61985J0347

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1 . AGRICULTURE - EAGGF - CLEARANCE OF ACCOUNTS - DISALLOWANCE OF EXPENDITURE ARISING FROM IRREGULARITIES IN THE APPLICATION OF THE COMMUNITY RULES - LIMITED BY THE COMMISSION TO THE COST TO THE EAGGF OF THE IRREGULARITIES - BURDEN OF PROOF - DIVIDED BETWEEN THE COMMISSION AND THE MEMBER STATE CONCERNED

( REGULATION NO 729/70 OF THE COUNCIL, ARTS 2, 3 AND 5 ( 2 ) ( B ) )

2 . AGRICULTURE - COMMON AGRICULTURAL POLICY - FINANCING BY THE EAGGF - PRINCIPLES - DISALLOWANCE OF EXPENDITURE RELATED TO UNLAWFUL PRACTICES - PRACTICES BRINGING ABOUT SAVINGS IN RESPECT OF OTHER ITEMS OF EAGGF EXPENDITURE - NO EFFECT

( REGULATION NO 729/70 OF THE COUNCIL, ARTS 2 AND 3 )

3 . DECISIONS OF THE INSTITUTIONS - REASONS - OBLIGATION TO STATE THEM - SCOPE - DECISION RELATING TO THE CLEARANCE OF ACCOUNTS IN RESPECT OF EXPENDITURE FINANCED BY THE EAGGF

( EEC TREATY, ART . 190 )

1 . WHEN THE COMMISSION REFUSES TO CHARGE CERTAIN EXPENDITURE TO THE EAGGF ON THE GROUND THAT IT WAS INCURRED AS A RESULT OF BREACHES OF COMMUNITY RULES IMPUTABLE TO A MEMBER STATE, IT MUST ESTABLISH THAT THAT MEMBER STATE HAS INFRINGED THE RULES OF THE COMMON ORGANIZATION OF AGRICULTURAL MARKETS . WHEN THE AMOUNT DISALLOWED HAS BEEN CALCULATED BY EXAMINING THE MANNER IN WHICH THE IRREGULARITY AFFECTED EAGGF EXPENDITURE, IT IS FOR THE MEMBER STATE CONTESTING THE DISALLOWANCE TO PROVE THAT EAGGF EXPENDITURE WAS NOT INCREASED AS A RESULT OF THAT IRREGULARITY OR THAT IT WAS INCREASED BY AN AMOUNT LESS THAN THAT CALCULATED BY THE COMMISSION .

2 . ARTICLES 2 AND 3 OF REGULATION NO 729/70 PERMIT THE COMMISSION TO CHARGE TO THE EAGGF ONLY SUMS PAID IN ACCORDANCE WITH THE RULES LAID DOWN IN THE VARIOUS SECTORS OF AGRICULTURAL PRODUCTION WHILE LEAVING THE MEMBER STATES TO BEAR THE BURDEN OF ANY OTHER SUM PAID, AND IN PARTICULAR ANY AMOUNTS WHICH THE NATIONAL AUTHORITIES WRONGLY BELIEVED THEMSELVES AUTHORIZED TO PAY IN THE CONTEXT OF THE COMMON ORGANIZATION OF THE MARKETS .

THE FACT THAT UNLAWFUL NATIONAL PRACTICES WHICH LED TO THE INCURRING OF EXPENDITURE IN BREACH OF THE RULES GOVERNING THE ADMINISTRATION OF THE COMMON AGRICULTURAL POLICY MIGHT HAVE HAD BENEFICIAL EFFECTS AS REGARDS SUMS ENTERED UNDER OTHER ITEMS OF EAGGF EXPENDITURE IS IRRELEVANT IN THIS REGARD . IF THIS WERE NOT SO, THE PROCEDURE FOR THE CLEARANCE OF ACCOUNTS WOULD BE DEFLECTED FROM ITS ESSENTIAL PURPOSE, WHICH IS TO VERIFY THE REGULARITY OF EXPENDITURE .

3 . A DECISION RELATING TO THE CLEARANCE OF ACCOUNTS IN RESPECT OF EXPENDITURE FINANCED BY THE EAGGF BY WHICH THE CHARGING TO THE EAGGF OF PART OF THE EXPENDITURE DECLARED IS REFUSED DOES NOT REQUIRE DETAILED REASONS IF THE GOVERNMENT CONCERNED WAS CLOSELY INVOLVED IN THE PROCESS BY WHICH THE DECISION CAME ABOUT AND IS THEREFORE AWARE OF THE REASON FOR WHICH THE COMMISSION CONSIDERS THAT IT MUST NOT CHARGE THE SUMS IN DISPUTE TO THE EAGGF .

IN CASE 347/85

UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND, REPRESENTED BY R . N . RICKS, OF THE TREASURY SOLICITOR' S DEPARTMENT, ACTING AS AGENT, ASSISTED BY CHRISTOPHER BELLAMY AND RUPERT ANDERSON, BARRISTERS, WITH AN ADDRESS FOR SERVICE IN LUXEMBOURG AT THE BRITISH EMBASSY, 28 BOULEVARD ROYAL,

APPLICANT,

V

COMMISSION OF THE EUROPEAN COMMUNITIES, REPRESENTED BY D . G . LAWRENCE, A MEMBER OF ITS LEGAL DEPARTMENT, ACTING AS AGENT, WITH AN ADDRESS FOR SERVICE IN LUXEMBOURG AT THE OFFICE OF G . KREMLIS, JEAN MONNET BUILDING, KIRCHBERG,

DEFENDANT,

APPLICATION PURSUANT TO ARTICLE 173 OF THE TREATY ESTABLISHING THE EUROPEAN ECONOMIC COMMUNITY FOR A DECLARATION THAT COMMISSION DECISIONS NOS . 85/465/EEC AND 85/466/EEC OF 28 AUGUST 1985 ON THE CLEARANCE OF THE ACCOUNTS PRESENTED BY THE UNITED KINGDOM IN RESPECT OF THE EUROPEAN AGRICULTURAL GUIDANCE AND GUARANTEE FUND, GUARANTEE SECTION, FOR 1980 AND 1981 ARE VOID IN SO FAR AS THEY DISALLOW CERTAIN EXPENDITURE ON CONSUMER BUTTER SUBSIDY, INTERVENTION MEASURES FOR SKIMMED-MILK POWDER AND EXPORT REFUNDS FOR MILK AND MILK PRODUCTS,

THE COURT

COMPOSED OF : G . BOSCO, PRESIDENT OF CHAMBER, ACTING AS PRESIDENT, J . C . MOITINHO DE ALMEIDA ( PRESIDENT OF CHAMBER ), T . KOOPMANS, U . EVERLING, C . KAKOURIS, R . JOLIET AND F . SCHOCKWEILER, JUDGES,

ADVOCATE GENERAL : J.MISCHO

REGISTRAR : B . PASTOR, ADMINISTRATOR

HAVING REGARD TO THE REPORT FOR THE HEARING AND FURTHER TO THE HEARING ON 9 JULY 1987,

AFTER HEARING THE OPINION OF THE ADVOCATE GENERAL DELIVERED AT THE SITTING ON 1 OCTOBER 1987,

GIVES THE FOLLOWING

JUDGMENT

1 BY APPLICATION LODGED AT THE COURT REGISTRY ON 15 NOVEMBER 1985 THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND BROUGHT AN ACTION BEFORE THE COURT UNDER THE FIRST PARAGRAPH OF ARTICLE 173 OF THE EEC TREATY FOR A DECLARATION THAT COMMISSION DECISIONS NOS 85/465/EEC AND 85/466/EEC OF 28 AUGUST 1985 ON THE CLEARANCE OF THE ACCOUNTS PRESENTED BY THE UNITED KINGDOM IN RESPECT OF THE EUROPEAN AGRICULTURAL GUIDANCE AND GUARANTEE FUND ( EAGGF ), GUARANTEE SECTION, FOR 1980 AND 1981 ( OFFICIAL JOURNAL 1985, L 267, PP . 49 AND 52 ) ARE VOID .

2 BY THOSE DECISIONS THE COMMISSION REFUSED TO CHARGE CERTAIN AMOUNTS TO THE EAGGF, NAMELY UKL 2 193 455.97 FOR 1980 AND UKL 2 873 092.93 FOR 1981, PAID BY THE UNITED KINGDOM IN RESPECT OF CONSUMER BUTTER SUBSIDY, INTERVENTION MEASURES AND AID FOR SKIMMED-MILK POWDER AND EXPORT REFUNDS FOR MILK AND MILK PRODUCTS .

3 ACCORDING TO THE COMMISSION, THE SUMS IN QUESTION ARE EQUIVALENT TO INCREASES IN EAGGF EXPENDITURE WHICH, IN ITS VIEW, WERE BROUGHT ABOUT BY THE UNLAWFUL PRACTICES OF THE MILK MARKETING BOARDS CONCERNING :

( A ) THE FIXING OF DIFFERENT PRICES FOR WHOLE MILK TO BE USED FOR THE MANUFACTURE OF BUTTER DEPENDING ON WHETHER THE BUTTER WAS TO BE SOLD IN THE FORM OF PACKET BUTTER ( CONSUMER BUTTER ) OR IN BULK ( INTERVENTION BUTTER ) AND, IN PARTICULAR, THE FIXING OF A LOWER PRICE FOR MILK USED IN THE MANUFACTURE OF PACKET BUTTER;

( B ) THE FIXING OF DIFFERENT PRICES FOR WHOLE MILK TO BE USED IN THE MANUFACTURE OF BUTTER OR CREAM DEPENDING ON WHETHER THE RESIDUAL LIQUID SKIMMED MILK WAS TO BE USED FOR ANIMAL FEED OR PROCESSED INTO POWDER AND, IN PARTICULAR, THE FIXING OF A HIGHER PRICE FOR WHOLE MILK OF WHICH THE SKIM WAS USED FOR ANIMAL FEED;

( C ) THE FIXING OF DIFFERENT PRICES FOR WHOLE MILK USED FOR THE MANUFACTURE OF BUTTER OR CREAM DEPENDING ON WHETHER THE RESIDUAL LIQUID SKIMMED MILK WAS TO BE USED IN THE MANUFACTURE OF CASEIN OR FOR PROCESSING INTO POWDER AND, IN PARTICULAR, THE FIXING OF A HIGHER PRICE FOR WHOLE MILK OF WHICH THE SKIM WAS USED FOR THE MANUFACTURE OF CASEIN;

( D ) THE FIXING OF DIFFERENT PRICES FOR WHOLE MILK USED FOR THE MANUFACTURE OF CERTAIN MILK PRODUCTS DEPENDING ON WHETHER THOSE PRODUCTS WERE SOLD WITHIN OR EXPORTED OUTSIDE THE COMMUNITY AND, IN PARTICULAR, THE FIXING OF A LOWER PRICE FOR MILK USED IN THE MANUFACTURE OF PRODUCTS SOLD OUTSIDE THE COMMUNITY .

4 IN ORDER TO CALCULATE THE AMOUNTS DISALLOWED, THE COMMISSION ASSESSED WHAT THE SITUATION ON THE MARKETS IN QUESTION WOULD HAVE BEEN IN THE ABSENCE OF THOSE DIFFERENTIAL PRICING PRACTICES . IT HAS POINTED OUT THAT IT WOULD HAVE BEEN OPEN TO IT TO ADOPT A MORE RESTRICTIVE APPROACH AND TO REFUSE TO ACCEPT THE TOTALITY OF THE ITEMS AFFECTED BY THE DIFFERENTIAL PRICES, IN WHICH CASE THE AMOUNT DISALLOWED WOULD HAVE BEEN UKL 300 000 000 FOR 1980 AND 1981 RATHER THAN AN AMOUNT OF SLIGHTLY OVER UKL 5 000 000 . HOWEVER, THE COMMISSION RELIED ON THEORETICAL CALCULATIONS BASED ON A COMPARISON BETWEEN THE ACTUAL SITUATION AND THE SITUATION WHICH WOULD HAVE EXISTED IF A SYSTEM OF SINGLE PRICES HAD BEEN APPLIED .

5 THE UNITED KINGDOM HAS DISPUTED THE RESULT OF THE COMMISSION' S CALCULATIONS AND THE COMMISSION HAS DEFENDED IT, SO THAT EACH PARTY HAS PRESENTED ITS CASE WITHIN THE CONTEXT OF THE METHOD OF CALCULATION FOLLOWED BY THE COMMISSION . CONSEQUENTLY, THIS DISPUTE RELATES ONLY TO THE MATTERS ARGUED BETWEEN THE PARTIES IN RELATION TO THE APPLICATION OF THAT METHOD .

6 REFERENCE IS MADE TO THE REPORT FOR THE HEARING FOR A FULLER ACCOUNT OF THE FACTS OF THE CASE, THE COURSE OF THE PROCEDURE AND THE SUBMISSIONS AND ARGUMENTS OF THE PARTIES, WHICH ARE MENTIONED OR DISCUSSED HEREINAFTER ONLY IN SO FAR AS IS NECESSARY FOR THE REASONING OF THE COURT .

THE BURDEN OF PROOF

7 IT IS NECESSARY TO EXAMINE THE ARGUMENTS PUT FORWARD IN LIMINE BY THE TWO PARTIES ON THE QUESTION OF THE BURDEN OF PROOF . IN THE UNITED KINGDOM' S VIEW, IN A PROCEDURE FOR THE CLEARANCE OF ACCOUNTS SUCH AS THAT INVOLVED IN THE PRESENT CASE, THE COMMISSION MUST FIRST PROVE THAT THE DUAL PRICING PRACTICES IN QUESTION CONSTITUTE BREACHES OF COMMUNITY LAW . THE COMMISSION MUST THEN SHOW THAT EAGGF EXPENDITURE HAS BEEN INCREASED AS AN INEVITABLE AND DIRECT RESULT OF THOSE PRACTICES . FINALLY, IT MUST DETERMINE AND PROVE THE EXACT AMOUNT OF THAT INCREASE .

8 IN SUPPORT OF ITS ARGUMENT THE UNITED KINGDOM REFERS TO A MEMORANDUM ( IV/662/85 ) IN WHICH THE COMMISSION STATED THAT IT WAS NECESSARY TO PROVE THAT THERE HAD BEEN "AN UNAVOIDABLE AND DIRECT IMPACT ON EAGGF ... EXPENDITURE" AND THAT THERE WAS A CAUSAL LINK BETWEEN THE INFRINGEMENT IN QUESTION AND THE FINANCIAL IMPACT ON THE EAGGF .

9 THE COMMISSION ACCEPTS THAT IN THE PRESENT CASE IT MUST SHOW THAT THERE HAS BEEN A BREACH OF THE RULES OF THE COMMON ORGANIZATION OF THE AGRICULTURAL MARKETS AND THAT SUCH A BREACH WAS LIABLE TO HAVE ENTAILED AN INCREASE IN THE EXPENDITURE ENTERED UNDER CERTAIN BUDGETARY ITEMS OF THE EAGGF . HOWEVER, IT CONTENDS THAT IT IS FOR THE MEMBER STATE CONCERNED TO SHOW THAT THE INFRINGEMENT WITH WHICH IT IS CHARGED DID NOT CAUSE ANY INCREASE IN THE RELEVANT EXPENDITURE OR THAT SUCH AN INCREASE WAS OVERESTIMATED BY THE COMMISSION .

10 AS REGARDS THE MEMORANDUM REFERRED TO BY THE UNITED KINGDOM, THE COMMISSION REPLIES THAT THE APPLICANT FAILED TO QUOTE THE LAST TWO SENTENCES OF PARAGRAPH 4 WHICH ARE WORDED AS FOLLOWS :

"THE COMMISSION IS, HOWEVER, NOT OBLIGED TO BE ABLE TO CALCULATE ACCURATELY THE FINANCIAL IMPACT OF A MEMBER STATE' S ILLEGAL ACTION . WHERE SUCH A CALCULATION IS IMPOSSIBLE, IT IS FOR THE MEMBER STATE TO PROVIDE THE INFORMATION ENABLING THE ACTUAL IMPACT OF ITS ACTION TO BE CALCULATED, ON PAIN OF DISALLOWANCE OF ALL THE RELEVANT EXPENDITURE ( SEE JUDGMENT OF THE COURT OF JUSTICE IN JOINED CASES 15 AND 16/76 )."

11 ON THIS POINT IT MUST BE BORNE IN MIND FIRST OF ALL THAT, ACCORDING TO THE PRINCIPLES GOVERNING THE PROCEDURE FOR CLEARING EAGGF ACCOUNTS AS AFFIRMED BY THE COURT ( SEE IN PARTICULAR THE JUDGMENTS OF 7 FEBRUARY 1979 IN CASE 11/76 NETHERLANDS V COMMISSION (( 1979 )) ECR 245 AND IN JOINED CASES 15 AND 16/76 FRANCE V COMMISSION (( 1979 )) ECR 321 ), ONLY REFUNDS GRANTED AND INTERVENTION UNDERTAKEN "IN ACCORDANCE WITH THE COMMUNITY RULES" WITHIN THE FRAMEWORK OF THE COMMON ORGANIZATION OF AGRICULTURAL MARKETS ARE FINANCED BY THE EAGGF .

12 IT IS ALSO ESTABLISHED ( SEE IN PARTICULAR THE JUDGMENTS CITED ABOVE ) THAT ADDITIONAL EXPENDITURE RESULTING FROM NATIONAL MEASURES WHICH ARE SUCH AS TO COMPROMISE THE EQUALITY OF TREATMENT OF TRADERS IN THE COMMUNITY AND THUS TO DISTORT COMPETITIVE CONDITIONS BETWEEN THE MEMBER STATES CANNOT BE FINANCED BY THE EAGGF BUT MUST IN ALL EVENTS BE BORNE BY THE MEMBER STATE CONCERNED .

13 MOREOVER, AS APPEARS FROM THE JUDGMENT OF THE COURT OF 7 FEBRUARY 1979 IN JOINED CASES 15 AND 16/76, CITED ABOVE, WHERE IT PROVES IMPOSSIBLE TO ESTABLISH WITH CERTAINTY THE EXTENT TO WHICH A NATIONAL MEASURE THAT IS INCOMPATIBLE WITH COMMUNITY LAW HAS CAUSED AN INCREASE IN THE EXPENDITURE ENTERED UNDER A BUDGETARY ITEM OF THE EAGGF, THE COMMISSION HAS NO CHOICE BUT TO DISALLOW ALL THE EXPENDITURE IN QUESTION .

14 FINALLY, IT MUST BE POINTED OUT ( SEE IN PARTICULAR THE JUDGMENT OF THE COURT OF 12 JULY 1984 IN CASE 49/83 LUXEMBOURG V COMMISSION (( 1984 )) ECR 2931 ) THAT WHEN THE COMMISSION REFUSES TO CHARGE CERTAIN EXPENDITURE TO THE EAGGF ON THE GROUND THAT IT WAS INCURRED AS A RESULT OF BREACHES OF COMMUNITY RULES IMPUTABLE TO A MEMBER STATE, IT IS FOR THAT STATE TO SHOW THAT THE CONDITIONS FOR OBTAINING THE FINANCING REFUSED BY THE COMMISSION ARE FULFILLED .

15 THE SAME CONSIDERATIONS APPLY WHERE, AS IN THIS CASE, THE COMMISSION, INSTEAD OF REJECTING ALL THE EXPENDITURE AFFECTED BY THE INFRINGEMENT, HAS ENDEAVOURED TO ESTABLISH THE FINANCIAL IMPACT OF THE UNLAWFUL ACTION BY MEANS OF CALCULATIONS BASED ON AN ASSESSMENT OF WHAT THE SITUATION ON THE RELEVANT MARKET WOULD HAVE BEEN IF THE INFRINGEMENT HAD NOT OCCURRED . IN SUCH A CASE, THE BURDEN OF PROVING THAT THOSE CALCULATIONS ARE NOT CORRECT RESTS ON THE STATE SEEKING TO HAVE THE DISALLOWANCE ANNULLED .

16 IT MUST THEREFORE BE CONCLUDED THAT THE COMMISSION HAS SATISFIED ITS OBLIGATIONS IN THE MATTER OF PROOF ONCE IT ESTABLISHES THAT A MEMBER STATE HAS INFRINGED THE RULES OF THE COMMON ORGANIZATION OF AGRICULTURAL MARKETS . WHERE THE COMMISSION HAS CHOSEN TO CALCULATE THE AMOUNT OF THE EXPENDITURE CONCERNED BY THE INFRINGEMENT BY EXAMINING THE MANNER IN WHICH THE IRREGULARITY AFFECTED EAGGF EXPENDITURE, AS IS THE SITUATION IN THIS CASE, IT IS FOR THE MEMBER STATE CONCERNED TO PROVE THAT THE EXPENDITURE IN QUESTION WAS NOT INCREASED AS A RESULT OF THAT IRREGULARITY OR THAT IT WAS INCREASED BY AN AMOUNT LESS THAN THAT CALCULATED BY THE COMMISSION .

THE QUESTION WHETHER THE DIFFERENTIAL PRICING PRACTICES IN QUESTION ARE COMPATIBLE WITH COMMUNITY LAW AND WHETHER THEY ARE LIABLE TO ENTAIL AN INCREASE IN EAGGF EXPENDITURE

17 IN VIEW OF THE CONSIDERATIONS SET OUT ABOVE ON THE QUESTION OF THE BURDEN OF PROOF, THE FIRST POINT TO CONSIDER IS WHETHER THE COMMISSION HAS SATISFIED THE COURT THAT THE DIFFERENTIAL PRICING PRACTICES IN QUESTION ARE INCOMPATIBLE WITH COMMUNITY LAW .

18 AS REGARDS THE DUAL PRICING FOR MILK, DEPENDING ON WHETHER THE RESULTANT SKIMMED MILK WAS USED FOR ANIMAL FEED OR FOR PROCESSING INTO POWDER, THE COMMISSION, AFTER POINTING OUT THAT SUCH A PRACTICE IS INCOMPATIBLE WITH COMMUNITY LAW, ARGUES THAT, IF DIFFERENT PRICES HAD NOT BEEN APPLIED, THE PRICE OF THE SKIMMED MILK USED FOR ANIMAL FEED WOULD HAVE BEEN FIXED AT A LOWER LEVEL, NAMELY THAT OF THE PRICE FOR MILK USED FOR PROCESSING INTO POWDER . THAT CHANGE IN PRICE WOULD HAVE BEEN PASSED ON IN THE FINAL PRICE OF MILK USED FOR CATTLE FEED, WITH THE RESULT THAT DEMAND FOR THAT PRODUCT ON THE PART OF FARMERS WOULD HAVE INCREASED AND THERE WOULD HAVE BEEN A CORRESPONDING DECREASE IN THE QUANTITY OF SKIMMED MILK INTENDED FOR PROCESSING INTO POWDER . THIS WOULD HAVE LED TO A REDUCTION IN THE AMOUNTS PAID BY WAY OF AID AND INTERVENTION MEASURES FOR MILK POWDER .

19 SIMILARLY, AS REGARDS THE DUAL PRICING FOR MILK DEPENDING ON WHETHER THE RESULTANT SKIMMED MILK WAS USED FOR THE PRODUCTION OF CASEIN OR FOR PROCESSING INTO POWDER, THE COMMISSION, AFTER POINTING OUT THAT SUCH A PRACTICE IS INCOMPATIBLE WITH COMMUNITY LAW, ARGUES THAT, IF A SINGLE PRICE HAD BEEN FIXED, THERE WOULD HAVE BEEN A DECREASE IN THE PRICE OF MILK USED FOR THE MANUFACTURE OF CASEIN AND HENCE IN THE PRICE OF CASEIN . DEMAND FOR SKIMMED MILK FOR THE MANUFACTURE OF CASEIN WOULD THEN HAVE INCREASED AND THEREBY BROUGHT ABOUT AN EQUIVALENT DECREASE IN THE QUANTITY OF MILK USED FOR PROCESSING INTO POWDER . CONSEQUENTLY, THERE WOULD HAVE BEEN A DECREASE IN EXPENDITURE ON INTERVENTION MEASURES FOR MILK POWDER .

20 AS REGARDS THE DIFFERENTIAL PRICING DEPENDING ON THE WAY IN WHICH BUTTER WAS MARKETED ( IN PACKETS OR IN BULK ), THE COMMISSION, AFTER POINTING OUT THAT SUCH A PRACTICE IS INCOMPATIBLE WITH COMMUNITY LAW, CONTENDS THAT, IF A SINGLE PRICE HAD BEEN FIXED, THE PRICE OF MILK USED FOR THE MANUFACTURE OF PACKET BUTTER WOULD HAVE BEEN FIXED AT THE HIGHER PRICE OF MILK USED IN THE MANUFACTURE OF BULK/INTERVENTION BUTTER . AS A RESULT OF SUCH AN INCREASE IN THE PRICE OF MILK USED IN THE MANUFACTURE OF PACKET BUTTER THERE WOULD HAVE BEEN AN INCREASE IN THE SELLING PRICE OF THAT BUTTER AND THEREFORE A REDUCTION IN ITS CONSUMPTION . THIS WOULD HAVE BROUGHT ABOUT A DECREASE IN THE AMOUNTS PAID BY WAY OF COMMUNITY AID FOR CONSUMER BUTTER .

21 FINALLY, AS REGARDS THE DUAL PRICING FOR MILK DEPENDING ON WHETHER THE DERIVATIVE MILK PRODUCTS WERE SOLD WITHIN OR OUTSIDE THE COMMUNITY, THE COMMISSION, AFTER POINTING OUT THAT SUCH A PRACTICE IS INCOMPATIBLE WITH COMMUNITY LAW, CONTENDS THAT, IF THERE HAD BEEN NO PRICE DIFFERENTIATION, THE MILK USED FOR THE MANUFACTURE OF PRODUCTS EXPORTED OUTSIDE THE COMMUNITY WOULD HAVE BEEN SOLD AT THE HIGHER PRICE FIXED FOR PRODUCTS SOLD WITHIN THE COMMUNITY . THIS WOULD HAVE REDUCED EXPORTS TO NON-MEMBER COUNTRIES AND CONSEQUENTLY REDUCED THE AMOUNTS PAID BY WAY OF EXPORT REFUNDS .

22 THE UNITED KINGDOM DISPUTES THE COMMISSION' S ARGUMENT THAT THE DIFFERENTIAL PRICING PRACTICES IN QUESTION ARE INCOMPATIBLE WITH THE COMMUNITY RULES AND MAINTAINS THAT THOSE PRACTICES ARE IN ANY EVENT NOT LIABLE TO HAVE ANY ADVERSE FINANCIAL CONSEQUENCES FOR THE EAGGF .

23 AS REGARDS THE DUAL PRICING SYSTEM FOR MILK DEPENDING ON WHETHER THE RESULTANT SKIMMED MILK WAS USED FOR ANIMAL FEED OR FOR PROCESSING INTO POWDER, IT MUST BE POINTED OUT THAT IN ITS JUDGMENT OF 2 DECEMBER 1986 IN CASE 23/84 COMMISSION V UNITED KINGDOM (( 1986 )) ECR 3581, THE COURT HELD THAT THAT SYSTEM, WHICH ENTAILED SETTING A HIGHER PRICE FOR A PRODUCT INTENDED FOR A USE COVERED BY A COMMUNITY AID SCHEME, INTERFERED WITH THE EFFICIENT FUNCTIONING OF THAT SCHEME AND WAS THEREFORE INCOMPATIBLE WITH COMMUNITY LAW . INDEED, SUCH A HIGHER PRICE PREVENTS THE COMMUNITY AID PROVIDED FOR IN REGULATION NO 986/68 OF THE COUNCIL OF 15 JULY 1968 ( OFFICIAL JOURNAL, ENGLISH SPECIAL EDITION 1968 ( I ), P . 260 ) FROM ACHIEVING ITS OBJECTIVE, WHICH IS TO ENCOURAGE GREATER USE OF LIQUID SKIMMED MILK AS ANIMAL FEED BY ENSURING THAT THE SELLING PRICE IS AS LOW AS POSSIBLE .

24 THE SAME CONSIDERATIONS APPLY AS REGARDS THE DUAL PRICING SYSTEM FOR WHOLE MILK WHICH ENTAILS SETTING FOR LIQUID SKIMMED MILK USED FOR THE MANUFACTURE OF CASEIN A PRICE HIGHER THAN THAT SET FOR MILK USED FOR PROCESSING INTO POWDER . SUCH A SYSTEM IMPAIRS THE FUNCTIONING OF THE COMMUNITY AID SCHEME PROVIDED FOR IN REGULATION NO 987/68 OF THE COUNCIL OF 15 JULY 1968 ( OFFICIAL JOURNAL, ENGLISH SPECIAL EDITION 1968 ( I ), P . 262 ), THE AIM OF WHICH IS ALSO TO ENCOURAGE GREATER USE OF LIQUID SKIMMED MILK FOR THE MANUFACTURE OF CASEIN .

25 IT FOLLOWS FROM THE FOREGOING CONSIDERATIONS THAT, AS THE COMMISSION HAS RIGHTLY POINTED OUT, IF HIGHER SELLING PRICES FOR LIQUID SKIMMED MILK USED FOR ANIMAL FEED AND THE MANUFACTURE OF CASEIN HAD NOT BEEN SET, THE USE OF THAT MILK FOR ANIMAL FEED AND FOR THE MANUFACTURE OF CASEIN WOULD HAVE INCREASED, WHICH WOULD HAVE BROUGHT ABOUT A DECREASE IN THE USE OF THAT MILK FOR THE MANUFACTURE OF POWDER AND THEREFORE A DECREASE IN THE AMOUNTS TO BE FINANCED BY THE EAGGF BY WAY OF AID AND INTERVENTION MEASURES FOR MILK POWDER .

26 CONSEQUENTLY, IT MUST BE FOUND THAT THE DUAL PRICING PRACTICES FOR WHOLE MILK, DEPENDING ON WHETHER THE RESULTANT LIQUID SKIMMED MILK IS USED FOR PROCESSING INTO POWDER, FOR SALE AS ANIMAL FEED OR FOR THE MANUFACTURE OF CASEIN, ARE BOTH INCOMPATIBLE WITH COMMUNITY LAW AND LIABLE TO ENTAIL AN INCREASE IN CERTAIN ITEMS OF EAGGF EXPENDITURE .

27 AS REGARDS THE DIFFERENTIATION IN PRICE FOR WHOLE MILK DEPENDING ON THE WAY IN WHICH THE BUTTER IS MARKETED, NAMELY ON WHETHER THE BUTTER MANUFACTURED FROM THE MILK IS SOLD IN THE FORM OF CONSUMER BUTTER OR IN BULK, THE COURT HAS ALREADY HELD, IN ITS JUDGMENT OF 2 DECEMBER 1986, CITED ABOVE, THAT SUCH PRICE DIFFERENTIATION IS INCOMPATIBLE WITH COMMUNITY LAW AND IN PARTICULAR WITH ARTICLE 9 ( 1 ) OF COUNCIL REGULATION NO 1422/78 OF 20 JUNE 1978 CONCERNING THE GRANTING OF CERTAIN SPECIAL RIGHTS TO MILK PRODUCER ORGANIZATIONS IN THE UNITED KINGDOM ( OFFICIAL JOURNAL 1978, L 171, P . 14 ).

28 MOREOVER, IT APPEARS FROM THE DOCUMENTS BEFORE THE COURT THAT THIS DUAL PRICING SYSTEM HAD BEEN ADOPTED BY THE MILK MARKETING BOARDS IN ORDER TO ENABLE MANUFACTURERS OF PACKET BUTTER IN THE UNITED KINGDOM TO BUY MILK AT A BETTER PRICE, THUS PRESERVING THEIR PROFIT MARGINS IN A CURRENTLY UNFAVOURABLE ECONOMIC SITUATION . IN THOSE CIRCUMSTANCES, THE COMMISSION RIGHTLY CONSIDERED THAT, IF THE DUAL PRICING SYSTEM HAD NOT EXISTED, UNITED KINGDOM MANUFACTURERS OF CONSUMER BUTTER WOULD HAVE HAD TO INCREASE THEIR SELLING PRICES, WHICH WOULD HAVE LED TO A DECREASE IN THE CONSUMPTION OF BUTTER AND THEREFORE TO A DECREASE IN THE AMOUNTS TO BE FINANCED BY THE EAGGF BY WAY OF CONSUMER BUTTER SUBSIDY .

29 IT MUST THEREFORE BE CONCLUDED THAT THE SETTING OF DUAL PRICES FOR WHOLE MILK, DEPENDING ON WHETHER THE BUTTER MANUFACTURED FROM THAT MILK IS SOLD IN THE FORM OF PACKET BUTTER OR IN BULK, IS INCOMPATIBLE WITH COMMUNITY LAW AND LIABLE TO ENTAIL AN INCREASE IN EAGGF EXPENDITURE .

30 AS REGARDS THE DUAL PRICING SYSTEM FOR MILK DEPENDING ON WHETHER OR NOT THE FINISHED PRODUCTS ARE TO BE EXPORTED OUTSIDE THE COMMUNITY, IT MUST BE NOTED THAT AT THE HEARING THE UNITED KINGDOM ACCEPTED THAT SUCH A SYSTEM CONSTITUTED "A BREACH OF ARTICLE 9 ( 1 ) OF REGULATION 1422/78 ".

31 MOREOVER, THE COMMISSION HAS RIGHTLY POINTED OUT THAT, BY REDUCING THE PRICE OF MILK USED FOR THE MANUFACTURE OF MILK PRODUCTS SOLD OUTSIDE THE COMMUNITY, THAT DUAL PRICING SYSTEM WAS ESSENTIALLY INTENDED TO PROMOTE UNITED KINGDOM EXPORTS OF THOSE PRODUCTS TO MARKETS IN NON-MEMBER COUNTRIES AND THAT, IF IT WERE NOT FOR SUCH PRICE DIFFERENTIATION, THE VOLUME OF THOSE EXPORTS WOULD HAVE BEEN SMALLER . THIS IS CONFIRMED, MOREOVER, BY A LETTER SENT BY THE UNITED KINGDOM TO THE COMMISSION ON 22 JULY 1983 FROM WHICH IT APPEARS THAT THE VOLUME OF EXPORTS OF MILK PRODUCTS TO MARKETS IN NON-MEMBER COUNTRIES WOULD HAVE BEEN SMALLER IF THERE HAD BEEN NO DUAL PRICING . CONSEQUENTLY, THE COMMISSION RIGHTLY CONSIDERED THAT, IF THE MILK MARKETING BOARDS HAD NOT APPLIED THE DIFFERENTIAL PRICING SYSTEM, THE AMOUNTS TO BE FINANCED BY THE EAGGF IN RESPECT OF EXPORT REFUNDS WOULD HAVE BEEN LESS .

32 CONSEQUENTLY, IT MUST BE CONCLUDED THAT THE SETTING OF DUAL PRICES FOR WHOLE MILK DEPENDING ON WHETHER THE PRODUCTS MANUFACTURED FROM THAT MILK ARE SOLD WITHIN OR EXPORTED OUTSIDE THE COMMUNITY IS BOTH INCOMPATIBLE WITH COMMUNITY LAW AND LIABLE TO ENTAIL AN INCREASE IN EAGGF EXPENDITURE .

33 SINCE THE COMMISSION HAS THUS ESTABLISHED THAT IN APPLYING THE DIFFERENTIAL PRICES IN QUESTION THE UNITED KINGDOM COMMITTED INFRINGEMENTS OF THE RULES OF THE COMMON ORGANIZATION OF AGRICULTURAL MARKETS OF SUCH A NATURE AS TO AFFECT CERTAIN EAGGF EXPENDITURE, IT SHOULD NOW BE CONSIDERED WHETHER THE UNITED KINGDOM HAS NEVERTHELESS SHOWN THAT THE FINANCIAL CONSEQUENCES OF THOSE INFRINGEMENTS WERE ACTUALLY DIFFERENT FROM THOSE CALCULATED BY THE COMMISSION .

THE CALCULATIONS MADE BY THE COMMISSION TO ESTABLISH THE INCREASE IN EAGGF EXPENDITURE

34 THE COMMISSION POINTS OUT THAT, INSTEAD OF FINDING THAT IT WAS IMPOSSIBLE TO ASCERTAIN THE ACTUAL AMOUNT OF THE INCREASE IN EAGGF EXPENDITURE DUE TO THE DUAL PRICING, WHICH WOULD HAVE MEANT REFUSING TO FINANCE ALL THE EXPENDITURE ENTERED UNDER THOSE BUDGETARY ITEMS IN THE EAGGF ACCOUNTS WHICH RELATED TO THE PRODUCTS IN QUESTION, IT ENDEAVOURED TO ASCERTAIN THAT AMOUNT USING CALCULATIONS BASED ON AN ASSESSMENT OF WHAT THE SITUATION ON THE RELEVANT MARKETS WOULD HAVE BEEN IF THE DIFFERENTIAL PRICING PRACTICES HAD NOT BEEN APPLIED .

35 IT SHOULD BE NOTED THAT THE METHOD USED BY THE COMMISSION IN ARRIVING AT THOSE RESULTS COMPELLED IT TO MAKE A NUMBER OF ASSUMPTIONS CONCERNING IN PARTICULAR THE PRICE LEVEL WHICH WOULD HAVE BEEN SET BY THE MILK MARKETING BOARDS AND THE REACTION OF SUPPLY AND DEMAND TO THAT PRICE LEVEL .

36 THE UNITED KINGDOM CHALLENGES THOSE ASSUMPTIONS AND PUTS FORWARD ITS OWN ASSUMPTIONS BASED IN PARTICULAR ON A DIFFERENT ASSESSMENT OF THE FOLLOWING FACTORS :

( A ) THE LEVEL OF THE SINGLE PRICE FOR MILK WHICH WOULD HAVE BEEN SET IN THE ABSENCE OF DUAL PRICING;

( B ) THE PASSING ON, IN THE FINAL PRICE OF THE MILK PRODUCTS CONCERNED, OF THE CHANGE IN THE PRICE OF MILK DUE TO THE SETTING OF A SINGLE PRICE;

( C ) THE CHANGE IN DEMAND FOR THOSE MILK PRODUCTS AS A RESULT OF THE CHANGE IN THEIR PRICE .

( A ) THE LEVEL OF THE SINGLE PRICE FOR MILK WHICH WOULD HAVE BEEN SET IN THE ABSENCE OF DUAL PRICING

37 AS REGARDS THE LEVEL OF THE SINGLE PRICE, THE UNITED KINGDOM ESSENTIALLY ARGUES THAT, IN THE ABSENCE OF DUAL PRICING, THE MILK MARKETING BOARDS WOULD HAVE FOUND IT NECESSARY TO APPLY A PRICE AT AN AVERAGE LEVEL IN RELATION TO THE LEVELS RESULTING FROM THE DUAL PRICING, WHICH WOULD HAVE HAD CONSEQUENCES DIFFERENT FROM THOSE ENVISAGED BY THE COMMISSION .

38 THE COMMISSION MAINTAINS THAT THE ASSUMPTION THAT A SINGLE PRICE AT AN AVERAGE LEVEL WOULD HAVE BEEN SET IS NOT REASONABLE . IT POINTS OUT IN PARTICULAR THAT IN THE CASE OF BUTTER AND SKIMMED MILK THE SINGLE PRICE FOR MILK WOULD NORMALLY HAVE MOVED CLOSER TO THE PRICE OF MILK FOR MANUFACTURE INTO INTERVENTION PRODUCTS, WHICH ARE IN PARTICULAR BULK BUTTER AND SKIMMED-MILK POWDER . IN THE CASE OF EXPORTED PRODUCTS, THE SINGLE PRICE FOR MILK WOULD HAVE BEEN SET AT THE LEVEL OF THE PRICE OF MILK USED FOR THE MANUFACTURE OF PRODUCTS FOR THE INTERNAL MARKET .

39 IN THIS REGARD, IT MUST BE BORNE IN MIND THAT THE INTERVENTION PRICES FOR BUTTER AND SKIMMED MILK ARE SET AT A LEVEL SUCH AS TO ENABLE MILK PRODUCERS TO ATTAIN THE TARGET PRICE REFERRED TO IN REGULATION ( EEC ) NO 804/68 OF THE COUNCIL OF 27 JUNE 1968 ON THE COMMON ORGANIZATION OF THE MARKET IN MILK AND MILK PRODUCTS ( OFFICIAL JOURNAL, ENGLISH SPECIAL EDITION 1968 ( I ), P . 176 ). THEREFORE, WHERE THERE IS OVERPRODUCTION OF BUTTER AND SKIMMED MILK, AS WAS FOUND TO BE THE CASE IN THE UNITED KINGDOM IN 1980 AND 1981, IT IS NORMAL, AS THE COMMISSION HAS POINTED OUT, FOR THE SELLING PRICE FOR MILK TO BE FIXED ON THE BASIS OF THE INTERVENTION PRICES FOR THE TWO AFOREMENTIONED PRODUCTS .

40 AS REGARDS EXPORTED MILK PRODUCTS, IT MUST BE BORNE IN MIND THAT THE UNITED KINGDOM HAS ACCEPTED THAT IN THE CASE OF SOME OF THOSE PRODUCTS - LIQUID MILK, CREAM AND SOFT CHEESE - A SINGLE PRICE FOR MILK WOULD PROBABLY HAVE BEEN FIXED AT THE LEVEL ASSUMED BY THE COMMISSION, NAMELY AT THAT OF THE HIGHER PRICE OF MILK USED FOR THE MANUFACTURE OF PRODUCTS SOLD WITHIN THE COMMUNITY . AS REGARDS THE OTHER EXPORTED PRODUCTS - CONDENSED OR EVAPORATED MILK, CHOCOLATE CRUMB, WHOLE MILK POWDER AND FETA CHEESE - IT IS CLEAR FROM THE STATISTICS PRODUCED TO THE COURT THAT BEFORE THE INTRODUCTION OF DUAL PRICING THE SALES OF THOSE PRODUCTS ON THE COMMUNITY MARKET WERE MUCH GREATER THAN SALES TO NON-MEMBER COUNTRIES . IN THOSE CIRCUMSTANCES, IT MUST BE CONSIDERED THAT THE COMMISSION RIGHTLY TOOK THE VIEW THAT THE SINGLE PRICE FOR MILK WOULD HAVE BEEN SET AT THE LEVEL OF THE PRICE PREVAILING ON THE LARGEST MARKET, NAMELY THE MARKET IN MILK PRODUCTS SOLD WITHIN THE COMMUNITY .

41 IN THE LIGHT OF THOSE CONSIDERATIONS IT MUST BE FOUND THAT THE UNITED KINGDOM HAS NOT PROVED THAT THE COMMISSION' S CALCULATIONS CONCERNING THE LEVEL OF THE SINGLE PRICE FOR MILK WHICH WOULD HAVE BEEN SET IN THE ABSENCE OF DUAL PRICING ARE WRONG .

( B ) THE PASSING ON, IN THE FINAL PRICE OF THE MILK PRODUCTS CONCERNED, OF THE CHANGE IN THE PRICE OF MILK RESULTING FROM THE SETTING OF A SINGLE PRICE

42 THE UNITED KINGDOM' S ARGUMENT ON THIS ISSUE IS ESSENTIALLY THAT, EVEN ASSUMING THAT A SINGLE PRICE FOR MILK WOULD HAVE BEEN SET AT THE LEVEL CALCULATED BY THE COMMISSION, THE CHANGES IN THE PRICE OF MILK RESULTING FROM THE APPLICATION OF SUCH A SINGLE PRICE WOULD NOT HAVE BEEN PASSED ON IN THE SELLING PRICES OF THE FINISHED PRODUCTS CONCERNED ( NAMELY PACKET BUTTER, SKIMMED MILK FOR ANIMAL FEED, CASEIN AND MILK PRODUCTS EXPORTED OUTSIDE THE COMMUNITY ).

43 THE COMMISSION RIGHTLY REPLIES THAT, IN VIEW OF THE SITUATION ON THE RELEVANT MARKETS, WHICH AT THE MATERIAL TIME WAS CHARACTERIZED BY VERY KEEN COMPETITION BETWEEN PRODUCERS AND BY VERY LOW PROFIT MARGINS FOR THE MANUFACTURERS CONCERNED, IT IS QUITE LOGICAL TO ASSUME THAT A RISE OR FALL IN THE PRICE OF THE RAW MATERIAL ( MILK ) WOULD HAVE BEEN PASSED ON IN THE PRICE OF THE AFOREMENTIONED FINISHED PRODUCTS .

44 IN THOSE CIRCUMSTANCES, IT MUST BE FOUND THAT THE UNITED KINGDOM HAS NOT PROVED THAT THE COMMISSION' S CALCULATIONS AS REGARDS THE PASSING ON, IN THE FINAL PRICE OF THE MILK PRODUCTS CONCERNED, OF THE CHANGE IN THE PRICE OF MILK RESULTING FROM THE SETTING OF A SINGLE PRICE ARE WRONG .

( C ) THE CHANGE IN DEMAND FOR THE AFORESAID PRODUCTS IN CONSEQUENCE OF A CHANGE IN THEIR PRICE

45 SO FAR AS THIS QUESTION IS CONCERNED, IT MUST FIRST BE POINTED OUT THAT THE UNITED KINGDOM HAS NOT PUT FORWARD ALTERNATIVE CALCULATIONS TO REBUT THOSE ADVANCED BY THE COMMISSION AS REGARDS CHANGES IN DEMAND FOR PACKET BUTTER, CASEIN AND MILK PRODUCTS EXPORTED OUTSIDE THE COMMUNITY .

46 HOWEVER, AS REGARDS SKIMMED MILK FOR ANIMAL FEED, THE UNITED KINGDOM HAS ARGUED THAT THE COMMISSION OUGHT TO HAVE CALCULATED THE CHANGE IN DEMAND FOR THIS PRODUCT ON THE BASIS OF A PRICE ELASTICITY COEFFICIENT OF BETWEEN -0.24 AND -1.03 AND NOT -1.27 .

47 IT MUST BE EMPHASIZED IN THIS RESPECT THAT THE PRICE ELASTICITY COEFFICIENT OF -1.27 WAS DETERMINED BY THE COMMISSION FOLLOWING LENGTHY BILATERAL DISCUSSIONS WITH THE UNITED KINGDOM AUTHORITIES AND THAT IN THE COURSE OF THOSE DISCUSSIONS THE COMMISSION TOOK ACCOUNT OF THE DATA AND INFORMATION PROVIDED TO IT BY THE UNITED KINGDOM AND AGREED TO AMEND SIGNIFICANTLY THE ELASTICITY COEFFICIENT ORIGINALLY ADOPTED, WHICH WAS -4 . IT MUST ALSO BE POINTED OUT THAT AMONGST THE DOCUMENTS BEFORE THE COURT IS A REPORT DRAWN UP IN 1980 BY A RESEARCH ORGANIZATION ON BEHALF OF THE MILK MARKETING BOARDS FROM WHICH IT EMERGES THAT PRICE IS AN IMPORTANT FACTOR - AND EVEN THE MOST IMPORTANT FACTOR FOR ONE THIRD OF USERS - IN DETERMINING THE CHOICE OF ANIMAL FEED .

48 IN THOSE CIRCUMSTANCES, IT MUST BE FOUND THAT THE UNITED KINGDOM HAS NOT PROVED THAT THE COMMISSION' S CALCULATIONS REGARDING CHANGE IN DEMAND FOR THE PRODUCTS IN QUESTION ARE WRONG .

49 IN THE LIGHT OF ALL THE CONSIDERATIONS CONCERNING THE ASSESSMENT OF THE FACTORS TAKEN INTO ACCOUNT IN ORDER TO CALCULATE THE AMOUNTS DISALLOWED, IT MUST BE CONCLUDED THAT THE UNITED KINGDOM HAS NOT SATISFIED THE COURT THAT THE DUAL PRICING PRACTICES IN QUESTION DID NOT CAUSE ANY INCREASE IN EAGGF EXPENDITURE OR, AT THE VERY LEAST, THAT THEY CAUSED AN INCREASE LOWER THAN THAT CALCULATED BY THE COMMISSION . THE COMMISSION WAS THEREFORE RIGHT TO REFUSE TO CHARGE TO THE EAGGF EXPENDITURE CORRESPONDING TO THE AMOUNT WHICH IT HAD CALCULATED .

THE SAVINGS TO THE EAGGF IN CONSEQUENCE OF THE DIFFERENTIAL PRICING PRACTICES

50 THE UNITED KINGDOM ARGUES THAT IF THE DUAL PRICING PRACTICES IN QUESTION CAUSED AN INCREASE IN EXPENDITURE ON AID FOR SKIMMED-MILK POWDER AND ON EXPORT REFUNDS, THEY NECESSARILY ENTAILED A REDUCTION IN EXPENDITURE ON AID FOR ANIMAL FEED AND CASEIN AND ON INTERVENTION MEASURES . IN VIEW OF THOSE POSITIVE EFFECTS, THE PRACTICES COMPLAINED OF DID NOT IN THIS CASE CAUSE AN OVERALL INCREASE IN EAGGF EXPENDITURE . IN ITS VIEW, THE DISALLOWANCE OF THE AMOUNTS IN QUESTION IS THEREFORE UNJUSTIFIED .

51 THE COMMISSION REPLIES THAT THE ARGUMENTS PUT FORWARD BY THE UNITED KINGDOM CANNOT BE ACCEPTED BECAUSE THEY ARE BASED ON A MISINTERPRETATION OF THE PRINCIPLES GOVERNING THE FINANCING OF THE COMMON AGRICULTURAL POLICY AND OF THE SPECIFIC RULES GOVERNING THE PROCEDURE FOR THE CLEARANCE OF ACCOUNTS .

52 IT MUST BE EMPHASIZED IN THIS REGARD THAT, ACCORDING TO ARTICLES 2 AND 3 OF REGULATION ( EEC ) NO 729/70 OF THE COUNCIL OF 21 APRIL 1970 ON THE FINANCING OF THE COMMON AGRICULTURAL POLICY ( OFFICIAL JOURNAL, ENGLISH SPECIAL EDITION 1970 ( I ), P . 218 ), REFUNDS GRANTED AND INTERVENTION UNDERTAKEN "IN ACCORDANCE WITH THE COMMUNITY RULES" WITHIN THE FRAMEWORK OF THE COMMON ORGANIZATION OF AGRICULTURAL MARKETS ARE TO BE FINANCED BY THE EAGGF . AS THE COURT HELD IN ITS JUDGMENT OF 7 FEBRUARY 1979 IN CASE 11/76 NETHERLANDS V COMMISSION, CITED ABOVE, THOSE PROVISIONS PERMIT THE COMMISSION TO CHARGE TO THE EAGGF ONLY SUMS PAID IN ACCORDANCE WITH THE RULES LAID DOWN IN THE VARIOUS SECTORS OF AGRICULTURAL PRODUCTION WHILE LEAVING THE MEMBER STATES TO BEAR THE BURDEN OF ANY OTHER SUM PAID, AND IN PARTICULAR ANY AMOUNTS WHICH THE NATIONAL AUTHORITIES WRONGLY BELIEVED THEMSELVES AUTHORIZED TO PAY IN THE CONTEXT OF THE COMMON ORGANIZATION OF THE MARKETS .

53 SUCH A CONCLUSION IS NOT AFFECTED BY THE FACT THAT NATIONAL PRACTICES INCOMPATIBLE WITH COMMUNITY LAW MIGHT HAVE HAD BENEFICIAL EFFECTS AS REGARDS SUMS ENTERED UNDER OTHER ITEMS OF EAGGF EXPENDITURE . IF THE MEMBER STATES COULD SET OFF THE NEGATIVE EFFECTS OF SUCH UNLAWFUL PRACTICES AGAINST THEIR POSITIVE EFFECTS WHEN ACCOUNTS WERE CLEARED, IT WOULD FOLLOW THAT, PROVIDED THAT THERE WAS NO NET INCREASE IN OVERALL EAGGF EXPENDITURE, THEY COULD CHARGE TO THE COMMUNITY ANY KIND OF EXPENDITURE, EVEN EXPENDITURE WHICH HAD BEEN INCURRED IN BREACH OF THE RULES GOVERNING THE ADMINISTRATION OF THE COMMON AGRICULTURAL POLICY AND WHICH HAD GIVEN RISE TO DISTORTIONS OF COMPETITION BETWEEN THE TRADERS CONCERNED . IF THE PROCEDURE FOR THE CLEARANCE OF ACCOUNTS WERE APPLIED IN THIS WAY, IT WOULD BE DEFLECTED FROM ITS ESSENTIAL PURPOSE, WHICH IS TO VERIFY WHETHER THE REFUNDS GRANTED AND THE INTERVENTION UNDERTAKEN WERE IN ACCORDANCE WITH THE COMMUNITY RULES WITHIN THE FRAMEWORK OF THE COMMON ORGANIZATION OF AGRICULTURAL MARKETS .

54 IN VIEW OF THE FOREGOING CONSIDERATIONS IT MUST BE CONCLUDED THAT IN THE PRESENT CASE THE COMMISSION WAS ENTITLED TO REFUSE TO CHARGE TO THE EAGGF THE EXPENDITURE ENTAILED BY THE DIFFERENTIAL PRICING PRACTICES AT ISSUE, WITHOUT TAKING INTO ACCOUNT ANY SAVINGS MADE TO THE EAGGF IN CONSEQUENCE OF THOSE PRACTICES .

BREACH OF THE PRINCIPLES OF LEGITIMATE EXPECTATION AND LEGAL CERTAINTY

55 THE UNITED KINGDOM FURTHER SUBMITS THAT IN ADOPTING THE CONTESTED DECISIONS THE COMMISSION ACTED IN BREACH OF THE PRINCIPLES OF LEGITIMATE EXPECTATION AND LEGAL CERTAINTY . IN PARTICULAR, THE COMMISSION RETROACTIVELY APPLIED NEW PENAL RULES DISALLOWING AGRICULTURAL EXPENDITURE WHICH, ALTHOUGH PROPERLY INCURRED, STEMS FROM PRACTICES INCOMPATIBLE WITH THE RULES GOVERNING THE COMMON ORGANIZATION OF THE MARKETS .

56 SO FAR AS THIS SUBMISSION IS CONCERNED, IT MUST BE BORNE IN MIND THAT, AS WAS STATED IN THE JUDGMENT OF 2 DECEMBER 1986 IN CASE 23/84, CITED ABOVE, THE COMMISSION HAS FROM THE BEGINNING EXPRESSED DOUBTS AS TO THE CONFORMITY WITH COMMUNITY LAW OF A SYSTEM OF DIFFERENTIAL PRICES . THE UNITED KINGDOM COULD NOT THEREFORE LEGITIMATELY EXPECT THAT THE COMMISSION WOULD CHARGE TO THE EAGGF EXPENDITURE CAUSED BY SUCH DIFFERENTIAL PRICING PRACTICES .

57 IT MUST ALSO BE STATED THAT THE COMMISSION DID NOT RETROACTIVELY APPLY A NEW "PENAL" RULE IN THIS CASE . IN DISALLOWING THE AMOUNTS IN QUESTION IT MERELY ACTED IN ACCORDANCE WITH THE RULES GOVERNING THE FINANCING OF THE COMMON AGRICULTURAL POLICY UNDER WHICH ONLY PAYMENTS MADE IN ACCORDANCE WITH THE COMMUNITY RULES AND WITHIN THE FRAMEWORK OF THE COMMON ORGANIZATION OF AGRICULTURAL MARKETS MAY BE CHARGED TO THE EAGGF .

58 IT FOLLOWS THAT THE ARGUMENT ALLEGING A BREACH OF THE PRINCIPLES OF LEGITIMATE EXPECTATION AND LEGAL CERTAINTY CANNOT BE ACCEPTED .

INSUFFICIENT REASONING

59 FINALLY, THE UNITED KINGDOM ARGUES THAT THE DECISIONS IN QUESTION ARE INSUFFICIENTLY REASONED IN SO FAR AS THE REASONING ON WHICH THEY ARE BASED IS NOT TO BE FOUND IN THE TEXT OF THE DECISIONS THEMSELVES BUT IN A NUMBER OF OTHER DOCUMENTS .

60 IN THIS REGARD, IT IS SUFFICIENT TO POINT OUT THAT THE COURT HAS ALREADY STATED ( SEE THE JUDGMENT OF 27 JANUARY 1981 IN CASE 1251/79 ITALIAN REPUBLIC V COMMISSION (( 1981 )) ECR 205 ) THAT DECISIONS CONCERNING THE CLEARANCE OF ACCOUNTS DO NOT REQUIRE DETAILED REASONS IF THE GOVERNMENT CONCERNED WAS CLOSELY INVOLVED IN THE PROCESS BY WHICH THE DECISION CAME ABOUT AND IS THEREFORE AWARE OF THE REASON FOR WHICH THE COMMISSION CONSIDERS THAT IT MUST NOT CHARGE THE SUMS IN DISPUTE TO THE EAGGF .

61 IN THE PRESENT CASE IT IS CLEAR FROM THE DOCUMENTS BEFORE THE COURT THAT LENGTHY BILATERAL DISCUSSIONS TOOK PLACE BETWEEN THE UNITED KINGDOM AND THE COMMISSION ON THE QUESTION OF THE DECISIONS AT ISSUE . IT IS ALSO CLEAR FROM THE DOCUMENTS THAT IN CONSEQUENCE OF THOSE DISCUSSIONS THE UNITED KINGDOM WAS ABLE NOT ONLY TO BECOME ACQUAINTED WITH THE CONTENT OF AND REASONS FOR THOSE DECISIONS BUT ALSO TO OBTAIN AMENDMENTS ON CERTAIN POINTS .

62 THE ARGUMENT ALLEGING INSUFFICIENT REASONING MUST THEREFORE BE REJECTED .

63 IT FOLLOWS FROM ALL THE FOREGOING CONSIDERATIONS THAT THE COMMISSION' S REFUSAL TO CHARGE THE EXPENDITURE AT ISSUE TO THE EAGGF IS JUSTIFIED .

THE APPLICATION MUST THEREFORE BE DISMISSED .

COSTS

64 UNDER ARTICLE 62 ( 2 ) OF THE RULES OF PROCEDURE, THE UNSUCCESSFUL PARTY IS TO BE ORDERED TO PAY THE COSTS . SINCE THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND HAS FAILED IN ITS SUBMISSIONS, IT MUST BE ORDERED TO PAY THE COSTS .

ON THOSE GROUNDS,

THE COURT

HEREBY :

( 1 ) DISMISSES THE APPLICATION;

( 2 ) ORDERS THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND TO PAY THE COSTS .