CJEC, June 26, 1979, No 177-78

The court

1 By a judgment of 30 june 1978, received at the court of justice on 21 august 1978, the high court of ireland referred to the court of justice for a preliminary ruling under article 177 of the eec treaty a number of questions relating to the interpretation of articles 92 and 93 on the subject of aids granted by states, of article 16 relating to the abolition of customs duties on exports, of article 34 relating to the abolition of quantitative restrictions on exports, of article 37 of the treaty in conjunction with article 44 of the act of accession relating to state monopolies, of article 40 of the treaty and of regulation n°2759-75 of the council of 29 october 1975 on the common organization of the market in pigmeat (official journal l 282, p. 1) and of articles 85 and 86 of the eec treaty. These questions were raised in the context of an action between the Pigs and Bacon Commission (hereinafter referred to as ' ' the pbc ' '), a public body carrying out certain duties in the field of regulating the market in pigmeat and, more particularly, of bacon marketing, on the one hand, and a bacon exporter, mccarren & co. Ltd., on the other hand, in connexion with the imposition by the pbc of a levy intended to subsidize marketing outside ireland, and in particular in the united kingdom, of high quality bacon.

2 It appears from the judgment referring the matter to the court that ireland created as long ago as 1935, for the production and marketing of pigmeat in the form of bacon, a market organization managed as from 1939 by a public body, the pbc, composed of representatives of the government and of the trades interested, and endowed by law with extensive powers for controlling, as a central marketing agency, the whole of the sector in question. In order to finance its activities the pbc had the statutory right to charge a levy on pig carcasses intended for the manufacture of bacon. This levy was used on the one hand for financing the pbc ' s general activities intended to improve the production and marketing of bacon and, on the other hand, for the payment of a bonus - granted in fact in the form of a refund of a part of the levy charged - for the export, principally to the united kingdom, of high quality bacon.

3 At the time of ireland ' s accession to the community the compatibility of this system with community law was considered by the irish authorities and the trade circles concerned. It was conceded on that occasion that the powers and duties of the pbc might no longer be in all respects compatible with the requirements of community law. It was understood in consequence that the pbc would thenceforth relinquish its statutory powers and would carry out its duties in future only on a voluntary basis, which was accepted by all the representatives of the trades concerned.

4 However, there was one exception to the voluntary nature of the activities of the pbc from then on: the pbc still has the statutory right to charge the levy intended to finance its various activities and it also continues to pay a bonus for the export of high quality bacon, it being understood that the bonus is payable only to those of the producers who effect their exports through the intermediary of the pbc acting as a central marketing agency. It is common ground that the result of this is that all producers of carcasses intended for manufacture into bacon are compelled to pay the levy but only those who use the pbc as their intermediary receive the export bonus. This action essentially concerns the functioning of this levy/bonus scheme which, according to the information supplied by the national court, forms a distinct element in the whole of the pbc ' s activities.

5 It appears from the file that in the beginning the defendant in the main action took part in the arrangement made in the conditions described above between the irish authorities and the producers. During that period it paid the contribution on the carcasses intended for the production of bacon and exported its product through the intermediary of the pbc and drew the bonus. At a later stage mccarren & co. Felt that it could with greater advantage export its production directly and withdrew from the scheme as from 30 april 1975. From that date it has refused to pay the levy to the pbc and has been deprived of the export bonus.

6 The action brought against mccarren & co. Before the high court concerns the claim by the pbc for the levy to which it considers itself entitled by law. Mccarren & co. For its part has made a counterclaim for reimbursement of the levy paid by it subsequent to 1 february 1973, the date of the application in ireland of the common organization of the market in pigmeat and until it severed its links with the pbc.

7 Mc Carren & co. Claimed before the national court that the activities of the pbc as regards the charging of the levy on pig carcasses and the application of the proceeds to the payment of a bonus reserved exclusively for producers exporting their bacon through the intermediary of the pbc were incompatible with the eec treaty and the regulations relating to the common organization of the market in pigmeat.

8 Having regard to the arguments put forward by the parties to the dispute the high court referred to the court of justice for a preliminary ruling nine questions within the context of the principal proceedings and a tenth additional question relating to the counterclaim. The questions are as follows:

1. (a) Whether articles 92 and 93 are to be interpreted as imposing an obligation to inform the commission under paragraph (3) of article 93 of the agreement entered into as to the marketing system which would operate after 1 february 1973, and/or of the changes in the system which occurred since february 1973?

(b) If so, whether the failure to inform the commission means that the system was invalid for some or all of the period since 1973?

If the answers to (a) and (b) are in the affirmative, whether the levy is payable for the period of invalidity?

2.If the answer to 1 (a) is in the negative, whether article 92 is to be interpreted as imposing an obligation on a national court where it considers that a state aid may be incompatible with article 92 to refer to the european court of justice for decision the question whether the marketing system is incompatible with the provisions of article 92 (1) and (2) and if the question is answered affirmatively by that court whether the national court should then stay proceedings before it pending an adjudication on the system by the commission under article 93?

3. If the answers to 1 and 2 above are in the negative

(a) Then are articles 92 and 93 to be interpreted as meaning that when a state grants aid to which these articles apply the compatibility of the aid with the common market is a matter for determination by the commission and not for the national courts of member states?

(b) If (a) is in the negative whether these articles mean that state aid within the meaning of the articles is valid until a decision has been made on its compatibility with the common market by the commission under article 93 (2) notwithstanding the fact that aspects of the aid may conflict with obligations under community law other than those contained in articles 92 and 93?

(c) If the answers to (a) and (b) are in the negative are these articles to be interpreted as meaning that even if a portion of state aid is incompatible with the community law a levy raised to finance it is none the less payable?

4. Is article 16 to be interpreted as meaning that if the operation of the marketing system referred to above results in a restriction or hindrance of exports by firms independently of the central marketing agency a violation of this article has occurred and the levy payable to finance the system is irrecoverable?

5. Is article 34 to be interpreted as meaning that if the operation of the marketing system referred to above restricts or hinders exports by firms independently of the central marketing agency a violation of this article has occurred and that the levy payable as part of the system is irrecoverable?

6. Are articles 37 of the treaty and article 44 of the act of accession to be interpreted as meaning that the operation of the new marketing system referred to above meets the obligations imposed by those articles, (a) up to 31 december 1977 and (b) since that time? If not, is the levy which is paid as part of the system recoverable from 1 february 1973 to 31 december 1977, or (b) since that date?

7. Are article 40 and regulation n°2759-75 to be interpreted as meaning that the marketing system referred to above is incompatible with the community common organization of the market in pigmeat and accordingly invalid? If so, is the levy payable as part of the system irrecoverable?

8. Is article 85 to be interpreted as meaning that the agreement referred to above by virtue of which the marketing system has operated since 1 february 1973 is a violation of this article by reason of the fact that it hinders or restricts exports by firms independently of the central marketing agency, or because certain exports are subsidized under it? If yes, is the levy which is payable as part of the system irrecoverable?

9. (a) Is article 86 to be interpreted as meaning that the central marketing agency referred to above is in a dominant position in a substantial part of the common market?

(b) If so, is it to be interpreted as meaning that there has been an abuse by that agency of that position which has affected trade between member states by reason of the fact that exports from firms independently of the agency are hindered or restricted and/or by reason of the fact that a bonus on exports is only paid to firms who export through the central marketing agency.

(c) If the answers to (a) and (b) are yes, is the levy which is paid as part of the system irrecoverable?

10.If the levy hereinbefore referred to is not lawfully payable by reason of the operation of community law should a national court in considering a claim for a refund of the levy apply the principles of its national laws or those of the community? If community law is applicable do its principles justify a claim that payments actually made should be refunded, either with or without a deduction in respect of the bonus received by the defendants?

Preliminary considerations on the scope of the questions raised

9 Consideration of the questions raised shows that they cannot all be simultaneously decisive for the solution of the problem. In this connexion the situation before the high court is not without analogy with the one forming the basis of the court ' s judgment of 29 november 1978 in case 83-78 (pigs marketing board (northern ireland) v redmond, (1978) ecr 2347), where the national court submitted to the court of justice a preliminary question inquiring, as a result of contradictory views adopted with regard to a similar situation by the parties concerned, what the decisive community provisions in the matter were. In that judgment the court pointed out that in the event of proceedings relating to an agricultural sector governed by a common organization of the market the problem raised must first be examined from that point of view having regard to the precedence necessitated by article 38 (2) of the eec treaty for the specific provisions adopted in the context of the common agricultural policy over the general provisions of the treaty relating to the establishment of the common market.

10 The application of that principle to this case means that first of all consideration should be given to question 7 relating to the interpretation of article 40 of the treaty and of regulation n°2759-75, which must be associated with questions 4 and 5 relating to the interpretation of articles 16 and 34 respectively of the treaty. In fact, for the reasons explained in the judgment referred to above (paragraphs 52 to 55), the provisions of the treaty relating to the abolition of tariff and commercial barriers to intra-community trade are to be regarded as an integral part of the common organization of the market.

11 This method of dealing with the questions is necessary also from another point of view. By virtue of article 42 of the treaty the provisions of the chapter relating to rules on competition - that is to say articles 85 to 94 inclusive - are applicable to production of and trade in agricultural products only to the extent determined by the council within the framework of measures adopted for the organization of agricultural markets. In regulation n°26 of 4 april 1962 applying certain rules of competition to production of and trade in agricultural products (official journal, english special edition 1959 to 1962, p. 129) the council of the eec adopted certain general provisions on this subject intended to permit of a limited application of the rules of competition to the agricultural sector; specific provisions were subsequently adopted in the various agricultural regulations with a view to a wider application of the rules of competition in the different sectors of the market. Such is the case with article 21 of regulation n°2759-75 in the words of which: ' ' save as otherwise provided in this regulation, articles 92 to 94 of the treaty shall apply to the production of and trade in the products specified in article 1 (1) ' '. The result of that provision is that, although articles 92 to 94 are fully applicable to the pigmeat sector, their application nevertheless remains subordinate to the provisions governing the common organization of the market established by the regulation. In other words recourse by a member state to the provisions of articles 92 to 94 on aids cannot receive priority over the provisions of the regulation on the organization of that sector of the market. Article 21 of the regulation accordingly makes it necessary to accord priority to an examination of the questions raised on the subject of the interpretation of the regulation itself and of the articles of the treaty relating to the abolition of tariff and commercial barriers to freedom of exports.

An assessment of the activities of the pbc in the light of the common organization of the market in pigmeat and of the rules of the treaty relating to freedom of exports (questions 4, 5 and 7)

12 The high court ' s seventh question is whether article 40 of the treaty in conjunction with regulation n°2759-75 contains factors which make a marketing system characterized by the charging of a levy on all bacon producers and the payment of a bonus solely to exporters who avail themselves of the intermediary of the pbc as a central marketing agency appear incompatible with community law. Questions 4 and 5 inquire whether such a system, involving a financial disadvantage for exporters who operate independently of the central agency, may constitute a charge having an effect equivalent to a customs duty on exports which is prohibited by article 16 of the treaty, or a measure having an effect equivalent to a quantitative restriction on exports which is prohibited by article 34.

13 The central question therefore involves a consideration of the compatibility with community law of a marketing system which applies to bacon, a product coming under the common organization of the market in pigmeat, and which consists in allowing an agency endowed by law with power to impose a levy on the production of all pig carcasses intended for the manufacture of bacon, to subsidize the export of certain qualities of that product to other member states or to non-member countries, reserving the advantage of the bonus to those of the exporters who pursue their activities through the intermediary of that same agency, acting as a central marketing agency. There are therefore in reality two distinct questions: on the one hand, whether, in itself, the grant of bonuses on exports is compatible with the system of intra-community trade and the system of export to non-member countries; and on the other hand whether the provisions governing the sector of the market in question make it possible to establish a difference in treatment according to whether a producer sells in the common market or to a non-member country through the intermediary of the central agency in question, or whether he effects his exports directly, it being understood that in the latter case, whilst being compelled to pay the levy, he cannot benefit from the marketing bonus.

14 As the court has repeatedly stated, on the last occasion in the above-mentioned judgment of 29 november 1978, once the community has, pursuant to article 40 of the treaty, legislated for the establishment of the common organization of the market in a given sector, member states are under an obligation to refrain from taking any measure which might undermine or create exceptions to it. The marketing system established by regulation n°2759-75 in the context of the system for the free movement of goods guaranteed by the provisions of the treaty is intended to ensure freedom of trade within the community by the abolition both of barriers to trade and of all distortions in intra-community trade and hence precludes any intervention by member states in the market otherwise than as expressly laid down by the regulation itself. A member state cannot therefore, either directly, or through the intermediary of an agency on which it confers powers to that intent, pay bonuses in whatever form for products intended to be marketed within the common market.

15 According to the idea on which the regulation dealing with the common organization of the market in pigmeat is based, the products referred to therein are in fact required to move freely within the community at the price level resulting from the operation of the machinery for the common organization of the market, and neither member states nor agencies on which they have conferred powers are entitled to create advantages for the marketing of national products as against those of other member states by means of financial machinery such as the grant of bonuses.

16 The same consideration applies to exports to non-member countries since article 15 of regulation n°2759-75, so as to ensure that community products are competitive on the world market, provides for the payment to producers of an export refund which, in the words of paragraph (2) of that article, must be ' ' the same for the whole community ' '. That provision prevents member states from conferring a special advantage on their producers by granting them an export bonus in addition to any refund which may be received in pursuance of the regulation at the risk of thus distorting conditions of competition between community producers on external markets.

17 It therefore appears that the payment of a bonus for the marketing of bacon or other products coming under the common organization of the market, which are intended for other member states or for export outside the community, as provided by the system practised in ireland under the authority of the pbc, is in itself incompatible with the rules of the common market under the provisions of the treaty relating to the free movement of goods and more particularly under the provisions of regulation n°2759-75.

18 Moreover the system practised by the pbc is incompatible with the provisions of regulation n°2759-75 by reason of the difference in treatment for which it provides between producers according to whether or not they make use of the intermediary or the pbc to effect the sale of their products in other member states or to export them to non-member countries. As the court has emphasized in its judgment of 29 november 1978, the common organization of the market in pigmeat, like the other common organizations, is based on the concept of an open market to which every producer has free access and the functioning of which is regulated solely by the instruments provided for by that organization. A fiscal device by virtue of which a central marketing agency is allowed to charge a levy on all bacon producers and to reserve the benefit of a bonus for the marketing of certain qualities of that product solely to producers who agree to effect their sales through the intermediary of the same agency constitutes an interference with the liberty which is guaranteed to all traders in the common market to avail themselves directly and without thereby suffering any economic disadvantage of the facilities of production, import and export which are guaranteed by the common organization of the market.

19 It follows from the foregoing that a system such as that practised by the pbc in ireland in reality conflicts in two separate ways with the rules relating to the free movement of goods and the common organization of the market in pigmeat: on the one hand because it is calculated, by the grant of a bonus on sales of bacon intended to be marketed outside the national territory, to distort patterns of trade between member states and the competition of community producers on external markets; and on the other hand by the fact that it confers on a central marketing agency, vested with power to charge levies on the whole of the production of one of the products coming under the common organization of the market, the right to impose charges in such conditions that traders who choose to market their products directly without recourse to an intermediary which is privileged uner the law are penalized.

20 The answer to be given to questions 4, 5 and 7 considered together should therefore be that regulation n°2759-75, having regard to the provisions of the treaty relating to the free movement of goods, must be interpreted as meaning that a national system is incompatible with the common organization of the market in pigmeat where the object of that system is to permit a central marketing agency vested by law with power to charge a levy on the whole of the production of a commodity coming under the common organization of the market, such as pig carcasses intended for the production of bacon,

(a) To effect, from the proceeds of the receipts from the levy, the payment of bonuses for certain products intended to be marketed in the common market or exported to non-member countries;

(b) To inflict a financial disadvantage on any producer, who is compelled to pay the production levy, by reason of the fact that he effects his sales directly without availing himself of the intermediary or of the services of the central marketing agency.

The levy demanded within the framework of a marketing system with the above-mentioned characteristics is not due from producers to the extent to which it is employed for purposes incompatible with the requirements of the treaty on the free movement of goods and with the common organization of the market.

21 It follows that recourse to the provisions of articles 92 to 94 of the treaty cannot modify the requirements flowing, for the member states, from observance of the rules relating to that common organization. Questions 1, 2 and 3 put by the national court may therefore be left unanswered.

22 Similarly the provisions relating to the common organization of the market cannot be thwarted by describing as a ' ' state monopoly ' ' an agency vested with certain statutory powers, such as the pbc. That consequence results from article 38 (2) of the treaty which gives priority to the rules for the organization of the agricultural markets as against the rules laid down for the establishment of the common market as a whole, of which article 37 is one. That consideration makes it superfluous to carry out any investigation as to wheter in fact an agency such as the pbc may legitimately be described as a ' ' monopoly ' ' within the meaning of article 37. Question 6 can therefore equally remain unanswered.

23 Finally, having regard to the answer given to questions 4, 5 and 7 it does not appear necessary to go into the question whether the activities of the pbc might have adversely affected the provisions of articles 85 and 86 of the treaty.

The counter-claim (question 10)

24 The questions to which an answer has been given above relate to the action brought before the national court in so far as it relates to the claim for the recovery of levies which the defendant in the main action refused to pay as from the time when it decided to withdraw from the system operated by the pbc. It follows from the foregoing that its refusal to pay that levy was justified to the extent to which the levy serves to finance a bonus for the marketing of pigmeat. The defendant has also, by a counter-claim, applied for reimbursement of the same levy for the prior period during which it co-operated with the pbc and consequently had the advantage of the bonus and the national court wishes to know whether it must apply to such a claim the principles of its national law or the principles of community law. It states moreover that on the basis of the principles of its national law it would probably feel it necessary to dismiss the counter-claim. However, it wishes to know, in the event of community law ' s being applicable to such a claim, whether the principles inherent in community law might make it possible to allow a claim the refund of sums actually paid, with or without deduction of the bonus received by the defendant.

25 It follows from the foregoing that the levy demanded in the framework of a national marketing system for pigmeat is not due to the extent to which it is devoted to purposes incompatible with the requirements of the treaty relating to the free movement of goods and with the common organization of the market in the sector concerned. In principle any trader who is required to pay the levy has therefore the right to claim the reimbursement of that part of the levy which is thus devoted to purposes incompatible with community law. However, it is for the national court to assess, according to its national law, in each individual case, whether and to what extent the levy paid may be recovered and whether there may be set off against such a debt the sums paid to a trader by way of export bonus.

26 The answer to be given to question 10 must therefore be that it is for the national court to determine, on the one hand, whether and to what extent the levy charged on a product coming under the common organization of the market and devoted to purposes incompatible with that organization must be reimbursed and, on the other hand, whether and to what extent there may be set off against that right to reimbursement the amount of the bonuses paid to the trader concerned.

Costs

27 The costs incurred by the government of ireland and by the commission of the european communities, which have submitted observations to the court, are not recoverable.

As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, costs are a matter for that court.

On those grounds,

The court,

In answer to the questions referred to it by the high court of ireland by judgment of 30 june and by order of 31 july 1978, hereby rules:

1. Having regard to the provisions of the treaty relating to the free movement of goods, regulation n°2759-75 must be interpreted as meaning that a national system is incompatible with the common organization of the market in pigmeat where the object of that system is to permit a central marketing agency vested by law with the power to charge a levy on the whole of the production of a commodity coming under the common organization of the market, such as pig carcasses intended for the production of bacon,

(a) To effect, from the proceeds of the receipts from the levy, the payment of bonuses for certain products intended to be marketed in the common market or exported to non-member countries;

(b) To inflict a financial disadvantage on any producer, who is compelled to pay the production levy, by reason of the fact that he effects his sales directly without availing himself of the intermediary or of the services of the central marketing agency.

2. The levy demanded within the framework of a marketing system having the above-mentioned characteristics is not due from producers to the extent to which it is devoted to purposes incompatible with the requirements of the treaty on the free movement of goods and with the common organization of the market.

3.it is for the national court to determine, on the one hand, whether and to what extent the levy charged on a product coming under the common organization of the market and devoted to purposes incompatible with that organization must be reimbursed and, on the other hand, whether and to what extent there may be set off against that right to reimbursement the amount of the bonuses paid to the trader concerned.