OPINION OF ADVOCATE GENERAL

Mr President,

Members of the Court,

In Cases 55/83 and 56/83 the Republic of Italy challenges part of two Commission decisions which refuse to recognize that certain sums paid by the Italian intervention board (AIMA) were chargeable to the European Agricultural Guidance and Guarantee Fund (EAGGF). The first case is concerned with Commission Decision No 83/37 (Official Journal 1983 L 38 p. 30) dated 14 January 1983 relating to 1976; the second with Commission Decision No 83/48 of the same date but relating to 1977 (Official Journal 1983 L 40 p. 55). In both cases payments relating to table wine are at stake and, since the same issues arise in both cases, it is convenient to deal with them in one opinion. Additionally, however, a question as to payments in respect of meat arises in Case 55/83 and in respect of cereals in Case 56/83.

Wine

Council Regulation No 816/70 of 28 April 1970 (Official Journal 1970 L 99 p. 1) provided that, if estimates of wine production for a given period exceeded the limits specified, private storage aid should be given but that, if this was unlikely to be effective in restoring price levels, measures for the distillation of wine might be adopted. The conditions laid down for such distillation must be such as to ensure that the balance of the market in ethyl alcohol is not adversely affected (Article 7).

Pursuant to these powers, Council Regulation No 567/76 (Official Journal 1976 L 67 p. 25) laid down rules for the distillation of wine to be carried out between 1 April and 31 July 1976 throughout the Community. A minimum buying-in price was fixed on the basis that ‘the price for wines to be distilled should not act as an encouragement to the production of wines primarily for the purposes of distillation, but should nevertheless be sufficiently attractive for the operation to be effective’. The amount of aid to be paid to the producer was also laid down, the balance of the price being paid by the distiller.

Because some producers who ‘hesitated to avail themselves of the option created by that Regulation did not submit an application in time’, provision was made for a second distillation to take place between 15 June and 30 September 1976.

Substantial amounts were paid out by AIMA in respect of wine which had been distilled. The first objection taken by the Commission as to why the accounts should not be accepted goes to all these amounts; the second and third objections relate only to certain of the contracts concerned. Other objections that the proceedings were inadmissible and that the sums in question were wrongly paid to the distillers rather than to the producers have been withdrawn by the Commission.

The first and overriding objection is that on 18 March 1976, three days after the adoption of Regulation No 567/76, a Decree law (No 46) was passed which raised the taxes on wine-based alcohol and on alcohol made from molasses in such a way as to make wine-based alcohol cheaper than molasses-based alcohol.

Prior to the Italian decree, and indeed since 1970, both wine-based and molasses-based alcohol bore a manufacturing tax of LIT 90000 per hectolitre. In addition, molasses-based alcohol bore a State tax of LIT 27000 per hectolitre, a level maintained since 1955. Prior to that decree, it is accepted that the sale prices of molasses-based alcohol was LIT 143000, that of wine LIT 147000, per hectolitre. By Decree No 46, the manufacturing tax was raised to LIT 120000 for both products and the State tax was raised to LIT 40000 for molasses-based alcohol. It is agreed, though the full make up of the figures has not been given, that in the result wine-based alcohol was sold at LIT 185000 and molasses-based alcohol was sold at LIT 188000.

The Italian Government claims that this was a perfectly proper exercise of a taxing power vested in it. The Decree was not limited to alcohol, it covered many other products and to a large extent involved updating taxes to take account of the effects of inflation. Whilst accepting that a fiscal measure may be incompatible with Community law if its purpose or effect would be to disrupt the market, the Italian Government contends that a measure is not incompatible with Community law if its purpose and main effect are fiscal and any other effects on the market are of minor relevance.

It has not been contended here that the taxes introduced were discriminatory and contrary to Article 95 of the Treaty, or that there is any State aid contrary to Article 92. The Commission, however, relies on the Court's decision in joined Cases 15 and 16/76 France v Commission [1979] ECR 321 at pp. 338-341 in which it was said that ‘in applying Community rules the Member States cannot unilaterally adopt additional measures which are such as to compromise the equality of treatment of traders throughout the Community and thus to disturb competitive conditions between the Member States’. Even if what happened in this case was not strictly an aid, as in the French case, where both the intention (to provide extra aid because the French Government thought that the measures taken and the aid fixed by the Community were insufficient)-and the effect (twice the amount contemplated to be covered by Community aid to France was given as aid) were clear, the principle is the same and it applies in this case to what is a sort of indirect aid.

The Commission contends that, if it is shown that either the intention or the effect of a national measure is to interfere with the functioning of steps taken by the Commission in an organization of the market, the Member State cannot rely on what is done purportedly under Community arrangements, as being done according to Community rules so as to entitle it to claim against the EAGGF.

This seems to me to go too far. If a Member State adopts measures which can be shown to have no effect on the operation of an exercise like the present, even if they were intended to do so, then it does not seem to me that the Member State is automatically disentitled from claiming against the Fund. On the other hand, if there is an intention to take additional measures which in the normal course would be likely to have a distorting effect on what is done at Community level, then the effect may be presumed, unless the contrary is proved. In cases like 177/78 Pigs and Bacon Commission v McCarren & Co. Ltd [1979] ECR 2161, joined Cases 36 and 71/80 Irish Creamery Association v Ireland [1981] ECR 735 and Case 297/82 De Samvirkende Danske Landboforeninger v Ministry of Fiscal Affairs [1983] ECR 3299, the Court, although considering the object of the national measures, in the end looked to those situations in which the measures had or might have distorting or deleterious effect. It is to be borne in mind that in Case 177/88 the Court defined Member States' obligations as being ‘to refrain from taking any measures which might undermine or create exceptions’ to the Community scheme.

So far as intention is concerned in the present case, the Commission relies heavily on a note from the Ministry of Agriculture dated 24 March 1982 to the effect that the Community Regulation had not achieved the desired effect, partly because the market was saturated with wine-based alcohol and partly because of the competition of molasses-based alcohol which was cheaper to produce. Decree No 46 was thus said to be necessary, not only for raising further revenue, but also because increasing the price of molasses-based alcohol ought to encourage the production and consumption of wine-based alcohol. Moreover it was said that Decree No 46 was insufficient to achieve the objective of Community intervention measures. Accordingly on the same day as Decree No 46 was made, a further decree fixed the price of alcohol made from table wines produced in 1975 at LIT 61000 per hectolitre net of tax. In the Application it was said that this did not provide any unjustified benefits for Italian producers and distillers because the market price was LIT 65000. That particular point, however, disappeared when it was accepted that no alcohol was in fact sold at the lower price fixed by the second decree.

The Italian Government, accepting that intention is relevant, seeks to avoid the effect of this ‘unfortunate’ note by saying that it was written long after the event and was mistaken. Moreover it emanated from the Ministry of Agriculture which was not recorded as having been consulted before Decree No 46 was promulgated.

I do not find this latter argument persuasive. The Ministry could still have been consulted, and, in any event, could subsequently have been fully informed as to the Government's intentions and authorized to write on its behalf. I find it impossible to reject this document from a Government department, which was clearly written with care, as being wholly unreliable as to the Government's intention. It seems to me to show that the intention at the time was to give further encouragement to the use of wine for distillation over and above that provided for in Community measures.

The fact that these taxes were included in a general decree may show that the decree was fiscal, but that in itself does not exclude an intention to influence the operation of a Community measure. Here the decree was adopted just after the Community Regulation was made, and it came into effect before the distillation campaign, which was of short duration, began. The relevant change (increasing the tax on molasses-based alcohol) was made at this juncture for the first time in 21 years and it has not been suggested that it could not have awaited the termination of the campaign. These factors, though they should not be exaggerated, seem to me to give some support for the Commission's submissions as to the intention behind the measures.

The more important question to my mind, however, is whether the decree had the effect contended for by the Commission. I do not accept the Commission's argument that the difference in price between alcohol made from wine and that from molasses automatically meant that the distillers had better profit margins than if Community aid alone had been granted. Whether that was so depends on a detailed consideration of the makeup of both prices, which apart from the tax elements, has not been produced. Nor on the evidence am I prepared to assume, as the Commission contends, that producers were or could be paid more than the minimum price fixed since the distillers in effect could share out the alleged extra profits with them. There is no evidence of this and it was, to my mind, for the Commission to prove it.

On the other hand, it seems to me to be inescapable that (1) if wine alcohol could be sold more cheaply than molasses-based alcohol, more of the former would be sold since the two are in competition; (2) it follows that more wine would be purchased by the distillers; (3) since the aim was to pay a price for wine to be distilled, which was sufficiently attractive above the market price, the producers would make more overall profit because they could sell more wine and this would no doubt be at the expense of the producers of molasses. That this is so is borne out by the statement in the Ministry of Agriculture's note to the effect that ‘thanks’ to the two decrees (of which one is now accepted to have had no effect) the distilling operation had a certain success in Italy since it had permitted 2.3 million hectolitres of wine to go to the distillery.

The difficulty in this case arises from the need to preserve the balance between the right of a Member State to regulate its own tax laws and the need to ensure that Community measures are not undermined, intentionally or unintentionally by steps taken, even in the form of taxation measures. I also think it is important to bear in mind that, although this is in form a challenge by Italy, and not an application by the Commission under Article 169 of the EEC Treaty, the essential question is whether Italy has been in breach of the Treaty. To that extent, at any rate to begin with, it seems to me that the burden of establishing the breach is on the Commission.

By this test it seems to me that the Commission has established in this case that additional measures were taken which affected the operation of the Community measures for distillation. This is so if, even perhaps because, in the result it may be said that the Italian Government was successful in its aim of achieving the same object as that sought by the Community.

The second Regulation, No 1281/76, was, of course, made after the Italian Decree No 46. It is said that the Commission or the Council, with knowledge which it had or ought to have had, has thereby accepted that the decree did not distort or adversely affect the Community scheme. I do not accept this. I do not consider that the Commission is in any sense fixed with knowledge of national legislation unless that is communicated to it. It is not suggested that that was done here. There ought to be a full communication between the Commission and Member States as to taxation or other legislation which may affect future Community legislation, particularly if the Management Committee procedure is adopted. I would, accordingly, not draw any distinction in this case between the two regulations. The position, if a Community regulation is made which conflicts with an existing national rule, particularly where the latter has an indirect rather than a direct effect on a Community project, and the terms of which are communicated to the Commission before the Community legislation is adopted, raises different issues which do not arise here.

On the first point in this case, it seems to me that the Commission's argument should be upheld to the extent indicated.

Secondly the Commission contends that Italy paid out aid with respect to contracts for distillation which were not completely executed. It relies on Article 6 (3) of Regulation 567/76 which provides as follows:

‘Without prejudice to Article 4, the difference referred to in Article 2 (5) shall be paid when proof has been furnished that the full amount of the wine indicated in the contract has been distilled.’

The Commission deduces from this that the aid should only be paid if the contract was executed in full.

Italy relies upon the fact that Article 1 of the same Regulation stipulates that the delivery contracts to be concluded between producers and distillers were to be revocable. To this the Commission replies that the contracts could only be revoked in accordance with Article 4, which lays down strict conditions for such revocation. These conditions would be otiose if the contracts could be part-performed and then revoked in every case.

On this I consider that the Commission is right and that aid is only due where the amount of wine specified in the contract has been distilled.

It is common ground between the parties that some contracts were fully executed so that, if the Court finds in Italy's favour as to (i), EAGGF will have to cover these contracts. In each Rejoinder the Commission, rightly, has undertaken to go over the accounts with the Italian authorities so as to establish which contracts were fully executed. In respect of these, the amount of aid would be due if the Court decided in Italy's favour on the first point.

3.Lastly, the Commission claims and Italy accepts that in many cases Italy paid the aid in one sum rather than in two instalments as required by Article 2 of Regulation 567/76. That was clearly an infringement of the Regulation. However, it appears to be common ground between the parties that in certain cases payments were made in two instalments as required. Furthermore, payments made during the period covered by Regulation 1281/76 could lawfully be paid in one sum, since this was expressly permitted by Article 2 of that Regulation. Consequently, if the Court decides against the Commission on the first point, the Commission and Italy will have to go through the accounts together to establish what proportion of the aids are to be covered by EAGGF.

Meat

Article 1 of Council Regulation 1857/74 (Official Journal 1974 L 195 p. 17) reads as follows :

‘Member States may in the 12 months after the entry into force of this Regulation promote advertising and publicity campaigns designed to bring the consumer's choice more into line with the supply and demand position for beef and veal products ’.

Article 4 provided that the Regulation was to enter into force on the third day following its publication in the Official Journal, which publication occurred on 18 July 1974.

Council Regulation 2930/74 (Official Journal 1974 L 311 p. 6) provided for the campaign to be extended to pigmeat and poultry meat. Article 1 stipulates that:

‘Member States may, during the period to 20 July 1975, promote advertising and publicity campaigns designed to bring the consumer's choice more into line with the supply and demand position for pigmeat and poultry meat products.’

In Decision 83/37 the Commission found that EAGGF was not able to reimburse the expenses incurred by Italy in these publicity campaigns. It is clear from point 3.6.5 of the Commission's report on the clearance of accounts for 1976 and 1977 that the reason for this was that Italy had not met the deadline of 20 July 1975.

Italy contests this. By 20 July 1975 it had taken all the preparatory measures for the campaigns to be carried out, but had done no more. It now claims that the requirement to ‘promote’ the campaigns was fulfilled once the preparatory measures had been taken.

Italy's argument would lead to the result that the publicity campaigns could be carried out at any time, provided that the preparatory measures had been taken prior to 20 July 1975. This, to my mind, conflicts with the preambles to the two Regulations, in particular to Regulation 1857/74, where it is clear that the object of the campaigns was to overcome difficulties in the immediate short-term arising from particularly low prices.

Secondly, the second recital in the preamble to Regulation 2930/74 stipulates that the campaigns envisaged by that Regulation were ‘to finish on the same date as that laid down for beef and veal’. There can be no doubt that that date was 20 July 1975.

Thirdly, Article 3 (2) of Regulation 1857/74 states that ‘when six months have elapsed from the entry into force of the Regulation, the results of the measures herein provided for shall be reviewed...’. Article 3 (2) of the second Regulation contains a provision to similar effect. Even though the relevant periods would not have ended in either case, it seems to me that these provisions contemplated that the measures would have been implemented since it is ‘the results’ which are to be reviewed.

In my opinion this part of Italy's case must therefore be dismissed.

Cereals

Council Regulation 2255/77 (Official Journal 1977 L 261 p. 4) provided that 200000 tonnes of common wheat of breadmaking quality held by the German intervention agency was to be sold to the Italian intervention agency, AIMA. Detailed rules for this sale were laid down by Commission Regulation 2452/77 (Official Journal 1977 L 285 p. 121).

According to the Community Regulations applicable, the purchase price would normally have been paid directly by AIMA to the German intervention agency. However, Regulation 2255/77 derogated from that system: EAGGF was to act as intermediary, advancing the sum in question to the German intervention agency and being reimbursed by AIMA at the end of 1977. Furthermore, at the same time the Commission made a declaration noted in the minutes of the Council to the effect that Italy could credit the money due to EAGGF at an earlier date, namely 1 December 1977.

Italy claims to have exercised this option and paid the moneys on 1 December 1977. In Case 56/83 it therefore impugns Commission Decision 83/48 for failing to take account of this. The Commission on the other hand claims that no such payment or credit was made on this date.

Consequently, the dispute between the parties in the end seems to boil down to this — was the payment in question actually made or credited on 1 December 1977 or not?

It is common ground between the parties that no documentary evidence exists to show that it was made at that date. Italy contends that this in no way undermines its positions because it is or was not the practice to evidence such payments by any documents. The Commission denies this and says that such payments are always evidenced in writing, as clearly they ought to be. It seems to me that the Commission is right here in saying that there is no evidence that Italy exercised the option to make the credit on 1 December 1977 and I would reject this part of the claim.

In the result it is my opinion that both Applications should be dismissed and that the Republic of Italy should pay the Commission's costs in both cases.