Court of Justice 17-07-1963 ECLI:EU:C:1963:20

Failure to give the Italian Government a preliminary hearing

The applicant complains that, before adopting the disputed measure, the defendant failed to listen to Italian industrial circles or even to the Italian Government.

The defendant replies that, on the day after the French Government's application was lodged, it sent a teleprinter message to the office of the Italian Permanent Representative in Brussels inviting the Italian Government to furnish it with certain information. But there was never any reply.

The applicant does not dispute those facts, but points out that:

• the teleprinter message summarized a complex problem in five lines;

• the questions which were put ought to have been addressed to other persons who were . in a better position to reply than the applicant:

• an atmosphere of trust is necessary for cooperation and the campaign launched by the French press in 1962 against Italian products, which led to the disputed Decision, was not conducive to such an atmosphere;

• the public holidays of Christinas and New Year intervened between the sending of the teleprinter message and any possible date for the reply;

• the Italian Government had to forward the teleprinter message to the Italian circles concerned in order that they might make their observations; it is understandable that those circles, indignant at the attempts to prejudice them, were hesitant in offering their cooperation.

The defendant replies that the teleprinter message had been preceded by telephone conversation between the parties and that it had informed the applicant of the existence of the French Government's application. If those contacts had continued, it would also have been possible for the applicant to become acquainted with the contents of that application.

Insufficient and inconsistent reasoning

1. The applicant points out that:

   The arguments advanced by the Commission to justify the unilateral duty imposed on imports from Italy are inadequate.

   The fact that, during the first six months of 1962, 136 000 Italian refrigerators were imported into France and that these imports from Italy were much greater than those from other countries is not sufficient to justify the assertion that the alleged disturbances to the French economy were due exclusively to imports from Italy. On the contrary, the sole cause of such disturbances is that the French products do not offer decisive advantages as regards price and quality.

   The observation that Italian wholesale prices were lower than those of other importers is equally irrelevant. The defendant should in addition have examined whether there is also a corresponding difference between the sale prices to the consumer, as competition is operative only at that stage; in fact no such difference exists. As for the difference at the wholesale stage, this is due to the fact that the Italian manufacturers have allowed their distributors a larger margin of profit. The defendant should have examined whether or not such a margin was justified by the charges and the risks borne by those distributors and whether the margin of profit allowed by French manufacturers was reasonable.

   The preamble is clearly based on the tacit assumption that those importing from third countries did not offer their distributors the same conditions as those offered by importers from Italy; the Decision should have taken this consideration expressly into account. The defendant replies that:

   The reasons which induced it to impose a tax solely on Italian products can be clearly seen from the preamble.

   The data shown there make it clear that imports from Italy were the only ones to have increased in a spectacular manner.

   The sale prices to the consumer do not represent a valid criterion as they often differ considerably from those specified in the price lists, and the average of these variations cannot be worked out with any certainty. On the other hand, the comparison of the prices made by the defendant is based on sound data, namely the free-at-frontier prices of the Italian appliances and the ex-factory prices of the French products; a difference of 30 % emerges in favour of the former. Once account had been taken of the customs duties in force, this difference was the decisive factor in the adoption of the Decision.

   The defendant denies that distributors of Italian products have to bear heavier charges (for a fuller discussion see 3 E below).

2. The applicant complains that the Decision compares the data on French production taken over ten months with the data on French exports and imports taken over seven months and six months respectively, which falsifies the preamble. Whilst production remains approximately the same throughout all these months, imports and exports are affected by considerable seasonal variations.

   The defendant replies that the table included in the preamble must not be read horizontally but vertically; in the table the figures for 1961 are compared with those for 1962. Read in this way, the figures speak for themselves.

3. The applicant considers that the observation on the alleged difference of 30 % between the prices of Italian refrigerators free-at-frontier and the wholesale price of French appliances is not clear and is based on inaccurate hypotheses (for a fuller discussion see 3 E below).

   The Commission should have indicated the average prices fixed in practice by Italian and French manufacturers and those of third countries, and should then have determined whether different wholesalers were subject to the same obligations. If it had done this, it would have reached a different result.

   The defendant maintains that it did refer to the prices to be paid by the various wholesalers and that the difference was calculated correctly.

Concept of ‘sector of the economy’

The applicant disputes that the production of refrigerators constitutes a ‘sector’ within the meaning of Article 226 (1). Such production can be considered as part of the larger sector comprising the production of domestic electric appliances.

According to the defendant, the fact that a given activity can be conceived as part of a wider field does not divest it of its character as a ‘sector of the economy’. Furthermore, in 1961 the French refrigerator industry employed more than 11 000 people and had a turnover of roughly 500 million NFrs.

Imposition of duty on compressor units

The applicant points out that in this field French exports to Italy are far in excess of Italian exports to France. By extending the special tax to the above products, the defendant has thus clearly applied Article 226 in an improper manner.

The defendant replies that, for basic reasons of customs technique, it was necessary to extend the protective measures to component parts of refrigerators. Otherwise it would have been very easy to evade the law, as there is no difficulty in installing compressor units in refrigerators which are not equipped with them.

The applicant considers, however, that assembly plants cannot be set up in a short space of time.

Application to this case of the concept of ‘serious difficulties’

The applicant disputes generally that the difficulties suffered by the French refrigerator industry were ‘serious’ within the meaning of Article 226. If French production has declined in comparison with 1961, that is only the inevitable consequence of the liberalization of trade. To apply Article 226 to cases of such slight importance is to ‘deny the principle of the Common Market’.

The above-mentioned Article requires in addition that the difficulties be ‘liable to persist’ and that the protective measures should make it possible to ‘adjust’ the threatened sector to the Common Market. These conditions are not present in this case. In 1962 the French manufacturers were in practice able to dispose of their entire production. In respect of the five factories which, according to the disputed Decision, had to suspend production, a protective measure in force for only six months cannot, by itself, bring about the resumption of their production. After all, it is recognized that there it was a question of simple reconversion operations.

The applicant draws particular attention to figures in support of its argument:

1. French production is insufficient for domestic requirements. In fact, in 1962 it was roughly 265 000 appliances short of the number needed for the domestic market.

   As for the 190 000 refrigerators which, according to the disputed Decision, were left unsold at the end of 1962, they are most probably the excess production of the years before 1961 and consequently obsolete. In fact, the 1961 production was in practice absorbed by the domestic market and exports.

2. By comparing French production, exports and imports as well as consumption within France for 1962, the applicant maintains that out of the French production for that year, there were at most 8 000 appliances left unsold.

   It must however be noted that at the hearing the applicant admitted the accuracy of figures somewhat different from those on which this calculation was based.

3. On 10 January, that is to say one week before the adoption of the Decision, the French press announced that the French manufacturers had decided to reduce sale prices by between 10 and 25 %; the French products were thus competitive.

The defendant refers to the following data reproduced in the preamble to the Decision, namely:

• decline in French production from 835 000 appliances to 701 600 (covering the first ten months of both 1961 and 1962);

• 193 000 appliances unsold at 31 December 1962 (compared with 145 000 at 31 December 1961);

• decline in French exports from 125 000 to 96 500 (covering the first seven months of both 1961 and 1962);

• increase of imports from Italy from 22 000 to 136 000 and of imports from other countries from 19 000 to 60 000 (covering the first six months of both 1961 and. 1962);

• continuation or this situation in spite of increased consumption in 1962;

• suspension or production by five or the fifteen manufacturers whose production represents 95 % of the total;

• reduction or the labour force employed by these fifteen producers as well as by two others producing semi-finished products, from 10 590 (1961) to 7 370 (1962).

The defendant expresses the view that the above data as well as the aggregate figures subsequently obtained for 1962 do not permit of any doubt as to the ‘serious’ nature of the situation.

The applicant contradicts itself when it observes, on the one hand, that there are no disturbances in the French market and, on the other hand, that there is nothing to be done for the five factories which have closed.

The defendant does not deny that French industry will be in a position to adapt itself to developments, but it was precisely to enable it to do so that the Decision was taken.

The question whether French production is in a position to cover domestic requirements is of little importance. The decisive factor is that the imports represented a serious threat to French production.

As for the price reductions, these applied only to refrigerators of 100 and 280 litres, that is to say, the largest and the smallest, but not the models of average capacity which make up the predominant part of production. Therefore this measure cannot be interpreted as a sign of recovery, but as a final rescue attempt.

In respect or this last point the applicant replies that the reductions applied to all models.

Discrimination between Italian products and those from other countries

The applicant points out generally that, according to the very allegations made by the defendant, imports originating in other countries had also increased appreciably, so that the difficulties at issue do not derive solely from imports from Italy.

1. In respect of other Member States, Article 7 prohibits any discrimination ‘on grounds of nationality’. The defendant should consequently have extended the special tax to imports originating in these other States unless such States had themselves the right to seek protection under Article 226, which is not the case here.

2. In respect of third states, the principle of giving preferential treatment to Community products derives from the nature of the Community as a customs union. If the Decision justifies derogation from this principle by stating that the customs duties for the products in dispute have been bound ‘at the level of the Common Customs Tariff under GATT’, then this circumstance confirms precisely that the Decision affects the importation of Italian refrigerators beyond the rate of the Common Customs Tariff and thereby favours goods originating in third countries.

The defendant replies that:

1. Under Article 7 the principle of non-discrimination is only valid ‘without prejudice to any special provisions’ of the Treaty. Among these exceptions is included that of Article 226, which allows derogations from the rules of the Treaty, that is to say, from all its rules.

   This Article moreover obliges the Commission to allow derogations from the Treaty only ‘to such an extent and for such periods as are strictly necessary’ and to give priority ‘to such measures as will least disturb the functioning of the Common Market’. If it is discovered that the difficulties are caused exclusively by imports originating in a single Member State, the Commission would be infringing the above principles if it extended the protective measures beyond such imports. But it would also be violating the principle of non-discrimination which is based not only on procedural criteria but also on criteria of substance. Thus discrimination could also be caused if different situations were treated in the same manner.

   In this case the defendant has observed these rules. The Italian refrigerators were the only ones whose average price, free-at-frontier in France, differed appreciably from, and in fact was lower than, the average ex-factory price of French refrigerators. Before the disputed Decision, the Italian price was 2 245 FFrs (with customs duty 2 413) per litre and the French price 2 946 (as compared with 2 816 for German refrigerators and 3 402 for those from Belgium or Luxembourg, all including customs duty).

   As in the past, Italian refrigerators are competitive, their total price, free-at-frontier in France, being now 2 682 FFrs and thus still lower than the price of appliances from Germany and Belgium or Luxembourg.

2. The considerations pointed out under (a) remain valid as regards the fact that products originating in third countries are not subject to the duty.

   These imports were only of rather minor importance and showed no likelihood of increasing. Their average prices per litre, free-at-frontier in France, have remained appreciably higher than the Italian price with tax included (England 2 996 FFrs; USA 4 585 FFrs; Switzerland 3 019 FFrs).

   If the defendant did not make use of the right provided by Article 111 (2) of the EEC Treaty to submit to the Council recommendations for negotiations with a view to modifying the Common Customs Tariff, this was again so as to limit the protective measures to the minimum necessary. In addition, under Article XXVIII of GATT, the withdrawal or unilateral amendment of a bound tariff could have provoked third states into taking similar measures and thus have prejudiced the functioning of the Common Market.

Material error in calculating the difference between French prices and Italian prices

The applicant denies the accuracy of the figure of ‘30 % of the Italian price’ which, reduced by the customs rate of 7.5 %, indicates, according to the arguments of the defendant, the difference between French and Italian prices. Instead of comparing the total prices, the Commission has merely compared certain of their constituent elements.

It seems that the Commission has confused the discounts which the French manufacturers grant to retailers (20 %) with those which they grant to wholesalers (from 30 % to 35 %). When one compares this latter discount with the margin of profit which Italian manufacturers allow their import-concessionaires in France — 40 % on average with a maximum of 50 % —one finds that the real difference is appreciably less than the figure quoted by the defendant.

In practice, the difference was however even less. The cost of advertising and after-sales service falls on the retailer of Italian refrigerators, whereas his French counterpart does not incur any of these charges and the French wholesaler bears only the cost of current maintenance excluding repairs. These expenses are very high, both absolutely and in relation to individual sales, because:

• entry into a new market requires more advertising;

• the expenses are spread over a more limited number of sales;

• the importers deal only with refrigerators and not with other domestic electric appliances as well.

The expense thus falling on the retailer must be assessed at at least 12 % of the turnover; this moreover can be seen from the balance-sheet of two large import firms from which the applicant obtained information.

In short, the importer only makes a profit of between 5 % and 10 % at the most, which is justified moreover by the greater risks entailed in the opening up of a new market and the limiting of commercial activity to a single article.

The defendant maintains that the difference was calculated correctly and on the basis of valid criteria: the average price per litre of French appliances was 2 946 NFrs, whereas the price of Italian products free-at-frontier came to 2 413 NFrs.

The defendant denies that the importers have greater expenses. With regard to the balance-sheets cited, the figure of 12 % includes, as the applicant admits, a very important heading entitled ‘extra expenses’, which seems to have no relation to the problems in this case and to be relevant principally from the point of view of taxation.