1.

Was it still compatible with Community law on 25 April 1974 to levy a monetary compensatory charge under Regulation (EEC) No 974/71 of the Council in the version in force on 25 April 1975(sic) when cheese of sheep's milk which comes under heading 04.04 E I b 4 of the Common Customs Tariff was imported from third countries, especially in view of the exemptions under Regulation (EEC) No 1265/73 of the Commission of 14 May 1973 for imports of other types of cheese from payment of a monetary compensatory amount?

2.

Is the monetary compensatory charge of DM 63·80 per 100 kg levied on 25 April 1974 on imports of cheese of sheep's milk from third countries justified? In particular how can this rate of charge be justified arithmetically?

1. 

If we now return to the individual questions then, within the context of the first question, it must be examined whether the imposition of monetary compensatory amounts on imports of cheese of sheep's milk from third countries in April 1974 was still compatible with Community law, and in particular — and this, as I have said, is the crux of the matter — in view of the exemption of other varieties of cheese which occurred in May 1973.

In this connexion the plaintiff in the main action relies particularly on Article 1 (2) of Regulation No 974/71 (as amended by Article 1 (3) of Regulation No 2476/72) according to which monetary compensation is only payable when currency measures would lead to disturbances in trade in agricultural products. It takes the view that since this provision constitutes an exceptional rule, it must be strictly interpreted. The existence of concrete evidence of disturbance of trade is indispensable; the market and the individual products must be carefully observed and the monetary compensation must be dispensed with as soon as the required preconditions cease to exist. In the case of cheese of sheep's milk from Bulgaria this was particularly necessary, inter alia because of the considerable rise in the offer prices.

It must first of all be stated with regard to this argument that the plaintiff is applying the wrong criteria in interpreting this provision. This may be said in view of two facts which may be drawn from previous decided cases. It is clear form this case-law that in examining whether currency measures may lead to disturbances of trade, the Commission has a large area of discretion (Case 74/74, CNTA v Commission [1975] ECR 533, at p. 547). It was also made clear that the compensatory system is rightly of a flat rate nature; in this respect reference was made to the requirements of practicability and from this it was inferred that the Commission need only consider disturbances in relation to groups of products and therefore not with regard to individual products (Case 5/73, Balkan-Import Export v Hauptzollamt Berlin Packhoff [1973] ECR (II) 1091, at pp. 1111 and 1116). In view of this, it appears more suitable to accept the interpretation recommended by the Commission, that is to say, to recognize the principle that the monetary compensation in itself encompasses all products to which intervention prices apply or whose prices are dependent on intervention prices and to speak of a presumption of content that the monetary measures concerned could lead to disturbances in this sector. In any event it cannot be said that the Commission is under an obligation continually to follow the market development of each individual product and to provide for an exemption as soon as the risk of disturbance disappears.

On the basis of this ‘moderated’ interpretation it can hardly be said with regard to the imposition of compensatory amounts on Bulgarian cheese of sheep's milk that the Commission, in accepting that there was a danger of disturbance, was patently wrong in its judgment. A finding made in Case 5/73 is here relevant, namely that cheese of sheep's milk is also produced in the Community, namely in France and in Italy, and that cheese of sheep's milk competes with a number of varieties of soft cheese produced in the Community. In addition the market for cheese in the Community is already in difficulties because if import restrictions imposed in various third countries and it therefore shows a particular tendency to disturbance. This is not contradicted by the fact that the offer prices for cheese from third countries have risen, since the level of prices for cheese has risen generally in the last few years; as the Commission has shown us, the threshold price has risen by approximately the same amount as the lowest price for Balkan cheese.

Accordingly although there can be no objection to the assumption of the existence of a basic risk of disturbance and it cannot be alleged that the Commission wrongly exercised its discretion, it remains to be examined, and this is the crux of the matter, whether the treatment of other goods as regards monetary compensation, leads to the conclusion that the same must apply to Bulgarian cheese of sheep's milk on the grounds of equality of treatment.

Here I shall not confine myself to the reference made by the plaintiff to the recent exemption of certain processed products granted because of higher production costs and the argument that cheese of sheep's milk should be given similar treatment because its production is also very labour-and-wage intensive. This last point of view is certainly not new; it was considered in Case 5/73. Moreover the impression may be given that the plaintiff has not really shown that the products with which it is concerned are in the same position as the processed products to which it has referred.

We should rather concentrate on the treatment of various varieties of cheese within the context of the monetary compensation scheme at the frontier. It must here be asked what importance is to be attributed to the fact that certain varieties of Italian cheese and some varieties of Swiss cheese were exempted from compensation at the beginning of 1973 and we must consider whether it in fact follows from this that Bulgarian cheese of sheep's milk should also be exempted.

With regard, first, to Italian varieties of cheese, there can, in my opinion, be no different conclusion on this point from the one given in the opinion in Case 5/73. If one omits from consideration this point of view with regard to the plaintiff's argument relating to price trends, the decisive factor is merely that the Italian varieties of cheese concerned have a quite special intended use and that they are not in the same competitive relationship with the ordinary varieties of cheese within the Community as cheese of sheep's milk and do not therefore produce the same risk of disturbance. Moreover, contrary to the view of the plaintiff in this respect, the concept of Community preference, to which Mr Advocate-general Roemer referred, is also relevant in this connexion, that is to say, in the context of rules which serve to protect the agricultural markets.

It is not quite so easy to come to a conclusion with regard to the exemption of Swiss cheese, in particular if it is correct that the offer prices for Bulgarian cheese of sheep's milk is close to or even above the prices of Swiss cheese. It would not be unjustified to ask why principles should apply with respect to the risk of disturbance in the case of cheese of sheep's milk which differ from those which apply in the case of Swiss cheese.

The Commission gave a number of explanations of which I will at first mention only the following.

It points out that in a system with flat-rate rules it is not possible to refer only to the price level of Bulgarian cheese of sheep's milk. It is also relvant that the prices for Hungarian and Rumanian cheese of sheep's milk were, precisely from 1974 onwards, substantially below the Bulgarian level of prices, a fact which might, moreover, justify doubts as to whether the customs values for Bulgarian cheese reflected genuine trade prices.

The Commission further argues, with regard to the exemptions referred to by the plaintiff, that there does not exist a constant practice which enables individual variations, such as those which operate to the detriment of Bulgarian cheese of sheep's milk, to be described as discriminatory. In the submission of the Commission, Swiss cheese constitutes a borderline case. It is not possible to rule out any risk of disturbance, but doubts in this respect could be set aside for considerations of trade policy in order to avoid difficulties in trade policy since, as is known, Switzerland raised the issue of the unlawful exceeding of maximum rates consolidated in GATT. Such considerations cannot, according to the Commission, be regarded as irrelevant in a sector which is concerned with safeguarding the organizations of the market since these organizations of the market themselves certainly admit considerations of trade policy to be taken into account. However they certainly do not have to be applied in the same way in respect of State trade'countries with which the Community has ho treaty relations.

The Commission further points out that there cannot be said to exist competition between Swiss cheese and Bulgarian cheese of sheep's milk and for that reason the retention of compensation at the border in respect of cheese of sheep's milk cannot constitute discrimination directed against that cheese.

Finally, in the view of the Commission, it is also important that under the customs tariff higher free-at-frontier values apply to Swiss cheese than to cheese of sheep's milk and that it may therefore be assumed that there is less risk of disturbance in the case of Swiss cheese.

In my opinion these considerations may, if I may express myself in general terms, certainly not be dismissed as wholly irrelevant in the present case. Moreover, in respect of the lastmentioned point, the plaintiff's objection that the free-at-frontier values for Bulgarian cheese of sheep's milk no longer accorded with economic reality since the offer prices reached a much higher level, is not conclusive. However it is significant, apart from what I have already said with regard to the import prices of cheese of sheep's milk from other countries, that until August 1975 there was apparently no tendency on the Bulgarian side towards increasing the prices relevant to the Community rules, which can only be construed as a recognition of the fundamental justification of those rules.

We need not here decide whether these explanations alone suffice to justify the point of view of the Commission since in addition there is the following significant consideration which relates to the special import rules which also apply to Bulgarian cheese of sheep's milk. In this respect Article 16 of Regulation No 1463/73 (OJ 1973, L 146) is important. Under that provision the free-at-frontier prices applicable for the Community are deemed to be maintained if the actual offer price, increased by the amount which in general corresponds to the monetary compensatory amount — I am here restricting myself to imports into countries whose currency has appreciated — is not lower than the free-at-frontier value. The lowest price can therefore be undercut to the extent of the compensatory amount without the higher levy provided for this eventuality being applied. As the Commission convincingly showed us by means of calculations, this means that in the long run the importer is placed in the same position as if the monetary compensatory amount was not imposed. With reference to this regulation it may thus be sais that there is no discrimination against importers of Bulgarian cheese of sheep's milk in the context of the compensatory rules.

For the sake of completeness it must also be said that the validity of this finding is also not disturbed by two conceivable objections which were actually raised in the proceedings.

The first relates to the fact that the effects mentioned only occur when the offer prices are not substantially higher the lowest prices relevant for the import rules, which, however, was the case according to the plaintiff. On this point it should be said that it is for the exporting country concerned to achieve the necessary accord. The Commission stated, without being contradicted, that such applications are granted by the Community if they appear to be well founded. If they are not made or are insufficient — according to the Commission the lowest price was increased on several occasions between 1971 and 1974 in agreement with the Bulgarian Government — then it cannot be held against the Commission that the import rules have not had the abovementioned effects and for those reasons it cannot be concluded that the monetary compensatory system is unlawful.

The other objection is based on a question which at first sight appears justified; why is not the monetary compensation merely dispensed with in respect of such countries? In my opinion the Commission gave a satisfactory explanation in respect of this question as well. On the one hand monetary compensation only becomes actually operative in the case of collusion, that is, where the lowest prices are undercut, and this possibility cannot be excluded with the same certainty with regard to state-trading countries as with regard to countries which are partners in GATT. On the other hand monetary compensation, a closed system, is of significance within the Community; its application in principle cannot be dispensed with in view of the maintenance of the level of prices in the Community. Indeed the Commission has shown that if monetary compensation were wholly abolished, Bulgarian cheese of sheep's milk could be imported into the Federal Republic of Germany via Italy at a price which was in fact lower. This is bound up with the conversion of the free-at-frontier price, which is expressed in units of account, into lire on the one hand and on the other hand into the German mark which is valued more highly. The comparison of prices in German marks undertaken by the Commission has shown that orders of magnitude of around 20 % are here at issue, or more precisely, that in the case of importation via Italy a price of DM 527·60 could be expected, applying the system in force, whereas if monetary compensation were dispensed with the price could have been DM 427·07. In view of the resultant risk of disturbance which, contrary to the view of the plaintiff, cannot be regarded as purely theoretical, even though there would be additional transport costs of around DM 40·00 arising from a diversion via Italy, objection can scarcely be raised against the principle of retaining monetary compensation for Bulgarian cheese of sheep's milk. It certainly falls within the Commission's discretion in this field.

In view of this necessary definition of the scope of the examination it may be concluded that nothing has emerged in connexion with the first question which could challenge the legality of the imposition of monetary compensatory amounts on imports of cheese of sheep's milk from third countries in April 1974.

2. 

The second question seeks to examine the justification of imposing compensatory amounts of DM 63·80 per 100 kg on 25 April 1974 on imports of cheese of sheep's milk and to examine whether it is arithmetically justified.

In this respect the Commission rightfully pointed to doubts which might arise with regard to the admissibility of both parts of the question. In so far as the court making the order for reference asks how the compensatory amount is calculated, that is, how the amount arose, this has essentially nothing to do with an interpretation of Community law which can only be given by the Court of Justice. The German court could have obtained the necessary illumination simply by asking the Commission for information since the application of the compensatory rules is entrusted to that body and it can most reliably give information as to their practical application.

In so far as the question relates to the justification of the level of compensatory amount applied at the time in question and thus essentially queries whether the amount is correct, it could also be objected that the order for reference does not state the reasons for this question and that it cannot be discerned from the question what doubts the German court entertains with regard to the level of the compensatory amount. I believe that this is not insignificant since the court making the order for reference must clearly define in this way the subject-matter for examination.

If, however, one goes beyond this and if it is still thought appropriate to consider the question, especially the second part of it, because the plaintiff in the main action has raised some doubts, then the following observations should be made:

The plaintiff expressed the view, in very general terms, that the amount was excessive and that in fixing it neither was the necessity to dismantle progressively the monetary compensatory system taken into account nor was it ensured that the customary trade channels were retained.

In answer to this the Commission in my opinion correctly argued that in applying the compensatory system it merely has to comply with the basic rules of Regulation No 974/71. If a risk of disturbance cannot therefore be excluded, then with regard to processed products only the incidence of the monetary compensation on the basic product is to be considered. No provision is made on the other hand for the Commission to take into account economic factors in individual cases. Its discretion, which was described as being narrow in Case 5/73 with regard to the calculation of compensatory amounts, does not extend this far and in the interests of legal certainty this is certainly to be welcomed.

In view of all this and in view of the Commission's statement that there is no diminution in imports of cheese of sheep's milk from Bulgaria, it can only be concluded that no grounds have become apparent for objecting to the calculation of the compensatory amounts at issue in the main action.

3. 

I therefore propose that the following answer be given to the questions referred by the Finanzgericht Berlin:

Examination of the questions has revealed nothing capable of calling in question the validity of the fixing of a compensatory amount under Regulation No 974/71 for cheese of sheep's milk imported from Bulgaria on 25 April 1974. The same applies in respect of the level of the compensatory amount which is to be viewed in conjunction with the rules set out in Article 4 (3) of Regulation No 1463/73.