CJEC, March 25, 1981, No 61-80

THE COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES,

1. By application lodged at the Court registry on 26 February 1980, the Cooperatieve Stremsel- en Kleurselfabriek (hereinafter referred to as "the Cooperative"), which is a Cooperative producing animal rennet and colouring agents for cheese, established at Leeuwarden in the Netherlands, has brought an action under the second paragraph of Article 173 of the EEC treaty for a declaration that the Commission Decision of 5 December 1979 relating to a proceeding under Article 85 of the treaty (Official Journal 1980, L 51, p. 19) is void. By order dated 2 July 1980 the French Republic was granted leave to intervene in the case in support of the Cooperative.

2. Article 1 of the Decision at issue states that the exclusive purchasing arrangements resulting from the rules of the Cooperative and the obligation laid down in those rules requiring a resigning member to pay a sum proportional to the quantity of rennet purchased each year from the Cooperative constitute infringements of Article 85 (1) of the treaty. Article 2 of the Decision refuses to apply Article 85 (3) of the treaty. Article 3 of the Decision requires the Cooperative and its members to bring to an end the infringements referred to.

3. The rules of the Cooperative require its members to purchase from it all the quantities of rennet and colouring agents for cheese which they require for their own use. A fine of HFL 500 is imposed if there is an infringement of that obligation. In the event of infringement of the rules any member may be expelled from the Cooperative. In the event of the resignation or expulsion of a member the rules stipulate that the member shall pay to the reserve fund of the Cooperative a sum of HFL 2.50 per litre of the average annual quantity of rennet purchased from the Cooperative over the previous five years ' membership.

4. According to the contested Decision the Cooperative manufactures 100% of Netherlands rennet output and approximately 90% of the output of colouring agents for cheese, and supplies 94% of its rennet output and 80% of its colouring agent output to its members which, according to the Commission , represent more than 90% of the Netherlands dairy-products industry. The remainder of the output is sold to non-member Netherlands cheese-makers. As regards intra-Community trade in rennet, including synthetic rennet, the Decision states that between 1976 and 1978 the Netherlands imported 16 tonnes of rennet from other Member State whilst the other Member States, Belgium and Luxembourg being treated as one market, imported quantities from 113 to 745 tonnes. Finally, it may be seen from the Decision that the value of the Cooperative's output of colouring agents is minimal compared to that of its rennet output which in 1978 was 830 000 litres.

5. In the Decision the Commission's finding as to the application of Article 85 (1) is that both the exclusive purchasing obligation, which is enforced by the threat of a fine and reinforced by possible expulsion and the payment of a sum for infringement of that obligation, and the obligation to pay an equivalent sum in the event of resignation, appreciably restrict competition within the common market and are liable to affect appreciably trade between Member States as their effect is to prevent the Cooperative's members, which represent over 90% of the Netherlands dairy products industry, from purchasing the products in question from other suppliers located, in particular, in other Member States.

6. The Commission accepts in the Decision that the first two conditions contained in Article 85 (3) are fulfilled because the forming of the Cooperative has contributed to improving the production and distribution of the products in question while allowing consumers a fair share of the resulting benefit. The third and fourth conditions are not met, however, first because there are less restrictive solutions for attaining the advantages obtained by the Cooperative, such as, for example, an obligation to purchase a limited quantity of products, or an obligation to give notice of withdrawal and, secondly, because competition is virtually eliminated on almost the whole of the Netherlands market in the products in question.

7. The Decision rules out the application of Regulation No 26-62 of the Council of 4 April 1962 applying certain rules of competition to production of and trade in agricultural products (Official Journal, English special edition 1959-1962, p. 129) on the ground that the scope of that Regulation is determined by annex II to the treaty in which rennet is not listed.

8. In support of its application for a declaration that the contested Decision is void the Cooperative makes seven submissions based on the infringement of Article 85 (1) and (3) and Regulation No 26-62. The main purpose of the French Government's intervention is to safeguard the particular requirements and needs of agricultural cooperation in general.

Article 85 (1)

9. In its first submission the Cooperative denies that the exclusive purchasing obligation appreciably restricts competition in the common market. That obligation is intended not to restrict competition but to promote optimum rennet output and to guarantee members ' supplies. The Decision at issue prejudices the traditional system of cooperatives for which the exclusive purchasing obligation is a fundamental condition. From the point of view of Article 85 (1) of the treaty cooperatives in the agricultural sector should not be regarded as independent undertakings but as a form of cooperation necessarily based on the exclusive purchasing obligation which cannot therefore restrict competition between the Cooperative on the one hand and its members or third parties on the other. Nor can it restrict competition between members. That competition operates without limitation on the market in cheese.

10. The Cooperative's second submission is to the effect that the exclusive purchasing obligation is not liable to affect trade between Member States because both the members of the Cooperative and non-member Netherlands manufacturers have always bought all their rennet and colouring agents from the Cooperative and would continue to do so even if that obligation did not exist.

11. In its third submission the Cooperative contends that the sum to be paid in the event of a member's expulsion or resignation is not a serious obstacle for a member wishing to change its rennet supplier and in its fourth submission it states that the Commission was wrong to consider that if there were no requirement to pay a certain sum in the event of resignation that would help to set up competing production centres which might also be in a position to sell rennet in other Member States. Common production is the only way of guaranteeing regular supplies of rennet of good, consistent quality. There is no market in animal rennet as a commercial product at community level and that is because the relative value of rennet in relation to that of cheese is too low. Regular supplies of rennet of good, consistent quality are so important that cheese-makers try to maintain a stable relationship with a trustworthy supplier.

12. Before evaluating those arguments it should be recalled that for the agreement at issue to be caught by the prohibition contained in Article 85 (1) it must have "as its object or effect the prevention, restriction or distortion of competition within the common market". The Cooperative's rules, which require its members to purchase from the Cooperative all the rennet and colouring agents for cheese which they need, and which reinforce that obligation by stipulating the payment of a not inconsiderable sum in the event of resignation or expulsion, have clearly as their object to prevent members from obtaining supplies from other suppliers of rennet or colouring agents or from making them themselves should those alternatives offer advantages from the point of view of quality or price. Since, according to information which has not been challenged, the members now account for more than 90% of Netherlands cheese output, those provisions in addition contribute to maintaining the present situation, in which the Cooperative is virtually the only supplier of rennet on the Netherlands market.

13. Those provisions are thus of such a nature as to prevent competition, at the level of the supply of rennet and colouring agents for cheese, between producers holding a large part of the Community market in cheese, and also tend to rule out the possibility of creating a competitive situation on the whole of the Netherlands market in these ancillary substances which are indispensable in the making of cheese. In the circumstances, there is no need to examine the question whether other factors help to maintain the Cooperative's dominant position on the relevant market and whether such factors are sufficient to consolidate that position, even in the absence of the aforesaid provisions.

14. In order to determine whether the agreement is contrary to Article 85 (1) it is also necessary to consider whether it is liable to affect trade between Member States, that is to say whether, according to the consistent case-law of the Court, it is possible to foresee with a sufficient degree of probability that it may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States, thus rendering more difficult the interpenetration of trade which the treaty is intended to create.

15. It emerges from information supplied by the Commission that there is already trade in animal rennet and colouring agents between Member States and no mention has been made of technical or economic difficulties standing in the way of the expansion of such trade. On the other hand, bearing in mind the economic context to which they belong, the obligations contained in the rules of the Cooperative are precisely of such a nature as to reinforce the partitioning of markets on a national basis, thereby holding up the economic interpenetration which the treaty is designed to bring about.

16. The Cooperative's first four submissions should therefore be rejected.

Article 85 (3)

17. The Cooperative's sixth and seventh submissions are to the effect that not only are the first two conditions of Article 85 (3) of the treaty fulfilled, as the Commission agreed in its Decision, but that the third and fourth conditions of that provision are fulfilled as well. The exclusive purchasing obligation and the obligation to pay a sum in the event of resignation are indispensable measures for the attainment of the advantages acknowledged by the Commission in its Decision and they do not afford the Cooperative the possibility of eliminating competition on a substantial part of the common market.

18. In this regard it is necessary to recall once again the factor of assessment contributed by the Cooperative's position on the Netherlands market in the products in question. It is accepted that the members of the Cooperative account for more than 90% of cheese output in the Netherlands and that non-member Netherlands producers also buy virtually all the rennet which they need from the Cooperative. In those circumstances provisions of such a constraining nature as a 100% purchasing obligation, reinforced by an obligation to pay a not inconsiderable sum in the event of a resignation or expulsion, are not indispensable for the attainment of the objects referred to in Article 85 (3). What is more, it follows from the foregoing that those provisions in any event contribute to maintaining a situation in which competition is eliminated in respect of a substantial part of the products in question. The Commission was therefore right to find that the last two conditions for the application of Article 85 (3) are not fulfilled.

The applicability of Regulation No 26-62

19. The Cooperative's fifth submission is to the effect that by virtue of Regulation No 26-62 Article 85 (1) of the treaty does not apply in this case because animal rennet comes under heading 05.04 or heading 05.15 of the Customs Cooperation Council Nomenclature, which are cited in annex II to the treaty, and not under heading 35.07 under which, according to the explanatory notes on the Customs Cooperation Council Nomenclature, that product is wrongly classified. Furthermore the Cooperative stresses the point that Article 38 (1) of the treaty provides that "agricultural products " means not only the products of stockfarming but also products of first-stage processing directly related to those products. Even if animal rennet does not fall under annex II to the treaty it still comes under Regulation No 26-62 because the production in question is necessary to attain the objectives stated in Article 39 of the treaty and because the Cooperative must be regarded as a collective organization for the processing of agricultural products within the meaning of Article 2 of that Regulation.

20. Since there are no Community provisions explaining the concepts contained in annex II to the treaty and that annex adopts word for word certain headings of the Customs Cooperation Council Nomenclature, it is appropriate to refer to the explanatory notes on that nomenclature in order to interpret the annex. According to the explanatory note on heading 35.07 animal rennet comes under that heading and does not therefore come under the headings listed in annex II to the treaty.

21. According to Article 42 of the EEC treaty the provisions of the chapter relating to rules on competition are to apply to production of and trade in agricultural products only to the extent determined by the Council. Article 38 (3) of the treaty provides that the products subject to the provisions of Articles 39 to 46 are listed in annex II to the treaty and that the Council could add other products to annex II within two years of the entry into force of the treaty. It was in accordance with those provisions of the treaty that the scope of Regulation No 26-62 applying certain rules of competition to production of and trade in agricultural products was restricted by Article 1 thereof to the production of and trade in the products listed in annex II to the treaty. That Regulation may not therefore be applied to the manufacture of a product which does not come under annex ii even if it is a substance ancillary to the production of another product which itself comes under that annex. In order for the Regulation to be applicable to rennet that product must therefore itself come under annex II to the treaty. It follows that Regulation No 26-62 can have no application in this case and that the applicant's fifth submission must be rejected.

The observations of the Government of the French Republic

22. The Government of the French Republic submits inter alia that, even outside the scope of Regulation No 26-62, it is necessary when assessing the possible effects of competition to take the greatest possible account of the specific circumstances of agricultural production and the particular requirements of the special kind of organization constituted by agricultural cooperation. In its view, by virtue of its very object, which is to enable small farms to have common use of all the means required to further their economic activities, agricultural cooperation requires the creation of preferential ties between the farmers on the one hand and the farmers and the Cooperative on the other. Thus, in the view of the French Government, neither an exclusive supply obligation nor an obligation to pay a severance fee, unless the latter is prohibitive, cannot be regarded as being, in principle, incompatible with Article 85 (1). As such obligations are more often than not indispensable in order to enable a Cooperative to be set up with reasonable chances of success, it is not possible either to rule out comprehensively the application of Article 85 (3).

23. The French Government accordingly takes the view that any effect which the Cooperative may have on competition could form the legal basis for the contested Decision only by virtue of the quasi-monopoly which it has acquired on the Netherlands market in rennet and colouring agents.

24. During the oral proceedings the Commission stated that it was largely in agreement with the points of view of the French Government as far as typical farming cooperatives were concerned.

25. In those circumstances, and bearing in mind that the contested Decision describes in detail the particular economic context to which the relevant provisions belong, it should be stated that as the position of the farming cooperatives referred to by the French Government comes within a different context, it is not at issue in the present case.

26. For all those reasons the application must be rejected in its entirety.

27. Under Article 69 (2) of the rules of procedure the unsuccessful party is to be ordered to pay the costs. Since the applicant has been unsuccessful it must be ordered to pay the costs.

THE COURT,

Hereby :

1. Dismisses the application;

2. Orders the applicant to pay the costs.