Opinion of the Advocate-General
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Mr President,
Members of the Court,
A - Facts
1 . These proceedings are concerned with problems relating to production refunds for maize starch .
2 . Provision for the granting of such a refund was, for the period relevant to the main proceedings, made in Article 11 of Regulation ( EEC ) No*2727/75 of the Council on the common organization of the market in cereals.*(1 ) The aim of that regulation, as can be seen from the preamble to Council Regulation No*2742/75 on production refunds in the cereals and rice sector,*(2 ) was to ensure that the starch industry obtained the basic products it required at a lower price than that which would result from the application of the rules of the common organization of the markets so that its prices were competitive with those of chemical substitute products .
3 . Pursuant to Article 11*(3 ) of Regulation No*2727/75, implementing rules were laid down by the Council in the abovementioned Regulation No*2742/75 . Article 8 thereof provided that detailed rules would be adopted - by the Management Committee procedure - in particular as regards "the granting of advances on production refunds which may involve the giving of security ".
4 . Such rules were laid down in Commission Regulation No*1570/78.*(3 Article 2 thereof states that refunds are to be paid to inter alios producers of starch obtained from maize, provided that they furnish proof that the basic product in question has been placed under supervision by the competent agencies of the Member States . Under Article 3 the granting of the refund is conditional on the lodging, by the person entitled to the refund, of a security . Under Article 3*(2 ) the amount of that security is to be equal to 105% of the production refund requested . Article 5 provides : "The production refund valid on the day on which the application for the basic product to be placed under supervision is accepted shall be paid by the Member State on whose territory ... the starch ... is produced ... . It shall be paid within 30 days of that on which the application for the basic product to be placed under supervision was accepted ."
5 . The security is to be released ( under Article 3*(3 )) when the person entitled to the refund has furnished proof to the competent agency that at least 96% of the quantity of the basic product placed under supervision has been processed not later than 90 days following acceptance of the application for the product to be placed under official supervision . Article 3*(3 ) continues : "However, when a quantity equal to less than 96% of the amount of the basic product has been processed during this period, the security shall be released in respect of an amount equal to that of the production refund payable on the quantity of the basic product which has been processed ...". Finally, Article 3*(5 ) provides that the security or part thereof not released in accordance with Article 3 is to be forfeited and applied by way of reimbursement of the refund paid and where, as a result of force majeure, the basic product has not been processed within the prescribed period, the competent agency of the Member State will, at the request of the person entitled to the refund, decide in the light of the circumstances evoked whether the security should be released or the period set for processing extended .
6 . In December 1983 Roquette Frères, the plaintiff in the main proceedings, in accordance with the above provisions, placed under supervision 12*427.003 tonnes of maize and lodged a security in the amount of FF*1*644*222.90 . When it was established that only 95.91% of the declared amount had been processed, FF*1*501*880.10 of the security were released and, by decision of the French intervention agency, Office national interprofessionnel de céréales - ONIC ( National Cereals Trade Board, hereinafter referred to as "the Board ") in February 1984, FF*142*342.80 were declared forfeit ( that is, the amount of the security corresponding to the quantity not processed plus the additional 5% mentioned in Article 3 of Regulation No*1570/78 of the amount of the refund provided for ). Put simply, a shortfall of 0.09% on the minimum amount required to be processed led to the forfeiture of 9.09% of the security .
7 . The Board came to that decision because a telex from the Commission dated 20 February 1978 expressly stated that when the quantity actually processed did not amount to 96% of the quantity placed under supervision, the refund should be calculated in respect of the quantity actually processed and an amount equal to the difference between the amount of the security and the refund payable should be withheld from the security lodged ( whereas it appears that until the end of 1977 the Board, on the strength of its own interpretation of the relevant provisions, had required repayment of the refund only in respect of the quantity by which the shortfall exceeded the tolerance of 4%, and always released the entire security ).
8 . The plaintiff considers that the change in practice described above is unlawful and in April 1984 brought proceedings claiming that the above decision by the Board should be annulled . In support of that claim it submits that Commission Regulation No*1570/78 did not implement Article 8*(b ) of Council Regulation No*2742/75 correctly ( because it did not also make provision for payment of the refund, after processing had taken place without the lodging of a security ). In addition, the plaintiff is of the opinion that what the Commission considers to be the correct interpretation of its regulation must be regarded as a breach of the principle of proportionality and also as discrimination against starch producers as compared with the sugar-processing chemical industry; for the latter Commission Regulation No*1729/78*(4 ) makes provision both for refunds to be paid after processing, without the lodging of a security, and for the granting of advances on refunds together with the lodging of a security .
9 . In view of the problems of Community law involved, by an Order of 5 December 1985 ( lodged at the Court on 18 February 1986 ) the Administrative Tribunal, Lille, decided to suspend the proceedings pending a preliminary ruling from the Court pursuant to Article 177 of the Treaty on the following three questions :
( i ) Is it possible for the provisions in Commission Regulation ( EEC ) No*1570/78 of 4 July 1978 that lay down detailed rules for the application of Article 8*(b ) of Regulation ( EEC ) No*2742/75 of the Council of 29 October 1975 to provide only for the advance payment of production refunds before the product placed under supervision was processed and for the lodging of a security?
( ii ) If so, is that interpretation of those provisions correct and not contrary to the principle that a sanction must be in proportion to the event which gives rise to its application where the quantity of the basic
product processed is less than 96% of the quantity placed under supervision?
( iii ) Is the difference between the provisions concerning release of securities in Regulation No*1570/78 and the corresponding provisions in Commission Regulation No*1729/78 of 24 July 1978 on production refunds for sugar contrary to the principle of equality of treatment of manufacturers?"
10 . Having heard the observations of the plaintiff in the
main proceedings and the Commission, my views on the matter
are as follows .
B - Analysis
1 . The first question
11 . The first question concerns the problem of whether Commission Regulation No*1570/78 is open to criticism because it provided only for the advance payment of production refunds together with the lodging of a security and did not also allow for the possibility of the refund being paid after processing had taken place, without a security being lodged .
12 . In this connection Council Regulation No*2742/75 is central - because it was explicitly mentioned in the first question; it is primarily necessary to examine in the context of that regulation whether Commission Regulation No*1570/78 is defective .
13 . The Commission has strongly repudiated that claim and one can only agree .
14 . I have already cited the relevant enabling provision, Article 8*(b ) of Council Regulation No*2742/75 . It provides that detailed rules should be adopted "in particular as regards ... the granting of advances on production refunds which may involve the giving of security ". That makes it clear that the Council itself envisaged first and foremost a system of advances coupled with the lodging of a security, obviously because the economic sector in question was in general interested in obtaining a reduction in the costs they have to bear as early as possible in the form of production refunds . Although it must be acknowledged that this should not be understood as committing the Commission exclusively to the above method ( as the Commission itself concedes, payment of the refund after processing would certainly have been a possibility ) no obligation could be read into the Council regulation for the Commission to provide for different methods of payment of the refund .
15 . It should also be added that the Council regulation does not necessarily imply, because it speaks of a security only in connection with the granting of advances, that under its arrangements a system of securities was not warranted in any other case ( for example, where the refunds were granted after processing had taken place ). In fact it cannot be excluded that even in the last-mentioned case a system of securities might be justified in principle in order to ensure that only serious applications for refunds were made and developments in the market could be reliably forecast . It is also of note that the rules in force since 1986 under
Commission Regulation No*2169/86*(5 ) are so framed, for they provide that although, as a rule, the refund is paid after processing ( Article 9 ), in every case a security is to be lodged with the application ( Article 4 ) and further, if an advance is made, a special security equal to the sum advanced is to be lodged .
16 . It must therefore be concluded that Commission Regulation No*1570/78 cannot be held to be at variance with Regulation No*2742/75 of the Council in so far as it does not provide for the payment of production refunds after processing has taken place without the lodging of a security .
2 . The third question
17 . The third question too is concerned with the fact that, in contrast to Regulation No*1729/78*(6 ) in respect of sugar, there is no provision for payment of the refunds after processing has taken place without the lodging of a security, and the point is raised whether this does not amount to a breach of the principle of equal treatment of producers . That question must therefore be examined next .
18 . As you know, the Commission maintains that its rules are not open to serious criticism on this point either and once again, let me say right away that I can but concur .
19 . ( a)*I am persuaded by the view that discrimination does not exist whenever one set of rules differs from another, but only in those cases where there are disadvantageous consequences . However, that can hardly be said to be the
case if a provision selects only one advantageous solution from several possible solutions and excludes those which are disadvantageous . That would seem to be what the contested Commission regulation in fact did . In principle the payment of production refunds after processing is undeniably disadvantageous as compared with the granting of advances, because producers thus bear the higher costs for the basic products ( which are purchased before they are placed under official supervision ) until the processing is completed ( for which purpose a period of 90 days from receipt of the application for placing under official supervision is laid down ) and until the administrative procedure has run its course ( whereas advances under Article 5 are paid within 30 days of receipt of the application for placing under official supervision ).
20 . Furthermore, the Commission is also correct, in my opinion, in its view that the fact that the granting of advances coupled with the lodging of securities does not render the system disadvantageous, and therefore discriminatory . At the most, that fact may justify the question whether the system of securities contravenes the principle of proportionality, a point to which I shall return later .
21 . ( b)*I also find the Commission' s view that the principle of equal treatment should be applied fully only within a market organization justifiable . Arrangements for products belonging to different sectors ( in this case cereals, on the one hand, and sugar, on the other ) may well exhibit certain variations because every sector presents its own particularities . In order to avoid being discriminatory,
such arrangements certainly need not be identical in every detail, for example, as in the case in point, regarding the method of payment .
22 . Since, however, there must be a certain interchangeability of the products ( cereal starch/sugar ) in the chemical industry, great care is indeed taken ( as the Commission has emphasized ), in setting the amount of the refund, that one product is not treated more favourably than another, and consequently the system of refunds cannot be regarded as an infringement of the prohibition of discrimination . The regulation governing cereals cannot therefore be said to be incompatible with the principle of equal treatment because it provided only for a system of advances together with the lodging of a security ( compliance with which did not cause any particular difficulty provided that some care was taken ) and did not also allow for the possibility of payment of the refund after processing had taken place ( which evidently was generally of no interest to the economic sectors in question ).
3 . The second question
23 . The second question has two parts : first, how should the system of security be interpreted in a case where less than 96% of the declared amount of the basic product is processed ( that is, whether the refund in such circumstances was to be calculated in proportion to the quantity actually processed and the security forfeited, to the extent to which it exceeded the refund, without any tolerance whatsoever ). Secondly, it is necessary to examine whether the system of securities thus understood infringed the principle of
proportionality, in particular if, as in this case, it applied in all its rigour .
24 . ( a)*In my opinion there is no difficulty in answering the first part of the above question . The system of security can, having regard to the wording of the provisions, in fact only be understood as meaning that because the refund was to be calculated on the basis of the quantity actually processed, the security was forfeited in respect of an amount equal to the difference between the amount of the security and the refund granted . A tolerance of 4% ( in respect of the humidity content and impurities in the basic product ) was allowed for basically "complete" processing only, and not proportionately in respect of partial processing .
25 . Reference may also be made to the fact that the relevant rules provide for a form of penalty in the event of non-compliance with the conditions of processing, with the result that in principle a strict interpretation is called for . It is also interesting to note that that was the intention of the Commission which played a major role in framing the rules, as is clear from the telexes put before the Court .
26 . ( b)*As regards the second, decisive, part of this question, in respect of the criterion of the principle of proportionality which was invoked, I would refer to the survey of the relevant case-law in my Opinion in Case 21/85.*(7 ) It reveals, in the light of some examples - I shall not go into detail here - that the criterion is to some extent the gravity of the breach of the rules ( in the
case of trivial breaches the whole security should not be forfeited ). In other cases, where there was a risk that the objective of a measure would be thwarted or where it was important for the proper functioning of the system, a strict application was held to be justified and the possibility of graduating the amount of security forfeited according to the seriousness of the non-performance of the obligation was rejected . To this can now be added that in the judgment in the above case, the doctrine was further developed so that a security cannot be forfeited where there is a trivial infringement of a principal obligation; the same applies if the obligation which is not complied with is not of fundamental importance, in other words, if there is no grave breach .
27 . As there are two factors in the rules now before the Court ( a tolerance threshold of 96% and additional security of 5% of the amount of the refund ) to be examined, it seems appropriate - since both are criticized by the plaintiff - to consider each of them separately in the light of the abovementioned criteria .
28 . ( aa)*As regards the prescribed tolerance threshold of 96%, the questions which arise from Roquette' s observations are, first, whether the margin is too narrow, and secondly, whether it is justifiable to ignore this factor altogether where the shortfall is insignificant .
29 . On the first point, reference is made to two regulations ( Regulation No*2731/75 of the Council fixing the standard qualities for common wheat, rye, barley, maize and durum wheat,*(8 ) and Regulation No*1569/77 of the Commission,
fixing the procedure and conditions for the taking over of cereals by intervention agencies ( 9 )), the first of which provided that for maize the total percentage of matter other than basic cereals of unimpaired quality could amount to 8% and the second actually allowed a maximum of 12% of matter which is not basic cereal of unimpaired quality . Reference was also made to the rules on refunds adopted in Commission Regulation No*2169/86 of 10 July 1986, which lay down ( for the processing of starch ) a tolerance threshold of 95% ( Article 7 ) which, in Roquette' s view, is equivalent to 92% if maize was the basic product .
30 . I agree with the Commission, however, that in this respect the regulation in question is not open to criticism . Even if another criterion is thought to be appropriate in the rules which are important in connection with intervention, in my opinion there is no objection in principle if, in the context of rules on production subsidies ( of which the refund is an example ) more rigorous quality requirements are laid down, which has, in fact, been done indirectly in the form of the abovementioned tolerance threshold . It is also significant that in practice - according to the uncontradicted statement of the Commission - this has apparently never given rise to difficulties; in other words, if care was taken at the purchasing stage, there has been no difficulty keeping impurities within the tolerance .
31 . As regards the fact that in 1986 new rules were adopted, it is significant, first of all, that the system is of a different kind, dealing with other processed products . Secondly, such a development of the rules cannot, in
principle, where adjustments result from considerations of expediency, lead to the conclusion that rules previously in operation were unlawful merely because they were more rigorous .
32 . As a result, the margin of tolerance of 4% on processing of 100% is not open to objection .
33 . As regards the second of these points, let me say straightaway that the explanations given ( processing of 96% was regarded as sufficient in view of the moisture-content of the basic product and the impurities contained therein ) do not altogether clarify why that element was completely excluded in the case of partial processing, when - because impurities are also contained in small quantities - the logical conclusion would have been that the processing of, for example, 48% of the declared amount could be regarded as corresponding to an amount of 50 %. The only explanation must be that a margin of tolerance is considered appropriate only where the processing has been complete in principle - because in the Commission' s view this represents the principal obligation of the person entitled to the refund within the meaning of the Court' s case-law; accordingly, when the Commission makes no such allowance in the case of partial processing, this must be regarded as being in the nature of a penalty ( which can also take the form of the withholding of a benefit otherwise due ). But the question then arises whether - since in any event, if the processing is not complete, the security of 5% is forfeited - what is virtually a double penalty is in fact appropriate, in particular if ( as was the case here ) the shortfall is minimal . The answer will be apparent once we have examined
the justification of the security of 5% which is forfeited if the processing is not fully carried out and that point must be considered next .
34 . ( bb)*It is conceivable that the security in question serves as a guarantee for different purposes which must be taken into account when examining whether the principle of proportionality has been complied with .
35 . In this connection, the Commission has primarily drawn attention to the fulfilment of the obligation to carry out the processing of cereals into starch; that was to be regarded as a fundamental obligation and hence it was justified to impose a heavy penalty to ensure its fulfilment .
36 . That does not, however, seem to me to be convincing . Nowhere in the Commission regulation at issue ( or in a Council regulation ) is reference made to such an obligation to carry out processing ( such as is to be found, for example, in the rules regarding the sale of butter at a reduced price to the processing industry ). Regulation No*1570/78, in its preamble, refers to ensuring that processing is carried out and, in Article 3, speaks of the security guaranteeing the processing . That is not the same as laying down an obligation to process . It could just as well refer to compliance with the conditions for the granting of the refund, in other words, to ensure that the advance on the refund is not paid without due cause .
37 . Nor does it appear that the Community might have sought to have the products in question taken off the market, to
prevent speculation for instance ( a relevant consideration in the butter scheme mentioned above*(10 )). Indeed, it is not easy to imagine such an objective in respect of products such as maize ( where imports are necessary and refunds on production are also granted when imported goods are used ). The purpose of the refund rules is not to promote the use of maize produced in the Community but to ensure that the prices of the Community' s starch industry are competitive with those of substitute products.*(11 ) To achieve this objective it is not necessary to impose an actionable production obligation . It suffices to promise and grant payment as recompense to any person who fulfils the conditions . That would seem to be case here . It is significant, too, that in the case of sugar - reference may again be made to the rules applying to sugar which were considered in connection with the examination of the requirement of equal treatment - apparently no such need arises either ( because refunds are paid after that event ) even though surpluses of sugar are produced .
38 . The principal function of the rules on security should in fact rather be seen in conjunction with the granting of advances ( as is borne out by the formulation of Article 8*(b ) of Council Regulation No*2742/75 ). The system is thus intended to ensure that, if processing is not carried out, the refund will be repaid and the person who receives the refund does not derive economic benefit from having the use in the intervening period of money to which ultimately he is not entitled . On that basis it must certainly be concluded that no objection may be made to the principle of the lodging of a security, but equally clearly doubts must be entertained as to the size of the security . A rate of 5% of
the amount of the refund in respect of an advance over a period of two to three months means that if the processing is not carried out at all the charge levied corresponds to an annual interest rate of 20 to 30 %. If that already seems exorbitant, the fact that the same amount of security is forfeited if processing is only partially carried out is even more excessive . It is therefore a breach of the principle of proportionality that there is no graduation of the penalty ( even though it is clearly impossible to differentiate every individual case under such rules ). There can be no doubt that in view of the abovementioned purpose it would be unjustifiable to apply a supplementary penalty ( in the form of not taking into consideration the aforesaid tolerance threshold of 96 %) and that in any event, in a case such as this ( where the processing shortfall was minimal ) there are absolutely no grounds for depriving the recipient of the refund of a practically non-existent interest gain .
39 . It must finally also be acknowledged that one objective of the security scheme might be to ensure that only serious applications are made for the granting of refunds, thus affording a reliable forecast of the development of the market which is useful for the management of that market .
40 . Whereas the actual principle of applying a penalty could probably be justified in that way ( although legitimate doubts could be supported by the fact that such a need apparently does not arise in the context of the sugar market since Regulation No*1729/78 does not require that a security be lodged when the refund is paid after processing ) nevertheless, as regards the assessment of the rules in
question here it is at least significant that such a concern to ensure that market data are available is doubtless one of lesser weight ( for the purposes of the case-law cited ). From that standpoint it is hard to justify a penalty - here I return to the abovementioned tolerance threshold of 96% - in excess of the 5% of the amount of the refund . Since the basic objective is presumably only to be aware of how the market is developing, for which absolute precision is surely not required, conduct which involves only an extremely minor failure to comply with the prescribed rules, such as that at issue in the main proceedings, can hardly be described as deserving a penalty .
41 . ( cc)*In respect of the second part of the second question I would agree that the rules on security in Article 3 of Regulation No*1570/78 may be contrary to the principle of proportionality and, at least as they stand in the regulation in question, should not have been applied in a case such as that in the main proceedings .
C - Conclusion
42 . In view of the foregoing, I suggest that the questions put by the Administrative Court, Lille, should be answered as follows :
( 1 ) The fact that Commission Regulation No*1570/78 provides that a production refund may be granted only by payment of an advance together with the lodging of security but not that such a refund may also be granted after processing had taken place without a security being
lodged cannot be regarded as incompatible with Regulation No*2742/75 of the Council, in implementation of which Regulation No*1570/78 was adopted, and therefore does not render Regulation No*1570/78 invalid .
( 2 ) Similarly, that abovementioned fact does not constitute discrimination against producers of starch from maize as compared with chemical industries which use sugar and in respect of which Commission Regulation No*1799/78 was applicable .
( 3 ) Article 3*(3)*(a ) of Commission Regulation No*1570/78 must be interpreted as meaning that if less than 96% of the declared amount of the basic product is processed, a refund will be granted only in proportion to the amount actually processed and the security will be declared forfeit as regards the difference between that amount and the amount mentioned in Article 3*(2 ).
( 4 ) The application of the abovementioned rules in a situation where the amount processed fell only very slightly short of that prescribed is not compatible with the principle of proportionality .
(*) Translated from the German .
( 1 ) OJ 1975, L*281, p.*1 et seq .
( 2 ) OJ 1975, L*281, p.*57 et seq .
( 3 ) OJ 1978, L*185, p.*22 et seq .
( 4 ) OJ 1978, L*201, p.*26 et seq .
( 5 ) OJ 1986, L*189, p.*12 .
( 6 ) OJ 1978, L*201, p.*26 et seq .
( 7 ) Judgment of 27 November 1986, A . Maas v Bundesanstalt fuer landwirtschaftliche Marktordnung (( 1986 )) ECR 3537 at p . 3551 .
( 8 ) OJ 1975, L*281, p.*22 et seq .
( 9 ) OJ 1977, L*174, p.*15 et seq .
( 10 ) See judgment of 23 February 1983 in Case 66/82 Fromançais v Fonds d' orientation et de régularisation des marchés agricoles ( Forma ) (( 1983 )) ECR 395 .
( 11 ) First recital in the preamble to Regulation No*2742/75 .
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