CJEC, October 18, 1979, No 5-79

1 By judgment of 13 December 1978, which was received at the Court on 3 January 1979, the Cour d'appel, Rouen, referred to the Court under article 177 of the EEC treaty certain questions relating to the interpretation of regulation (EEC) No 804-68 of the council of 27 June 1968 on the common organization of the market in milk and milk products (official journal, English special edition 1968 (i), p.176), of regulation No 974-71 of the council of 12 may 1971 on 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 (official journal, English special edition 1971 (i), p.257) as well as of articles 5, 30 to 34 and 85 of the EEC treaty.

2 Those questions arose within the context of criminal proceedings brought before the French Courts by the ministere public against four directors of Denkavit France SARL. And against the company itself, a producer of animal feeding-stuffs, regarded as civilly liable, who are accused of having infringed ministerial order No 76-86-p of 22 September 1976, published in the bulletin officiel des services des prix on 23 September 1976.

3 Article 1 of the aforesaid ministerial order provides that "until 31 December 1976 prices, inclusive of all taxes, charged for products of all kinds are not to exceed, either at the production stage or at the various stages of distribution, the prices lawfully being charged for those products of 15 September 1976 or, failing the latter, on the nearest previous date". Article 2 provides that "he provisions of article 1 shall not apply to fresh agricultural and fisheries products".

4 Guidance as to the scope of the ministerial order in question and the manner in which it was to be put into effect was provided by two press notices published in the bulletin des services des prix on 23 September 1976 and 1 October 1976 respectively.

5 As regards in particular the application of the freeze on prices at the production stage, the first press notice explains that inter alia article 1 of order No 76-86-p does not apply to producer prices

"Of fresh agricultural and fisheries products (cf. Article 2 of the order) and of other products whose producer price is governed by decisions adopted within the framework of the agricultural policy of the European Economic Community.

The term agricultural and fisheries products shall apply only to those products which have not been processed. If such products do not retain their original individual character or are processed in a manner which does not correspond to normal or habitual agricultural practices or which takes place at an industrial or commercial stage they thereby lose their initial character...

However, as regards milk products in particular it will as an exception be accepted that butter, cream and cheese, whose producer prices could be freely determined at the date of the entry into force of the order, remain agricultural products even after processing or refining. On the other hand, products such as milk powder, concentrated milk and ice cream are industrial in nature, as are manufactured products such as yoghurt, cream cheese and processed cheese".

6 The second press notice sets out in particular the detailed rules for the application of the aforesaid price system at the distribution level and distinguishes between, on the one hand, "fresh argricultural and fisheries products" and, on the other, "other agricultural products subject to the market rules of the community", such as are defined in list ii of the annex to that notice, which refers to "cereals (except for the residues of husking)" and "milk powder in bulk". As regards the products on that list it is specified that they "are excluded in implementation of the community regulations from the scope of ministerial order No 76-86-p at both the production and the wholesale stages", whilst at other stages of distribution they remain subject to the "freeze" introduced by that order.

7 The file shows that on 20 September 1976 the accused company increased the prices of its six milk-feed products and that it maintained that increase on sales effected during September and October 1976, after the entry into force of ministerial order No 76-86-p.In the course of the present proceedings the accused in the main proceedings have stated - and the point is not contested - that Denkavit delivers the animal feeding-stuffs which it produces exclusively to wholesalers, who resell them to farmers. Furthermore, it is clear from the information as to the composition of those products given in the order for reference together with the details provided in the present proceedings by the accused in the main proceedings and the French government that the products in question contain a high level of milk products, in particular of milk powder: the level mentioned is 60% according to the order for reference, 60 to 65% according to the accused in the main proceedings and 60% according to the French government, which, however, refers to a level of 45% skimmed-milk powder as regards the "Denkavit elevage" products. The remaining proportion of the products in question consists of other agricultural products, listed in annex ii to the EEC treaty, as well as minute quantities of various additives.

8 The accused in the main proceedings have maintained that with the exception of the additives each component of the products in question is covered by a common organization of the agricultural markets, in particular that established in the sector of milk and milk products by regulation No 804-68. In those circumstances price-freezing measures such as those introduced by ministerial order No 78-86-p of 22 September 1976 cannot apply to such products without infringing the community rules to which they are subject and at the same time the rules in the treaty relating to the free movement of goods and the system of competition within the common market. On the other hand, the ministere public has maintained that milk-feed products for calves have never been regarded as falling within the category of products whose prices are governed by community provisions, that national price rules are lawful in so far as they do not disturb the formation of the prices of the raw materials used in the products concerned and that milk-feed products for calves must be regarded as products of second-stage processing.

(a) the scope of regulation No 804-68

9 In order to obtain clarification of those points the Cour d'appel, Rouen, has asked the Court to state first of all whether, "as regards the fixing of prices at the production or wholesale stages", milk-feed products for calves of the nature and composition of the products in dispute are "subject to the rules of the common organization of the agricultural markets" and, in particular, whether they come "either within the definition of milk products (article 1 of regulation No 804-68 of 27 June 1968) or within that of animal feeding-stuffs (article 4 of regulation No 990-72 as amended by regulation no. 804-76 of 7 April 1976) or within any other class of agricultural products subject to community legislation under article 38 of the treaty of Rome".

10 Article 1 (b) of regulation No 804-68 of the council of 27 June 1968 (official journal, English special edition 1968 (i), p.176) provides that the common organization of the market in milk and milk products covers products such as "milk and cream, preserved, concentrated or sweetened" of heading 04.02 of the common customs tariff which, under subheadings a ii and b i, includes "milk and cream, in powder". In addition, article 1 (g) extends the scope of the said common organization of the market to "preparations of a kind used in animal feeding" containing the aforementioned products.

11 As has previously been established the products in dispute are "preparations of a kind used in animal feeding" having a high milk-powder content and otherwise containing other agricultural products, the majority of which are covered by regulation No 804-68. In those circumstances it follows that having regard to their composition and the aforementioned provisions of article 1 (b) and (g) of regulation No 804-68 those feeding-stuffs fall within the area of application of the said regulation and are thereby subject to the common organization of the market in milk and milk products.

(b) the applicability of regulation No 990-72

12 The fact that those products are subject to the common organization of the market in milk and milk products does not necessarily preclude the application to them of regulation No 990-72 of the Commission of 15 may 1972 (official journal, English special edition 1972 (ii), p.428). That regulation is, in fact, only a measure adopted in implementation of regulation No 986-68 of the council of 15 july 1968 (official journal, English special edition 1968 (i), p.260). Since, as is also shown by its preamble, that latter regulation "laying down general rules for granting aid for skimmed milk and skimmed-milk powder for use as feed" occurs within the context of regulation No 804-68 and regulates certain specific machinery of the common organization of the market in milk and milk products it follows that, as a measure adopted in implementation of regulation No 986-68, regulation No 990-72 also forms part of the rules governing the common organization of the market in milk and milk products. Its application to milk products therefore does not preclude the application of regulation No 804-68 which established that common organization but, on the contrary, assumes that those products are subject to the latter regulation.

13 For all those reasons the reply to the first question must be that milk-feed products for calves of the nature and composition referred to in the main proceedings are milk products within the meaning of article 1 of regulation No 804-68 of the council of 27 June 1968 and are therefore subject to the common organization of the market established by that regulation.

(c) the applicability of regulation No 974-71

14 The national Court then asks the Court to state whether feeding-stuffs such as the products in dispute are subject to the compensatory amounts provided for in regulation No 974-71 of the council of 12 may 1971 (official journal, English special edition 1971 (i), p.257) and if so whether this in itself means that they are subject to the common organization of the markets under article 1 (1) of the said regulation.

15 Article 1 (2) (a) and (b) of regulation No 974-71 provides that the system of monetary compensatory amounts provided for in article 1 (1) shall apply inter alia

"(A) to products covered by intervention arrangements under the common organization or agricultural markets ;

(b)to products whose price depends on the price of the products referred to under (a) and which are governed by the common organization of the market...".

It is clear from that provision that the fact that agricultural products are subject to the common organization of the markets is not a consequence of the application to them of the system of monetary compensatory amounts established by regulation No 974-71 but on the contrary is in principle one of the conditions precedent for the application of that system. Since, as has already been established, feeding-stuffs of the nature of those in dispute are governed by the common organization of the market in milk and milk products established by regulation No 804-68 it follows from that provision that the system of monetary compensatory amounts established by regulation No 974-71 is also applicable to them.

As regards the 1976-1977 marketing year - during which ministerial order No 76-86-p of 22 September 1976 was published - the compensatory amounts applicable to such products were fixed by Commission regulation No 572-76 of 15 march 1976 (official journal l 68, p.5) which was supplemented as regards france by Commission regulation No 652-76 of 24 march 1976 (official journal l 79, p.4).

16 In the light of those factors the answer to the second question must be that the milk-feed products in question were subject, at the time of the application of the disputed national price-freeze measures, to the system of monetary compensatory amounts established by regulation No 974-71.

(d) the scope of regulation No 804-68 in relation to national price-control measures

17 In its third question the national Court asks the Court to state whether the common organization of the market in milk and milk products laid down in regulation No 804-68 of 27 June 1968, either alone or in conjunction with the common organization of the market in beef and veal laid down in regulation No 805-68, prohibit member states from applying national price-freeze rules to the milk-feed products for calves in question. In its fifth question the national Court also asks whether the common organization of the market referred to above prohibits member states from applying national price-freeze rules which do not contain special provisions for agricultural products governed by decisions adopted by the community.

Since the content of those two questions is related they must be considered together.

18 The Court has consistently held (cf. Judgment of 23 January 1975 in case 31-74, galli (1975) ecr 47 ; judgments of 26 February 1976 in case 65-75, tasca (1976) ecr 291, and in joined cases 88 to 90-75, sadam (1976) ecr 323 ; judgment of 29 June 1978 in case 154-77, dechmann (1978) ecr 1573, and judgment of 12 July 1979 in case 223-78, grosoli (1979)ecr) that in sectors covered by a common organization of the market - even more so when that organization is based on a common price system - member states can no longer interfere through national provisions taken unilaterally in the machinery of price formation as established under the common organization. That case-law has made clear that the provisions of a community agricultural regulation establishing a price system which is applicable at the production and wholesale stages leave member states free - without prejudice to other provisions of the treaty - to take the appropriate measures relating to price formation at the retail and consumption stages, on condition that they do not jeopardize the aims or functioning of the common organization of the market in question.

19 In the same case-law the Court has also stated that in every case it is for the national Court to decide whether the national measures taken in relation to prices which it is called upon to consider produce such effects as to make them incompatible with the community provisions on the matter. In that connexion the particular nature of the organization of the markets in the sector in question must be taken into account.

20 As regards the particular characteristics of the common organization of the market in milk and milk products set up by regulation No 804-68 it must be pointed out that that organization involves a price system and a trading system. The price system is based upon a "target price" for milk, a "threshold price" for certain milk products, including the feed preparations referred to under subheading 23.07 b of the common customs tariff, and an "intervention price", applying in particular to butter and skimmed-milk powder, which are fixed annually by the council for the following milk year. In addition, provision is made for the adoption of intervention measures by the said common organization if market prices fall to a level which does not allow the target price to be reached. Such measures include inter alia aid for private storage and, in particular, the granting of aid "for skimmed milk and skimmed-milk powder which are produced in the community and are for use as feeding-stuffs if these products reach certain standards" (regulation No 804-68, article 10 (1)). As is shown by article 2 a of regulation No 986-68 of the council of 15 July 1968, which was added by regulation no 666-74 of the council of 28 march 1974 (official journal l 85, p.58), such aid shall be fixed each year taking account inter alia of the intervention price and trends in the market prices of competing products compared with that of skimmed-milk powder.

Finally, the trading system provides for a system of levies, fixed on the basis of the threshold price, which covers feeding-stuffs, and for the grant of refund aid, also for preserved milk and cream. Furthermore, as has already been established, milk products, including feeding-stuffs, are subject to the system of monetary compensatory amounts.

21 The constituent elements of that common organization show it to be based upon a system of community prices which are closely linked to one another. The proper functioning of the common organization of the markets presupposes that none of those prices shall be distorted, as regards the conditions under which they are formed, by the effect of measures adopted unilaterally by a member state. It is established that with effect from 16 September 1976, that is, from the day following that on which the price freeze introduced by ministerial order No 76-86-p of 22 September 1976 took effect, the target price for milk and the intervention price for skimmed-milk powder were increased by council regulation No 558-76 of 15 march 1976 (official journal l 67, p.4). In addition, council regulation No 560-76 of 15 march 1976 (official journal l 67, p.10) also increased the threshold price for compound feeding-stuffs with effect from 16 September 1976.

22 The fact, pointed out by the French government, that milk-feed products for calves do not in themselves benefit from a price guarantee in the form of an intervention price fixed within the context of the common agricultural policy cannot preclude the risk of a conflict between the national measures freezing the prices of those products and the community rules governing the common organization of the market in milk and milk products. Although it is true that there is no intervention price for milk-feed products for calves, the intervention price fixed for milk powder is, as a result of the composition of those products, a constituent element of their price. Furthermore, the fact, emphasized by the French government, that the national price-freeze rules concerned in this instance constitute a short-term economic contingency measure which in itself has no appreciable influence on the market in question cannot rule out their proving to be incompatible with the provisions of community law dealing with agricultural matters, since even if it is merely a temporary contingency measure a price freeze may jeopardize the objectives and functioning of the common organization of the market in question. Finally, the distinction drawn by the said government between those national measures which apply to raw materials subject to the common organization of the market and those which apply to preparations obtained from such materials is not decisive as regards the exclusion of all conflict between the national rules on prices and the rules governing the common organization of the market, since the raw materials and the compound products containing those materials are both covered by the common organization of the market and they are closely related as regards price.

23 The foregoing characteristics of the common organization of the market in milk and milk products are among those which the national Court would be free to take into consideration, together with the other features of that organization, in order to decide whether national measures, such as those in dispute, imposing a price freeze at the distribution stage for products coming under such an organization jeopardize the objectives or the functioning of that organization.

24 The answer to the third and fifth questions must therefore be that regulation No 804-68 of the council of 27 June 1968 must be interpreted as prohibiting national rules, such as those referred to by the national Court, imposing a price freeze at the distribution stage for milk-feed products for calves coming under the common organization of the market established by that regulation where the application of such rules endangers the objectives or the functioning of that organization, in particular of its price rules.

(e) articles 30 to 34 of the EEC treaty

25 The fourth question asks the Court whether the rules on the free movement of goods laid down in articles 30 to 34 of the EEC treaty, and more particularly article 22 of regulation No 804-68 as regards milk products, prohibit the application to the said products of national price-freeze rules which prevent increases in the purchase price of raw materials or finished products from being passed on in selling prices.

26 Article 30 of the EEC treaty prohibits in trade between member states all measures having an effect equivalent to quantitative restrictions and that prohibition is repeated in article 22 of regulation no 804-68 as regards the market in milk and milk products. For that purpose it is sufficient that the measures in question are likely to constitute an obstacle, directly or indirectly, actually or potentially, to imports between member states. Although price-freeze rules applicable without distinction to domestic and imported products do not in themselves constitute a measure having an effect equivalent to a quantitative restriction, they may have such an effect, however, when prices are fixed at a level such that the sale of imported products becomes either impossible or more difficult than that of domestic products. That is in particular the case of national price-freeze rules which, by preventing increases in the prices of imported products from being passed on in selling prices, freeze prices at such a low level that, having regard to the general situation of imported products compared to that of domestic products, dealers wishing to import the product in question into the member state concerned can do so only at a loss or, in the light of the level of the frozen prices of national products, are induced to give preference to the latter.

27 It is for the national Court to decide whether those conditions are satisfied in this instance.

28 In the light of those considerations the reply to the fourth question must be that the rules of the free movement of goods set out in articles 30 to 34 of the EEC treaty prohibit the application to milk-feed products for calves coming under the common organization of the market established by regulation no 804-68 of national price-freeze rules which exclude the possibility of passing on in selling prices the increase in the purchase prices of the raw materials or of the finished products imported from another member state when, as a result of the freeze, prices are at such a level that the marketing of the imported products becomes either impossible or more difficult than that of national products.

(f) articles 5 and 85 of the EEC treaty

29 Finally, the national Court asks the Court to state whether the combined provisions of articles 5 and 85 of the EEC treaty prohibit member states from applying national rules freezing the prices of products subject to community legislation.

30 The second paragraph of article 5 of the EEC treaty lays down the principle that the member states shall abstain from any measure which could jeopardize the attainment of the objectives of the treaty. Article 85 prohibits ' ' all agreements between undertakings, decisions by associations of undertakings and concerted practice ' ' showing certain specific characteristics in relation to the system of competition which is the aim of the treaty. National rules freezing the prices of products subject to community legislation which cannot be regarded as an agreement between undertakings, a decision by an association of undertakings or a concerted practice are therefore not covered by the terms of the aforementioned article 85. If the application of such rules by a member state to products subject to a common organization of the market contravenes the principle laid down in article 5 of the treaty by jeopardizing the objectives or the functioning of that common organization the assessment of the compatibility of those rules with community law does not depend on the provisions of article 85 of the treaty but rather on the provisions governing the said organization.

31 In those circumstances it is sufficient to reply to the sixth question that having regard to its material sphere of application, article 85 of the EEC treaty does not relate to national price-freeze rules.

Costs

32 The costs incurred by the French government 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 proceedings are concerned, in the nature of a step in the proceedings pending before the national Court, the decision on costs is a matter for that Court.

On those grounds,

The Court,

In answer to the questions referred to it by the Cour d'appel, Rouen, Chambre Correctionnelle, by judgment of 13 December 1978, hereby rules:

1. Milk-feed products for calves of the nature and composition referred to in the main proceedings are milk products within the meaning of article 1 of regulation No 804-68 of the council of 27 June 1968 and are therefore subject to the common organization of the market established by that regulation.

2. The milk-feed products in question were subject, at the time of the application of the disputed national price-freeze measures, to the system of monetary compensatory amounts established by regulation No 974-71.

3. Regulation No 804-68 of the council of 27 June 1968 must be interpreted as prohibiting national rules, such as those referred to by the national Court, imposing a price freeze at the distribution stage for milk-feed products for calves coming under the common organization of the market established by that regulation where the application of such rules endangers the objectives or the functioning of that organization, in particular of its price rules.

4. The rules of the free movement of goods set out in articles 30 to 34 of the EEC treaty prohibit the application to milk-feed products for calves coming under the common organization of the market established by regulation No 804-68 of national price-freeze rules which exclude the possibility of passing on in selling prices the increase in the purchase prices of the raw materials or of the finished products imported from another member state when, as a result of the freeze, prices are at such a level that the marketing of the imported products becomes either impossible or more difficult than that of national products.

5. Having regard to its material sphere of application, article 85 of the EEC treaty does not relate to national price-freeze rules.