Opinion of the Advocate-General
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Mr President,
Members of the Court,
1 . II - In the applications which I am about to examine, the United Kingdom seeks the annulment of Commission Regulation ( EEC ) No 1989/85 of 18 July 1985 ( 1 ) and Commission Regulation ( EEC ) No 728/86 of 11 March 1986 ( 2 ) fixing the amount of the annual premium payable per ewe for region 5 ( Great Britain ) in the 1984/85 and 1985 marketing years, as provided for by Article 5 of Council Regulation ( EEC ) No 1837/80 of 27 June 1980 on the common organization of the market in sheepmeat and goatmeat, ( 3 ) as amended by Council Regulation ( EEC ) No 871/84 of 31 March 1984 . ( 4 )
2 . II - The aforesaid common organization was established for the purpose ( which has probably not been achieved ( 5 )) of facilitating the adjustment of supply todemand and progressively bringing together the markets of the various regions so as to achieve a single market and a single pricing system for the Community as a whole . Initially, the Community was divided into five regions, later increased to six with Great Britain constituting region 5 .
3 . Regulation No 1837/80 was amended on several occasions during a transitional period, in particular by Regulation No 871/84 of 31 March 1984, cited above . It is the system resulting from that amendment which we are particularly concerned with here .
4 . That system is described in a clear and comprehensive manner in the Report for the Hearing . For that reason I shall lay emphasis solely on those points which are directly relevant for the solution of the dispute in these proceedings .
5 . In addition to other intervention measures, provided for in Article 6 ( private storage aid and intervention purchases ), the aforesaid legislation establishes two types of production premiums : an annual premium per ewe, intended to compensate for any loss of income which might derive from the establishment of the common organization of the market ( Article 5 of Regulation No 1837/80, as amended by Regulation No 871/84 ), and a variable weekly premium for the slaughter of sheep.The latter premium may be paid in Great Britain ( region 5 ), provided that country does not resort to intervention purchases and the prices recorded in the representative markets of the region fall below a "guide level" corresponding to 85% of the basic price, as provided for by the regulation . The premium is equal to the difference between the seasonalized guide level and the market price ( Article 9 ( 1 ) and ( 2 ) ).
6 . Where the variable premium is paid ( Article 9 ( 3 ) ), an amount equivalent to the premium actually granted will have to be collected, in a manner to be determined by the Commission, when the products in question leave the aforesaid region ( the "clawback" mechanism ) in order to avoid distortions of competition . The Court has already recognized the legality of that mechanism in its judgment of 15 September 1982 in Case 106/81 Kind v EEC, ( 6 ) and its field of application is at present under consideration in Cases 61/86 and 162/86 .
7 . In order to prevent the accumulation of the two types of premium, Article 5 ( 6 ) of Regulation No 1837/80, as amended by Regulation No 871/84, provides that the weighted average of the variable premiums actually granted is to be deducted from the loss of income which is the basis for calculating the annual premium . That weighted average, expressed per 100 kilograms of carcass weight, is to be obtained "by dividing the total amount of the premiums actually granted by the production of the animals for which the variable premium may be paid when slaughter takes place or, as the case may be, when they are first put on the market ".
8 . The dispute which lies at the root of the present applications concerns the interpretation of that second subparagraph of Article 5 ( 6 ).
9 . When calculating the weighted average of the variable premiums, the Commission included the premiums granted upon exportation of ewes and ewe-meat under the supervisory system known as "special export certification" ( SEC ) in "the total amount of the premiums actually granted" ( the numerator ) and excluded the production corresponding thereto when calculating "the production of ... animals for which the variable premium may be paid when slaughter takes place or, as the case may be, when they are first put on the market" ( the denominator ).
10 . The problem arises because it is for the United Kingdom under Article 1 ( 2 ) of Commission Regulation ( EEC ) No 1633/84 of 8 June 1984 laying down detailed rules for applying the variable slaughter premium for sheep and repealing Regulation ( EEC ) No 2661/80 ( 7 ) to choose from among the animals which meet the standards laid down in Article 1 ( 1 ) of that regulation those which are eligible for the premium, and it is not generally granted for the slaughter of ewes . However, ewes intended to be exported live or as carcasses are automatically subject to the payment of an amount equivalent to the "clawback" premium . Hence the premium is granted, upon exportation, by offsetting the corresponding amount, the animals or carcasses being subject to SEC arrangements until then .
11 . III - According to the United Kingdom, in making the calculation referred to earlier, the Commission misinterpreted and wrongly applied Article 5 ( 6 ) of Regulation No 1837/80, with the result that the calculation of the amount of the annual premium per ewe for region 5 was distorted and, consequently, the amounts specified in the contested regulations are significantly smaller than they should have been ( ECU 7.570 for the 1984/85 marketing year and ECU 11.836 for the 1985 marketing year instead of ECU 8.344 and ECU 12.269 respectively ).
12 . In my view, and having regard to the grounds and the arguments relied upon by both parties ( as summarized in the Report for the Hearing ), it is possible to draw from the proceedings, with a sufficient degree of certainty, the following conclusions :
13 . 1 . The Commission acknowledges that the premiums granted as a result of the issue of a certificate under the SEC arrangements constitute a "variable premium" for the purposes of the Community legislation at issue, otherwise it would not have included them in the dividend, that is to say the "total amount of premiums actually granted", referred to in Article 5 ( 6 ).
14 . Moreover, the United Kingdom has, in my view, given a satisfactory explanation of the nature and function of the premium linked to the issue of SEC certificates; it may be paid "when slaughter takes place", at which time a check is carried out to ensure that the conditions for the grant of the premium are satisfied, and in practice it is granted by offsetting the "clawback" charge payable upon exportation ( just as, in the remaining cases, the premium is generally granted four weeks after the issue of the certificate ).
15 . The United Kingdom established the system in question in the exercise of the discretion conferred upon it by Article 1 ( 2 ) of Regulation No 1633/84 .
16 . The SEC system was abolished in stages by Commission Regulation ( EEC ) No 3451/85 of 6 December 1985 ( 8 ) and subsequently by Commission Regulation ( EEC ) No 9/86 of 3 January 1986 . ( 9 ) However, its legality was never called in question as is clear from the fact that Article 1 ( 2a ) of Regulation No 3451/85 expressly authorized its retention (" However, the United Kingdom may provide for the granting of the premium ...") in respect of rams or carcasses of rams for export .
17 . 2 . The wording used in Article 5 ( 6 ) of Regulation No 1837/80 to define the divisor restates the two alternative criteria which, under the rules in question, must be satisfied for the grant of any variable premium .
18 . Those criteria are set out in Article 9 ( 1 ) ( as amended ) of Regulation No 1837/80 - "a premium for the slaughter of sheep" - and in Article 1 ( 3 ) of Regulation No 1633/84 - "the premium shall be granted when the animal is first placed on the market with a view to slaughter ".
19 . Accordingly, those two criteria may not be relied upon in order to exclude any category of meat or animals in respect of which a certificate has been issued in Great Britain, since a category not covered by Article 5 ( 6 ) would not be eligible for a certificate entitling it to the variable premium .
20 . 3 . If the amount of the variable premiums paid under the SEC arrangements is included in the dividend, the exclusion from the divisor of the meat and the animals which gave rise to those payments is at first sight contrary to the logical requirements of basic arithmetic .
21 . I would recall that the first subparagraph of Article 5 ( 6 ) provides that "the weighted average of the variable premiums actually granted" is to be deducted from the loss of income, whilst the second subparagraph of that provision merely explains how that weighted average is to be obtained .
22 . Without considering in detail the nature of the distinction between a weighted average and a simple arithmetical average, it must be borne in mind that, in order to calculate the average speed of a vehicle travelling between two cities, weighted according to the state of the road, the time taken to drive along unsurfaced stretches of road or through towns and villages should not be excluded from the total duration of the trip if the total distance is included in the calculation, otherwise the result would be distorted .
23 . In this case a consequence of that kind would be acceptable only if it were justified beyond doubt by substantial reasons of a very weighty nature ( whether economic or otherwise ).
24 . The Commission has not succeeded in demonstrating - even though it was requested to do so at the hearing itself - that such reasons exist, having merely attempted to put forward explanatory arguments ex post facto and relied upon circumstances connected with the origin of the provision in question .
25 . 4 . That explanation relates to the fact that the variable premium constitutes, for Great Britain, a payment on account which is additional to payments on account received by that region over and above the amount of the annual premium under Article 5 ( 4 ), whereas producers from other regions would be eligible only for those last-mentioned payments on account .
26 . That, however, is ex post facto reasoning and the Commission is unable to show that that factor - even on the assumption that it constitutes in practice a supplementary privilege not justified by reasons connected with the specific situation prevailing in region 5 - originated from any intention on the part of the legislature ( the Council ) to offset the advantage by reducing the denominator in the fraction through the exclusion of certain kinds of meat .
27 . There is no reason why the advantage represented by the advance payment of variable premiums should be neutralized by distorting the calculation of the weighted average which must be applied by virtue of Article 5 ( 6 ). As that advantage must be compensated for, it would be far more logical to do so by means of a deduction from the amount of the payments on account referred to in Article 5 ( 4 ), but no such deduction would appear to have been made .
28 . It should be noted, however, that the aforesaid advantage is lawfully provided for in respect of region 5 and that there is no provision in the regulation which unequivocally requires that advantage to be neutralized when the final amount of the annual premium is calculated .
29 . Moreover, it is difficult to understand why - if that is the reasoning behind the system advocated by the Commission - only the ewe-meat eligible for the "SEC premiums" was excluded, and not all the other meat from animals whose breeders were entitled to variable slaughter premiums by virtue of measures other than the SEC arrangements, since those breeders too would qualify for advance payments of that kind .
30 . 5 . With regard to the origin of Article 5 ( 6 ), the Commission explained - on the basis of the minutes of the meetings of the Council' s working party on sheepmeat - that the final text of that provision was ultimately shaped by comments from the United Kingdom and France, both of whom prevailed on the Commission to submit a new proposal that was designed to meet the objections raised by those two delegations .
31 . It must be said that that contention is not really consistent with the contention which I examined in the previous paragraph . Hence there is no way of knowing the true reason for which the text was amended and, consequently, the scope of the provision in question remains in doubt .
32 . In any event, even that interpretation of the meaning and purpose of the amendment to the draft text cannot, in my view, serve on its own and in the absence of other substantial reasons to justify a construction of the provision in question which destroys its internal cohesion and leads, by an illogical method of reasoning, to anomalous results .
33 . If, in order to take account of the comments of the French delegation, the meat or the animals eligible for "SEC premiums" were to be excluded from the divisor in the fraction, it follows logically that the amount of the premiums would have to be excluded from the dividend, but this was not done by the Commission .
34 . As the United Kingdom points out, moreover, the problem raised by France was more involved than the mere composition of the fraction in Article 5 ( 6 ) and it affected the very legality of the "application of the variable premium only to ewes intended for export" ( minutes of the meeting of the Council' s working party ). For that reason, it is impossible to place on an equal footing the objection raised by the French delegation and that of the United Kingdom, which was indeed directly related to the wording used and specifically to the inclusion, in the denominator, of the volume of production corresponding to the number of weeks in which the rate of the variable premium was equal to zero .
35 . However, if the situation is set in the context of the Commission' s attitude of forebearance with regard to the position adopted by the French delegation, it is necessary to decide between two possible solutions : either producers in Great Britain were deriving an unlawful and unjustified advantage which should be abolished or, on the contrary, that advantage was lawful and justified and its inclusion in the "total amount of the premiums actually granted" implied that the animals or the meat corresponding thereto had to be included in the divisor in order to calculate the average .
36 . In any event, as the Commission' s interpretation is unreasonable, the illogical solution would at least have to fall clearly within the terms of the provision in question, which, as we have seen, is not the case either .
37 . That requirement of clarity is all the more justifiable as the Commission' s proposal in its initial version (" production which gave rise to payment of the premiums ") undoubtedly sought to include "SEC meat" in the denominator, and it cannot be assumed that the amendment made to the text was intended to do more than dispel the doubts that had been raised rather than ( equivocally ) make any substantive alteration to the wording used .
38 . 6 . On the Commission' s interpretation, therefore, in region 5 the level of the annual premium intended to offset the loss of income is, for reasons that are not persuasive, lower than the basic price, which is contrary to Article 5 ( 1 ), ( 2 ) and ( 3 ) of Regulation No 1837/80, without there being any need to verify whether there has been a manifest breach of the principle of equality or non-discrimination between the producers of the various Member States .
39 . IV - In the light of the foregoing considerations, there is no doubt in my mind that the Court should uphold the United Kingdom' s applications and annul the contested regulations . The Commission will therefore have to recalculate the premiums in accordance with the judgment of the Court . The defendant should also be ordered to pay the costs under Article 69 ( 2 ) of the Rules of Procedure .
(*) Translated from the Portuguese .
( 1 ) Official Journal 1985, L 186, p . 22 .
( 2 ) Official Journal 1986, L 69, p . 6 .
( 3 ) Official Journal 1980, L 183, p . 1 .
( 4 ) Official Journal 1984, L 90, p . 35 .
( 5 ) See the Special Report of the Court of Auditors ( 84/C 234/01 ), Official Journal 1984, C 234, p . 1 .
( 6 ) Case 106/81 Kind v EEC (( 1982 )) ECR 2885 .
( 7 ) Official Journal 1984, L 154, p . 27 .
( 8 ) Official Journal 1985, L 328, p . 23 .
( 9 ) Official Journal 1986, L 2, p . 14 .
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