Opinion of Mr Advocate General Lenz delivered on 29 June 1988. - Commission of the European Communities v Council of the European Communities. - Generalized tariff preferences - Application for a declaration that a measure is void - Obligation to state reasons for Community measures - Customs union - Tariff quotas. - Case 51/87.
European Court reports 1988 Page 05459
Members of the Court,
A - Facts
1 . As in 1986, ( 1 ) the Commission of the European Communities, the applicant, has contested two legal instruments adopted by the Council of the European Communities, the defendant, whereby tariff preferences were applied in 1987 to certain goods originating in developing countries . ( 2 )
2 . As in the case of the regulations for 1986, the defendant based the regulations at issue here on "the Treaty establishing the European Economic Community", without giving any further indications as to the relevant legal basis . However, it had the application of Articles 113 and 235 of the EEC Treaty in mind .
3 . The applicant considers that approach to constitute an infringement of essential procedural requirements for the purposes of Article 190 of the EEC Treaty . It also criticizes the structure of the preferential system, which the defendant, deviating from the applicant' s proposals, set up in a way which infringes the principles of the customs union and the common commercial policy .
4 . The applicant therefore claims that the Court should :
( i ) declare void Council Regulations Nos 3924/86 and 3925/86,
( ii ) order the Council to pay the costs .
5 . In the light of the judgment of 26 March 1987 in Case 45/86, the defendant concedes that the first head of complaint is well founded . It nevertheless claims that the Court should :
( i ) dismiss the application,
( ii ) order the applicant to pay the costs .
6 . In the oral procedure the applicant formally withdrew its objections regarding the legal basis, and hence its complaint about the infringement of essential procedural requirements, on the grounds that the judgment of 26 March 1987 in Case 45/86 had clarified the legal position and that the defendant had based the tariff preference provisions for 1988 on Article 113 of the EEC Treaty . ( 3 )
B - Analysis
7 . As stated above, the parties agree that the contested regulations are void because they infringe essential procedural requirements for the purposes of Article 190 of the EEC Treaty and because they cite an inappropriate legal basis .
8 . None the less, the defendant has neither amended the contested regulations nor repealed and reissued them using the correct legal basis . Since, moreover, the defendant seeks the dismissal of the application despite having acknowledged the illegality of the regulations, the parties are still in dispute .
9 . The applicant has indeed abandoned the complaint on the subject during the oral procedure . However, once it has publicly aired doubts as to the validity of the contested regulation on those grounds, those doubts cannot be expunged by the withdrawal of a complaint . In any case, the Court is not prevented from expressing its views on the matter . It is after all inconceivable that the Court of Justice should, merely because the applicant has withdrawn some of its heads of complaint, be prevented from declaring the contested regulations to be illegal despite being fully aware of their illegality .
10 . The Court may, on the basis of the concurring submissions of the parties and its findings in its judgment of 26 March 1987 in Case 45/86, declare that the contested regulations do not meet the requirement under Article 190 of the EEC Treaty to supply a statement of reasons, that they were not adopted on the correct legal basis, and that they must therefore be declared void .
11 . I can therefore confine myself hereafter to examining the further arguments of the applicant, which, in essence, complain that the principles of both the customs union and the common commercial policy were infringed .
Tariff preferences for industrial products
12 . The applicant takes issue, in particular, with the division of the Community quotas into national quota shares of which a first tranche of 80% is allocated to the Member States . The remainder is left in a Community reserve . Only when 90% or more of the initial share is used up may the Member State concerned be allocated, from the Community reserve, a second share equal to 10% of its initial share . The procedure may, if necessary, be repeated, but the following tranches are limited to 5% of the initial share . Member States are permitted to limit their additional shares to 60% of their initial share .
13 . The Member States were required to return to the reserve, by 1 October 1987, the unused portion of their initial share which on 15 September 1987 exceeded 15% of the initial amount . They were allowed to return a larger portion if there were grounds for believing that it might not be used . At the Commission' s request they were also able to make anticipatory returns .
14 . The consequence of dividing up and administering the Community quota is, in the opinion of the applicant, that in individual cases the shares of a Member State may be used up, thereby necessitating the reintroduction of the duty laid down in the Common Customs Tariff, even though it is possible that at the same time goods are being imported under the preferential scheme into other Member States because they have used less of their shares . In support of this view the applicant refers to a report by the Court of Auditors which found presisely that . ( 4 ) In addition, it was possible that, on account of the dilatory and limited transfer facility available following the exhaustion of a national quota, the importation of goods under the preferential provisions had become impossible, whereas in other Member States no use, or incomplete use, might have been made of the share allocated from the Community quota . That is attributable to the fact that the defendant, in originally dividing the Community quotas into national shares according to a fixed scale, based itself on three criteria, namely the external trade, the gross national product and the population of the Member State . That fixed apportionment underwent a merely technical adjustment when the various accessions took place; the defendant took no account of the existence, let alone the evolution, of patterns of trade .
15 . The defendant' s answer is that the division of the quotas into national shares pursuant to the contested regulation is compatible with the EEC Treaty and in particular Articles 9 and 113 thereof, and it recites a series of decisions of the Court of Justice in which the existence of national quotas was not challenged .
16 . In order to achieve the Community' s task under Article 2 of the EEC Treaty of establishing a common market, Article 3 thereof provides that the activities of the Community are to include the elimination, as between Member States, of customs duties and of quantitative restrictions, together with the establishment of a Common Customs Tariff and a common commercial policy towards non-member countries . Those activities are specified by Article 9 of the EEC Treaty, when it provides :
"The Community shall be based upon a customs union which shall cover all trade in goods and which shall involve the prohibition between Member States of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries ."
17 . That customs union has been described by the Court in its judgment of 13 December 1973 in Joined Cases 37 and 38/73 ( 5 ) in the following terms :
"The customs union, which is one of the foundations of the Community, involves, on the one hand, the elimination of customs duties between the Member States and of all charges having equivalent effect ;...
...on the other hand, the customs union involves the establishment of a single customs tariff for the whole Community, as envisaged at Articles 18 to 29 of the Treaty;
...this common tariff is intended to achieve an equalization of customs charges ( 6 ) levied at the frontiers of the Community on products imported from third countries, in order to avoid any deflection of trade in relations with those countries and any distortion of free internal circulation or of competitive conditions ."
18 . In view of that fundamental characterization of the external aspect of the customs union it is hard to perceive how the quota system described by the applicant can be compatible with the uniform application of the Common Customs Tariff and hence with the customs union itself . In particular, one objection is that the system cannot exclude the possibility that, depending on the border through which it enters the Community, a given product may be subject to different customs provisions even though the Community quotas have not been exhausted; it may receive preferential treatment when the national quota share of the importing State has not been exhausted or it may be subject to the full application of the Common Customs Tariff in another Member State whose share has already been used up . In such circumstances, importation under the preferential scheme would be effected exclusively through whichever Member State had not yet used up its quota shares . That, however, indicates a deflection of trade which, particularly in the case of cheap products, could lead to an obstruction of importation on account of the increased transport costs .
19 . The defendant has referred to a series of decisions of the Court of Justice from which it might be inferred that the Court considers the division of Community quotas into national quota shares to be fundamentally lawful . ( 7 )
20 . On closer inspection, however, very little can be derived from those decisions to support the defendant' s point of view in this case . It must, of course, be conceded to the defendant that, in those decisions, the Court of Justice did not criticize the division of Community quotas into national quota shares . That, however, was mainly because no questions on the subject were raised in those procedures for a preliminary ruling, which were concerned solely with how the Member States were required to administer their national quota shares .
21 . The defendant further relies on the judgment of 13 December 1983 in Case 218/82, ( 8 ) in which, once again, the Court of Justice did not criticize the allocation of a Community quota for rum, arrak and tafia imported from the ACP States . In that judgment the Court held that the division of a global quota into national quota shares may, in certain circumstances, 6 be compatible with the Treaty, subject in particular to the express condition that they do not hinder the free movement of the goods forming part of the quota after they have been admitted to free circulation in the territory of one of the Member States .
22 . Nevertheless, that statement of the Court cannot be transposed uncritically to the present dispute . The reason is that the regulation ( 9 ) at issue in Case 218/82 had been adopted on the basis of Article 2 of the Second ACP-EEC Convention of 31 October 1979, which provided that the quantities to be imported duty free were to be fixed annually on the basis of the largest annual quantities imported from the ACP States into the Community in the last three years for which statistics were available, increased by an annual growth rate . The opening and the allocation of a Community quota are thus determined by the evolution of trade patterns, which is precisely not the case with the regulations at issue here, as the applicant has asserted without contradiction from the defendant . The division of the quota, originally fixed in 1971 in the context of the generalized tariff preferences for developing countries, has been revised only on the occasion of the various accessions to the Community; the evolution of trade patterns, however, has not been taken into consideration in later years, with the consequence that, when the quota shares of some Member States were used up, goods were imported into the Community at the normal rate of duty even though the Community quota as a whole was not exhausted .
23 . The decision of the Court of Justice of 13 December 1983 in Case 218/82 does not therefore support the inference that the question whether or not the division of a Community quota into national shares is permissible depends exclusively on whether the free movement of the products imported under the quota is thereby ensured within the Community . There are further "circumstances" requiring consideration before an analogous division of the quota may be regarded as compatible with the customs union .
24 . Nor can the defendant rely on the judgments of the Court of 15 December 1976 ( Case 41/76 ( 10 )), 5 March 1986 ( Case 59/84 ( 11 )), or 8 October 1986 ( Case 385/85 ( 12 )) in order to justify the quota-share scheme . In the last-named judgment it was merely acknowledged that, since the generalized tariff preference scheme was specially designed to benefit the developing countries, stricter rules governing proof of origin of the goods might be established . No further inferences relevant to this case may be drawn from that judgment .
25 . In the two judgments of 15 December 1976 and 5 March 1986 the point at issue was whether, in the periods in question, the Commission was entitled to authorize protective measures under Article 115 of the EEC Treaty . In both decisions the Court recognized that "the fact that at the expiry of the transitional period the Community commercial policy was not fully achieved is one of a number of circumstances calculated to maintain in being between the Member States differences in commercial policy capable of bringing about deflections of trade or of causing economic difficulties in certain Member States ."
26 . On the strength of that finding the Court affirmed the legality of the protective measures authorized by the Commission under Article 115 of the EEC Treaty .
27 . This case, however, is not concerned with measures pursuant to Article 115, which would, indeed, have had to be adopted by the Commission, the applicant in these proceedings, but rather with the question whether the defendant may, in view of the incomplete implementation of the common commercial policy, also depart from the principles of the customs union .
28 . It should be self-evident that that is not the case . If the defendant, in contravention of Article 113 of the EEC Treaty, has failed, after the end of the transitional period in 1970, to achieve a common commercial policy based entirely on uniform principles, it cannot derive from such an infringement of the Treaty a further authority for infringing the principles of the customs union as well . At most, Article 115 of the EEC Treaty merely permits the applicant to remedy the difficulties arising from the defendant' s inadequate implementation of the common commercial policy .
29 . The applicant also regards the division of Community quotas into national shares as an infringement of Article 113 of the EEC Treaty, since the division is carried out in accordance with the ( disparate ) national interests of the Member States and not in accordance with uniform Community principles . The commercial policy is thereby based, in part, on unharmonized criteria .
30 . The defendant does not contest that claim in principle, but submits that the disparate interests of the Member States continue to exist in view of the as yet incomplete implementation of the common commercial policy and the best means of taking account of them is by retaining national quotas . After the completion of the internal market scheduled for 1992, which must be accompanied by a genuine common commercial policy, the abolition of national quotas will of course be indispensable .
31 . The defendant' s recognition of the need to abolish national quotas once the internal market becomes a reality is to be welcomed since it thus implicitly concedes that national quotas can hardly be reconciled with the common market . However, it is not enough to recognize that principle only as from 1992 since the setting-up of the common commercial policy was to have been fully implemented not only by 1992 but, in accordance with Articles 111 and 113 of the EEC Treaty, as soon as the transitional period had ended in 1970 . Since the contested regulation does not fully meet the requirements of a genuine common commercial policy, its adoption must also be viewed as an infringement of Article 113 of the EEC Treaty .
32 . In the light of the foregoing, my conclusion at this stage is that the defendant was not permitted to formulate the tariff preference scheme for industrial products in such a way that in part of the Community goods had to be imported at the normal rate of duty despite the fact that the quota shares in some Member States had not been used up and hence the Community quotas as a whole had not yet been exhausted .
33 . The question of how to formulate a preferential scheme so as to take account both of the principles of the customs union and of the obligation to allow all traders in the Community equal rights of access to the quotas is a matter for the legislative bodies of the Community . A possible solution would be a uniform, common administration of the Community quota by the Commission, but a scheme for dividing the Community quotas into national quota shares which take account of trade patterns cannot be ruled out either, provided that either a more flexible arrangement for the Community reserve or a simpler facility for transferring national quota shares ensures that traders can avail themselves of the preference scheme until such time as the Community quota as a whole is used up .
Tariff preference scheme for textile products
34 . The above observations may be transposed, mutatis mutandis, to the tariff preference scheme for textile products . Since the relevant regulation provides only for fixed quota shares, without a Community reserve, the division of Community quotas into national quota shares is even more rigid than in the case of industrial products . The principles of the customs union are thus more gravely infringed than under the provisions on industrial products considered above .
35 . In this connection the question may be left open whether the proposals made by the applicant during the preparation of the legislation would have sufficed to take account of the principles of the customs union . Provisions along the lines proposed would at least have been "closer to the Treaty ". In any event, the provisions which the defendant actually adopted are not in keeping with the principles of the customs union and the common commercial policy as envisaged in the Treaty and as defined in successive judgments of the Court .
Continued applicability of the two regulations
36 . The applicant has left it to the Court to decide, under the second paragraph of Article 174 of the EEC Treaty, whether certain effects of the regulations are to be considered definitive .
37 . Since I am going to propose to the Court that it should declare both regulations void despite their having already lapsed on 31 December 1987, the need arises, in the interests of the developing countries and of traders who imported goods under the tariff preference scheme, to declare customs formalities that have been completed to be valid even though the declaration that both regulations are void has retroactive effect .
C - Conclusion
38 . In conclusion I propose that the Court of Justice should :
"( 1)declare void Council Regulations No 3924/86 and No 3925/86 of 16 December 1986;
( ii ) hold that the effects of the regulations declared void are to be considered definitive in so far as goods have been imported under the preference scheme in reliance on them;
( 3)order the Council to bear the costs ."
(*) Translated from the German .
( 1 ) See judgment of 26 March 1987 in Case 45/86 Commission v Council (( 1987 )) ECR 1493 .
( 2 ) Council Regulation No 3924/86 of 16 December 1986 applying generalized tariff preferences for 1987 in respect of certain industrial products originating in developing countries ( OJ 1986, L 373, p . 1 ), and Council Regulation No 3925/86 of 16 December 1986 applying generalized tariff preferences for 1987 to textile products originating in developing countries ( OJ 1986, L 373, p . 68 ).
( 3 ) Regulations No 3635/87 ( OJ 1987, L 350, p . 1 .) and No 3782/87 ( OJ 1987, L 367, p . 1 ).
( 4 ) Annual Report concerning the financial year 1982 ( OJ 1983, C 357, p . 1, at p . 32 ).
( 5 ) Judgment of the Court of 13 December 1973 in Joined Cases 37 and 38/73 Sociaal Fonds voor de Diamantarbeiders v Indiamex NV and Others (( 1973 )) ECR 1609, at p . 1622 .
( 6 ) Emphasis added .
( 7 ) See in particular the judgments of 12 December 1973 in Case 131/73 Criminal proceedings against Giulio and Adriano Grosoli (( 1973 )) ECR 1555; of 23 January 1980 in Case 35/79 Grosoli SpA and Others v Ministry of Foreign Trade and Others (( 1980 )) ECR 177; of 13 March 1980 in Case 124/79 J . A . van Walsum BV v Produktschap voor Vee en Vlees (( 1980 )) ECR 813; and of 7 October 1985 in Case 199/84 Procuratore della Repubblica v Migliorini and Fischl (( 1985 )) ECR 3325 .
( 8 ) Judgment of 13 December 1983 in Case 218/82 Council v Commission (( 1983 )) ECR 4063 .
( 9 ) Council Regulation No 1699/82 of 24 June 1982 ( OJ 1982, L 189, p . 1 ).
( 10 ) Judgment of the Court of 15 December 1976 in Case 41/76 Donckerwolcke v Procureur de la République (( 1976 )) ECR 1921 .
( 11 ) Judgment of the Court of 5 March 1986 in Case 59/84 Tezi Textiel BV v Commission (( 1986 )) ECR 916 .
( 12 ) Judgment of the Court of 8 October 1986 in Case 385/85 S.R . Industries v Administration des douanes (( 1986 )) ECR 2929 .