Opinion of the Advocate-General
I - Introduction
1. The Italian Republic has brought this action for the annulment of a decision by the Commission of 3 February 1999, in which the Commission made financial corrections to some expenditure charged by that Member State to the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF).
2. The proceedings concern the system of minimum prices and production aid products processed from fruit and vegetables, in this case tomatoes. The Commission and the Italian Republic disagree essentially on whether and to what extent the payment of a minimum price to the producer precludes agreements between producers and processers on the distribution of the various additional costs.
II - Legal background
3. Council Regulation (EEC) No 426/86 of 24 February 1986 on the common organisation of the market in products processed from fruit and vegetables establishes a production aid system for certain products processed from fruit and vegetables harvested within the Community. Article 3(1) of the regulation provides as follows:
1. Production aid shall be granted to processors who have paid producers for their raw materials a price not less than the minimum price under contracts between producers or recognised producers' groups or associations thereof, on the one hand, and processors or processors' groups and associations thereof, on the other hand, legally constituted in the Community.
4. The first subparagraph of Article 4(1) and Article 5(1) of Regulation No 426/86, as amended by Council Regulation (EEC) No 1202/90 of 7 May 1990, establish the criteria by which the Commission must fix the minimum price to be paid to the producers and the amount of production aid.
5. For the 1996/97 marketing year the minimum price to be paid to the producers of tomatoes and the amount of production aid are shown in the Annexes to Commission Regulation (EC) No 1398/96. Annex I shows the minimum price to be paid to producers in the following proportion: ECU/100 kg net, ex-producer.
6. Pursuant to Articles 2, 3 and 4 of Commission Regulation (EEC) No 1558/91 of 7 June 1991 which lays down detailed rules for the application of the system of production aid for products processed from fruit and vegetables, the processers of the products in question must give information to the competent authorities in the individual Member States.
7. Article 6 of that regulation provides as follows:
1. Any contract referred to in Article 3 of Regulation (EEC) No 426/86, hereinafter referred to as the "processing contract", shall be concluded in writing. The processing contract may take the form of a commitment to supply between, on the one hand, one or more producers and, on the other hand, their recognised group or association, acting as processor.
2. For the purposes of the production aid system, "producer" means any legal or natural person who grows on his holding the raw material intended for processing.
3. The processing contract must specify:
(a) the name and address of the producer or the relevant recognised producers' group or association;
(b) the name and address of the processor or the relevant processors' group or association;
(c) the quantities of raw material to which it relates;
(d) the schedule for delivery to the processor;
(e) the price to be paid to the other contracting party for the raw materials excluding, in particular, costs connected with packing, loading, transport, unloading and the payment of taxes. Any such amounts shall be indicated separately.
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8. Pursuant to Article 12(1) of Regulation No 1558/91, the processer is to submit production aid applications to the agency designated by the Member State on whose territory the processing was carried out.
9. Article 14(1)(d) of Regulation No 1558/91 provides that aid applications are to include, in particular, a declaration in which the processer specifies that a price at least equal to the minimum price has been paid for the raw materials and that the finished products comply with the quality conditions laid down by the Community. Under Article 14(2)(a) and (b), the aid application is to be accompanied by the invoices for raw materials duly receipted by the other contracting party and showing that the price obtained by that party for them was at least equal to the minimum price or, in the case of supply commitments, a declaration by the producer that the processer paid or credited to him a price at least equal to the minimum price.
10. Article 5(2) of Council Regulation (EEC) No 729/70 of 21 April 1970 on the financing of the common agricultural policy, as amended by Council Regulation No 1287/95 of 22 May 1995, provides as follows:
The Commission, after consulting the Fund Committee:
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(c) shall decide on the expenditure to be excluded from the Community financing ... where it finds that expenditure has not been effected in compliance with Community rules.
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III - Facts of the case and submissions of the parties
11. On 17 July 1996 the Italian associations of producers and processers concluded a trade-management agreement for tomatoes intended for industrial processing for the 1996/97 marketing year (hereinafter the trade agreement), in accordance with Italian Law No 88/1988 on trade agreements.
12. As regards methods of payment, Article 11 of that agreement provides that the producer, in his capacity as vendor, is to pay the cost of transport relating only to the collection of the ... bins ... necessary for delivery of the raw material to the processing undertaking. In that case, however, it was expressly agreed that the transport cost chargeable to the producers and producers' associations would not, under any circumstances, be higher than 35% of the documented cost of the overall transport, including carriage of the raw material from the place of harvest to the processing plant, as that amount, as the Community legislation provides, shall be paid by the processing industry.
13. In the 1996/97 marketing year, the processing contracts referred to in Article 3 of Regulation No 426/86 were concluded on the basis of the trade agreement. The contracts stated, accordingly, that the processers would make the bins necessary for harvest and delivery of the raw material available to the producers; for their part, the producers were obliged to return those bins, and to pay financial compensation for any loss or damage to them.
14. In determining the total Italian expenditure chargeable to the Fund, the Commission made financial corrections to the detriment of Italy, declaring not to be chargeable to the Fund the sum of ITL 7 421 939 820 for aid for the processing of tomatoes - incomplete payment of transport costs to tomato producers by processers in Italy (item 4.6.8 of the Summary Report for 1995). That amount corresponds to a flat-rate correction of 2% of the total amount of ITL 371 096 991 020.
15. In Summary Report No VI/6462/98, consolidated version of 12 January 1999, on the results of the checks carried out for the clearance of the Guarantee Section of the EAGGF accounts for 1995, the Commission explained the financial correction as follows:
The information collected during the audits showed that the tomato producers were obliged by the processors to pay 35% of the transport costs of the raw materials, even if it is contrary to the Community rules, and in particular to Article 6(3)(e) of Regulation No 1558/91.
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Taking account of the information available, Commission staff consider that breach of the Community rules can be likened to an incomplete payment of the minimum price to the producers for the raw materials supplied, and achieved for the processing companies an unfair competitive advantage in relation to other countries' undertakings.
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16. On 18 May 1998 the Italian Republic applied to the Conciliation Body on that question. In its final report of 22 October 1998, the Conciliation Body reached the conclusion that Article 6(3)(e) of Regulation No 1558/91 was not without ambiguity and, at least at first sight, implied that, in accordance with the interpretation of the Italian Government, the costs for additional services could be charged to the producers separately from the minimum price to be paid by the processers. However, the Conciliation Body did not consider that it was competent to resolve that question of interpretation.
17. The Commission then argued that the practice defended by the Italian authorities, which the Commission considered to be contrary to the Community provisions, could be likened to an incomplete payment of the minimum price to producers for the raw materials supplied and thus gave the processers an unfair competitive advantage over corresponding undertakings in other Member States.
18. The Commission accordingly adopted the decision which is the subject of this action. The action was brought by application dated 17 April 1999, which was received at the Court of Justice on 21 April 1999.
19. The Italian Republic claims that the Court should:
(1) annul Commission Decision C(1999) 208 Final of 3 February 1999, which excludes from Community financing certain expenditure incurred by the Member States in respect of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) to the extent to which, in determining the total Italian expenditure chargeable to the Fund, it made financial corrections to the detriment of Italy, declaring not to be chargeable to the Fund the sum of ITL 7 421 939 820 for aid for the processing of tomatoes - incomplete payment of transport costs to tomato producers - Italy (item 4.6.8 of the Summary Report for 1995);
(2) order the Commission to pay the costs.
20. In the submission of the Italian Government, the fact that Article 6(3)(e) of Regulation No 1558/91 lists a number of costs which cannot be included in the minimum price does not mean that those costs cannot under any circumstances be charged to the producer. The producer has to bear various costs during the course of his business activity. If Article 6(3)(e) of Regulation No 1558/91 were to be interpreted as meaning that all additional costs are to be paid exclusively by the processer, it would have provided that the processing contracts had to state a net price.
21. According to the Italian Government, the purpose of the provision in question is merely to avoid possible breaches of the rules on minimum prices through practices which are not transparent and it thus requires the additional costs to be shown separately. The Italian Government also points out that the supply and delivery of containers does not fall under processing, the costs of which must be borne exclusively by the processing companies.
22. The Commission contends that the Court should:
(1) dismiss the application;
(2) order the Italian Republic to pay the costs.
23. The Commission argues, essentially, that the sharing in the transport costs, even though it is limited to 35% of the documented cost of the overall transport, ultimately reduces the minimum price and therefore fails to comply with the requirement that the minimum price be paid ex-producer, in accordance with Annex I to Regulation No 1398/96. The Commission also refers to the close link which exists, in its view, between the costs for use of the containers necessary for the transport of the raw material and the transport itself. Finally, it emphasises the objective of protecting producers through the minimum price system.
IV - Assessment
24. The parties appear to agree that the organisation of the market in question excludes the producers from bearing the transport costs and processing costs, since the applicable Community provision defines the minimum prices to be paid to the producers as ex-producer. Consequently, this precludes the producers from bearing the costs of transporting the raw material to the processing undertaking, as expressly emphasised in Article 11 of the trade agreement.
25. In the contested decision the Commission denies that the agreements between the producers and processers concerned are compatible with the relevant rules on minimum prices and in particular with Article 6(3)(e) of Regulation No 1558/91, as it includes the charges in question in the transport and processing costs. On the other hand, the Italian Republic tries to demonstrate that the charges in question may be considered separately. In so doing, it relies on the wording and ratio of Article 6(3)(e) of Regulation No 1558/91.
26. Therefore, the nature of the charges in question is a matter in issue.
A - The nature of the charges in question
27. It should be noted that the trade agreement relates, according to the wording of Article 11 thereof, to transport costs. However it cannot be inferred from that wording that what is concerned in this case is the permissibility of transferring the burden of transport costs to the producers, in the form of renumeration for the transport of the raw material from the producer to the processer. It is more a question whether payment by the producers for certain services provided by the processers is permissible.
28. Those services provided by the processers consist of the supply of containers, which are clearly necessary for the producers for harvesting purposes. Also central to the Commission's case is the obligation of the producers to pay financial compensation for any loss of or damage to the containers.
29. It became clear at the hearing that the containers are not used for the transport of the raw material from the producer to the processer, as might be inferred from Article 11 of the trade agreement, but are used only for harvesting the tomatoes. According to the representative of the Italian Government, who was not contradicted by the Commission on this point, that transport is carried out in other, larger, containers. From now on I shall therefore proceed, in principle, on the basis of that - so far as can be seen - undisputed contention of the Italian Government.
30. The charges in question can be seen to be linked by the abovementioned transport costs, because the containers are necessary for the carriage of the raw material to the processer and the maximum flat-rate percentage of those charges, 35%, is calculated directly on the basis of the overall transport costs of the raw material.
31. The Commission considers that it may be concluded from this that the charges in question are closely linked to the transport costs. However, the Italian Government replies that the supply of containers constitutes a service which is separate from the transport of the raw material to the processers.
32. In the written procedure, the Commission raised an objection of inadmissibility under Article 42(2) of the Court's Rules of Procedure to that defence. As the representative of the Italian Government stated at the hearing that the Italian Republic did not want the charges in question to be assessed separately from the transport costs, the Commission expressly withdrew that objection of inadmissibility. If it had not done so, it would have been proper to discuss whether that defence put forward by Italy constituted a new argument and not a new matter of law.
33. Thus, the nature of the charges in question remains unclear. If those charges were to constitute transport costs, their permissibility would be questionable, given the clear wording of Regulation No 1398/96.
34. With regard to the nature of the charges in question, it is first of all necessary to agree with the Italian Government that the transport of raw material, on one hand, and the supply of containers before harvest, on the other hand, represent two different services. However, the inclusion of the charges in question in the actual transport costs might appear to be required, bearing in mind that it is necessary to have the containers available for harvest, loading and transport of the products, which is already evident from Article 11 of the trade agreement. That, in turn, constitutes evidence of the link, stressed by the Commission, between the transport and the supply of containers.
35. Nor is the Commission wrong in pointing out that Article 11 of the trade agreement itself includes the charges in question in transport costs and makes the amount of those charges dependent on the amount of the overall transport cost.
36. However, this point appears to be less convincing if it is borne in mind that, for the purposes of the minimum price regime, the nature of the charges in question cannot depend on how they are designated by the contracting parties concerned and that the calculation of those charges has to do, not so much with their nature, but rather with whether they are permissible in the light of their actual financial effects on the producers.
37. If the argument put forward at the hearing by the representative of the Italian Government is accepted, then the containers supplied are clearly not used for the transport of the raw material. If that were the case, then there would appear to be no question of deeming the supply of the containers to form part of the actual transport of the raw material.
38. However, if the containers were used for the transport of the raw material to the processing undertakings, such a distinction between the service provided by the processers and the actual transport would no longer be sustainable. In saying this, I do not disregard the fact that the actual service provided by the processers - supply of containers - is not affected by the use of the containers. What, however, would appear to be decisive in such a case is that the service in question provided by the processers constitutes a necessary prerequisite for the transport of the raw material.
39. A further argument in favour of the Commission's submission might be derived from comparison with the law on the international sale of goods. Incoterms 2000 provide, in the case of sale ex works (EXW), that in the event of any doubt, the charges for the collection of the goods are to be paid by the purchaser. This means that in such a case - corresponding to the sale of the raw material ex producer - the transport costs would include charges of the type in question.
40. Assuming, however, that, as argued at the hearing, the charges in question are amenable to separate assessment, it is necessary to examine, in the light of the rules on minimum prices, the question of their assumption by the producer under the trade agreement. To that end, it is necessary, as the parties have argued, to proceed on the basis of the wording and ratio of the provisions cited above.
B - Wording of Article 6(3)(e) of Regulation No 1558/91
41. The obligation to show the minimum price separately from the additional costs, as stated in Article 6(3)(e) of Regulation No 1558/91, does not in itself prohibit, in principle, the burden of additional costs being assumed by the producer. A contrario, it is even clear, as correctly noted by the Italian Government, that this should be recognised as permissible, since the obligation to indicate the additional costs separately may properly relate only to costs which the producer may be called upon to bear in accordance with the organisation of the market.
42. Article 6(3)(e) of Regulation No 1558/91 also contains a restriction, which is that the amounts in question must be indicated separately if applicable. This restriction may mean that costs are to or can be indicated only and exclusively where the organisation of the market allows the producer to bear them.
43. To that extent, therefore, the argument of the Italian Government does not appear to be manifestly unfounded. On the other hand, the Commission's contention on that point must be rejected: it cannot be inferred from the wording of Article 6(3)(e) of Regulation No 1588/91 that the producer cannot take over the costs classified by the parties concerned as transport costs.
On this point, a literal interpretation of the provision does not appear very convincing.
C - The system and ratio of the minimum-price regime under the organisation of the market in question
44. Article 6(3)(e) of Regulation No 1558/91, considered in itself, does not enable any view to be taken on the permissibility of a possible assumption of the burden of costs by the producer. Accordingly, that provision cannot be considered in isolation; instead, the assessment must be made in the light of a comprehensive analysis of the minimum-price regime in question.
45. In the present case, it is clear from Annex I to Regulation No 1398/96 that the minimum price to be paid to the producer is a price ex-producer, with the logical consequence that, as has been shown already, the costs for transporting the raw material to the processing plants must be borne by the processer.
46. The minimum-price regime for products obtained from the processing of tomatoes is based on the processing contracts and is used, inter alia, to guarantee income to the producers. The production aid which is granted, under certain conditions, to the processers is calculated in such a way that they can purchase the raw material on the Community market at prices which are competitive, compared to those on the world market.
47. Consequently, for the purpose of verifying that the minimum price has in fact been paid to the producers, it is necessary to be able to distinguish, in the processing contracts, the price paid from other services of a pecuniary nature. This point is rightly emphasised by the Italian Republic.
48. It follows that, in principle, the minimum-price regime does not preclude the producers from assuming additional costs, provided that those costs are clearly indicated in the processing contracts and the objective of the regime is not thereby compromised.
49. In this case, if it is assumed that the supply of containers is a service which is separate from the transport of the raw material to the processer, there is no discernible reason why the assumption of the relevant costs by the producers must be excluded from the outset merely because the service concerned had been provided by the processer and not by a third party.
50. However, the Commission considers that the objective of the minimum-price regime may be jeopardised in that Article 11 of the trade agreement, and the processing contracts concluded under that agreement, would ultimately lead to the processer unlawfully reducing the minimum price payable by 35% of the transport costs.
51. That objection calls for closer examination. Even if the partial assumption of the charges by the producers were to be regarded, in principle, as permissible, because it is directed to remunerating a particular service not ascribable to the transport of raw materials to the processer or to their processing, the question of the methods of calculation in invoicing that service to the producers none the less warrants consideration.
52. In that connection, it should be noted that Article 11 of the trade agreement, concerning the calculation of the amount due in respect of the charges in question, refers to the overall transport cost. According to that provision, the reference is to be made to the individual processing contracts for the relevant detailed rules. Those contracts, as shown in the standard forms produced by the Italian Government, clearly provide for the participation of producers for up to 35% of the cost of the overall transport. However, this means that the participation of the producers in the charges is not necessarily calculated on the basis of the actual costs, but may be determined at a flat rate.
53. In that respect, the Commission rightly points out that the system of minimum prices rules are mandatory in nature. It therefore does not accept that those rules may, directly or indirectly, be rendered nugatory. That does not, admittedly, preclude, in principle, the participation of the producers in certain additional costs not directly related to transport and processing; nevertheless, that participation must be compatible with the minimum ex-producer price system. Consequently, the possibility - in the sense of covering costs - which in principle exists of invoicing to the producers costs for particular services not directly related to the transport and processing of the raw materials finds its limits once payment in full of the mandatory minimum price might thereby be frustrated.
54. That danger exists where the costs invoiced to the producer do not correspond to the expenditure actually incurred by the processer in carrying out the services in question. Therefore, in so far as the trade agreement provides for financial compensation for damaged or lost containers on the basis of the current purchase price, the relevant provision would appear to be unobjectionable. On the other hand, a flat-rate participation in costs in return for the supply of containers before the harvest leads to an unlawful decrease in the minimum price to be paid to the producers, as it reduces that minimum price by the proportion of the participation in the costs that is in excess of the expenditure actually incurred by the processers.
55. Finally, for the application of the minimum price regime it is irrelevant that the minimum price is initially credited to the producers and then offset with credits from the processers for reimbursement of additional costs, or that it is paid from the outset only partially.
56. Accordingly, notwithstanding the nature of the charges in question, it is necessary to agree with the Commission where it found that the processing contracts concluded on the basis of the trade agreement led to incomplete payment of the minimum price to the producers. As the minimum-price regime is mandatory, however, the corresponding expenditure was not incurred in accordance with the Community provisions within the meaning of Article 5(2) of Regulation No 729/70, as amended by Regulation No 1287/95.
V - Costs
57. Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if applied for by the successful party. As the Commission has applied for costs and the Italian Republic has been unsuccessful, the Italian Republic must be ordered to pay the costs.
VI - Conclusion
58. On the basis of the foregoing considerations, I propose that the Court give judgment as follows:
(1) The application is dismissed as unfounded.
(2) The Italian Republic shall pay the costs.
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