CJEC, December 10, 1969, No 6-69

THE COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES,

1. By a communication dated 12 June 1968 the Government of the French Republic requested the Commission's agreement for the purpose in particular of : "maintaining and even increasing temporarily the advantage granted to French exporters by the preferential rediscount rate applied by the Banque de France for short and long-term credits given for exports to countries of the community".

2. On 24 and 26 June 1968 it stated that it was making these measures applicable on 1 July 1968 as protective measures under articles 108 and 109 of the EEC treaty.

3. On 6 and 23 July 1968 the Commission adopted two decisions based respectively on articles 67 of the ECSC treaty and 108 (3) of the EEC treaty authorizing the said Government to maintain a preferential rediscount rate on the export on the one hand of steel products and on the other of products falling within the EEC treaty.

4. These decisions state that the difference between the preferential rate, the retention of which they authorize temporarily, and the general rate may not exceed 1.5 points as from 1 November 1968 and has to be abolished at the latest on 31 January 1969.

5. It is not disputed that a difference in excess of 1.5 points has been retained after 1 November 1968.

6. The Commission, taking the view that the Government of the French Republic had thus failed to comply with its obligations under the treaties, took on 18 December 1968 under article 88 of the ECSC treaty a decision requiring that Government to conform to the decision of 6 July 1968 and, as regards the failure to comply with the decision of 23 July 1968, delivered the reasoned opinion provided for by article 169 of the EEC treaty.

7. Subsequently it brought the application in case 6-69 before the court under the same article 169.

8. For its part by the application in case 11-68 the Government of the French Republic has requested the court under article 88 of the ECSC treaty to annul the decision of 18 December 1968 and to rule that it could without being in breach of its obligations under the said treaty maintain a preferential rediscount rate for exports to other Member States.

9. The two cases largely raise the same questions to be decided and it is therefore proper to join them for the purpose of the judgment.

A - case 6-69 (EEC)

10. Against the proceedings brought by the Commission under the EEC treaty the Government of the French Republic alleges that " the rules of the treaty are deficient in the monetary sphere " and states that the fixing of the discount rate falls directly within monetary policy which is a matter in which the Member States alone are competent and that therefore by starting the proceedings which led to the decision of 23 July 1968 the Commission acted unlawfully by arrogating to itself jurisdiction which the treaty denies it.

11. Since no proceedings for annulment were brought within the period prescribed by the third paragraph of article 173 of the treaty, the decision of 23 July 1968 must be considered as definitive.

12. Without disputing that it allowed this period to elapse, the Government of the French Republic on the one hand refers to public policy within the community and on the other hand takes the view that "too exclusive an attachment to forms (is) as incompatible with the true community spirit as disregarding them". It states, however, that this decision was taken in a sphere which belongs exclusively to the jurisdiction of Member States.

13. If this allegation were valid, the abovementioned decision would lack all legal basis in the community legal system and in proceedings where the Commission in the interest of the community is taking action for failure by a state to fulfil its obligations, it is a fundamental requirement of the legal system that the court should investigate whether this is the case.

14. Although under article 104 of the treaty Member States are responsible for ensuring the equilibrium of their total balance of payments and for maintaining confidence in their currency, their obligation under articles 105 and 107 is no less to coordinate their economic policies for this purpose and to treat their policies on exchange as a matter of common concern.

15. Articles 108 (3) and 109 (3) confer powers of authorization or intervention on the community institutions which would be otiose if the Member States were free, on the pretext that their action related only to monetary policy, unilaterally to derogate from their obligations under the provisions of the treaty and without being subject to control by the institutions.

16. The solidarity which is at the basis of these obligations as of the whole of the community system in accordance with the undertaking provided for in article 5 of the treaty, is continued for the benefit of the states in the procedure for mutual assistance provided for in article 108 where a Member State is seriously threatened with difficulties as regards its balance of payments.

17. The exercise of reserved powers cannot therefore permit the unilateral adoption of measures prohibited by the treaty.

18. Under article 92 the Member States have agreed that any aid granted by them in any form whatsoever which distorts or threatens to distort competition is incompatible with the Common Market.

19. It cannot be otherwise under article 92 (3) (b) except in the case of a serious disturbance in the economy of a Member State and subject to the conditions laid down in article 93, that is to say, after a decision of the Commission and, where appropriate, of the council.

20. A preferential rediscount rate for exports, granted by a state in favour only of national products exported and for the purpose of helping them to compete in other Member States with products originating in the latter, constitutes an aid within the meaning of article 92 the observance of which it is the Commission's task to ensure.

21. Neither the fact that the preferential rate in question is applicable to all national products exported and only to them nor the fact that in establishing it the French Government may have resolved to approximate the rate to those applied in the other member countries can remove from the measure in question the character of an aid which is prohibited except in the cases and procedures provided for by the treaty.

22. As a result prior authorization by the Commission was necessary to establish or retain a preferential rediscount rate on exports and by making it subject to appropriate conditions the Commission has not impinged on the powers reserved to the Member States.

23. There is even less ground for challenging the necessity for this authorization in so far as by its communication of 12 June 1968 the French Government itself applied to the Commission to " retain and even increase " the privileged rediscount rate for exports to the other countries of the community.

24. In view of the definitive nature of the decision in question it is not necessary to consider the other submissions which the French Government has put forward outside the procedures and time-limits laid down in the treaty and the observance of which is required in the interest both of the states themselves and of the community.

25. The Government of the French Republic further pleads that the retention beyond 1 November 1968 of the difference between the preferential rediscount rate and the general rate constitutes a new protective measure within the meaning of article 109 of the treaty justified by the fresh monetary crisis which occurred during the autumn of 1968.

26. It says that the Commission could not interrupt the effects of this measure by pursuing proceedings for failure by a state to fulfil its obligations which related to a situation overtaken by events and that by delivering the reasoned opinion of 18 December without having regard to the new circumstances, it infringed article 109 of the treaty.

27. This submission is admissible since it is based on new factors subsequent to the decision of 23 July 1968.

28. In the event of urgency and when a decision of the council within the meaning of article 108 (2) is not forthcoming immediately, article 109 allows, as a precaution, unilateral action by a Member State and leaves this latter to decide the circumstances which render such action necessary.

29. However, since they relate to measures of derogation which are likely to cause disturbances in the functioning of the Common Market, they are both exceptional and precautionary and therefore only temporary pending an examination of their validity, which must take place as soon as possible, and any action which may be taken under articles 108 and 109.

30. In the event of unilateral action by a state derogating from the provisions of the treaty, intervention by the community institutions as soon as possible meets a fundamental requirement for the functioning of the Common Market.

31. Observance of this requirement requires that a state which takes advantage of the exceptional power contained in article 109 (1) should immediately - or not later than when such measures enter into force - inform the Commission and the other Member States and make express reference to this provision.

32. These provisions, which are to be derived from the very nature of the unilateral protective measures, have not been observed in the present case.

33. Although the content of the verbal communication of 5 November 1968 is disputed by the parties and has not been clearly established, it is however common ground that the letter from the French Government dated 13 December 1968 justifies the retention of the difference in question only on the ground of the necessity of avoiding disruption of the forward planning of French undertakings and the consideration that the increase in the general rediscount rate from 5 per cent to 6 per cent which occurred after 12 November 1968 raised in a different way the question of fixing the rediscount rate for exports.

34. The submission based on article 109 is therefore unfounded.

35. The Government of the French Republic then argues that its challenge to the legality of the reasoned opinion of 18 December 1968 is in any case admissible and well founded.

36. This opinion constitutes only the pre - litigious stage of a procedure which may lead to an action before the court of justice and the assessment of the validity of this opinion merges with that of the validity of the action itself which the Commission has brought before the court of justice under article 169.

37. The submission that the reasoned opinion is illegal must therefore be dismissed.

38. Consequently the retention after 1 November 1968 of a difference in excess of 1.5 points between the preferential rediscount rate for exports to other Member States and the general rate constitutes a failure to fulfil the obligations arising from decision no 68-301-EEC of 23 July 1968.

B - case 11-69 (ECSC)

39. In support of its application for annulment the French Government states in the first place that to give exports of steel products the benefit of a preferential rediscount rate it was not bound to request the Commission under the ECSC treaty to give it the authorization which it granted on 6 July 1968 because the advantage given to these products was included in a general measure which was not specific to the ECSC sector and which was therefore with regard to this treaty within the powers reserved to the states.

40. Since no action for annulment was brought within the time-limits laid down by article 33 of the treaty, the decision of 6 July 1968 must be considered as definitive.

41. In the exercise of their reserved powers the Member States can derogate from the obligations imposed on them by the provisions of the treaty only on the conditions laid down in the treaty itself.

42. Article 4, in particular, declares subsidies or aids granted by states, or special charges imposed by states, "in any form whatsoever", to be incompatible with the Common Market for coal and steel.

43. The second subparagraph of article 67 (2) of the ECSC treaty in providing for situations enabling the Commission to authorize Member States, in derogation from article 4, to grant aid, does not distinguish between aid specific to the coal and steel sector and aid which applies to it as the result of a general measure.

44. A preferential rediscount rate for exports therefore constitutes aid which, within the meaning of article 67, must be authorized by the Commission in so far as it concerns the coal and steel sector.

45. The present case concerns the case provided for in the second subparagraph and not in the third subparagraph of article 67 (2) so that the Commission had to take action by way of a decision and not a recommendation.

46. By making representations to the Government of the French Republic for the purpose of asking it to conform to the provisions of the treaty and by making its decision of 6 July 1968 subject to appropriate conditions, the Commission did not therefore encroach on the sphere reserved to the states.

47. In view of the definitive nature of that decision it is not necessary to consider the other submissions of illegality raised against it.

48. The applicant argues, however, that even in the event of the objections against the decision of 6 July 1968 on the ground of illegality being inadmissible, it may nevertheless be heard to contest the legality of the decision of 18 December 1968 which it claims is tainted with the same defects as that of 6 July 1968.

49. The sole objective of the decision in question under article 88 of the ECSC treaty is to record the state's failure to fulfil a pre - existing obligation and to set a final time - limit for it to comply therewith.

50. In the present case this decision has not burdened the state with any obligations other than those which it previously had.

51. Although a state which is accused of failure to fulfil an obligation is entitled to dispute by means of the procedure of article 88 the new conditions of implementation which the decision has set it, such power cannot result in re-opening the question of the legality of the measure, which the state has not complied with, after the expiry of the period for bringing proceedings for annulment.

52. The complaints made against the decision of 18 December 1968 are identical in every respect with those made against the decision of 6 July 1968, the sole object of the later decision being to ensure the execution of the earlier one.

53. These submissions must therefore be dismissed as inadmissible.

54. The French Government goes on to argue alternatively that under the second subparagraph of article 67 (2) of the treaty the amount, conditions and duration of any aid authorized by the Commission must be determined by the Commission in agreement with the state concerned and that even if it had given its agreement to the decision of 6 July 1968, a new factor had occurred in October 1968 in the form of a new monetary crisis.

55. It says that on 5 November and 13 December 1968 it made it known that these new circumstances were leading it not to reduce the difference between the rediscount rates and that it therefore withdrew the agreement which it had previously given.

56. Independently of the question of the degree of seriousness of these circumstances, it does not follow from their occurrence that the conditions of the authorization granted on 6 July 1968 therefore lapsed or that the state concerned could unilaterally loose itself from the obligations which it had accepted.

57. Under the ECSC treaty alone these circumstances could justify the French Government only in asking for a review of the decision of 6 July 1968.

58. Since this government did not have recourse to this possibility, the withdrawal of its agreement had no effect other than to put an end to its power to grant aid.

59. The application by the French Government must therefore be dismissed.

Costs

60. Under article 69 (2) of the rules of procedure the unsuccessful party shall be ordered to pay the costs.

61. The Government of the French Republic has been unsuccessful in its submissions.

The court

Hereby :

1. Declares that in maintaining after 1 November 1968, contrary to the decision of the Commission of 23 July 1968, a difference in excess of 1.5 points between the rediscount rate for claims for exports to other Member States and the general rate, the French Republic has failed to fulfil one of its obligations under the treaty establishing the European Economic Community;

2. Dismisses as unfounded the application of the Government of the French Republic against the decision taken by the Commission on 18 December 1968 under the treaty establishing the European coal and steel community;

3. Orders the Government of the French Republic to bear the costs.