different situation from the other Community producers. This argument is illustrated with various figures. As far as concerns the size of the Italian basic quota under Regulation No 1009/67 (Article 23) compared with the Italian A quota under Regulation No 1785/81 (Article 34), it appears that the increase in that quantity was 7.3% as against an average increase in the total quota quantity in the Community of 18%. On the other hand, in the same period sugar consumption in Italy rose by 9.1% compared with a fall of 2.1% in the Community as a whole. The solution, in the plaintiffs view, is to base the A quota on internal consumption or at least take it into account to some extent.

In my opinion, the reasoning set out above does not however cast any doubt upon the legality of determining the A quota on the basis of actual production. To determine that quantity on the basis of consumption in each Member State would be contrary to the idea underlying the common market that in principle production should take place where it is economically most justified. Rising production may indicate a more economic production potential and vice versa. I would point out that the steel quota system is also based on the actual production of steel undertakings. At the hearing the Commission also pointed out that without the quota system Italian sugar production would for the most part probably disappear. As stated above, even the Italian Government has acknowledged that the quota system applied contains an element of aid for poorer areas. I have already mentioned the various elements of that aid (a higher basic quantity at the start of the market organization, a higher intervention price, the granting of national aid to producers and an increase in the A quota in 1981). In balancing the interests of specialization with that of providing aid, the Council must undoubtedly be allowed a wide discretion. Particularly large production surpluses combined with low world market prices may lead the Council to adopt a cautious policy with regard to the fixing of quotas and prices in general and with regard to the effect of the policy of providing aid on those two points in particular.

One point emerging in connection with the Italian Government's intervention in this case is that it appears from documents submitted in a previous case that although it raised objections within the Council to the market organization arrangements it did not attempt to block the decision-making process because of those objections. The way subsequently chosen by the Iulian Government of submitting an appeal to the Court based on an alleged breach of the prohibition of discrimination because it considered Italy's vital interests to be affected seems to me from the legal point of view to be a thoroughly legitimate way in such a case for a Member State to object after the event to a Council decision. In Case 32/65 the Italian Government took the same path when the Council did not meet its objections to Regulation No 19/65 when adopting that regulation.

As far as the fixed costs of sugar production are concerned, the plaintiff in the main action again submitted at the hearing that in the case of production under the A quota those costs are not fully covered whereas higher production — under the B quota — attracts the much higher production levy. They also consider the 2% levy on Italian producers' A quota to be disastrous. The fact that production costs in Italy are higher than the Community average is also acknowledged by the Council in its defence, although there is no agreement on the figures. The aim of the quota system, however, is not primarily to take account of differences in production costs but to make it possible for less economic production, as in Italy, to continue to exist at a certain level. I would, however, query the Commission's opinion expressed at the hearing that the bankruptcy of a number of Italian producers was not due to the 2% levy but to bad management. Even industrial undertakings with high stock market valuations must often make do nowadays with a profit margin of only 2% on their turnover. The levy of 2% may therefore in fact have a fatal effect on their profitability. Even if the plaintiffs are right on this point and the Commission and Council did not sufficiently recognize the consequences of the 2% levy on the A quota for the Italian producers, this is not, in my view, a sufficient reason for regarding the way in which the Council balanced the interests of specialization with that of providing aid to production areas with less favourable production conditions as unlawful. In particular, it is not disputed that other Italian producers have in fact been able to pay the 2% levy without serious consequences for their profitability. Further, the Commission again pointed out at the hearing that, in Regulation No 1785/81, as in the previous regulations, specific measures were adopted to cover this situation in Italy, such as a higher derived intervention price and allowing certain national aid to be granted. Indeed, it was owing to the existence of those provisions that the Court expressed the view in paragraph 10 of its judgment in Case (Eridania v Minister for Agriculture and Forestry [1979] ECR 2749, paragraph 10 at p. 2765) that the Italian sugar producers are not discriminated against compared with other Community producers.

Finally, the plaintiffs argue that, since the A quota covers only 85% of internal consumption in Italy as against an average of 101 % in the other Member States, only Italian sugar produced under the B quota — i.e. sugar attracting a higher levy — may be exported.

In my view, that argument cannot be accepted either. The fact that the A quota does not completely cover internal consumption in Italy does not follow from the fact that this figure, based on actual production during the reference period, was fixed too low but from the fact that the Italian sugar market is a deficit market as a result of unfavourable natural production conditions for sugar beet. It is only the total Community production under the A quota which is intended to cover the total internal consumption of sugar in the Community. The fact that the Italian sugar market is a deficit market is clear from the fact that in the period 1981 to 1984 the B quota was not used in full whereas in the 1984/85 marketing year there was no production at all under the B quota. It is obvious that on a deficit market the scope for export to other Member States or to nonmember countries is smaller or even nonexistent. It must also be considered that the sugar produced under the A quota is not intended exclusively for the internal market. An undertaking which wishes to export because it would be economically more advantageous is at liberty to dispose of its A sugar outside the Community.

The plaintiffs discern a breach of the principle of proportionality in the fact that Italian producers, who are not responsible for the sugar surpluses, are required to pay the production levy to finance those surpluses. As I argued in my Opinion in Case (Sermide, judgment of 13 December 1984 [1984] ECR 4209) that reasoning is fundamentally wrong because it runs counter to the basic principle of the common market. The common market organizations are based on the principle of a single market in which a distinction based on nationality no longer exists. It is that single market which as a whole is characterized by surplus production. The mechanism to eliminate the surpluses functions for the benefit of the market as a whole since this is how the intervention mechanism, which forms the guarantee for all producers (including therefore Italian producers) is supported. When the market organization is based on partial financing of the disposal costs by the undertakings participating on the market, it would in fact lead to discrimination and hence to a distortion of competition if certain undertakings were exempted solely because of their geographical location within the single market. As I added in my Opinion in Sermide, such an argument also fails for practical reasons since under the production quota system it is not possible to identify who is responsible for the surplus production. All undertakings have an A and B quota and if they exceed the A quota they are by definition producing for export irrespective of their geographical location.

The second argument concerns the fact that 60% of the levy on the sugar produced is paid by beet growers. However, that argument fails because it has not been proved that this situation does not also occur in the other Member States so as to make the Italian market exceptional in that respect. On the contrary, as the Commission has shown — and this has not been contested by the plaintiffs — in Italy the production levy is not calculated on the basis of the (higher) derived intervention price but on the basis of the (lower) ordinary intervention price so that the Italian beet growers pay a lower amount in relation to the intervention price. In more general terms, the minimum price is a means by which the beet growers may protect their incomes.

3. The alleged breach of the duty to provide a statement of reasons

Finally, the plaintiffs consider that the statement of the reasons for the maintenance of the production quotas in Regulation No 1785/81 is inadequate in so far as it refers to the original reasons for the introduction of the quota system (11th recital). Those reasons are set out in detail in the preamble to Regulation No 1009/67 (ninth and 10th recitals) and the preamble to Regulation No 3330/74 (11th recital). It does not therefore appear that the Community's action was governed by other reasons. In its judgment in Joined Cases (Société Jean Lion et Cie and Others v Fonds d'Intervention et de Régularisation du Marché du Sucre [1982] ECR 3887), the Court pointed out in that regard that it is sufficient if it is possible to deduce from the statement of reasons the general scheme of the market organization in which the individual details may be placed. The requirement that each detail should be separately explained must be regarded as excessive.

IV — Conclusion

I conclude that no factors of such a nature as to affect the validity of Articles 24 and 28 of Regulation No 1785/81 have been disclosed.

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(*1) Translated from the Dutch.