delivered on 23 May 1985 (*1)

Mr President,

Members of the Court,

1.The co-responsibility levy which is at issue in this reference for a preliminary ruling was introduced by Council Regulation No 1079/77 of 17 May 1977 as a result of the following finding:

‘the Community market in milk products is marked by structural surpluses arising from an imbalance between supply and demand in products’ (first recital in the preamble to Regulation No 1079/77, Official Journal 1977, L 131, p. 6).

As is illustrated by the graph set out below, whereas over the last decade milk production has increased by about 2.5% per annum, consumption within the Community has increased by only about 0.5% per annum and at present is tending to stagnate or even decline.

That situation must be assessed in the context of the introduction in Regulation No 804/68 of a common organization of the market in milk and milk products (Official Journal, English Special Edition, 1968 (I), p. 176), which ensures that producers receive stable earnings by providing for the purchase by the specially designated national agencies of certain products processed from milk, and in particular butter and skimmed-milk powder, at a fixed minimum price, known as the intervention price (Articles 5 and 6 (1) of Regulation No 804/68).

The fact that there is a structural imbalance on the market in conjunction with the support system described above resulted in an increase of milk supplied to dairies to be processed into products covered by intervention: today, such supplies account for more than 90% of the production of cows' milk in the Community. In practice, that situation has resulted in the formation of large stocks - growing ‘mountains’ of butter or milk powder which are extremely expensive to manage. Thus, according to the information provided by the Commission at the request of the Court, in 1977 butter stocks exceeded 155000 tonnes and by 1984 had reached 850000 tonnes. Stocks of skimmed-milk powder amounted to more than 1000000 tonnes in 1976 and 1977 and, after a reduction between 1978 and 1982, rose once again in 1984 to almost 980000 tonnes.

In view of that situation and in order to reduce the imbalance between supply and demand, the Community undertook a policy of market regulation affecting both consumption and production. The action undertaken to stimulate consumption is illustrated in particular by sales of butter at reduced prices (Council Regulation No 880/77, Official Journal 1977, L 106, p. 31), aid for the consumption of skimmed-milk powder intended as animal feed (Commission Regulation No 1844/77, Official Journal 1977, L 205, p. 11) and also by promotional, publicity and market research measures within the Community (Commission Regulation No 723/78, Official Journal 1978, L 98, p. 5). In order to reduce production, the following were among the measures adopted: premiums for the non-marketing of milk and milk products and for the conversion of dairy herds (Council Regulation No 1078/77, Official Journal 1977, L 131, p. 1), the suspension of aids for the purchase of dairy cows (Council Regulation No 1081/77, Official Journal 1977, L 131, p. 10) and restrictions on investment aids (Council Regulation No 1946/81 of 30 June 1981, Official Journal 1981, L 197, p. 32). The levy introduced in 1977 is a measure designed to reduce production.

2.The co-responsibility levy occupies a special place among the measures adopted by the Community, since it is considered by the legislature to be a means of operating directly on the balance between supply and demand in order to establish ‘a more direct link... between production and outlets for milk products’ (second recital in the preamble to Regulation No 1079/77).

What are the characteristics of that levy? As was pointed out by Mr Advocate General Mayras in his opinion in Case 138/78, Stoking v Hauptzollamt Hamburg Jonas, [1979] ECR 713, p. 726, the levy is of general application. It is due ‘from all milk producers on milk supplied to an undertaking treating or processing milk and on milk sold by the producer in the form of other milk products’ except in mountain and hill areas (Article 1 (1) and (2) of Regulation No 1079/77). The amount of the levy is determined on the basis of three factors: the market situation, forward estimates of supply of and demand for milk products, and the development of stocks. It must, however, be at least 1.5% but not more than 4% of the milk target price (Article 2 (2 ) and (3)).

The target price thus constitutes the basis of assessment of the levy for the milk year concerned (Article 2 (3)). The target price, it should be remembered, is ‘that price which it is aimed to obtain for the aggregate of producers' milk sales, on the Community market and on external markets, during the milk year’. Moreover, as is of particular importance in this case, the target price is fixed ‘for milk containing 3.7% fat, delivered to dairy’ (Article 3 (2) and (3) of Regulation No 804/68).

The amount of the levy is deducted by the dairy from the price payable to the producer (Article 3 (1) of Regulation No 1079/77). The amounts collected on behalf of the Community are paid to the competent national agency designated for that purpose and then later, as was explained by the institutions in reply to questions asked by the Court, allocated in the Community budget to the financing of expenditure in the market in milk and milk products and in particular the measures provided for by Article 4 of Regulation No 1079/77 for the expansion of the markets for milk products.

Although the co-responsibility levy was originally intended to apply until the end of the 1979/80 milk year (Article 1 (1) of Regulation No 1079/77), in subsequent years it has always been renewed: it has been retained owing to the continuing imbalance between supply and demand, and that is also the reason why the rate applicable, which was originally fixed at 1.5% but was altered to 0.5% by Article 2 of Council Regulation No 1001/78 of 12 May 1978 (Official Journal 1978, L 130, p. 11), had been increased to 3% by the 1984/85 milk year (Council Regulation No 861/84 of 31 March 1984, Official Journal 1984, L 90, p. 21). Moreover it was supplemented in 1984 by an additional levy which is fixed at a rate intended to act as a deterrent — rising to 100% of the target price — and is payable on quantities of milk delivered in excess of a reference quantity (Council Regulations Nos 856 and 857/84 of 31 March 1984, Official Journal 1984, L 90, pp. 10 and 13).

3.In this reference for a preliminary ruling, the applicant in the main proceedings has challenged the rules for calculating the co-responsibility levy in an action brought before the Pretura Unificata [Magistrate's Court], Cremona.

Before that court Mr Bozzetti, an Italian stock farmer who delivers the milk which he produces to one of the dairies operated by Invernizzi SpA, brought an action against Invernizzi SpA and the Ministero del Tesoro [Ministry of the Treasury], in whose name it acted, for the repayment of the amounts deducted in respect of the co-responsibility levy from the sale price of milk which he supplied in April and May 1983.

In support of his action, Mr Bozzetti pleaded the illegality of the Community rules introducing the co-responsibility levy on the ground that they created serious discrimination between producers in the Community. The Pretura Unificata, which shared Mr Bozzetti's doubts as to the legality of the Community rules and also raised a question which was crucial for the determination of its own jurisdiction, namely whether or not the levy was a tax, therefore referred to the Court for a preliminary ruling the following questions:

‘(1) Are Council Regulation No 1079/77 and Commission Regulation No 1822/77, as amended and supplemented, which created and govern the co-responsibility levy for milk — which does not appear among the so-called “own resources” referred to in the Council Decision of 21 April 1970 — to be interpreted as meaning that that levy is not a tax?

(2) Must Regulation No 1079/77 and Regulation No 1822/77, and in particular Article 2 of Regulation No 1079/77 and Article 2 of Regulation No 1822/77, introducing a co-responsibility levy which applies in an identical manner to products which differ in composition and are therefore likely to lead to butter and powdered-milk surpluses in differing degrees, be regarded as unlawful on the grounds that they breach the principle of non-discrimination contained in Article 40 (3) of the Treaty and represent a misuse of powers by reason of their manifest inconsistency, and accordingly not be applied?’

4.As is clear from the order of the Pretura Unificata, the question whether or not the co-responsibility levy constitutes a tax is of particular importance to the national court. Under Italian law, if it were a tax, the Pretura Unificata would have no jurisdiction to hear the case. So far as I know, this is the first time that the Court has been asked to rule on this type of question, involving a potential connection between the nature of a Community charge and the rules on jurisdiction of national courts.

Although this question formally concerns the interpretation of Community regulations, there is none the less a risk of the Court's being called upon to adjudicate upon procedural rules of national law.

In that connection, it should be remembered that the Court has stated in a long line of cases that, as Community law stands at present, ‘disputes in connection with the reimbursement of amounts collected for the Community are thus a matter for the national courts and must be settled by them under national law in so far as no provisions of Community law are relevant’.

Accordingly it is for the national legal system of each Member State ‘to determine the courts having jurisdiction and to fix the procedures for applications to the court intended to protect the rights which the subject obtains through the direct effect of Community law’ (Case 265/78, Ferwerda v Produktschap voor Vee en Vlees, [1980] ECR 617 at p. 629, para. 10).

As all the parties have stated in their observations, it is for the national court alone to classify the co-responsibility levy introduced by the Community legislature on the basis of the rules of national law.

However, that is not an adequate reply. It is clear from the question asked by the national court and the grounds of its order that that court is concerned to determine as accurately as possible the characteristics of the co-responsibility levy so as to be better equipped to define that levy on the basis of the categories available under national law. From that point of view it seems useful to set out certain features of the co-responsibility levy in addition to the information provided above on the machinery set up by Regulations Nos 1079/77 and 1822/77.

The co-responsibility levy is a general financial contribution which is payable by all milk producers in the Community and is calculated on the basis of a fixed percentage of a fixed price for milk, the target price for the milk year in question. It was introduced under Article 43 of the EEC Treaty rather than Article 201 on the Community's own resources and, being intended for specific purposes, constitutes an exception to the principle of budgetary universality laid down in Article 5 of the decision of 21 April 1970 which provides that the Communities' own resources ‘shall be used without distinction to finance all expenditure entered in the budget of the Communities’ (Official Journal, English Special Edition 1970 (1), p. 224). As I have already pointed out, the levy is deducted from the credits intended to cover the cost of intervention in the markets for milk and milk products and, as the Commission stated in reply to a question put by the Court, is used to finance measures for the expansion of the markets for milk products, as provided for in Article 4 of Regulation No 1079/77. In the last analysis the levy may be regarded as a financial instrument for stabilizing the market in milk (cf. last recital in the preamble to Regulation No 1079/77).

It is therefore a matter for the national court, having regard to the characteristics set out above, to classify the Community co-responsibility levy under the rules of national law in order to ascertain whether or not it has jurisdiction.

5.The second question submitted to the Court by the national court asks whether the regulations introducing the co-responsibility levy are lawful in view of the principle of nondiscrimination laid down in the second paragraph of Article 40 (3) of the EEC Treaty, which provides that a common organization of agricultural markets ‘shall exclude any discrimination between producers or consumers within the Community’.

Essentially the national court asks whether by providing for the levy to be fixed at a uniform rate for all milk producers Article 2 of Regulation No 1079/77 breaches the principle that all producers must be treated equally, because it does not take into account the varying degrees of responsibility borne by producers for the creation of butter and powdered-milk surpluses, owing to the different fat contents of the milk which they produce.

That question calls for one preliminary remark. In Stölting, the Court found that the co-responsibility levy ‘contributes to the attainment of the objective of stabilizing markets’ and that the level of the rate of levy does not appear to be disproportionate to its objective (p. 722, paragraph 7). That is why, as the plaintiff in the main proceedings and the Italian Government have pointed out, it is not the choice of the co-responsibility levy as a means of combating the imbalance between supply and demand that is being challenged, but rather the method by which it is calculated and, in particular, the uniform basis on which it is assessed, namely the target price for milk containing 3.7% fat.

Although that distinction has the merit of defining the subject matter of the dispute, it cannot alter the nature of the judicial review which may be undertaken by the Court. As the Court stated in Stölting, the Council must be recognized as having a discretionary power in this area which corresponds to the political responsibility which Articles 40 and 43 impose upon it.

Accordingly the Court will carry out a limited review of the legality of the rules, restricted to manifest error of judgment and misuse of power. Those are the two grounds on which the uniform application of the levy is challenged.

6.The plaintiff in the main proceedings and the Italian Government complain that the institutions did not, in attributing responsibility for the creation of surpluses which depend largely upon the fat content of the milk, distinguish between the different producers. They argue that the uniform application of the levy is also contrary to the aim of the Community rules since, as the national court has stressed, it might be the result of manifest inconsistency amounting to misuse of powers.

In order to demonstrate that there is a causal link between the fat content of milk and the creation of surpluses, the plaintiff and the Italian Government have shown by means of illustrated examples that the higher the fat content of a given quantity of milk, the more butter is obtained by processing. They argue that the main cause of the imbalance on the market is the surplus butter obtained from full-fat milk.

As the price of milk itself depends upon the fat content, it follows in the plaintiff's view that the higher the fat content of the milk supplied, the lower the impact which the application of a flat-rate levy will have upon the price paid to the producer. In such a case, the fixed amount of the levy will represent a smaller proportion of the price obtained, which will be higher than the price obtained for milk with a lower fat content.

Thus producers of milk with a low fat content are doubly penalized: they are subject to a levy designed to absorb surpluses to which they have contributed to a lesser extent and must in addition, out of the lower price which they obtain, bear a proportionately higher charge than that borne by producers of milk with a high fat content. The plaintiff claims that, by treating different situations identically, the method for fixing the levy thus discriminates against producers of milk with a low fat content.

Apart from Ireland, Italy is the only State in the Community which produces milk with an average fat content of 3.5%, while the levy is fixed on the basis of milk containing 3.7% fat. Furthermore, the plaintiff points out that in the production area in which his farm is situated milk is chiefly intended for the production of local cheese, Grana padano, which requires milk with a high protein content and for which the fat content is irrelevant.

The plaintiff and the Italian Government claim that these considerations ought to have induced the institutions to base the levy not on the target price, which is a theoretical price, but on the actual value of the milk, which depends upon its fat content. That method could have been accompanied either by an exemption in favour of areas in which milk with a low fat content is produced or by the introduction of a sliding scale based on the fat content of the milk. In support of the latter observation, they refer to Article 9 of Commission Regulation No 1371/84 (Official Journal 1984, L 132, p. 11) laying down detailed rules for the application of the additional levy introduced by Council Regulations Nos 856/84 and 857/84. Article 9 provides for the levy to be increased in accordance with an increase in the fat content of the milk. Furthermore, it is argued that the adoption of the additional levy shows that there are no particular technical or administrative obstacles to the differential application of the levy.

7.In their observations the institutions are concerned chiefly to refute the foundation of that argument, namely the existence of a causal link between the imbalance on the market and the fat content of the milk.

The intervention system introduced in the framework of the common organization of the market in milk and milk products is intended to stabilize the price both of milk with a high fat content, through the intervention buying of butter, and of milk with a high protein content, through the intervention buying of skimmed-milk powder. Both of those properties of milk contribute to the creation of surpluses.

In reality, the imbalance on the market is the result of the overproduction of milk. As the Council stresses, virtually all the milk produced in the Community is disposed of by producers to dairies which process the surplus into products which are covered by intervention and which thus benefit from the minimum price guaranteed by the common organization of the markets. Surpluses in butter and milk powder are the result of the fact that intervention provides a market for excess production.

So far as the argument relating to the price of milk is concerned, the Commission contends that that price is not based solely upon the fat content but is determined by all the useful constituents of milk, including proteins. Other factors, such as the quality of milk, are also relevant. Lastly, the fact that the production price of untreated cows' milk is high in Italy even though it has a lower fat content than milk produced in most other countries in the Community shows that the alleged link between the price of milk and its fat content is aleatory.

In conclusion, the Commission argues that the co-responsibility levy was needed because of the overproduction of milk resulting in surpluses of different kinds. Its uniform application to all milk producers is justified by the general resulting imbalance.

8.It seems to me that the arguments put forward by the institutions cannot be refuted. Moreover, they are supported by the following table of statistics, supplied by the Commission at the Court's request, on the butter and skimmed-milk powder held by intervention agencies in the EEC.

Butter and skimmed-milk powder held by intervention agencies in the EEC (in tonnes)

201 156

165 579

147 624

365 180

163 833

1 112 485

155 367

1 135 484

194 292

964 727

417 975

673 906

371 652

227 223

239 359

229 732

147 202

278 929

305 742

576 294

853 393

982 885

This table shows that the milk surpluses are made up not only, or even chiefly, of butter produced from milk fat, but also involve skimmed-milk powder with a low fat and high protein content. Surpluses thus are not caused exclusively, or even mainly, by milk with a high fat content. Thus, regardless of its composition and in particular of its fat and protein content, milk is likely to give rise to surpluses: that also explains the fact that more than 90% of the milk produced in the Community is supplied to dairies. In fact the formation of surpluses as a result of intervention is simply a reflection of the hitherto growing gap between the regular increase in potential milk production and the lack of growth of consumption. The chosen method of calculating the amount of ; the levy meets the requirements of that ; situation.

To meet a general imbalance on the market, the Community legislature clearly intended to impose ‘a uniform co-responsibility levy... on all milk delivered to dairies ...’ (second recital to Regulation No 1079/77). The fact that a flat rate was applied is evidence of that intention and also illustrates the purpose of the levy: without jeopardizing the policy of support through intervention, it is designed to correct the unacceptable consequences of that policy by reintroducing the relationship which there should be between supply and demand.

The first part of the second recital in the preamble to Regulation No 1079/77 is relevant here: it states that ‘a more direct link should be established between production and outlet for milk products’ in order

‘gradually to restore equilibrium between production and market requirements’ and

‘to reduce the heavy costs incurred by the Community as a result of the present situation and in particular of the large surpluses which exist’.

The Community legislature's decision to calculate the amount of the levy on the basis of the target price for milk reflects its desire for consistency. Its objective is in fact in some way to restore market awareness. In that light the target price is seen to be the most appropriate means of giving producers such awareness, since it is the price which the Community seeks to guarantee on the market for the products in question. The target price is the normal market price for the coming year: it was chosen as the basis of assessment of the levy out of a desire to focus producers' attention on actual market conditions.

In short, as is quite clear from its title, the levy is intended to pass on responsibility to all milk producers by making them aware of the need to strive for a balance between supply and demand, upset by the system of a common organization of the market which guaranteed the producer an outlet for his products at the intervention price, regardless of the quantities available.

It therefore seems to me that the uniform application of the levy to all producers is justified by market conditions and so well adapted to the objective pursued that it cannot be disassociated from it: the co-responsibility levy not only represents a choice of strategy — to reestablish normal market relationships — but also the choice of a tactic which is closely connected with it: to make every producer responsible, by means of a personal contribution to the financial charges of the administration of the various milk surpluses.

Therefore the Council cannot at this stage be accused of having made a manifest error in its assessment of the market situation or consequently of having discriminated between milk producers. There is therefore no foundation for the claim of misuse of powers.

9.It remains to be decided whether the submissions concerning the introduction in 1984 of the additional levy are capable of altering that conclusion.

The additional levy is also intended to combat the continuing imbalance between supply and demand which jeopardizes the very aims of the Common Agricultural Policy. However, it is based on an entirely different rationale. Whereas the co-responsibility levy may be regarded as a financial incentive for the cooperation of all producers, intended to correct the undesirable effects of the support hitherto provided in the framework of the common organization of the market, the additional levy is an overt disincentive, since for a provisional period of five years it is imposed in a drastic manner on quantities of milk produced which exceed a reference quantity, at a rate which may go up to 100% of the target price.

The Community policy in this area could therefore be described as follows: measures of support are retained, producers make standard financial contributions to the general imbalance on the market, producers who do not follow market trends are penalized.

The additional levy is therefore selective. The plaintiff in the main proceedings and the Italian Government have based two lines of argument on that finding.

First of all, they claim that the additional levy was directed in particular at producers of milk with a high fat content, since Article 9 of the Commission's implementing Regulation, No 1371/84, sets out to penalize anyone producing milk whose average fat content exceeds that recorded during the previous year. That article provides that, if, ‘the average fat content of the milk delivered and purchased’ during the last 12 months ‘is more than one gram per kilogram of milk in excess of the average recorded for the preceding 12 months, the quantity of milk used as the basis for calculating the levy shall be increased by 2.6% for each gramme of additional fat per kilogram of milk’.

That interpretation cannot be accepted. As the Commission explained at the hearing, Article 9 is intended to prevent any fraud based on the composition of the milk, whereby that composition is altered, particularly by concentrating the fat content, in order artificially to remain within the limit of the maximum quantity permitted. Thus here the fat content of the milk is treated not as a potential cause of surpluses but as a representative indication of the quantities of milk normally produced on a particular farm (Article 11 (c) of Regulation No 857/84).

Article 9 of Regulation No 1371/84 is thus intended to facilitate the application of Articles 9 and 10 of Regulation No 857/84 — both concerning the methods of collecting the levy — by ensuring that the conditions for calculating the levy are the same for all producers. The last paragraph of Article 9 (2) confirms that interpretation by stating that if the person liable to pay the levy ‘can provide evidence satisfying the competent authority of the Member State that this excess is a normal result of production conditions’, the levy shall not be increased as provided for. In other words, that article simply lays down a presumption of fraud.

Secondly, the plaintiff and the Italian Government base another argument on the selective nature of the additional levy: in their view, it shows that there are no technical or administrative obstacles to the adoption of an ‘individualized’ co-responsibility levy.

That argument must be rejected. The additional levy is imposed only on that part of milk production which exceeds a reference quantity and not on all milk production. No useful comparison can therefore be made between the complex rules applicable to the additional levy, which affects only a limited part of production, and the co-responsibility levy, which applies to all production.

On the basis of all the foregoing considerations it must be concluded that consideration of Council Regulation No 1079/77 and Commission Regulation No 1822/77 has disclosed no factor, in particular as regards the method of fixing the amounts payable in respect of the co-responsibility levy, of such a kind as to affect their validity.

10.In answer to the questions referred to the Court for a preliminary ruling by the Pretura Unificata, Cremona, I therefore propose that the Court should rule as follows:

As Community law stands at present, it is for the national courts, on the basis of the procedural and substantive rules of national law, to decide disputes on the repayment of amounts collected on behalf of the Communities.

The co-responsibility levy introduced by Council Regulation No 1079/77 is a general, flat-rate financial contribution, which is intended to stabilize the market in milk and the proceeds of which are used to cover the expenditure incurred as a result of measures to expand that market, in accordance with Article 4 of that regulation.

Consideration of Council Regulation No 1079/77 and Commission Regulation No 1822/77 has disclosed no factor, in particular as regards the method of fixing the amounts payable in respect of the co-responsibility levy, of such a kind as to affect their validity.

*1 Translated from the French.