I —

In December 1976 the Commission had informed the Council of its intention to extend the application of monetary compensatory amounts to certain products of the food industry in order to alleviate the effects of distortion of competition suffered by Irish industry as a result of disparities in the prices of the basic products incorporated in processed products which were not themselves subject to compensatory amounts, these disparities being due to the difference between the agricultural conversion rates (or ‘green’ rates) and the rates prevailing on the exchange markets for the pound sterling and the Irish pound.

At the time; the United Kingdom was the only Member State whose currency was floating downwards and which had not adjusted the so-called green rate of its currency. In fact devaluation of the English green pound would have led to an increase in agricultural prices in the United Kingdom, which would have impeded the Government's efforts to stem inflation and run counter to the social contract concluded with the trade unions. In practice, the difference between the level of the compensatory amounts for Ireland and the level of those for the United Kingdom led to an increase in imports of processed products containing sugar from the United Kingdom to Ireland, and penalized exports of the same products from Ireland to the United Kingdom.

At the Council meeting in March 1977, the Irish Government drew attention to the Commission's aforesaid intention.

The Commission then stated that it would endeavour in agreement with the Irish Government to find a solution to these difficulties, if necessary by making use of Article 135 of the Act of Accession. The Irish Government made no secret of its view that the solution of this problem formed an integral pan of the ‘package’ upon which the Council would have to agree at its next ‘agricultural marathon’.

It is in these circumstances that the Commission on 23 March 1977 adopted its Decision No 77/289 authorizing Ireland to take protective measures under Article 135 of the Act of Accession in respect of a number of ‘processed agricultural products’ manufactured from certain basic products subject to the effects of the monetary measures in force in the agricultural sector.

The annex to this decision specified the products concerned and the amounts to be charged and granted. They were products coming under the following tariff headings:

These measures consisted in the levying of a charge on imports of these products of United Kingdom origin into Ireland and the granting of a payment on exports of the same products of Irish origin to the United Kingdom. Pursuant to Article 135 of the Act of Accession, which corresponds to Article 226 of the EEC Treaty, this authorization was valid only until 31 December 1977, the date by which ‘accession’ compensatory -amounts had to be abolished.

Ireland made use of this power as from 1 April 1977.

Shortly afterwards on 20 April 1977, the Commission, in the absence of opinions by the Management Committees for the basic products concerned, adopted Regulation No 800/77 amending, as regards products which are subject to monetary compensatory amounts, Regulation No 572/76 fixing those compensatory amounts.

I shall return later to the statement of the reasons on which this regulation was based, merely noting at this stage that the regulation provided for the introduction of compensatory amounts as from 23 May 1977 for a number of products not covered by Annex II to the Treaty obtained from basic products themselves subject to compensatory amounts and subject to a specific arrangement under Article 235 of the Treaty, upon importation to and exportation from countries with a currency belonging to the ‘European currency snake’ — except Denmark — as well as upon importation and exportation from countries whose currencies did not belong to the ‘snake’. Up to that time compensatory amounts had not applied to all non-Annex II products subject to such an arrangement.

The exception concerning Denmark, whose currency also floats inside the ‘snake’, is explained by the fact that that country is the only Member State of the Community whose currency is so adjusted that it corresponds to the European unit of account; Denmark has thus been able to give up application of compensatory amounts, and in this respect it is the only country in which the agricultural common market really works.

The scope of Regulation No 800/77 is thus wider than that of the Decision of 23 March 1977. Its purpose is to introduce the compensatory amounts system for a large number of products not covered by Annex II to the Treaty and subject to a specific arrangement under Article 235 of the Treaty — a formula based on Article 1 (2) (b) of Regulation No 974/71 of the Council — not all of which had been included in the compensatory amounts system by Commission Regulation No 572/76 of 15 March 1976 as amended by Regulation No 736/77.

In this new version Part 8 of Annex I to Regulation No 572/76, entitled ‘Products to which Regulation No 1059/69 Relates’, includes inter alia the ‘processed agricultural products’ forming the subject-matter of the aforementioned Commission Decision of 23 March 1977.

Certain of these products (those coming under headings 18.06 B, 18.06 C and 21.07 C) had already been included in the system in the past, and the compensatory amounts had only been abolished as from 21 April 1975 by Commission Regulation No 722/75 of 19 March 1975. For these products therefore it is a question of being made subject to the system again after a certain respite.

As I have said, Regulation No 800/77, adopted on 20 April 1977, was applicable with effect from 23 May 1977. However by Regulation No 1051/77 of 18 May 1977 the Commission postponed its entry into force until 4 July 1977, because the transitional period laid down was insufficient to make allowance for the steps which had to be taken by traders who had entered into long-term contracts. However, no amendment was made to the second subparagraph of Article 2 (2) of Regulation No 800/77, according to which:

‘In respect of the products … falling within tariff subheadings 17.04 D, 18.06 B, 18.06 C, 19.08 B and 21.07 C, monetary compensatory amounts shall not apply beyond31 December 1977.’

Comparison of the amounts in Regulation No 800/77 with the amount of the charge and the payment authorized by the Decision of 23 March 1977 shows that in actual fact the regulation had the same effect as the Decision of 23 March 1977 in respect of those products in trade between Ireland and the United Kingdom.

In fact by Decision No 77/353 of 4 May 1977 the Commission altered certain of the amounts which Ireland was authorized to charge and grant in trade with the United Kingdom with effect from 1 April 1977 in order to take account of the alteration entailed by the changes in the compensatory amounts on basic milk products resulting from Council Regulation No 651/77 of 29 March 1977, and that decision stated that along with Decision No 77/289 it would cease to apply on the day on which Regulation No 800/77 took effect.

In adopting Regulation No 800/77, the Commission had provided that ‘the list of non-Annex II products subject to monetary compensatory amounts should be reviewed by the end of the year in the light of the economic situation of those products’.

Thus Commission Regulation No 1474/77 of 30 June 1977 altered the compensatory amounts to take account of changes in the exchange rates and of the new representative rates fixed in the sugar sector by Council Regulation No 878/77.

Finally, to come more directly to the situation which gave rise to the present actions, Commission Regulation No 2657/77 of 30 November 1977 removed the restriction on the period of validity of Regulation No 800/77, so that the compensatory amounts system was prolonged in respect of the products at issue. Since then the rate of the amounts has been adjusted several times, but the products in dispute continue to come under the monetary compensation system.

For its part, the Italian Government reacted on 24 October 1977 to rumours that the Commission was preparing to prolong Regulation No 800/77. In a letter of that date to the Commission the Italian Government expressed the view that the adoption of that regulation was ‘essentially’ intended to meet the Irish request to eliminate distortion of competition in trade between the United Kingdom and Ireland and in no way justified the application of compensatory amounts in the other Member States, at all events not beyond 31 December 1977.

After pointing out the reasons for which in its view that regulation exceeded the limits laid down by the basic Regulation No 974/71 of the Council, in particular by taking account of processed products which was a field not provided for by the basic regulation, the Italian Government recalled to the Commission that the Commission ‘had given an assurance that the application of monetary compensatory amounts to products not covered by Annex II to the Treaty would cease on 31 December 1977’. It is in reliance upon that ‘assurance’ that the Italian Government had refrained from challenging the legality of Regulation No 800/77.

None the less, as has just been seen, on 30 November 1977 the Commission decided by Regulation No 2657/77 to repeal the provision which restricted application of the amounts to the products in question to 31 December 1977.

By an application lodged on 2 February 1978, the Italian Government commenced proceedings for the annulment of Regulations Nos 2657/77 and 800/77 under Article 173 of the EEC Treaty.

Ireland intervened in support of the Commission's conclusions that the application should be dismissed.

Shortly before then and shortly after, to be precise on 15 December 1977, 20 April 1978 and 26 July 1978, three national courts referred different questions to this Court concerning the interpretation of Regulation No 974/71 and the validity of Regulation Nos 800/77 and 2657/77.

I shall deal with these different cases in a single opinion.

II —

The Commission expresses doubts about the admissibility of the Italian Government's application in so far as it seeks the annulment of Regulation No 800/77. However the substance of that regulation will inevitably have to be discussed because, on the one hand, the statement of the reasons on which Regulation No 2657/77 is based is inseparable from that on which Regulation No 800/77 is based and, on the other hand, the assessment of its validity forms the subject-matter of two of the references to this Court for a preliminary ruling (Case 95/78 and Case 157/78).

The plaintiffs in the cases referred for a preliminary ruling are either German importers who had to pay compensatory amounts on goods imported from the Netherlands, Belgium and Italy, or an Italian exporter who had to pay such amounts on goods exported to Member States (Belgium and the Federal Republic of Germany) or non-member countries (Iran and Libya).

The introduction of compensatory amounts is against the interests of the import trade and consumers in countries with a strong currency and against the interests of producers in countries with a weak currency, but it favours exports from countries with a strong currency and the import trade and consumers in countries with a weak currency. Thus, as the Commission appositely points out, one man's meat is another man's poison, and this Court would most certainly have had before it the confectionery producers of Member States with a currency consistently floating upwards if the Commission had not introduced the granting of compensatory amounts on exports from those countries and on imports of the products in question into countries with a currency floating downwards outside the so-called snake. This links up with a finding made in the Court's judgment of 7 July 1976: ‘Moreover, although the system chosen may in certain cases place Italian importers in an unfavourable situation compared with importers of other Member States, the said system may, for the same reasons, have the reverse effect as regards exporters’ (paragraph 13 of the Decision in Case 7/76 IRCA [1976] ECR 1213, at p. 1226).

I shall deal with the submissions or arguments put forward against the validity or legality of the regulations at issue by grouping them in the following order: scope in relation to products, geographical scope and, finally, scope in time.

1.

As regards the inclusion in the compensatory amounts system of products which are ‘the subject of a specific arrangement under Article 235 of the Treaty’, the Italian Government and the plaintiffs maintain that the Commission did not assess the risk, and even less establish the existence, of disturbances in trade in basic agricultural products (sugar, cereals and so on), but did so only in trade in non-agricultural processed products containing those basic products. They submit that the Commission's power to assess the existence of a risk of disturbances in trade can be exercised only at the level of basic agricultural products and not also at the level of processed products. The power to include processed products is expressly provided in Article 1 (2) of Regulation No 974/71 of the Council, but it can be used only if there is a risk of disturbances in trade in the basic products. Because of the small incidence of the agricultural component in the production costs, trade in the processed products in question (confectionery and so on) can in no way give rise to disturbances in trade in the basic agricultural products.

It is clear, however, that the differences which the Commission mentions in its observations entailed a risk of disturbances in trade in the basic products since all the basic agricultural products used in the processed goods were already subject to the application of compensatory amounts. In this connexion, paragraph 17 of the Decision in Case 29/77 Roquette [1977] ECR 1835, at p. 1842, may be cited literally:

‘Although it is true that the Commission did not expressly state that in the absence of monetary compensatory amounts there would be reason to fear disturbances in trade in agricultural products, it is clear that the insertion of such a recital would have been of a purely formal nature.’

However, the Commission expressly admits that its regulation is based on Article 1 (2) (b) and (3) of Regulation No 974/71, that is to say on the risk of disturbances in trade in ‘agricultural’ products. It stated (in the third recital) that since trade in unprocessed basic products was subject to the compensatory amounts system, the difference in prices of the basic products would inevitably have a considerable effect on the conditions of competition of certain ‘sensitive’ processed products if the ‘basic products’ component of the processed products were not brought within the compensatory amounts system.

The processed products at issue in these cases were not subject to the compensatory amounts system deriving from Commission Regulation No 652/76 of 24 March 1976. However, other ‘goods’ covered by Regulation No 1059/69 coming under closely related tariff headings (for example 18.06 D and 21.07 C) were so subject. Since the Court has held that consideration of the questions raised in the aforementioned Roquette case (one of which concerned the precise issue of whether it was open to the Commission to assess the risks of disturbances both at the level of basic products and at the level of processed products) disclosed no factor of such a kind as to affect the validity of Regulation No 652/76, it might be thought that on this point the matter is already settled. However, the aforementioned case concerned processed products appearing in Annex II and coming within the common organization of markets (starch products derived from maize). Thus, apart from Cases 12/78 and 84/78, this is the first time that the Court has had to deal directly with the extension of the monetary compensatory amounts system to derived products not appearing in Annex II but subject to a specific arrangement under Article 235 of the Treaty owing to a risk of disturbances in trade in those products.

As the Court is aware, Annex II lists in a limitative manner the products which come within the particular provisions of the title ‘Agriculture’. As the Court held on 29 May 1974, ‘in this list appear, not only the principal agricultural products, but also a certain number of foodstuffs, the remoteness of which in industrial terms from the basic agricultural product goes beyond the point of first-stage processing as understood in a restricted sense’ (paragraph 12 of the Decision in Case 185/73 König [1974] ECR 607, at p. 618).

The list could have been supplemented within two years of the entry into force of the Treaty; however, with the exception of ethyl alcohol, no use was made of this possibility. Thus on 4 April 1962 the Council, acting according to the procedure under Article 235, adopted special trade arrangements for certain goods resulting from the processing of agricultural products which were not included in Annex II. Those arrangements were not replaced until 1 November 1966 by Regulation No 160/66, although they had been laid down only for a period of three years.

In order to resolve the difficulty resulting from the fact that Annex II could no longer be supplemented after 1 January 1960, the Council used Article 235 in order to adopt rules similar to the system of common organization of the markets in the agricultural sector, without however resorting to the fixing of a common price level. Such is the purpose of Regulation No 160/66.

The trade arrangements thus introduced between Member States were organized by analogy with the provisions governing trade in basic products as such which appear in the regulations relating to the common organization of markets.

Upon importation from non-member countries, the products in question are subject to taxation comprising a fixed component intended to ensure the protection of the Community processing industry and a variable component intended to compensate for the difference between Community prices and world market prices for the agricultural products used in making them.

The list of goods appearing in the annex to Regulation No 160/66 corresponds in essence to the list already appearing in the Council Decision of 4 April 1962. That list covers all goods of which a large proportion consists of agricultural products and in which that proportion constitutes a decisive component of the price.

During the preparatory stages of Regulation No 160/66, various Member States had opposed the integration of all or part of the countervailing charge in the Community budget. They argued that it was a charge on industrial products. However, since the end of the transitional period, that charge automatically goes to the European Agricultural Guidance and Guarantee Fund [EAGGF], which is a sign of the ‘agricultural’ nature of the products in question, and this extension of the agricultural sector was confirmed during the Kennedy Round.

The arrangements introduced by Regulation No 160/66 were replaced ‘from 1 July 1969’ by Regulation No 1059/69 of the Council of 28 May 1969.

In order to settle this question of pure Community law, it is therefore necessary to interpret Article 1 (3) of Regulation No 974/71 of the Council.

The Italian Government maintains that in order to remedy disturbances in trade in non-Annex II products it is possible to make use of Article 14 (4) of Regulation No 1059/69 of the Council, according to which: ‘The Council, acting unani mously on a proposal from the Commission, may take appropriate measures to deal with a special situation which may arise in respect of certain goods. The period of validity of these provisions shall not, however, exceed six months.’

The Italian Government states that this power was used, for example, in Regulation No 2831/71 of the Council of 24 December 1971, in a case similar to the situation which Regulation No 800/77 was intended to remedy.

The Commission maintains that, although Regulation No 974/71 is intended to neutralize the effects of the monetary measures in force in the agricultural sector when they affect the basic products used in making the various processed agricultural products, the trade in ‘agricultural products’ which that regulation is intended to protect from disturbances also covers processed agricultural products. A correct interpretation of Article 1 (3) of that regulation must comprise products subject to a common organization of the agricultural market as well as those covered by Regulation No 1059/69.

The Commission states that the implementation of Article 14 (4) of Regulation No 1059/69 requires the unanimity of the Council, a condition which is difficult to fulfil. For this reason, in view of the particular responsibility incumbent upon the Commission in the management of the compensatory amounts system and of the difficulties of such management, the Council intended by Article 1 (3) of Regulation No 974/71 to allow the Commission to intervene also in respect of products subject to ‘a specific arrangement under Article 235’.

Regulation No 974/71 dos not expressly refer to Regulation No 1059/69, but the expression ‘specific arrangement’ covers inter alia that regulation; moreover, Part 8 of the annex to the Commission regulations fixing the compensatory amounts expressly refers to ‘Products to which Regulation No 1059/69 Relates’, and Regulation No 974/71 itself refers to Article 235 of the Treaty, which constitutes a ‘sufficient basis’. Finally, Article 14 of Regulation No 1059/69, which in the Italian Government's submission should be resorted to, covers cases other than the floating of currencies.

In the absence of observations by the Council, the institution which enacted Regulation No 974/71, I think that the Commission's argument is correct. The expression ‘agricultural products’ within the meaning of Article 1 (3) refers not only to ‘products covered by intervention arrangements under the common organization of agricultural markets’ but also to ‘derived’ products which are not basic agricultural products but nevertheless come within the common organization of agricultural markets (agricultural products of first-stage processing) as well as to products which are not processed agricultural products listed in Annex II but are processed products in which the agricultural component is such that it allows them to be classified as ‘agricultural’: to use the words of Article 97 in Pan Four, Title II (‘Agriculture’), Chapter 2 (‘Provisions relating to Certain Common Organizations of Markets’), Section 16 of the Act of Accession, they are ‘agricultural products imported or exported in the form of goods not covered by Annex II to the EEC Treaty’. Therefore there is indeed a common organization of markets for non-Annex II products, and those products come within the agricultural sector within the meaning of Regulation No 974/71 and of the Act of Accession. Thus the products exported to non-member countries by the plaintiff in Case 95/78 (Dulciora) were eligible to receive refunds, from which the compensatory amounts were deducted since the relevant Member State had a weak currency.

However the Italian Government and the plaintiffs argue that, even assuming that the products in this case could theoretically be covered by the compensatory amounts system, their subjection thereto did not state the reasons on which it was based sufficiently for the purposes of Article 190 of the EEC Treaty, or at least did not do so accurately.

They maintain that the incidence of the application of compensatory amounts upon certain basic agricultural products does not substantially alter the situation in so far as the advantages which processed products not subject to such amounts may derive therefrom are largely offset by higher production costs for other ingredients.

It is true that the Commission had justified the abolition of compensatory amounts for certain of the products in this case (coming under tariff subheadings 18.06 B, 18.06 C and 21.07 CI and II) by its Regulation No 722/75 of 19 March 1975 on the grounds that the price of the non-Annex II goods covered by Regulation No 1059/69 is ‘determined largely by their value as processed products and by the cost of processing and very little by the value of the basic agricultural products’ and also that ‘such products can be assimilated to a considerable extent to those of the industrial sector, for which there are no compensatory amounts’.

However, in my opinion, it cannot be accepted a priori that all non-Annex II processed products covered by Regulation No 1059/69 en bloc escape the monetary compensatory amounts system.

That would be contrary to the very wording of Article 1 (2) (b) of Regulation No 974/71. Ultimately everything depends on the incidence of the value of the basic products upon the value of the end product; disturbances due to that incidence can be effectively measured only at the stage of trade in the processed products themselves and not at the stage of trade in unprocessed basic products. The consideration that, ‘in the case of the processed products not subject to monetary compensatory amounts, the difference in prices of the basic products has become so marked as to have a considerable effect on the conditions of competition of the processed products, having regard to the characteristics of the market in certain sensitive products’, although abstract and concise, does not appear to me to exceed the Commission's margin of discretion. The Commission could legitimately take the view, without contradicting itself, that the fluctuations in the currencies of the Member States which had occurred between March 1975 and April 1977, then November 1977, had brought about a corresponding alteration in the compensatory amounts applicable to the basic products and that, having regard to the proportions of those products used in the manufacture of the processed products in question, those alterations necessarily had an effect on the conditions of competition of the latter products.

The Commission also explains that it had adopted a threshold of 5 % as the criterion for the application of Regulation No 974/71, instead of the figure of 2.5 % laid down in Article 4 of that regulation. None of the plaintiffs criticizes it for this; but then the Commission was entitled to take the view that, if the withdrawal of certain of the products in question from the compensatory amounts system was justified in 1975 having regard to that threshold, their re-introduction was justified in 1977 if not before once that threshold had been crossed.

In its judgment of 20 October 1977 the Court held that, ‘the possibilities of disturbances in trade in agricultural products are so numerous and so diverse that it would be difficult, if not impossible, for the Commission to list all those possibilities in a regulation. Consequently, the Commission may find that there is a risk of disturbances merely on the basis of an appreciable fall in the rate of exchange of a currency’ (paragraphs 13 and 14 of the Decision in Case 29/77 Roquette [1977] ECR 1835, at p. 1842).

It is also true that the contested regulations mention not a risk of ‘disturbances’ in trade in the processed products but a risk of ‘distortion of competition’, an expression taken from the decision concerning Ireland whose Government itself mentioned ‘distortion in trade between Ireland and the United Kingdom arising from existing agricultural monetary arrangements’, which is invoked as evidence that the monetary compensatory amounts are rather a‘charge’ or ‘subsidy’ than a factor neutralizing monetary fluctuations, thus favouring producers and exporters in countries with a strong currency.

However this variant of vocabulary does not appear to me to be of any consequence. As the Commission explains, ‘distortion of competition’ between producers in the various Member States necessarily implies disturbances in trade. In the absence of compensatory amounts, production of the ‘food preparations’ in question would have continued to be favoured in the countries in which the prices of the basic agricultural products were lowest owing to the application of compensatory amounts. In these circumstances, even if the introduction of compensatory amounts benefited industries in the Federal Republic of Germany exporting such food preparations, it was not carried out under pressure from them, and the misuse of powers alleged against Regulations Nos 800/77 and 2657/77 does not appear to me to have been made out to the extent required by law.

From the point of view of the material scope of these regulations, certain of the plaintiffs also submit that they are vitiated by discrimination because they do not refer to certain ‘food preparations’ comparable to the products at issue in this case, essentially gingerbread (heading 19.08 A) and white chocolate (heading 17.04 C). However, although these goods are covered by Regulation No 1059/69, they would also have to constitute similar products in competition with the ‘sensitive’ products at which the contested regulations are directed. Even if this were so, it would entail not the invalidity of the regulations but at most an obligation to bring those products as well within the compensatory amounts system, and I do not see what the plaintiffs stand to gain from this.

In its judgment of 24 October 1973 the Court held that the Commission is not obliged to fix compensatory amounts for each of the products referred to in Regulation No 974/71: ‘The last sentence of Article 1 (2) [old version] of Regulation No 974/71 obliged the Commission to avoid fixing a compensatory amount whenever this did not appear necessary for the prevention of disturbances, irrespective of the proportion of the amount to the average value of the relevant product’ (paragraph 16 of the Decision in Case 43/72 Merkur [1973] ECR 1055, at p. 1072).

It remains for me to examine a submission which was made only by the plaintiffs in Cases 151/77 and 157/78 and which is based on the low rate of the compensatory amounts charged on imports, which is alleged to deprive their charging of any dissuasive character. This line of argument appears invalid to me. This Court cannot decide on the dissuasiveness or otherwise of that rate, even in respect of traditional trends of trade in which the provenance or the trade-mark of the goods plays a certain rôle. If traders intended to maintain their imports for reasons of their own, that would indicate at most that the contested regulations do not really give them ground for complaint.

It must also not be forgotten that besides the charging of compensatory amounts on imports there may also operate the charging of compensatory amounts on exports, which means that the effect of the system is greater than it appears. The calculation of the rate of the compensatory amounts results directly from the provisions of Article 2 (2) of Regulation No 974/71, and provision for the de minimis exception is made in Article 4 (2).

2.

I now turn to the geographical scope of the contested regulations.

It is not seriously challenged by the Italian Government and the plaintiffs that the trade situation between Ireland and the United Kingdom persisted even after 31 December 1977, that it could no longer be remedied by means of Article 135 of the Act of Accession and that the maintenance of the system laid down in Regulation No 800/77 was justified at least in dealings between those two countries, but they do maintain vigorously that such maintenance should have been restricted solely to trade between those States. In other words, the failure to ‘regionalize’ the amounts appears to them to be contrary to the principle of proportionality.

However, this premise seems to me necessarily to entail recourse to Regulation No 974/71, which was already referred to in the Commission Decision of 23 March 1977, and consequently, pursuant to Article 4 (1) of that regulation, introduction of compensatory amounts in all the Member States once the percentage referred to in Article 2 (1) exceeds 2.5 % in any one Member State. It has been seen that the Commission had even raised this threshold to 5 %.

During the oral procedure, the plaintiffs in Cases 151/77 and 157/78 did attempt to raise an objection of illegality against this provision of the Council Regulation, but I cannot follow them on this point.

In its judgment of 20 October 1977, the Court held that:

‘Article 1 (3) of Regulation No 974/71 cannot be interpreted as obliging the Commission to decide case by case, or in respect each product individually, and making distinctions according to the country of export, whether there is a risk of disturbance.

The very terms of that provision show that evaluations of a general nature may be made in this respect’ (paragraphs 21 and 22 of the Decision in Case 29/77 Roquette [1977] ECR 1835, at p. 1843).

These paragraphs are repeated literally from paragraph 9 of the Court's Decision of 22 January 1976, which also included a paragraph 10 according to which:

‘The Commission must not only take into consideration the effect of the depreciation or the appreciation of the currency of a Member State on trade between third States and this State, but it must also take account of the effect of this depreciation or appreciation on trade between different Member States with regard to the group of products in question. Indeed it appears from the documents produced by the Commission that if the compensatory amounts here criticized were not maintained trade might be deflected through those Member States with a devalued currency and this might cause distortions in trade’ (Case 55/75 Balkan [1976] ECR 19, at p. 30).

The problem thus went beyond the limits of trade between Ireland and the United Kingdom. Even though in practice Regulation No 800/77 took over from the Decision of 23 March 1977, it does not mention a risk of distortion of competition between those two Member States but uses general terms.

Having regard to the postponement of the entry into force of Regulation No 800/77 from 23 May 1977, as originally provided, to 4 July 1977, the Commission took very seriously the risk of deflection of trade which would have been presented by restricting the compensatory amounts to trade between Ireland and the United Kingdom. By Regulation No 1123/77 of 27 May 1977, transitional measures were applied to trade in products to which compensatory amounts were to apply as from 4 July 1977 in order to avoid speculation in those products. The transitional measures consisted in granting compensatory amounts:

These provisions applied to imports and exports in respect of which the customs formalities had been completed before 29 August 1977. They did not apply to the re-importation into the United Kingdom of products obtained in that State from Ireland, or to the re-importation into Ireland of products obtained in that State from the United Kingdom. Since 1 April 1977 Ireland had been applying in respect of those products a system of export subsidies and import levies corresponding to the effects of the monetary compensatory amounts.

Another provision of Regulation No 1123/77 provided that the Member State responsible for granting the compensatory amounts had to adopt the necessary control measures. The regulation entered into force on 4 July 1977.

Therefore as regards the alleged breach of the principle of equality before the law, I take the view, in accordance with the Court's judgment of 14 December 1978, that ‘there is nothing in that principle to prevent the application to other Member States of the rate of compensatory amounts which is economically justified’ (paragraph 40 of the Decision in Case 35/78 Schouten [1978] ECR 2543, at p. 2557).

3.

I now come to the scope of the compensatory amounts system in time.

The Italian Government and certain of the plaintiffs (in Case 95/78) allege that the prolongation of the system introduced by Regulation No 800/77 beyond 31 December 1977 by Regulation No 2657/77 was carried out in an unlawful manner: it did not state the reasons on which it was based, and it was contrary to the undertaking given by the Commission in Regulation No 800/77; in this respect it prejudices the legitimate expectations of traders.

Even if the inclusion of a time-limit in Regulation No 800/77 can be explained by the fact that that regulation took over from the decision addressed to Ireland, there is no doubt that such inclusion was to say the least imprudent or clumsy. It was all the more likely to give rise to uncertainty as it applied only to certain products, those which are at issue in these cases. Moreover, if as is stated in Regulation No 2657/77 ‘the situation [had] not greatly changed since the entry into force of’ Regulation No 800/77 and if it was therefore necessary to maintain the system laid down in that regulation, logic would have required the time-limit of 31 December 1977 also to be maintained. Therefore the terms of Regulation No 2657/77 do not appear to me to be particularly felicitous.

It may be thought that the Commission realized this itself when it appointed 1 December 1977 as the date for the entry into force of the latter regulation, which meant that in order to adjust any long-term contracts which had been concluded traders had only half the period of time allowed by Regulation No 800/77 as amended by Regulation No 1051/77.

However, even if Article 2 (2) of Regulation No 800/77 had the meaning which is attributed to it by the Italian Government and the plaintiffs, it could not have the effect of freeing the Commission from its obligation to review the situation. The Commission did so on 30 June 1977 by its Regulation No 1474/77, as has been seen, in order to take account of the new prices for sugar applying as from 1 July 1977 and of the new representative rates fixed as from the same date by Regulation No 878/77; it did so again on 30 November 1977 in view of the time-limit of 31 December 1977, and has done so several times since then. The fact that the statement of reasons given in Regulation No 2657/77 took the form of a reference to the monetary situation described in Regulation No 800/77 must not therefore be regarded as equivalent to there being no statement of reasons.

Finally, even if it were established, a breach of legitimate expectations does not go to the review of the legality or the assessment of the validity of a regulation; at most it might, according to the individual situations, found an action for compensation. It would be quite unsatisfactory to engage in assessing the validity of a regulation selectively according to the particular situation of the plaintiffs. In this connexion, one must not lose sight of the fact that as from 24 October 1977 the Italian Government, and hence traders, were aware of the possibility of a prolongation of Regulation No 800/77.

Ill —

Before concluding, I should like to make some general observations about the monetary compensatory amounts system. Although that system is a handicap for certain countries with a currency floating downwards freely in relation to countries with strong currencies floating together, it is a form of protection even for certain countries in the former group against countries in the same group whose currency is still weaker. In fact, the mischief comes from the use of ‘green’ rates differing from market rates. The remedy to the proliferation and permanence of compensatory amounts lies in an adjustment of the ‘green’ currency; devaluation of that currency leads to a rise in the prices guaranteed to farmers and reduces the compensatory amounts, which operate as subsidy to exports from countries with a strong currency. However, even if such devaluation is desired by the State in question, it must also be accepted in Brussels by the other Member States, and it is understandable that it should meet lively opposition from States which have a strong currency.

As the Commission writes in its Communication to the Council of 10 February 1978 on the ‘Economic Effects of the Agri-monetary System’ (p. 2, paragraph 3), ‘Price relationships as between products covered by the agri-monetary system and other agricultural products and foodstuffs have, however, varied from one Member State to another. … This delay in adjusting [the “green” rates] has meant that the common agricultural prices have lost a great part of their economic function, the adjustments having been made, not on economic grounds in the interest of the Community, the common agricultural market or the common agricultural policy, but for national political or economic reasons. Because of the persistent opposition of several Member States the Community has not been able to adopt a rational system of economic adjustments and has therefore had to accept changes in the green rates being made either too late or in the middle of the marketing year’.

Pending the dismantling of compensatory amounts, the Commission has to manage the crisis. It is certainly not with a light heart that it resolves to introduce or alter such amounts, which weigh down administrative formalities, restrain trade, give rise to fraud, lead to a heavy budgetary charge for the EAGGF and entail discrimination between consumers.

For this reason it is not contradictory on the one hand to advocate such dismantling and on the other to continue to apply the system: reduction and abolition of those amounts will only be made possible by bringing the representative rates closer to the actual values of Community currencies.

The Commission made proposals to the Council for the monetary compensatory amounts system to be restructured and improved by taking account of the industrial component in certain products and of the production conditions in certain sectors by means of better adjusted coefficients. However, this finding does not suffice to declare the regulations at issue invalid or to annul them.

(1)

Dismiss the application in Case 11/78 and order the Italian Republic to pay the costs;

(2)

Rule that consideration of the questions raised has disclosed no factor of such a kind as to affect the validity of Commission Regulations Nos 800/77 and 2657/77.