OPINION OF ADVOCATE GENERAL SIR GORDON SLYNN

My Lords,

In these proceedings the Commission seeks a declaration that the Republic of Italy has failed to fulfil its obligations under the EEC Treaty in that it has required traders to provide guarantees to the Ufficio Italiano dei Cambi, the Italian Foreign Exchange Office, when making advance payments for the importation of goods into Italy.

The measures in question find their basis in Law No 1126 of 20 July 1952 (Gazzetta Ufficiale No 206 of 5 September 1952) amended by Law No 162 of 2 April 1962 (Gazzetta Ufficiale No 111 of 30 April 1962). Article 1 of the Law of 1952, as amended, provides that persons making advance payment for imports may be required to provide guarantees (cauzione). Article 4 provides that the guarantee shall be forfeited if the trader fails to prove that the goods have been imported into Italy within a prescribed period and that in the event of a failure to prove the importation in due time of only part of the goods, a corresponding proportion of the guarantee shall be forfeited. Article 5 provides that the guarantee shall not be forfeited if it is shown that the failure was not due to the trader's fault.

According to a Circular published by the Ministry of Foreign Trade on 25 June 1976 (No V/206600/104) banks engaged to make advance payments for imports are obliged to pay the guarantee (supplied by the trader) into an interest-free account in the trader's name, blocked in favour of the Ufficio Italiano dei Cambi.

At the date of the Commission's reasoned opinion in this case, the amount of the guarantee was set at 5% of the value in lire of the advance payment; the obligation to provide that guarantee arose wherever the advance payment exceeded 10 million lire: and the period within which the trader was obliged to effect the importation, on pain of forfeiting the guarantee, was set at 120 days measured from the date of the making of the advance payment: Ministerial Decrees of 12 July 1978 (Gazzetta Ufficiale No 220 of 8 August 1978) and 28 September 1980 (Gazzetta Ufficiale No 267 of 29 September 1980). Subsequent legislation in fact extends the prescribed period to 360 days, when the advance payment takes the form of an instalment not exceeding 10% of the total purchase price; and raises to 100 million lire the threshold for advance payments that may be made without the obligation to provide guarantees to the Ufficio Italiano dei Cambi: Ministerial Decree of 12 March 1981 (Gazzetta Ufficiale No 82 of 24 March 1981) Articles 12 and 13.

According to the written observations of the Italian Government in Joined Cases 206 to 210/80, Orlandi and Others (where the measures which the Commission seeks to impugn in this case are also discussed) the requirement that guarantees be provided is designed to prevent disturbances in the balance of payments caused when traders advance the date of payment, or postpone the date of importation, so as to take advantage of an intervening depreciation in the value of the lire.

In its reasoned opinion and its application in this case, the Commission contended that this system entails breaches of Article 30 of the EEC Treaty, which prohibits all measures having equivalent effect to quantitative restrictions on imports and the First Council Directive dated 11 May 1960 for the implementation of the free movement of capital (Official Journal Special Edition 1959-62, p. 42) as amended by the Second Council Directive on that subject, dated 18 December 1962 (Official Journal Special Edition 1963-64, p. 5). Neither in its reasoned opinion nor in its application did the Commission rely upon Article 106 of the EEC Treaty, which deals with the elimination of certain obstacles to payments connected with the free movement of goods. At the hearing, where arguments were also heard in relation to Joined Cases 206 to 210/80 (supra), it was suggested that the measures in question were also invalid under Article 106.

It is well established that this Court will not decide questions that are not raised in the originating application or in the reasoned opinion for to do so would be to deprive defendant States of important procedural safeguards established in the Treaty: see e.g. Case 123/76 Commission v Italy (1977) ECR 1449 at p. 1458. Accordingly, that suggestion does not fall for decision on this application.

On the other hand, it was contended during the oral procedure that the measures in question do not fall to be considered under Article 30 at all because the relevant provisions of the Treaty are those governing the balance of payments, including Articles 104 and 108. In effect, it is said that one situation cannot fall simultaneously under two different provisions. I do not accept this latter argument. Although in Case 74/76 Ianelli v Meroni (1977) ECR 557 at p. 574, the Court stated that “However wide the field of application of Article 30 may be, it nevertheless does not include obstacles to trade covered by other provisions of the Treaty”, that has to be read in context. The Court was distinguishing between obstacles of a fiscal nature falling within Articles 9 to 16 and 95 of the Treaty, and those falling within Article 30. The Court, however, expressly envisaged “cases which may fall simultaneously within the field of application of two or more provisions of Community law”. See also Case 27/74 Demag v Finanzamt Duisburg-Süd (1974) ECR 1037 for an analogous approach.

Accordingly, even though the measures in question spring from a desire to prevent disturbances to the balance of payments, and so may fall under Chapter 2 of Title II of the Treaty dealing with “Balance of Payments”, it remains to be considered whether, since they are specifically concerned with advance payments for imported goods, and are said to have an effect upon trade in goods between Member States, they also fall within Article 30 of the Treaty. In other words, even if it is possible that the measures are in breach of Article 106 it has to be considered whether they are also in breach of Article 30. Both articles may have to be satisfied.

The first question is, therefore, whether these measures entail in principle an infringement of Article 30; and if so to what extent; the second, whether other provisions of the Treaty and in particular Articles 104 and 108 cover the measures in question and permit derogation from the obligations imposed by Article 30; the third, which it is convenient to take last although arguably it sometimes second, whether, in the light of the court's jurisprudence, Article 36 can be relied upon by the Italian Government.

In its judgment in Case 8/74 Procureur du Roi v Dassonville (1974) ECR 837 at p. 852, when dealing, inter alia, with Article 30, the Court stated that:

“All trading rules enacted by Member States which are capable of hindering directly or indirectly, actually or potentially, intra-Community trade, are to be considered as measures having an effect equivalent to quantitative restrictions.”

It measures “likely” to hinder imports which are prohibited (see Case 82/77 Openbaar Ministerie of the Netherlands v Van Tiggelen (1978) ECR 25 at p. 39). It is, thus, the effect, and not the aim of a national measure which determines its character with respect to Article 30.

As the agent for the Commission observed, traders who make regular imports into Italy are obliged to tie up part of their working capital in bank deposits or, if they arrange for the guarantees to be provided by their bankers, they are liable to incur costs (estimated at 3-5% of the annual turnover of a typical trader) and perhaps to reduce the margin of credit available to them. That hindrance is accentuated by the fact that monies held in blocked accounts do not, by virtue of the Ministerial Circular dated 25 June 1976, attract interest. Above all, traders run the risk of losing their deposits in the event of a delay, which they cannot explain to the authorities' satisfaction, in the importation of the goods. Furthermore, the agent for the Italian Government explained at the hearing that payments “against documents”, such as are commonplace under cif contracts under international trade, are in effect treated as advance payments for the purpose of the Italian legislation in question. If this is so, the contested measures are likely to affect many more transactions than would otherwise be the case.

In support of its argument that the measures in question have such a tendency to hinder trade, the Commission maintained that advance payments are “the rule” in international trade. The French Government challenged this in its written observations. At the hearing the agent for the French Government stated that according to the statistics prepared by the French authorities, advance payments, made more than six months before the delivery of the corresponding goods, account for barely 8% of payments for imports. These figures were, however, approximate; They related to imports into France from all other countries and not only from other Member States of the Community. It was accepted that there were likely to be significant differences in this respect between one sector of the economy and another. In my opinion there is inadequate material upon which to assess the frequency with which advance payments are made in the case of imports to Italy from other Member States. The resolution of this issue is not, however, necessary for the purpose of deciding the question of principle before the Court, for, even if it were established that advance payments are less frequent than the Commission contends, this would not exclude the application of Article 30 to such advance payments as are in fact required in respect of imports.

On the basis of the other material before the Court in the present case, it does not seem possible to arrive at any other conclusion than that the contested measures are, in principle, capable of hindering directly or indirectly, actually or potentially, trade between Member States.

That a requirement of the kind referred to can constitute a hindrance to imports derives support from the inclusion in Article 2, 3 (i) of Commission Directive 70/50/EEC of 22 December 1969 (Official Journal Special Edition 1970 (5) L 13/29) of measures which “require, for imports only, the giving of guarantees or making of payments on account”. (In the Italian version “cauzione” is the equivalent of “guarantees”.)

On the other hand it seems to me that Article 30 is aimed at prohibiting restrictions on genuine imports; it is not dealing with transactions set up as devices to conceal currency speculation, which cannot be regarded as genuine trade. Insofar as measures such as those in question bite on such transactions, it does not seem to me that they are prohibited by Article 30. The vice of the present measures lies in the extent to which, by imposing charges, or tying up capital, or inhibiting an importer's freedom as to when he can take his goods out of customs, trade is hindered or is capable of being hindered.

I turn to the second and third questions set out above.

Article 104 of the Treaty requires each Member State to pursue the economic policy needed to ensure the equilibrium of its overall balance of payments and to maintain confidence in its currency. There is no express power here to take steps which would otherwise be in breach of Article 30, or comparable articles, and to my mind nothing has been suggested which justifies an implied power to act under Article 104 in breach of, or in derogation of Article 30, fundamental though the maintenance of financial stability is to the Community.

This conclusion seems consistent with the Court's decision in Joined Cases 6 and 11/69, Commission v France [1969] ECR 523 at page 539, in which it rejected the argument that the fixing of a preferential rediscount rate “falls directly within monetary policy which is a matter in which the Member States alone are competent”. It observed that although under Article 104 of the Treaty, Member States are responsible for ensuring the equilibrium of their total balance of payments, their obligations under Articles 105 and 107 and the powers given to Community institutions under Articles 108 (3) and 109 (3), indicated that Member States are not free, by virtue of Article 104, to derogate from the obligations under the other provisions of the Treaty. As A. W. H. Meij and I. A. Winter observe in their article entitled Measure: having an effect equivalent to quantitative restrictions, (1976) 13 CML Rev. 79 at page 89, the reasoning that the Court applied in Joined Cases 6 and 11/69 to the relationship between Articles 104 and 92 of the EEC Treaty seems, on principle, equally applicable to the relationship between Articles 103 et seq. and 30.

Article 108 provides for action to be taken by the Commission, and thereafter the Council in a situation where a Member State is seriously threatened with difficulties as regards its balance of payment. The Commission may, having regard to the actions which a State may take under Article 104, recommend measures to be taken by those Member States and any financial assistance provided by the Council. However, the Commission cannot authorize protective measures, determined by the Commission, to be taken. Of this article, the Court has said: “The exercise of reserved powers cannot permit the unilateral adoption of measures prohibited by the Treaty” (see Joined Cases 6 and 11/69 supra at page 540, more recently cited and followed by Mr Advocate General Mayras in Joined Cases 16 to 20/79 Ministère Public v Joseph Danis (1979) ECR 3342 at p. 3346). It may be that the Commission, under Article 108 can authorize a derogation from other provisions of the Treaty (as, for example, when in Decision 74/287 of 8 May 1974 (OJ 1974 L 152/18) a Member State required an interest-free deposit for certain imports), but there is no such authorization in this case.

As a result I do not accept the argument that the language of Articles 104 and 108 is such as to permit a derogation from the principles governing the import of goods in the present case.

Nor do I accept that the prevention of disturbances in the balance of payments constitutes an aspea of public policy within the meaning of Article 36, which authorizes Member Sutes to maintain prohibitions or restrictions which would otherwise infringe Article 30. In Ose 7/61, Commission v Italy [1961] ECR 317 at page 329 the Court stated that “Article 36 ... is directed to eventualities of a non-economic kind”. Later, in Case 7/78, R. v Thompson [1978] ECR 2247 at p. 2281, Mr Advocate General Mayras concluded that “the public policy mentioned in Article 36 does not refer to monetary public policy” More recently, in Case 113/80, Commission v Ireland, 17 June 1981, at paragraph 7, the Court reiterated the proposition that any exceptions to Article 30 must be strictly construed and that those listed in Article 36 cannot be extended other than to the cases specifically laid down. This being the case, it does not seem that monetary considerations of the kind envisaged in Articles 104 and 108 of the EEC Treaty give rise to a derogation from Article 30 by means of Article 36.

Reference has been made to Case 120/78 Rewe v Bundesmonopolverwaltung fiir Branntwein, Cassis de Dijon (1979) ECR 649 where at p. 662 the Court said of Article 30 that:

“obstacles to movement within the Community resulting from disparities between the national laws relating to the marketing of the products in question must be accepted in so far as those provisions may be recognized as being necessary in order to satisfy mandatory requirements relating in particular to the effectiveness of fiscal supervision, the protection of public health, the fairness of commercial transactions and the defence of the consumer.”

This passage is expressly concerned with those obstacles to trade that arise from disparities between national laws. The obstacle in that case arose out of legal provisions which simply established standards to be observed for the sale of specified goods to the public. In the present case, on the other hand, the measures in question relate specifically and exclusively to imports and do not result from disparities between national laws. It does not seem to me that the passage directly avails the Italian Government in the present case.

It remains necessary to deal with the Commission's argument that the Italian measures in question are incompatible with the First Council Directive for the Implementation of Article 67 of the Treaty (as amended by the second such directive). The Commission's argument, shortly stated, is that the contested measures constitute obstacles to “the granting and repayment of short-term and medium-term credits in respect of commercial transactions”, within the meaning of Annex I to the First Directive and ought therefore to have been abolished under Article 1 thereof.

Article 67 of the Treaty requires the progressive abolition of restrictions on the free movement of capital. The free movement of capital may be complementary to the free movement of goods, services and persons, but it is separate therefrom. As Mr Advocate General Capotorti said in his opinion dated 7 July 1981 in Case 203/80 Casati, a payment by way of consideration for a purchase is one thing, whereas the straightforward importation of currency with a view to purchase is another. The preamble to the directive refers to Article 106 (2) of the Treaty and not to Article 106 (1) which is wider in its scope. Article 106 (2) provides for the abolition of restrictions on payments connected with the movement of goods, services and capital by the application mutatis mutandis of the provisions of the chapters relating to the abolition of quantitative restrictions, to the liberalization of services and to the free movement of capital. These requirements must obviously by read distributively, so that the restrictions on payments connected with the movement of goods must be abolished by applying the Chapter relating to the abolition of quantitative restrictions; restrictions on payments connected with capital must be abolished under the Chapter relating to the free movement of capital. Prima facie, therefore a directive made for the implementation of Article 67 is dealing only with movements of capital and not with payments connected with the movement of goods, and the reference to Article 106 (2) is limited to restrictions on payments connected with movements of capital. The present case is concerned essentially with restrictions or. payments connected with the movement of goods.

“Short term and medium term credits in respect of commercial transactions” do not, in any event, in my view include, as a matter of construction, advance payments of the purchase price of goods. “Credit” suggests a facility commonly granted by a bank or a lending house in order to enable a buyer to have the funds to pay his seller. It is possible that if a seller gives his buyer time to pay he can on one view be said to be granting a credit, though whether this is so for the purposes of this directive it is not necessary to decide. Similarly a buyer may be said to be “in credit” if he has favourable balance on general account with his seller. To require that general shall be paid for in advance, within more, does not seem to constitute the granting of a credit by the buyer to the seller. It does not seem to me that those payments constitute “a loan” or loans “related to commercial transactions in which no resident is participating” and therefore fall within List D to the First Directive (as I understand the French Government to be suggesting), but even if they are, no relevant legislation applies.

For these reasons I am of the opinion that the Court should decide that the Republic of Italy has failed tc lulfil its obligations under Article 30 of the EEC Treaty, but should dismiss the Commission's application to the extent that it was based on the First and Second Directives for the Implementation of Article 67 of the EEC Treaty.

Although the Commission has, in my opinion, failed in its argument based on the two directives, it is in my view appropriate that the Commission's costs should be paid by the Republic of Italy since it has substantially succeeded on the main contested point. The Italian Government and French Government, in my view, should bear their own costs.