CJEC, October 24, 1973, No 10-73

THE COURT

1 By order dated 8 november 1972, lodged at the registry on 19 february 1973, the baden-wuerttemberg finanzgericht referred to the court for a preliminary ruling the question of the interpretation and validity of various provisions contained in regulation n° 974-71 of the council of 12 may 1971, concerning certain measures of conjunctural policy to be taken in agriculture following the temporary widening of the margins of fluctuation for the currencies of certain member states (oj l 106 of 12 may 1971, p.1), and on the interpretation of articles 5 and 107 of the eec treaty and the resolution adopted by the council and government representatives of the member states of 22 march 1971 on the establishment in stages of an economic and monetary union within the community (oj c 28 of 27 march 1971, p.1).

2 On 16 may 1972 the plaintiff in the main action imported 19 200 kg of peach preserves from france into the federal republic of germany, and was charged, under regulation n°974-71, compensatory amounts at the rate of 0. 32 dm per 100 kg, a sum calculated, for products from france under tariff heading 20. 06, by reference to the annexes to regulation n°979-72 of 12 may 1972 (oj l 113 of 15-5-1972, p.2) in conjunction with regulation n°980-72 of the commission (oj l 113 of 15-5-1972, p.64).

The plaintiff brought an action in the finanzgericht disputing the amounts charged, claiming that the system of compensatory amounts introduced by regulation n°974-71 was incompatible with the treaty.

Analysis of the compensatory amounts system

3 As a result of the increasing influx of foreign currency and short-term speculative capital in the early months of 1971 and the effects produced by this in some member states, especially the federal republic of germany and the netherlands, the council indicated in a resolution of 9 may 1971 (oj c 58 of 10-6-1971, p.1) that it was prepared to envisage " that, in certain cases, these countries might, for a limited period, widen the margins of fluctuation for the exchange rates of their currencies in relation to their (present) parities ".

In the same resolution, the council emphasized that under normal circumstances a system of floating currencies such as this would not be compatible with the proper functioning of the common market, and " so as to avoid resort to unilateral measures ", decided that it was desirable for it to adopt " immediately, in accordance with article 103 of the treaty. . . " appropriate measures in the agricultural sector.

4 The organization of agricultural markets is designed, inter alia, to ensure a fair standard of living for the agricultural community and to stabilize markets, in particular by means of a stable price system whereby target prices, threshold prices and intervention prices are determined on the basis of fixed parities for the currencies of the various member states by reference to a single unit of account.

Since it was not possible to fix new parities while the dm and the guilder were floating, the price levels considered to be appropriate continued to be determined and calculated, for products with fixed intervention prices and for products whose price depends on the price of the first-mentioned products, on the basis of the parities previously declared to the imf, even for the netherlands and the federal republic.

But while these prices thus remained unaltered in theory, they were in fact reduced - particularly when they were expressed in dm - in proportion to the effects of the de facto revaluation of this currency, causing disturbances in agricultural trade detrimental to producers and capable of disrupting the intervention system established by community legislation.

5 As a result, the council decided that the measures to be taken immediately should consist in the introduction of a system of compensatory amounts which these member states would be authorized to charge on imports and grant on exports in their trade both with other member states and with third countries, with a view to offsetting the effects of the monetary measures on the price of basic products for which intervention prices have been imposed, and for agricultural products whose price depends on the price of those products.

6 Under article 2 of regulation n°974-71, the compensatory amounts are obtained by applying to the prices of agricultural products covered by intervention arrangements the percentage difference between the official parity and the true parity of the national currency in relation to the us dollar.

For the other products covered by regulation n°974-71, the compensatory amounts are equal to the incidence, on the price of the products concerned, of the application of the compensatory amount to the price of the product on which they depend.

Moreover, according to the last sentence of article 1 of the regulation, compensatory amounts can be charged only where the monetary measures would lead to disturbances in trade in the agricultural products mentioned.

It is for the commission, after obtaining an opinion from the management committees, to decide whether or not such a situation exists.

Finally, article 8 of the above regulation states that the latter shall cease to be applicable as soon as all the member states concerned again apply the international rules on margins of exchange rate fluctuation around official parity.

7 Owing to the deterioration of the monetary situation, particularly the suspension of the convertibility of the dollar on 15 august 1971 and the subsequent floating of belgo-luxembourg economic union currencies from 23 august 1971, the system of compensatory amounts was extended to a wider range of products and to the exports and imports of those member states.

At the washington conference on 18 december 1971 the rates of exchange were closely re-defined in relation to the dollar in the form of central rates, the margins of fluctuation remaining, however, wider than those authorized under the bretton woods agreements.

Nevertheless, since no official change of parities followed these decisions, and the monetary system was still in disarray, the compensatory amounts scheme was extended to france and italy and to all the agricultural products mentioned in article 1 of regulation n°974-71.

8 Subsequently to the facts giving rise to the action the council, by regulation n°2746-72 of december 1972, made the compensatory amounts scheme compulsory and " incorporated " it into the framework of the common agricultural policy, giving articles 28, 43 and 235 of the treaty as its basis.

9 The circumstances outlined above and their continuing development must be borne in mind in considering the intervention made by the council and the commission.

I - Question one

10 The first question asks whether regulation n°974-71 is valid insofar as it authorizes the charging of compensatory amounts in trade between member states.

(a) The legal basis of regulation n°974-71

11 This question concerns, first, whether the validity of the above regulation could be affected by the fact that it is based on article 103 of the treaty, which does not touch on the common agricultural policy, the latter being governed by the specific provisions of articles 38 to 47 of the treaty, and that in any case, the said article 103 authorizes only the adoption of conjunctural measures, which the disputed measures are not.

12 Article 40 of the treaty states that member states shall bring the common agricultural policy into force by the end of the transitional period at the latest and that, in order to attain the objectives set out in article 39 a common organization of agricultural markets is to be established.

The same article provides that this common organization may include any measures required and in particular regulation of prices, aids for production and marketing, storage and carry-over arrangements and common machinery for stabilizing imports and exports.

By virtue of the third paragraph of article 43 (2), the council shall, on a proposal from the commission and after consulting the assembly, acting, after the end of the second stage of the transitional period, by a qualified majority, make regulations, issue directives, or take decisions in this sphere.

It is evident from these provisions that the powers conferred for implementing the common agricultural policy do not relate merely to possible structural measures but extend equally to any immediate short-term economic intervention required in this area of production, and that the council is empowered to resort to them in accordance with the decision-making procedures there set out.

13 On the other hand, article 103 refers to member states' conjunctural policies, which they must regard as a matter of common concern.

Consequently it does not relate to those areas already subject to common rules, as is the organization of agricultural markets.

The real object envisaged by article 103 is the coordination of member states' conjunctural policies, and, according to the terms of paragraph 2 of that article, the adoption of common measures appropriate to the situation.

14 The floating of the exchange rates for the german and dutch currencies, deemed essential if the wave of speculative capital into the federal republic and the netherlands was to be checked, imperilled the unity of the common market and made measures designed to safeguard the machinery and objectives of the common agricultural policy imperative.

The introduction of compensatory amounts was not intended to provide extra protection, but to maintain uniform prices, the foundation of the present organization of the markets, despite the temporary departure from fixed parities, thus preventing the collapse of the intervention price system and preserving the normal flow of trade in agricultural products both within the community and with third countries.

These measures, intended to compensate temporarily for the harmful effects of national monetary measures, so that the process of economic integration may meanwhile continue its progress, are of an essentially transitory nature, and would normally have had to be adopted by virtue of the powers conferred on the council by articles 40 and 43 and in accordance with the procedures set out therein, in particular after consulting the assembly.

15 However, owing to the time needed to give effect to the procedures laid down in articles 40 and 43, a certain amount of trade might then have passed free of the regulations, and this could jeopardise the relevant common organizations of the market.

There being no adequate provision in the common agricultural policy for adoption of the urgent measures necessary to counteract the monetary situation described above, it is reasonable to suppose that the council was justified in making interim use of the powers conferred on it by article 103 of the treaty.

Consequently, while the suddenness of the events with which the council was faced, the urgency of the measures to be adopted, the seriousness of the situation and the fact that these measures were adopted in an area intimately connected with the monetary policies of member states, the effects of which they had partially to offset, all prompted the council to have recourse to article 103, regulation n°2746-72 shows that this state of affairs was only a temporary one, since the legal basis for the measure was eventually found in other provisions of the treaty.

(b) The form in which the disputed measure was adopted

16 the next question is whether regulation n°974-71 is invalid on the ground that article 103 of the treaty, notably in paragraph 3, authorizes the adoption of measures only in the form of a directive or decision, not in the form of a regulation.

It is alleged that such an interpretation is borne out by the wording of article 103 and is justified in view of the fact that in the realm of conjunctural policy no more than a coordinating role has been given to the institutions.

17 Although by article 103 (1) member states are bound to regard their conjunctural policies as a matter of common concern, the wording does not preclude community institutions from having power to lay down themselves, without prejudice to other procedures set out in the treaty, conjunctural measures on matters within the spheres of their competence.

On the contrary, article 103 (2), by declaring that the council may, " acting unanimously. . . Decide upon the measures appropriate to the situation ", confers on that body - subject to the condition referred to above - the powers necessary to adopt, in principle, any conjunctural measures which may appear to be needed in order to safeguard the objectives of the treaty.

Without some such faculty, the natural concomitant of any kind of economic administration, the institutions of the community would find it impossible to accomplish the tasks entrusted to them in this field.

18 The phrase " measures appropriate to the situation " in article 103 (2) means that, as regards form, too, the council may choose whichever seems best suited to the case in hand.

Subject to the requirement of a unanimous decision, article 103 (2) refers to the general procedures whereby the council may exercise its powers, described in articles 145, 155 and 189, including, therefore, its right to delegate to the commission the implementation of regulations it has laid down.

Article 103 (3) differs from article 103 (2) in that, as the use of the phrase " where required " shows, it envisages the possibility that the council might not be able to reach the unanimity required to carry into effect the rules for the application of the conjunctural measures decided on.

In that circumstance only, these rules would be binding on member states so far as they concerned the result to be obtained, but would have to leave to the national authorities the choice of form and method.

(c) Whether the application of compensatory amounts within the community is compatible with articles 8, 9, 12 and 13 of the treaty

19 Next, it is asked whether the disputed regulation can be reconciled with the prohibition, at the end of the transitional period, against all customs duties or charges having equivalent effect on imports and exports in trade between member states, under articles 8, 9, 12 and 13 of the treaty.

20 Although the compensatory amounts do constitute a partitioning of the market, here they have a corrective influence on the variations in fluctuating exchange rates which, in a system of market organization for agricultural products based on uniform prices, might cause disturbances in trade in these products.

Diversion of trade caused solely by the monetary situation can be considered more damaging to the common interest, bearing in mind the aims of the common agricultural policy, than the disadvantages of the measures in dispute.

Consequently these compensatory amounts are conducive to the maintenance of a normal flow of trade under the exceptional circumstances created temporarily by the monetary situation.

They are also intended to prevent the disruption in the member state concerned of the intervention system set up under community regulations.

Furthermore, these are not levies introduced by some member states unilaterally, but community measures which, bearing in mind the exceptional circumstances of the time, are permissible within the framework of the common agricultural policy.

21 Thus the council, by adopting them, did not contravene the provisions referred to by the national court.

Ii - question two

22 The second question asks whether the authorization to charge compensatory amounts was no longer valid on 16 may 1972 - the date of the importation in question - by virtue of article 8 (2) of regulation n°974-71.

The point raised by this question is whether or not the conditions imposed by article 8 of regulation n°974-71 for its ceasing to be applicable had been met on that date by reason of the fact that, after the washington agreement of 18 december 1971, member states had decided not to float their currencies, while accepting a margin of fluctuation for exchange around a rate, known as a central rate, greater than that permitted by the bretton woods agreements.

23 Article 8 of regulation n°974-71 provides that it shall cease to be applicable as soon as all the member states concerned again apply the international rules on margins of exchange rate fluctuation around official parity.

This provision envisages the abolition of compensatory amounts as soon as all the member states have decided to observe again the original parities, or new parities declared to the imf.

24 The agreement of 18 december 1971 did not meet these requirements.

Far from restoring fixed parities, the countries concerned merely agreed that they would maintain, as far as possible, central rates, which were subject to alteration; the agreement also allowed margins of fluctuation around these rates of 2. 25 per cent above and below, sometimes equalling the very fluctuations which had prompted the introduction of compensatory amounts.

Moreover, even after the agreement mentioned, the trend towards the revaluation of certain currencies in the community continued within the scope of the widened margins of fluctuation; at the time of the disputed imports, the difference between the dm and its old official parity had reached 13 per cent, where it remained until the devaluation of the dollar on 8 may 1972.

Finally, the fact that it was certain that the member states concerned would not go back to the old parities against the dollar was not relevant, since the international rules mentioned in article 8 do not provide for one set parity but for a system of fixed parities.

Iii - question three

25 The third question asks whether articles 5 and 107 of the treaty, and the resolution adopted by the council and government representatives of the member states of 22 march 1971 on the establishment by stages of an economic and monetary union should be interpreted as prohibiting member states, at the time of the importation in dispute, from " freeing their rates of exchange ", that is, from floating their currencies.

26 One of the cardinal aims of the treaty is to create a single economic region, free from internal restrictions, in which economic and customs union may be progressively achieved.

This requires the parities between the currencies of the various member states to remain fixed; as soon as this requirement ceases to be met, the process of integration envisaged by the treaty will be retarded or prejudiced.

It is therefore the duty of the community institutions and of member states to cooperate in and to ensure the creation and maintenance of these conditions.

To that end, article 3 (g) provides for the procedures to be followed in order to coordinate the economic policies of member states and to remedy any disequilibria in their balances of payments.

But until the procedures envisaged by this provision have been put into operation, articles 5 and 107 allow member states, despite the duty imposed on each of them to regard its policy on rates of exchange as a matter of common concern, such freedom of decision that the obligation contained in these articles 5 and 107 cannot confer on interested parties rights which the national courts would be bound to protect.

27 Moreover, the council resolution of 22 march 1971, which is primarily an expression of the policy favoured by the council and government representatives of the member states concerning the establishment of an economic and monetary union within the next ten years following 1 january 1971, cannot for its part, either, by reason of its content, create legal consequences of which parties might avail themselves in court.

28 The costs incurred by the government of the federal republic of germany, the council and the commission of the european communities, which have submitted observations to the court, are not recoverable, and as these proceedings are, insofar as the parties to the main action are concerned, in the nature of a step in the action pending before a national court, the decision on costs is a matter for that court.

In answer to the questions referred to it by the finanzgericht of baden-wuerttemberg by an order of that court dated 8 november 1972, hereby rules:

1 Examination of the questions referred has not revealed any elements capable of affecting the validity of regulation n°974-71 of the council nor that of regulations nos 979-72 and 980-72 of the commission fixing the compensatory amounts applicable during the period indicated in the questions referred.

2 Neither articles 5 and 107 of the treaty, nor the resolution adopted by the council and government representatives of the member states of 22 march 1971 on the establishment in stages of an economic and monetary union, can be interpreted as in themselves imposing on member states a prohibition against altering the parity of the rates of exchange for their currency otherwise than by establishing a new fixed parity, which might be invoked by interested parties in the national courts.