C-118/02

OPINION OF ADVOCATE GENERAL STIX-HACKL delivered on 10 September 2003(1) Case C-118/02 Industrias de Deshidratación Agrícola, SA v Administración del Estado (Reference for a preliminary ruling from the Tribunal Supremo (Spain)) (Agriculture – Common organisation of the market in dried fodder – Council Regulation (EC) No 603/95 and Commission Regulation (EC) No 785/95 – Admissibility of national conditions with respect to green or fresh fodder for processing) I –  Introductory remark 1.        The subject of the present proceedings is the division of powers between the Community and the Member States: to what extent may Member States lay down conditions for the grant of aid in the context of a common organisation of the agricultural market? II –  Legal framework A – Community law 2.        Council Regulation (EC) No 603/95 (2) (hereinafter: ‘the basic regulation’) established a common organisation of the market in dried fodder. The purpose of this organisation of the market is to introduce price regulations and rules on trade with non‑member countries with a view to stabilising prices. 3.        This common organisation of the market consists essentially of rules on the payment of simple flat rate aids for dried fodder. (3) In this connection, the rate for fodder which is artificially heat-dried is higher than that for sun-dried fodder in order to take into account the additional costs involved. (4) 4.        In order to limit dried fodder production within the Community, the amount for which aid may be granted is subject to maximum limits, depending on the method of drying. If these limits are exceeded in the course of the marketing year, the aid is reduced. The reduction applies uniformly in all the Member States for the first 5% by which the maximum guaranteed quantity is exceeded. (5) For any excess beyond 5% additional reductions are made in any Member State that has exceeded the national guaranteed amount. (6) 5.        Article 8 of the basic regulation lays down conditions with respect to the minimum quality of dried fodder for which aid may be granted. 6.        The aid is granted to processing undertakings supplied by producers, producers’ associations, or buyers. Approval of processing undertakings by the competent authorities of the Member States is subject to the fulfilment of certain conditions, in particular the requirement to keep stock accounts. (7) 7.        In order to encourage regular supplies of fodder to processing undertakings and to enable producers to benefit from the aid scheme, the granting of aid is in certain cases conditional on the conclusion of contracts between producers and processing undertakings. Under Article 11(1) of the basic regulation, such contracts must state inter alia the area from which the crop is to be delivered to the processing undertaking, and the terms of supply and payment. 8.        Article 12 of the basic regulation imposes supervisory duties on the Member States. They are required to introduce a supervisory system to check, in particular, that the conditions laid down are met and that the quantities covered by aid applications correspond to the quantities of dried fodder of the minimum quality which leave the undertakings. 9.        A procedure which establishes close cooperation between Member States and the Commission within a Management Committee is laid down in Article 17 of the basic regulation. Article 18 of the basic regulation provides for the adoption of detailed rules for the application of the basic regulation, in accordance with the procedure laid down in Article 17. These rules relate to: ‘– the granting of the aid referred to in Article 3 ..., – the checking and establishment of entitlement to the aid, including any necessary controls, ..., – the criteria for determining the minimum quality, – the conditions to be fulfilled by the undertakings referred to in the second indent of Article 9(c), as well as the conditions referred to in Article 10, – the control measure to be carried out referred to in Article 12(2), – the criteria to be fulfilled for the conclusion of contracts referred to in Article 9 and the information which they must contain, in addition to the criteria laid down in Article 11, – the application of the maximum guaranteed quantity (MGQ)’. 10.      Commission Regulation (EC) No 785/95 (8) (hereinafter: ‘the implementing regulation’) contains the detailed rules for the application of the basic regulation.  (9) According to the first recital in the preamble to the implementing regulation, certain concepts should be defined ‘in order to ensure efficient application of the system of aid for dried fodder’. The implementing regulation lays down the detailed minimum quality criteria in respect of moisture and protein content for dried fodder products referred to in Article 8 of the basic regulation. Essentially, aid is to be granted for products of sound and fair merchantable quality which have left the processing undertaking and have the following characteristics: moisture content between 11% and 14%, and minimum crude protein content of 45% in the case of protein concentrates and dried products and of 15% in the case of other products. 11.      In this connection, Article 9 of the implementing regulation requires processing undertakings to determine, for fodder to be dehydrated and, where applicable, for sun-dried fodder delivered to them for processing, the quantities delivered, measured by systematic weighing. They are also required to notify the competent authority of the average moisture content, determined in accordance with the provision, within the specified time. 12.      Article 8 of the implementing regulation concerns the contracts provided for in Article 9 of the basic regulation. For verification purposes, each contract must include the type or types of crop to be processed and the foreseeable quantity involved, and identification of the parcel or parcels on which the fodder to be processed was grown, in accordance with the integrated management and verification system. 13.      Article 11 of the implementing regulation contains rules on the sampling and determination of the weight of dried fodder. In connection with these verification measures, Article 12 of the implementing regulation adds to the details to be included in stock records, referred to in Article 9(a) of the basic regulation. Article 12(1) provides that the stock accounts must include at least details of ‘the species referred to in Article 1 of Regulation (EC) No 603/95 of fodder to be dehydrated and, where applicable, sun-dried fodder entering the undertaking [and] the moisture content of fodder to be dehydrated’. 14.      Other provisions of the implementing regulation concern the cross-checks to be carried out by the competent national authorities (Article 14) and the information to be supplied by Member States to the Commission (Article 15). It is perhaps significant that Article 14(3) of the implementing regulation requires the competent authorities, in the event of any doubt as to the accuracy of the information contained in the application for aid, to undertake additional checks on suppliers of raw materials and others. Article 15(e) of the implementing regulation requires Member States to inform the Commission of the average moisture content of fodder to be dehydrated. B – National law 15.      Real Decreto (Royal Decree) 283/1999 of 22 February 1999 (hereinafter: ‘Decree 283/1999’) lays down the basic rules applicable to the system of aid for dried fodder in Spain. 16.      The preamble to that decree states: ‘The Community provisions on aid for dried fodder are contained in Council Regulation (EC) No 603/95 of 21 February 1995 on the common organisation of the market in dried fodder and in Commission Regulation (EC) No 785/95 of 6 April 1995 laying down detailed rules for the application of Regulation No 603/95. Without prejudice to the direct applicability of those regulations, the competent national authority to which they refer is to be determined by national law. Under the constitutional division of responsibilities, it is for the State to establish the basic rules concerning such aid and for the Autonomous Communities to adopt the implementing and enforcing legislation, including the administration of the aid. ...’. 17.      On the obligations of the processing undertakings, Article 5 of Decree 283/1999 provides: ‘1.     The approved processing undertakings shall submit to the competent body of the Autonomous Community by which they have been approved documentation establishing that they meet the requirements imposed in the Community legislation, within the time-limits laid down therein. 2.       They must notify the competent body of the Autonomous Community of the dispatch schedule for dried fodder eligible for aid which is due to leave the undertaking. 3.       Fodder for dehydration is fodder which arrives at the processing undertaking chopped, not baled, with a moisture content of over 30%, which is kept for a maximum of less than 24 hours from the time when it enters the processing undertaking until it is processed, and which comes from plots of land situated no more than 100 kilometres from the corresponding processing plant, unless, in the latter case, a greater distance may be justified by the use of appropriate specialised transport. Furthermore, only consignments which, on entering the processing plant, have an average moisture content of at least 35%, measured at least every 10 days, will qualify for aid.’ III –  Facts and procedure 18.      Industrias de Deshidratación Agrícola SA has brought an action before the referring court for a declaration that Article 5(3) of Decree 283/1999 of 22 February 1999 establishing the basic rules relating to the aid scheme in the dried fodder sector, published in Boletín Oficial del Estado No 46 of 23 February 1999 is unlawful and seeking the annulment of that provision. 19.      It cites Regulation No 603/95 and Regulation No 785/95 in support of this view. Those regulations contain provisions laying down the conditions which processing undertakings and their production must meet in order to receive Community aids. Only two aspects of the aid system are delegated to the Member States: checking that the processing undertakings located within their jurisdiction meet the conditions for entitlement to aid, and administering payment of the aid. The Member States are not, however, authorised to amend the Community regulations by establishing conditions or requirements which are new or different from those laid down in the Community legislation. 20.      The Tribunal Supremo (Spanish Supreme Court) has stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling: 1. Is a national provision which makes the grant of aid for the drying of green or fresh fodder subject to the condition that the fodder for drying is delivered to processing undertakings chopped, and not baled, compatible with the second paragraph of Article 249 EC, Article 10 EC, the second subparagraph of Article 34(2) EC, Council Regulation (EC) No 603/95 of 21 February 1995 and Commission Regulation (EC) No 785/95 of 6 April 1995? 2. Is a national provision which makes the grant of aid for the drying of green or fresh fodder subject to the condition that the fodder must reach the processing plant with a moisture content of over 30% and an average moisture content, on entry to the processing undertaking, of at least 35%, measured at least every 10 days, compatible with the second paragraph of Article 249 EC, Article 10 EC, the second subparagraph of Article 34(2) EC, Council Regulation (EC) No 603/95 of 21 February 1995 and Commission Regulation (EC) No 785/95 of 6 April 1995? 3. Is a national provision which makes the grant of aid for the drying of green or fresh fodder subject to the condition that the fodder must be kept at the processing plant for a maximum of 24 hours before it is processed compatible with the second paragraph of Article 249 EC, Article 10 EC, the second subparagraph of Article 34(2) EC, Council Regulation (EC) No 603/95 of 21 February 1995 and Commission Regulation (EC) No 785/95 of 6 April 1995? 4. Is a national provision which makes the grant of aid for the drying of green or fresh fodder subject to the condition that the fodder must come from plots of land situated at a maximum distance of 100 kilometres from the corresponding processing plant unless, in the latter case, a greater distance may be justified by the use of appropriate specialised transport, compatible with the second paragraph of Article 249 EC, Article 10 EC, the second subparagraph of Article 34(2) EC, Council Regulation (EC) No 603/95 of 21 February 1995 and Commission Regulation (EC) No 785/95 of 6 April 1995? IV –  Examination of the questions referred 21.      By its questions, the referring court seeks essentially to ascertain whether the basic regulation and the implementing regulation preclude national provisions which lay down specific conditions with respect to green or fresh fodder for processing and as to where such fodder is grown. These conditions relate to: – the presentation of green or fresh fodder for drying (first question), – the moisture content of green or fresh fodder when it is delivered to the processing plant (second question), – the maximum period between delivery and processing of green or fresh fodder (third question), – the maximum distance between the place where green or fresh fodder is grown and the place where it is processed (fourth question). 22.      All of the questions concern individual conditions with respect to green or fresh fodder for processing and all consequently raise in equal measure the issue of the relationship between national law and Community law on the organisation of markets. For reasons that will be explained, a single answer to the questions will suffice because, in my view, despite the fact that they refer to different conditions, the questions should be taken in conjunction and examined together. 23.      Before considering the particular features of the common organisation of the market in dried fodder, attention should be drawn to the Court’s very substantial body of case-law on the relationship between national law and Community law on the organisation of markets. A – The case-law of the Court on the relationship between market organisation law and national law 24.      The Commission refers in its written observations to the judgment of 18 September 1986 in Case 48/85, (10) in which the Court held that ‘it is one of the fundamental characteristics of a common organisation of the market that in the sectors concerned the Member States can no longer take action through national provisions adopted unilaterally (see in particular the judgment of 29 June 1978 in Case 154/77 Procureur du Roi v Dechmann [1978] ECR 1573). Their legislative competence can only be residual; it is limited to situations which are not governed by the Community rules and to cases where those rules expressly give them power to act’. 25.      Thus the Member States have only residual legislative competence in the sectors regulated by a common organisation of the market. Whether or not a Member State may exercise this residual legislative competence depends in turn upon whether the common organisation of the market is intended to establish an exhaustive scheme of regulation for the sector concerned. However, even where a common organisation of the market has not dealt exhaustively with the matter, the Member States may not adopt any measure which might interfere with the proper functioning of the common organisation of the market. (11) 26.      In the light of this case-law, the following steps are mandatory in determining whether a national measure is compatible with Community law on the organisation of markets: it must first be ascertained whether the measure relates to a sector which is regulated by a common organisation of the market. If it does, it must then be ascertained whether the Community provision is intended to establish an exhaustive scheme of regulation. If the measure has been adopted in a sector that is not regulated by the common organisation of the market in question or if the Community provision is not intended to establish an exhaustive scheme of regulation, further steps must be taken to determine, in the light of the effects of the national measures, whether or not they might interfere with the proper functioning of the common organisation of the market in question. (12) B – The questions referred 1. Main arguments of the parties 27.     Industrias de Deshidratación submits that Article 5(3) of Decree 283/1999 goes beyond the competence of the Kingdom of Spain. It claims that the basic regulation and the implementing regulation both contain exhaustive provisions on the granting of aid, with the result that a Member State may not lay down further conditions in this regard. 28.      The Spanish Government and the Commission take the opposite view. The Commission refers to the settled case-law of the Court mentioned earlier. (13) It contends that the legislative competence of the Member States is limited to situations which are not governed by the Community rules and to cases where those rules expressly give them power to act. 29.      The Spanish Government takes the view that neither Regulation No 603/95 nor Regulation No 785/95 contains any definition of the basic or source material. The implementing regulation gives a satisfactory description only of the end product. In those circumstances, the Spanish authorities are entitled to define the content of the basic or source material so long as their definition is not incompatible with Community law and does not interfere with the common organisation of the market. 30.      The Commission refers to practice in Spain, where green or fresh fodder is pre-dried in the open air, causing a loss of moisture. It concludes that this practice is contrary to the spirit and purpose of the Community system of aid, that is to say, Regulation No 603/95 and Regulation No 785/95, since the purpose of granting aid at a higher rate for artificially heat-dried products is precisely to compensate for the higher costs incurred in this method of drying. 31.      The Spanish Government also submits that the conditions laid down in Article 5(3) of Decree 283/1999 are to be understood as an attempt to combat fraud and to ensure that aid is granted in accordance with Article 8 of Regulation No 603/95. 2. Legal assessment 32.      The referring court is asking for an interpretation of the second paragraph of Article 249 EC, Article 10 EC, the second subparagraph of Article 34(2) EC, Regulation No 603/95 and Regulation No 785/95. With regard to the second paragraph of Article 249 EC, the referring court apparently wishes to ascertain whether the fact that regulations are binding and directly applicable precludes the adoption of a national provision of the kind at issue in this case. However, the answer to this question calls for an interpretation of the regulations concerned. This also applies to the duty of cooperation in good faith under Article 10 EC. The reference to the second subparagraph of Article 34(2) EC is presumably to be understood as meaning that a national provision of the kind at issue in this case could result in – prohibited – discrimination between producers and this too must be examined in the course of interpreting the two regulations. There is therefore no need for a separate examination of the provisions of primary law cited in this case. 33.      It is to be assumed that a conflict between national measures and Community law on the organisation of markets logically presupposes that the national measures at issue have been adopted in a sector governed by a common organisation of the market as defined in the above case-law. (14) That, however, is precisely the point that is here in doubt. Article 1(1) of the basic regulation defines the scope of the common market organisation and refers exclusively in this connection to products resulting from the processing of green or fresh fodder. It follows that green or fresh fodder is not itself the subject of this market organisation. The Spanish authorities are therefore undoubtedly entitled to adopt regulations on green or fresh fodder for processing. 34.      The sporadic references to ‘green fodder’ – for example in the first indent of Article 9(a) of the basic regulation – or ‘fresh fodder’ – for example in Article 2(2)(a) of the implementing regulation or Article 11(1) of the basic regulation – do not alter this assessment. Such references do not extend the scope of the market organisation concerned but must on the contrary be seen in their legislative context in each case: they occur in the description of the stock records to be kept pursuant to Article 9(a) of the basic regulation or the processing contracts referred to in Article 9(c) of the basic regulation, thus in connection with provisions designed to verify entitlement to aid. 35.      The referring court points out however that both the basic regulation and the implementing regulation lay down conditions with respect to the moisture and protein content – that is to say, the quality – of products covered by the common organisation of the market. (15) In its opinion, that suggests that it is inadmissible to introduce further quality criteria. I, however, cannot agree with that view inasmuch as the national conditions at issue in this case are precisely not applicable to products covered by the common organisation of the market. The contested national conditions could at most be brought into question if they were to make it effectively impossible to satisfy the above quality criteria; but none of the parties, however, has claimed that that was the case. 36.      It should be pointed out once again, in this connection, that the Member State concerned is in any case under an obligation not to adopt any measure which might interfere with the proper functioning of the organisation of the market,  (16) irrespective of the scope of the common organisation of the market concerned. 37.      It is therefore necessary to examine whether the national conditions at issue in this case interfere with the ability of the organisation of the market in dried fodder to function properly. It should be pointed out in this connection that Spanish processing undertakings are among the principal beneficiaries of this system of aid. (17) The maximum guaranteed quantity has frequently been exceeded in Spain. The contested national measure lays down additional conditions with respect to products for processing in a sector that is not regulated by the organisation of the market in dried fodder in order, in particular, to counter detrimental practices. (18) 38.      In so far as they relate to the moisture content of green or fresh fodder, the contested conditions take account of the fact that a higher rate of aid for artificially heat-dried fodder appears to be justified only if it uses more energy.  (19) Moreover, the contested conditions should help to improve the correspondence between national production and the maximum guaranteed quantity, so that from this point of view also any interference with the ability of the common organisation of the market in dried fodder to function properly can probably be discounted. 39.      The referring court has nevertheless observed that in any event the national provisions were not adopted in accordance with the procedure laid down in Article 17 of the basic regulation, although Article 8 of that regulation expressly provides that ‘further conditions, in particular regarding fibre, carotene content, may be stipulated in accordance with the procedure laid down in Article 17’. Suffice it to reiterate that it is clear from their wording that the provisions of Article 8 of the basic regulation relate to dried fodder and not to green or fresh fodder. 40.      At the request of the Court, the Spanish Government and the Commission both explained along the same lines that the Kingdom of Spain had not formally notified the adoption of the provisions at issue in this case but that such notification pursuant to Article 12(3) of the basic regulation (20) was in any event unnecessary because the national provisions at issue in this case did not constitute a supervisory system within the meaning of Article 12(1). The applicant in the main proceedings was unable to produce any convincing arguments to rebut that view. 41.      For all those reasons, it must be concluded that, in so far as it took measures which might limit production in a context of overproduction which were not incompatible with the conditions with respect to the quality of products covered by the organisation of the market concerned and which, lastly, took due account of the purpose of that organisation of the market – in particular the distinction between artificially heat-dried products and sun-dried products – the Kingdom of Spain not only did not infringe Community law but also fulfilled its duty of cooperation under Article 10 EC. 42.      Discrimination prohibited under the second subparagraph of Article 34(2) EC also appears to be precluded, if only because green or fresh fodder is not subject to the organisation of the market at issue in this case. Any inequality in the treatment accorded to farmers subject to the national conditions compared with other farmers in the Community does not exceed that which is necessarily entailed by the lack of harmonisation in this sector, which is not governed by Community law.  (21) V –  Conclusion 43.      In the light of the foregoing I propose that the Court rule as follows: National rules which make the grant of aid for the drying of green or fresh fodder subject to the conditions that it is delivered in a certain form and with a certain minimum moisture content, processed within a certain time and grown within a certain distance are not incompatible with Regulation (EC) No 603/95 and Regulation (EC) No 785/95 or with the second paragraph of Article 249 EC, Article 10 EC, and the second subparagraph of Article 34(2) EC, in so far as those conditions do not interfere with the proper functioning of the organisation of the market concerned. – Original language: German. – Regulation (EC) No 603/95 of 21 February 1995 on the common organisation of the market in dried fodder (OJ 1995 L 63, p. 1). – Under Article 1 of the basic regulation, the provisions apply primarily to the following products: flours and pellets of dried lucerne; lucerne, sainfoin, clover, lupins, vetches and similar fodder products; protein concentrates obtained from lucerne juice and from grass juice; and dehydrated products obtained therefrom. – See the second recital in the preamble to the basic regulation. – For the first 5% by which the maximum guaranteed quantity is exceeded, the aid is reduced in all Member States by an amount which is proportionate to that excess. – See in particular Article 5 of the basic regulation. The reduction to be applied is set by the Commission. It must ensure that expenditure expressed in agricultural ecu does not exceed what would have been attained if the relevant maximum guaranteed quantity had not been exceeded. – According to the 13th recital in the preamble to the basic regulation, these stock accounts should include the details necessary for verification of entitlement to aid. – Regulation (EC) No 785/95 of 6 April 1995 laying down detailed rules for the application of Council Regulation (EC) No 603/95 on the common organisation of the market in dried fodder (OJ 1995 L 79, p. 5). – Third recital in the preamble in conjunction with Article 3 of the implementing regulation. – Case 48/85 Commission v Germany [1986] ECR 2549, paragraph 12. – Judgment in Case 218/85 Cerafel [1986] ECR 3513, paragraph 13, to which the Commission rightly refers. See also judgments in Case C-27/96 Danisco Sugar [1997] ECR I-6653, paragraph 24, Case C-1/96 Compassion in World Farming [1998] ECR I-1251, paragraph 41, Case C-507/99 Denkavit [2002] ECR I-169, paragraph 32, and Case C-332/00 Belgium v Commission [2002] ECR I-3609, paragraph 29. – Attention is also drawn here to the fundamental judgments in Case 51/74 Van der Hulst [1975] ECR 79 and Case 83/78 Redmond [1978] ECR 2347, in which the Court held that ‘once the Community has ... legislated for the establishment of the common organisation of the market in a given sector, Member States are under an obligation to refrain from taking any measure which might undermine or create exceptions to it’ (Redmond, paragraph 56). – Cited in footnote 10. – See footnote 10 above. – See, for example, Article 8 of the basic regulation and Article 3(1)(b) of the implementing regulation. – See footnote 11 above. – According to figures supplied by the Commission, production of artificially heat-dried fodder amounted to approximately 1 571 000 tonnes in the marketing year 1997/98 (Total production for the 15 EU Member States: 4 282 000 tonnes; comparable figures for 1998/99: 1 668 000 tonnes and 1999/00: 1 769 000 tonnes). In the same period, the guaranteed quantity in Spain amounted to 1 224 000 tonnes, so that production represented 128% of the guaranteed quantity. – See, at point 30 above, the Commission’s submission concerning the practice of pre-drying in the open air green or fresh fodder which is to be artificially heat-dried later. – See the second recital in the preamble to the basic regulation. – That provision requires Member States to forward to the Commission the provisions they plan to apply to implement Article 12(1) on the introduction of a supervisory system before such provisions are adopted. – According to settled case-law, the application of national law cannot be held to be contrary to the principle of non-discrimination on grounds of nationality merely because other Member States allegedly apply less strict rules. See judgment in Case C-50/96 Deutsche Telekom v Lilli Schröder [2000] ECR I-743, paragraph 52, with further references. On domestic discrimination, see the earlier judgment in Case 155/80 Oebel [1981] ECR 1993, paragraph 9.