Opinion of the Advocate-General
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Mr President,
Members of the Court,
1 . This reference for a preliminary ruling, like Case 265/87, Schraeder ( see my Opinion delivered today ), concerns the legality of the co-responsibility levy in the cereals sector . Unlike Schraeder, however, it is not the validity of the levy scheme as such which is at issue, but rather one specific aspect of that scheme, namely the detailed rules for passing on the levy paid by the first-stage processor of the cereals to prior transactions, as far as supply by the producer .
To define the scope of the problem under consideration more clearly, it is necessary to examine in detail certain elements of the scheme in question .
Under the rules introduced by Council Regulation ( EEC ) No 1579/86 of 23 May 1986 ( OJ 1986, L 139, p . 29 ) and the subsequent implementing measure, Commission Regulation ( EEC ) No 2040/86 of 30 June 1986 ( OJ 1986, L 173, p . 65 ), the co-responsibility levy "shall be paid by operators who undertake processing" of cereals ( see Article 2 of Regulation ( EEC ) No 2040/86 ).
Under Article 1 ( 4 ), point 6, of Regulation ( EEC ) No 1579/86, that sum paid downstream, so to speak, by the processing undertaking "shall be passed on to the producer ".
In that regard, the sixth recital of the preamble to Regulation No 2040/86 provides :
"... one of the objectives of the co-responsibility levy system is to make producers more aware of the realities of the market; ... to that end, the burden of the levy should be passed on to them; ... an invoicing system which takes account of that requirement should accordingly be introduced; ... the principle whereby the levy is to be passed on is to apply notwithstanding any contractual clause to the contrary ".
Consequently, Article 5 ( 1 ) of the regulation provides :
"Operators who carry out the operations referred in Article 1 ( 1 ) shall pass on the co-responsibility levy to their suppliers . The levy shall also be passed on at each transaction prior thereto, as far as supply by the producer .
Supporting documents for each of the transactions referred to in the first subparagraph shall indicate separately the amount of the levy deducted ."
As the recital referred to above shows, the reason why it is provided that the levy must be passed on relates to the special purpose of the measure which is intended to exert tangible pressure on cereal producers by giving them an indication of market conditions, thereby re-establishing a relationship between supply, which shows a structural surplus, and actual market demand . It is therefore logical that it is the producers who bear the actual burden of the levy .
However, the system of collecting the levy in the form of payments from processors was originally conceived purely for reasons of expediency; the Council considered that in order to avoid difficulties in administering the system - difficulties related to checking a number of transactions made by individual producers - it would be preferable to collect the levy only at the stage when the cereals are finally processed ( or sold into intervention or exported ), despite the fact that the Commission made a different proposal envisaging direct payment of the levy by the producers .
In practice, the system has operated in the following way : at each transaction relating to a particular batch of cereal, starting with the transaction between the producer and the first purchaser, a sum corresponding to the levy is deducted from the purchase price . At the end of the marketing chain, the processing undertaking pays the levy to the competent national authority after having deducted it from the price paid to the supplier .
To complete the background information, it should however be pointed out that "in view of the difficulties arising in the application of the ... arrangements" which have just been described, the Council 'improved its aim' , by providing in Regulation ( EEC ) No 1097/88 of 25 April 1988 ( OJ 1988, L 110, p . 7 ) that, with effect from the 1988/1989 marketing year, the levy is no longer to be payable at the final stage but rather at the stage when the cereals are first placed on the market ( or sold to an intervention agency ).
2 . Bearing the above in mind, we now come to an examination of the present reference for a preliminary ruling, which arises from a dispute between Cehave ( Netherlands ), a cereal processing undertaking, and the Dutch organization which is responsible for collecting the levy ( the Hoofdproduktschap ).
The latter asked Cehave for payment of a certain sum ( HFL 542 644.14 ) by way of co-responsibility levy, calculated by converting the amount of the levy ( expressed in ecus ) into guilders at the agricultural conversion rate, the so-called "green" rate, applicable at the time for the Netherlands currency .
However, the cereals which were processed had been bought by Cehave in various Member States of the Community . For each batch, the corresponding levy had been deducted from the purchase price, calculated using, of course, not the green rate of the guilder, but the green rate of the currency of the country of the vendor .
The result was that the amounts which the Hoofdproduktschap asked Cehave to pay did not always correspond to the amounts deducted from the purchase prices . In particular :
for the cereals purchased in France, Belgium and the United Kingdom, the deduction from the purchase price was lower than the amount of the levy;
for the cereals purchased in the Federal Republic of Germany, the deduction was, on the other hand, higher than the levy .
The differences were due to the fact that the amount deducted and the amount paid - even though corresponding to the same levy in ecus - were calculated using the green rates applicable for the various currencies, and it is common knowledge that those rates take no account of the actual exchange rates of the currencies . The result was that the actual value of the sum deducted by Cehave, calculated using the green exchange rate of the French franc, ( a weak currency ), was in the end lower than the value of the levy to be paid, calculated using the green rate of the guilder ( a strong currency ).
In the light of those circumstances, Cehave challenged the decision of the Hoofdproduktschap on the payment of the levy, and the national court decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling :
"( 1 ) The Community rules on the co-responsibility levy in the cereals sector are based on the following regulations :
Regulation ( EEC ) No 2727/75 of the Council of 29 October 1975, in particular Article 4 thereof;
Commission Regulation ( EEC ) No 2040/86 of 30 June 1986;
Council Regulation ( EEC ) No 1584/86 of 23 May 1986;
Council Regulation ( EEC ) No 1676/85 of 11 June 1985, in particular Article 2 thereof .
Must those rules be interpreted as meaning that the co-responsibility levy referred to therein, which is to be imposed on and is payable by the undertaking which carried out first-stage processing, must be calculated in the national currency of the Member State in which first-stage processing took place, using the agricultural conversion rate applicable in that Member State?
( 2 ) If Question 1 is answered in the affirmative, must the rules referred to in that question be interpreted as meaning that the undertaking which paid the co-responsibility levy may and must subsequently pass on to its suppliers the negative or positive difference between the levy which it paid ( equal to the amount of the levy expressed in ecus and converted into the national currency of the Member State in which first-stage processing took place using the agricultural conversion rate applicable in that State ) and the discount which it received from its suppliers ( equal to the amount of the levy expressed in ecus and converted into the national currency of the Member State of production, using the agricultural conversion rate applicable in that State, and subsequently converted into the national currency of the Member State in which the first-stage processing took place in accordance with the true market exchange rate )?
( 3 ) If Question 2 is answered in the affirmative, the application of the rules referred to in Question 1 may at times lead to a situation in which the producer of the grain ultimately bears the burden of a levy the amount of which depends on the Member State in which the grain undergoes first-stage processing .
Does this mean that those rules are invalid inasmuch as they are contrary to the EEC Treaty, in particular Articles 12, 16, 34 and/or 40 ( 3 ) thereof, or to certain principles upon which the Treaty is based?
( 4 ) If Question 2 is answered in the negative, the rules referred to in Question 1 may at times lead to a situation in which the first-stage processor of the grain ultimately bears a levy ( the difference between the levy imposed on him and the lower amount of the discount received by him ) or gains a benefit ( the difference between the discount received by him and the lower amount of the levy imposed on him ) the amount of which varies depending on the Member State in which the grain was produced .
Does this mean that those rules are invalid inasmuch as they are contrary to the EEC Treaty, in particular Articles 12, 13, 30 and/or 40 ( 3 ) thereof, or to certain principles upon which the Treaty is based?
( 5 ) If Questions 3 or 4, or both, are answered in the affirmative, does the Court consider that there are grounds for regulating the effects of its ruling with regard to the past?"
3 . It should be pointed out first of all that the situation in which Cehave finds itself is similar to the situation which the Court considered and gave a ruling on in its judgment in Case 64/87, Versele-Laga v Robegra, (( 1988 )) ECR 1961 .
In that judgment the Court laid down the following requirements for the way in which the levy is to be calculated .
In the first place, the processing undertaking pays, by way of levy, a sum which is calculated by converting the levy itself - expressed in ecus - into the national currency using the agricultural conversion rate . Thus, the green rate applied is the green rate for the country where processing took place .
Secondly, interpreting the regulations which were in force at the time, the Court stated that the aim of the rules in question was to ensure that the levy was neutral in its effect as regards processors and that consequently the whole amount of the levy must be passed on to the supplier .
It follows that the processor must deduct from the purchase price, at the time of purchase, exactly the same amount as is to be paid subsequently to the competent authority . That means that both the deduction and the levy to be paid must be calculated using the same agricultural conversion rate, namely - as already stated - the green rate of the country where processing takes place .
In the light of the judgment in Versele-Laga, the difficulties encountered by Cehave - and by any other cereals processor - can be resolved easily . If the levy is converted using a single green rate both for the purchase and the payment of the levy, then there can be no difference between the amount of the deduction and the amount paid, whatever the origin of the cereals which are processed .
The reply which may be given to the first and second questions asked by the national court can be deduced from those observations .
With regard to the first question : the conversion rate to be used for calculating the amount to be paid by the processing undertaking is the green rate for the State in which processing took place ( in Cehave' s case, the green rate of the Dutch guilder ).
With regard to the second question : the processor ( who has paid the levy ) may not and must not ask his supplier to pay subsequently any positive or negative difference .
First of all, subsequent payment of a difference is, in principle, contrary to the logic of the scheme, the aim of which is, as has been stated, to exert tangible pressure on the producer, giving him a precise indication of the real market situation . The fact that the producer bears the entire levy ab initio, that is to say from the moment the cereals are sold to the first purchaser, is consistent with that aim .
It has already been mentioned that the producer bears the burden of the levy as soon as the cereals are placed on the market; that is the moment at which it is appropriate to give an indication of actual demand . That is done, in concrete terms, by deducting the levy from the selling price . However, in order for the mechanism to operate in the desired manner, the entire amount of the levy must be deducted and the deduction must take place immediately . If, on the other hand, when the sale to the first purchaser took place, the producer were to apply a provisional deduction - in effect a payment on account - with the balance to be paid or refunded later, the economic signal sent to him regarding the actual demand situation would inevitably be distorted .
Consequently, the idea of a retroactive and subsequent transfer of any differences, from the processor back along the entire marketing chain, must be incompatible with the aim of the scheme .
It should also be pointed out, again in general terms, that in many cases it appears impossible, in practice, to pass on a positive or negative difference . On the cereals market, traders generally purchase from a number of producers and resell to a number of processors . Transactions between States are common . Once a particular batch of cereals has been processed in a particular Member State, it may subsequently be impossible to identify who produced any given quantity of cereals, the place where he is established and finally the actual amount to be charged, by way of levy, on the same cereals . The fact that it is impossible to identify subsequently the origin of cereals which have been processed, at least in certain cases, also means that it is impossible to determine both the amount of any differences due and the persons who are liable for payment of those amounts .
Finally, and with regard in particular to the relationship between the processor and his supplier, it has been stated that, pursuant to the Court' s judgment in Versele-Laga, the amount of the levy ( at the time of processing ) and the amount previously deducted ( at the time of purchase ) must be the same . Since there can be no difference between the two sums, there is obviously no reason for a subsequent transfer between the undertakings which were parties to the transaction in question . The answer to the second question asked by the national court must therefore be in the negative .
4 . The considerations which I have set out above would appear prima facie to enable the national court' s third and fourth questions to be answered easily .
In fact, the third question is asked only if the second question is answered in the affirmative . However, as we have seen, it is possible to give a negative reply to that question . Consequently, it is not even necessary to reply to the third question, which is devoid of purpose .
The fourth question is based on a premise - the existence of a difference, positive or negative, between the levy imposed on the processor and the deduction made from the purchase price he paid - which is in fact false, at least with regard to the specific transaction in which the operators in question were involved . This question appears therefore to have no object .
On close inspection, all the questions asked by the national court place the emphasis, in general, on the manner in which the levy paid by the processing undertaking was passed on ( under Article 5 ( 1 ) of Regulation No 2040/86 ) "also ... at each transaction prior thereto, as far as supply by the producer ". Moreover, that is essentially the aspect the parties also dwell on in their observations, even in reply to the specific questions asked by the court .
In short, the problem is as follows : although it is true that at the final stage of the marketing of a particular batch of cereals, the amount of the levy and the amount of the deduction are necessarily the same, regardless of the origin of the cereals purchased by the processor, there is nothing to say that that is also the case ( and often it is not the case ) at the previous stages .
The reason for that can be best explained with an example . Let us take the case of a British producer who sells a batch of cereals to an undertaking ( for example an undertaking which is also British ) which markets the batch of cereals . From the price an amount is deducted which corresponds to the co-responsibility levy calculated using the agricultural conversion rate for the State of the purchaser ( that is, the green rate for the pound sterling, a currency which, let us assume, is weak ). The trader who purchased the cereals in turn sells the cereals to processing undertakings located in other Member States, for example the Netherlands and Germany ( countries whose currencies are at that time strong - which is likely to be the case ). As we know, those Dutch and German undertakings also deduct from the purchase price a certain sum by way of levy, a sum which is still the same expressed in ecus but which is converted using the green rates for each of the national currencies ( that is to say the guilder and the German mark ). It is easy to see what the result would be in such a case, which, let me repeat, is not purely hypothetical . Once the amount which the processors deduct from the first intermediate purchaser ( which is equal to the amount paid to the competent body ) has been converted into sterling using the official exchange rate, it turns out to be greater ( far greater in fact ) than the amount which the abovementioned intermediary previously deducted in respect of the same cereals from the price paid to the producer who sold the cereals to him . The intermediary is thus at a disadvantage as a result of the negative difference between the deduction applied to him and the deduction which he previously applied to the producer, his supplier . A deduction in respect of the cereals marketed is applied, in turn, to the producer . That deduction does not correspond - since it is lower - to the levy actually paid in respect of the same cereals at the end of the marketing chain .
It is worth pointing out that that situation would not arise if the goods passed directly from the producer to the processor in a single transaction, without using commercial intermediaries . However, a direct transaction of that kind is very rare in the market in question .
On the other hand, the difficulties described above can be exacerbated if cereals are the object, not of one intermediate transaction, but of a whole series of them involving more than one country, and that is again a consequence of a lack of correspondence between the green rates applied each time and the official exchange rates for the currencies concerned .
5 . Thus it appears that the system is seriously malfunctioning and is not capable of ensuring either that the levy is neutral in its effect as regards intermediaries, or that the whole amount of the levy is passed on to the producer .
Those faults, which all the parties agree exist, seem to conflict with the court' s ruling in Versele-Laga, cited above . It is true that in Versele-Laga the requirements of neutral effect and the passing on of the whole amount related to the relationship between the processor and his supplier . However, there is no reason why the same requirements should not also be applied to the preceding stages . Those requirements constitute essential features of the deduction mechanism whenever it comes into operation, inasmuch as they meet the objective of passing on the burden of the levy as far as the producer ( as is provided for in Article 5 ( 1 ) of Regulation ( EEC ) No 2040/86 ) in order to make the producer more aware ( see the sixth recital of the preamble to the regulation ) "of the realities of the market ".
The Commission admits that those faults exist but does not consider that they make the system unlawful . It maintains that the faults should be considered in the context of the differences between market prices in the Member States .
In its replies to the questions put to it by the Court, and during the oral procedure, the Commission explained its reasoning : owing to a number of factors, monetary compensatory amounts do not fully compensate for the differences between currencies . The result is that Member States with relatively weak currencies are at a competitive advantage when exporting directly to Member States with relatively strong currencies .
The Commission considers that two additional, in fact slightly paradoxical considerations are relevant in this context .
First, the differences arising from the application of the co-responsibility levy have less effect on trade than the imperfect correction of currency fluctuations by monetary compensatory amounts, an imperfection which is, after all, tolerated .
Secondly, the Commission points out that the currency distortions related to the levy have the opposite effect to the price differences which have been inadequately corrected by the monetary compensatory amounts . In the end, therefore, the more substantial deduction applied to an exporter in a country with a weak currency ( such as the British intermediary in our example ) is offset by the commercial advantage which the same exporter obtains as a result of the incomplete application of monetary compensatory amounts .
However, I do not believe that those two arguments are acceptable .
It should be pointed out first of all that, as we all know, monetary compensatory amounts have a regulatory function and the Commission has a duty to "ensure that the application of monetary compensatory amounts is limited to what is strictly necessary in order to neutralize the effects of currency fluctuations between the Member States" ( see in particular the judgment in Case 236/84 Malt v Hauptzollamt Duesseldorf (( 1986 )) ECR 1923 ).
That does not necessarily mean that the partial compensation of the currency differential, which is what the Commission is referring to when it mentions the price situation on the cereals market in the second half of 1986, is legitimate .
Assuming it is legitimate, however, I do not see how the fact that the application of monetary compensatory amounts is imperfect, or incomplete, can justify defects in the method of calculating the levy . One defect cannot justify another so as to render it lawful, even if the defects produce opposite effects, particularly since the alleged compensation between those effects is purely fortuitous . What would happen if, by chance, monetary compensatory amounts were to function perfectly, as they are supposed to, or at least function better? Looked at from the Commission' s point of view then, and only then, the distortions relating to the levy would no longer be justified since they would not be compensated for by other distortions . In other words, for the distortions in the procedure at issue to be tolerable, we have to hope for distortions in the monetary compensatory amounts system!
The functional link ( of reciprocal compensation ) perceived by the Commission ( with a posteriori reasoning ) between monetary compensatory amounts and the co-responsibility levy does not in fact exist . They are different instruments used for different purposes; any inadequacies or defects in one or the other must be evaluated by reference to the principles and the rules inherent in their respective fields of application . If a certain degree of distortion can be tolerated in the system of monetary compensatory amounts, that by no means implies that distortion, which is similar only from a phenomenological point of view, can be tolerated under the rules governing the co-responsibility levy .
With regard to the principles governing application of the levy, as laid down in the judgment in Versele-Laga, the situation cited by the Commission where a commercial intermediary in a weak currency State continues to find it advantageous to export cereals to a strong currency State, despite the fact that the deduction applied to him is greater than the sum he passes on, because monetary compensatory amounts do not completely neutralize the currency situation which is in his favour, does not seem to me to be at all relevant to an assessment of the defects in the levy mechanism .
In the first place, as I have stated, the advantage accruing to the intermediary is completely fortuitous . In fact, if monetary compensatory amounts functioned perfectly, that advantage would disappear whereas the distortion relating to the levy would continue . That is a logical consequence of the fact that, as I have already demonstrated, the levy scheme was not in fact designed to incorporate the system of monetary compensatory amounts as a means of compensating for any residual price differences .
Such an advantage can at most mitigate the negative economic consequences for the intermediary of the imperfect operation of the levy ( the fact that the amount borne is greater than the amount deducted ). However, the defects which have been revealed should, in fact, be assessed from the point of view of their objective rather than subjective effects . Although it is true that the principles of the neutral effect of the levy and the passing on of the whole of the amount are also in the interest of the intermediaries, they are nevertheless guaranteed in order to enable the levy to achieve its basic purpose, which is "to make producers more aware of the realities of the market ". That is in keeping with the principle - which governs fiscal substitution - by which when a taxable person pays a tax instead of others, due to a chargeable event which is attributable to those others, the tax must normally be passed on to the taxable person to whom the chargeable event relates .
Thus, the fact that commercial operators who are at a disadvantage because the levy is not neutral may be compensated is a subjective consideration, and therefore irrelevant . It remains impossible to pass on in full - as laid down - the levy paid by the processor "at each (( prior )) transaction ..., as far as supply by the producer ". The risk also remains that, in the absence of other factors, the currency differentials which arise during the marketing stage will distort exports by directing them towards particular currency zones rather than others .
Moreover, it should be observed that it is also not possible to consider, as the Commission seems to, that those defects can be justified inasmuch as they constitute, in the final analysis, a "necessary evil ". That view is clearly belied by the fact that, two years after the contested regulations were adopted, the system for collecting the levy was radically changed by providing that the levy be paid by the producer at the time the cereals are placed on the market, and calculated in accordance with the green rate applicable in his country . That reform resolves the problems which I have pointed out above and seems more consistent with the fundamental aims of the scheme .
For reasons which I have given, I consider that Council Regulation No 1579/86 and Commission Regulation No 2040/86 must be declared invalid in so far as they do not guarantee, in the case of inter-State transactions, that the levy is neutral in its effect as regards commercial intermediaries, nor that the whole levy is passed on as far as the producer .
6 . If that interpretation is accepted by the Court, the problem then arises of how to define the effects of that declaration .
I would observe in that regard that the invalidity in question does not affect the principle of the levy as such, but only the system of collecting the levy which is laid down in and governed by Regulations Nos 1579/86 and 2040/86 .
Numerous legal relationships were established and developed under that system and the subsequent amendments to it . In the context of those relationships, which involve public and private affairs of considerable financial importance, acts and obligations of different kinds and with different subject-matter were performed ( for example the payments, deductions and invoicing prescribed by the regulations themselves ).
A declaration of invalidity with retroactive effect would compromise those relationships . Moreover, it could give rise to a dispute being resolved in different ways according to the applicable national laws, thereby giving rise to unequal treatment and possible distortions of competition between the operators concerned .
I therefore believe that, in accordance with the case-law of the Court ( see in particular the judgment in Case 4/79 Providence Agricole de la Champagne v ONIC (( 1980 )) ECR 2823 ), in the present case too, exceptionally, the declaration that the rules governing collection of the levy referred to in the contested regulation are invalid must not be allowed to call into question the amounts paid, collected or deducted by way of levy under those regulations for the period prior to the judgment .
However, in order to ensure observance of the principle of effective judicial review, I propose that those who, before the date of the judgment, brought legal proceedings ( or an equivalent complaint ) against acts adopted pursuant to the regulations declared invalid should be able to rely on the declaration of invalidity .
I therefore conclude by proposing to the Court that the following reply be given to the national court :
"( 1 ) Regulation ( EEC ) No 1579/86 and Regulation ( EEC ) No 2040/86 of the Commission are invalid in so far as, in the case of international transactions, they do not ensure that the levy is neutral in its effect as regards commercial intermediaries, nor that the entire levy will be passed on as far as the producer .
( 2 ) The declaration that those regulations are invalid may not be relied upon to call into question any amounts paid, collected or deducted by way of levy, except by persons who, before the date of this judgment, have brought legal proceedings ( or an equivalent complaint ) against acts adopted pursuant to the regulations declared invalid ."
(*) Language of the case : Italian .
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