OPINION OF ADVOCATE GENERAL

delivered on 22 January 2004(1)

Legal framework

6. The additional levy scheme in the milk and milk products sector is currently governed by Council Regulation (EEC) No 3950/92 (hereinafter, ‘the Regulation’).(5) The first recital of the preamble gives the history of the scheme and explains that its purpose is ‘to reduce the imbalance between supply and demand on the milk and milk-products market and the resulting structural surpluses’.

8. Article 5 of the Regulation provides:

‘Within the quantities referred to in Article 3, the Member State may replenish the national reserve following an across-the-board reduction in all the individual reference quantities in order to grant additional or specific quantities to producers determined in accordance with objective criteria agreed with the Commission.’

‘With a view to completing restructuring of milk production at national, regional or collection area level, or to environmental improvement, Member States may take one or more of the following actions in accordance with detailed rules which they shall lay down taking account of the legitimate interests of the parties:

– grant compensation in one or more annual instalments to producers who undertake to abandon definitively all or part of their milk production and place the reference quantities thus released in the national reserve,

– determine, on the basis of objective criteria the conditions under which producers may obtain, in return for payment, at the beginning of a 12-month period, the reallocation by the competent authority or by the body designated by that authority, of reference quantities released definitively at the end of the preceding 12-month period by other producers in return for compensation in one or more annual instalments equal to the abovementioned payment,

10. The Commission has issued a set of Community guidelines for State aid in the agriculture sector (hereinafter, the ‘guidelines’), which it intends to apply when assessing such aid.

11. At point 3.2 of the guidelines, the Commission states its view that:

‘Although Articles 87, 88 and 89 [EC] are fully applicable to the sectors covered by the common organisations of the market, their application nevertheless remains subordinate to the provisions established by the regulations concerned … In other words recourse by a Member State to the provisions of Articles 87, 88 and 89 cannot receive priority over the provisions of the regulation of that sector of the market. It follows that under no circumstances can the Commission approve an aid which is incompatible with the provisions governing a common organisation of the market or which would interfere with the proper functioning of the common organisation.’

12. At point 3.5 of the guidelines, the Commission states that:

‘In order to be considered compatible with the common market, any aid measure must contain some incentive element or require some counterpart on the part of the beneficiary. Unless exceptions are expressly provided for in Community legislation or in these guidelines, unilateral State aid measures which are simply intended to improve the financial situation of producers but which in no way contribute to the development of the sector, and in particular aids which are granted solely on the basis of price, quantity, unit of production or unit of the means of production are considered to constitute operating aids which are incompatible with the common market. Furthermore, by their very nature, such aids are also likely to interfere with the mechanisms of the common organisations of the market.’

13. At point 4.1.1.6 of the guidelines, the Commission states that ‘no aids may be granted for the purchase of production rights except in accordance with the specific provisions of the common organisation of the market concerned, and the principles set out in Articles 87, 88 and 89 of the Treaty’.

The factual background and the contested measure

14. In the 1998/99 milk year, the authorities in the Asturias region of Spain implemented an aid for the purchase of milk quotas (hereinafter, ‘the aid’ or ‘the aid at issue’). The beneficiaries of the aid were those producers of cows’ milk who were classed as priority producers for the purposes of allocating reference quantities from the national reserve. The aid consisted of an interest rate rebate on loans to purchase milk quotas from other producers.

15. The Commission only became aware of the aid during the course of its implementation following a complaint. Spain suspended the aid on 31 December 1998 while the Commission conducted an investigation. On 12 March 2002, the Commission adopted a decision (hereinafter, the ‘contested measure’)(6) holding the aid to be incompatible with the common market.

16. The contested measure found that the aid fell within Article 87(1) EC,(7) that the derogations specified in Article 87(2) were manifestly inapplicable,(8) and that the aid could not benefit from a derogation under Article 87(3) because it was contrary to the rules governing the common organisation of the market in milk and milk products.(9)

18. The reference quantities transferred in connection with the aid were not assigned from the national reserve, as required by Article 5. Nor were they obtained either by an across-the-board reduction of reference quantities or from producers who had not marketed milk or other milk products during a 12-month period.(12)

19. As to Article 8, the reference quantities transferred as a result of the aid had not been obtained by the State in exchange for compensation, under the first subparagraph of that article, nor were they transferred to their recipients by the competent authority or another designated body, as required by the second subparagraph. Moreover, the amount paid by the recipients did not equal the amount paid to the transferors.(13)

21. In the Commission’s view, it was immaterial whether the aid was consistent with the objectives of the relevant Community rules. From the moment the Community lays down a common organisation of the market in a particular sector, it is the Community that is responsible for finding solutions to problems under the common agricultural policy. The Member States must not therefore adopt unilateral measures, even if compatible with the Community’s common policy.(16)

Procedure and claims of the parties

23. Spain seeks the annulment of the contested measure. The Commission asks the Court to reject the action as unfounded. Neither party requested a hearing and none was therefore held.

24. The Spanish Government advances three arguments to show that the Commission was mistaken to conclude in the contested measure that the aid at issue was incompatible with the common market.

25. First, the Community rules governing the common organisation of the market take precedence over those which concern State aid. The compatibility of the aid at issue with the common market therefore depends upon its consistency with the Regulation.

26. Secondly, in assessing the consistency of the aid with the Regulation, it is not necessary to show that it is expressly authorised thereby. It is sufficient to demonstrate that it accords with the objectives underlying the Regulation and that it does not infringe any other rule or principle of Community law. Such is indeed the case.

27. Thirdly, contrary to the position taken in the contested measure, the aid at issue does not carry with it any consequences which run counter to the objectives of the Regulation and which thereby threaten to distort the smooth functioning of the common organisation of the market in milk and milk products.

As to the first argument advanced by Spain, the Commission accepts that the present proceedings turn on whether the aid is permitted under the rules governing the common organisation of the milk market. There is therefore no need to consider the issue in any greater detail, and I propose to devote the remainder of the Opinion to a consideration of the Spanish Government’s remaining two arguments.

Must the Regulation expressly authorise the aid at issue?

29. Spain submits that according to the Court’s case-law, Member States may adopt unilateral measures not expressly provided for in the Community rules governing the common organisation of an agricultural market provided that those measures are consistent with the Community’s objectives and do not otherwise breach a rule or principle of Community law. The Commission was therefore in error to find that the aid at issue was incompatible with the Regulation merely because no express provision was made for it.

30. Thus, in the case of Pigs and Bacon Commission, the Court held that ‘once the Community has … legislated for the establishment of the common organisation of the market in a given sector, Member States are under an obligation to refrain from taking any measure which might undermine or create exceptions to it’. The Court does not go so far as to suggest that Member States must refrain from any unilateral measure.

31. In Italy v Commission, Commission v France and Zoni, the Court appears to lay down a broader prohibition. It states in each of those cases that once the Community has established a common market organisation in a given sector, Member States must refrain from taking any unilateral measure, even if that measure is likely to support the Community’s common policy. In such a circumstance, it is for the Community and not the Member States to seek solutions to problems.

32. However, the Spanish Government explains the outcome of those three cases on a narrower basis. In Italy v Commission, the Court found the national measure to breach Community law because it in fact ran counter to the objectives of the common market organisation. In the other two cases, the national measures under consideration obstructed the free movement of goods and were therefore inconsistent with another rule or principle of Community law.

33. In its reply, the Spanish Government attempts to derive further support for its argument from the Court’s judgment in Mulligan, delivered after Spain’s application was lodged. In that case, the High Court (Ireland) referred questions regarding the compatibility with Community law of a so-called clawback scheme under which, when a dairy holding was sold, 20 per cent of the milk quotas attaching to it would not be transferred with it, but would be added instead to the Irish national reserve. The question of relevance to the present proceedings concerned the scheme’s compatibility with the Regulation. On the Spanish Government’s reading of the judgment, the Court held that the scheme was not expressly authorised under the Regulation, but was none the less compatible with its objectives and could therefore be allowed to stand.

34. Spain contends that the aid at issue in the present case clearly advanced the objectives underlying Articles 5 and 8 of the Regulation. It was intended to restructure milk production, an objective which is explicitly recognised in the 16th recital of the preamble to the Regulation. It did so on the basis of objective criteria. Nor was it inconsistent with any other rule or principle of Community law. There was therefore no basis for impugning it.

35. In Spain’s view, it would make no sense to prohibit a measure such as the aid at issue. Member States are permitted under the Regulation to make gratuitous grants of quotas to producers. They may also supply quotas to producers at an unsubsidised price under the second subparagraph of Article 8. The aid at issue amounted to an intermediate mechanism between those two options. It was adopted by the regional authorities of the Asturias because they could not afford to acquire quotas for gratuitous distribution but realised that unsubsidised transfers would be impossible for priority producers to afford. The solution which they arrived at achieved the Community objective of restructuring without placing an unaffordable burden upon the public purse. It also better accorded with point 3.5 of the guidelines than the options laid down in the Regulation, in that it both included an incentive element for producers and required them to provide some counterpart.

36. I am not persuaded by the Spanish Government’s submissions.

37. As a general proposition, it appears to me that once the Community lays down rules on a given matter as part of a common organisation of an agricultural market, the Member States may not supplement those rules with unilateral measures unless authorised to do so. The prohibition on unilateral action extends even to measures which are intended to further the objectives pursued by the Community legislature.

38. It is true that in consequence, a Member State will in some circumstances be required to adopt a particular solution preferred by the Community despite the existence of another method of achieving the same purposes which it considers to be better suited to its situation.

40. Such an approach is in my view entirely compatible with the Court’s judgment in Mulligan. It is clear to me that the Court considered Article 7(1) of the Regulation explicitly to authorise a clawback scheme such as the one at issue in that case. It then proceeded to confirm that ‘such an interpretation’ did not run counter to the specific objective pursued by the Community legislature. The Spanish Government is therefore wrong to suggest that the Court upheld a national measure not expressly provided for in the Community rules.

41. It is of course the case that Member States will frequently be accorded a considerable degree of discretion by the Community law governing the common organisation of an agricultural market. They may be empowered to act in extremely broad terms. They may be permitted to choose from a number of specific options. They may also be required or empowered to lay down the detailed provisions relating to the application of a given rule. Without some such authorisation, however, they may not adopt measures of their own to supplement the applicable Community rules.

42. In its reply, the Spanish Government points to the fact that under Article 8 of the Regulation, Member States are permitted to take ‘one or more of the following actions in accordance with detailed rules which they shall lay down taking account of the legitimate interests of the parties’. It considers that Article 8 thereby expressly confers upon the Member States a discretion to supplement the options identified by the Article.

43. I do not agree. On the contrary, Article 8 supports the interpretation which I advocate.

44. The reference to ‘one or more of the following actions’ permits Member States to adopt any or all of the measures listed singly or in combination. It does not authorise them to devise new types of action. Similarly, the ‘detailed rules’ which Member States may enact must serve to implement one or more of the measures listed.

45. I therefore consider that the Spanish Government’s second argument must be rejected, and that its action must fail. Aid of the kind at issue is not authorised by the Regulation, and is thus impermissible under the Community rules governing the common organisation of the market in milk and milk products. On that basis alone, the Commission was right to declare the aid at issue incompatible with the common market.

Does the aid at issue undermine the common market organisation in milk and milk products?

46. The Commission also found, in the contested measure, that the aid at issue operated in such a way as to undermine the common organisation of the market in milk and milk products. That finding constitutes an independent basis for the contested measure, with which the Spanish Government would need to deal, even were it to succeed in its previous argument.

47. The contested measure specifically identifies the risk that the aid would force up the price of milk quotas. As the Commission submits, that would undermine a key objective of the Regulation, which is to prevent quotas being used ‘not in order to produce or market milk but in order to derive purely financial benefits by taking advantage of their market value’.

48. In response, the Spanish Government submits that the aid at issue was calculated in order to enable the purchase of quotas by priority producers who would otherwise be unable to afford them. Contrary to what is suggested in the contested measure, the aid would not enable sellers to increase their price by the amount of the subsidy since, if such were the case, the priority producers would no longer be in a position to pay.

49. I am not convinced by that argument.

51. In its reply, the Spanish Government makes two further submissions to demonstrate that the aid at issue could not have increased the price of milk quotas.

52. First, Spain refers to various provisions of Royal Decree 1486/1998 of 10 July concerning the modernisation and improvement of competitiveness in the milk sector. Those provisions impose conditions upon the transfer of milk quotas in Spain, in order to prevent quotas from becoming objects of commerce and from increasing in price. When viewed in the context of those provisions, Spain submits that the aid at issue was incapable of the negative consequences attributed to it by the contested measure.

53. Secondly, Spain asserts that the regional authorities would in fact have granted the aid only in the case of transactions which did not exceed a maximum purchase price, fixed at the level of the indemnity approved by the Spanish State under the second subparagraph of Article 8.

54. The Commission challenges the admissibility of the Spanish Government’s further submissions, on the basis that they are advanced at too late a stage of the procedure. The Spanish Government made no reference to them during the course of the Commission investigation which preceded the contested measure. They now appear for the first time in the reply.

55. In my view, it would not be appropriate to admit the Spanish Government’s submissions relating to Royal Decree 1486/1998 and to the specification of a maximum price as a condition of the aid at issue.

56. It is doubtful whether a Member State can be allowed to challenge a Commission decision relating to a State aid on the basis that the Commission failed to consider an aspect of the aid which the Member State itself failed to disclose.

57. In any event, Article 42(2) of the Court’s Rules of Procedure states that no new plea in law may be introduced in the course of proceedings unless it is based on matters of law or of fact which come to light in the course of the procedure. The Commission’s argument regarding the effect of the contested measure upon the price of quotas is contained in the contested measure itself and was therefore known to Spain in advance of the present proceedings. Article 42(1) of the Rules of Procedure also makes clear that whilst a party may offer further evidence in reply, it must give reasons for its delay in so doing. The Spanish Government provides no such explanation.

58. Moreover, the Spanish Government’s second assertion should in my view be excluded on the basis that it is insufficiently particularised. No attempt is made by the Spanish Government to specify which general rules of the State are purported to limit the aid at issue to transactions not exceeding a maximum price. As a consequence, it is impossible for the Commission properly to respond to the Spanish Government’s claim or for the Court to arrive at its own assessment of it.

59.

The parties make further submissions on the question whether the aid at issue could affect the price of milk and milk products.

However, the contested measure does not explicitly advance such a claim, which cannot in my view be relevant when assessing the measure’s validity.

I therefore consider that the Spanish Government has not succeeded in showing that the Commission was mistaken in concluding that the aid at issue undermined an objective of the common organisation of the market in milk and milk products. Accordingly, the contested measure cannot be regarded as invalid even if, contrary to my conclusions above, aid of the kind in issue were not unlawful on the ground that it was not authorised by the Regulation.

Conclusion

In the light of the foregoing, I am therefore of the opinion that the Court should:

(1)dismiss the action as unfounded;

(2)order Spain to pay the costs.

Original language: English.

Commission Decision 2002/411/EC of 12 March 2002 on the State aid implemented by Spain for producers of cows' milk considered to be priority producers, OJ 2002 L 144, p. 49.

OJ 1992 L 405, p. 1.

Council Regulation (EC) No 1255/1999 of 17 May 1999 on the common organisation of the market in milk and milk products, OJ 1999 L 160, p. 48.

Cited in note 3.

Cited in note 2.

Points 19 to 25.

Point 27.

Points 29 to 48.

Point 38, citing Case 177/78 Pigs and Bacon Commission [1979] ECR 2161.

Point 37.

Point 36.

Point 37.

Cited in point 47.

Points 40 to 41.

Point 45, citing Case C-86/89 Italy v Commission [1990] ECR I-3891.

Points 43 and 46.

Cited in note 10.

Points 29 to 48.

Case 216/84 [1988] ECR 793.

Case 90/86 [1988] ECR 4285.

Italy v Commission, cited in note 20, at paragraph 19 of the judgment; Commission v France, cited in note 21, at paragraph 18; Zoni, cited in note 22, at paragraph 26.

Case C-313/99 [2002] ECR I-5719.

See paragraph 29 of the judgment. Such also was the conclusion of Advocate General Geelhoed, at paragraph 71 of the Opinion.

At paragraph 30 of the judgment.

Mulligan, cited in note 24, at paragraph 30 of the judgment.

Real Decreto 1486/1998 de 10.07.1998 sobre modernización y mejora de la competitividad del sector lácteo (BOE 165 of 11 July 1998, p. 2328).

At paragraphs 36 to 45.