Court of Justice 24-10-1973 ECLI:EU:C:1973:111

On the first question

According to the plaintiff in the main action, Regulation No 974/71 is unlawful for several reasons — primarily because there is no legal basis for it in Article 103 of the Treaty, as this provision provides only for the making of decisions and directives to the exclusion of Regulations. This can be deduced both from the wording of paragraphs 2 and 3 of Article 103, according to which the Council ‘may decide’ or ‘shall issue any directives’, — expressions which refer to the various categories mentioned in Article 189 — and from a comparison of Articles 103 and 3 (g).

According to the latter provision, the activities of the Community are to include the application of procedures by which the policies of the Member States can be co-ordinated and disequilibria in their balances of payments remedied. It follows that Article 103, which deals particularly with economic policy, permits only those co-ordinatory procedures which do not constitute an unwarrantable interference with the powers of the Member States. The characteristics of decisions and directives render them suitable for this type of measure, whereas Regulations should not be used, since their effect extends beyond the co-ordination referred to in Article 3 (g).

It should be admitted at the least that these considerations ought to command attention in respect of conjunctural policy, since according to the actual terms of Article 103, it is ‘their’ conjunctural policies which the Member States regard as a matter of common concern. Conjunctural policies are thus a matter for the States, and are subject only to the coordinatory function of the Community; this would preclude its institutions from enacting rules of substantive law in this sphere.

Regulation No 974/71 is, in the second place, unlawful, because the compensatory amounts constitute customs duties or charges having an equivalent effect, which have been prohibited in respect of intra-Community trade since the expiry of the transitional period. This prohibition extends also to agricultural produce as the Court of Justice held in its Judgment of 14 December 1962 (Cases 2 and 3/62, Commission v Grand Duchy of Luxembourg and Kingdom of Belgium, Rec. 1962).

Even if it is admitted that it remains possible, after the period of transition, to countenance exceptions from the prohibition of customs duties and charges having an equivalent effect in intra-Community trade, such exceptions cannot be based on Article 103, because this provision is not a safeguarding clause but only a clause conferring powers. However, the powers which it confers by no means include an authorization to enact protective measures. This follows both from the actual wording of Article 103, particularly as concerns the meaning of the words ‘measures appropriate’ in paragraph 2 and from the rule of construction according to which, words conferring a power should, in case of doubt, be restrictively interpreted where the possibility of derogation from other provisions of the Treaty is concerned. This is confirmed by a comparison between Article 103 and Articles 37, 108, 109 and 226 of the Treaty because in each of these cases the possibility of derogation is spelt out clearly and unequivocally.

A comparison between Articles 40 (2) and 103 on the one hand, and Articles 38 (2) and 39 on the other, leads to the same conclusion and shows that only explicit phraseology could make it possible to derogate from the mandatory provisions of the Treaty by means of a Regulation and that such authority cannot be read into provisions such as Articles 103 and 40 (2), which confer general powers.

Lastly, an interpretation of Article 103 permitting customs duties or charges having an equivalent effect to be imposed anew in intra-Community trade, would, in view of the objects of the Treaty, be unacceptable as the Customs Union is a fundamental element of the Community. To partition the market would likewise be to act directly in oppostion to the actual objective of Article 103 which concerns a conjunctural policy for the whole Community.

On the other hand Regulation No 974/71 does not contain any provisions of a conjunctural nature. Its purpose is derived from the agricultural policy and is aimed at protecting the system of the organization of agricultural markets from disturbance. Such legislation even if it produces subsidiary consequences of a conjunctural nature ought to have been based on Article 43 of the Treaty and on Regulation No 653/68 of the Council on conditions for alterations to the value of the unit of account used for the Common Agricultural Policy (OJ L 123 of 31 May 1968, p. 4).

Even accepting the strictly monetary character of this Regulation, it should have had Article 107 as its legal basis but the requisite conditions for the application of the latter were absent.

The validity of Regulation No 974/71 is affected also because it does not amount to a measure of conjunctural Community policy, but of purely national policy and appears to be a means of circumventing the requirements of Article 107 of the Treaty. It is the latter provision to which it is necessary to have recourse in case of the alteration by a Member State of its rate of exchange.

The plaintiff ends by suggesting that a reply be sent to the national court to the affect that the validity of Regulation No 974/71 is adversely affected by reason of the fact that it permits the levying of compensatory amounts.

On the second question

The second question deals with the construction of Article 8 of Regulation No 974/71 according to which the Regulation ‘shall cease to be applicable as soon as all the Member States concerned again apply the international rules on margins of exchange rate fluctuation around official parity’.

In the present case the question is whether this condition had not been fulfilled at the date of the importation in dispute (16 May 1972).

According to the plaintiff, this was certainly the case as from the time of the Washington agreements of 18 December 1971 (Smithsonian Agreement), under which there were made new rules — to which the Federal Republic has adhered — relating to the margins of fluctuation of rates of exchange.

The fixing of new rates of exchange on 18 December 1971 removed one of the essential conditions referred to in the Resolution of the Council of 9 May 1971 and consequently a portion of the essential foundations of Regulation No 974/71.

The plaintiff consequently suggests that the second question be answered in the sense that the authority to levy intra-Community compensatory amounts had ceased to be effective at the date of the importation in question.

On the third question

The third question relates to the compatibility of the currency floating system of certain Member States with Articles 5 and 107 of the Treaty and with the Resolution of the Council of 22 March 1971 concerning the establishment in stages of an economic and monetary union.

The plaintiff in the main action, relying particularly on the judgment of the Court of Justice of 10 December 1969 (Cases 6 and 11/69, Commission v French Republic, Rec. 1969, p. 523) stated that Article 107 of the Treaty restricts the right of Member States to act unilaterally in monetary matters. This provision, made in accordance with the obligations which, at the time, the Member States took upon themselves within the framework of the International Monetary Fund, allows the alteration of parities but not the limitation or variation of the margins of fluctuation of exchange rates permitted by the international rules. It follows that floating is prohibited by Article 107.

An analysis of Regulation No 653/68 of the Council of 30 May 1968 on conditions for alterations to the value of the unit of account used for the common agricultural policy leads to the same conclusion. Although this Regulation provides for the possibility of changes in the currency parities of Member States, it makes no provision for the floating of currencies, from which it should be assured that having regard to the level of integration achieved in 1968, the floating of rates of exchange was regarded as being incompatible with the common agricultural policy. In addition the objective of Article 3 (f) (system of undistorted competition) as well as that of Article 3 (d) of the Treaty (common agricultural policy) is imperilled by a system of freeing of rates of exchange, the almost daily fluctuations of which lead to effects resembling the lowering or raising, as the case may be, of customs duties on imports or exports, and amount to a distortion of competition. For the same reasons the floating of currencies should be regarded as inconsistent with the obligations imposed on Member States by Article 5 of the Treaty.

Lastly, as regards the compatibility of a system of floating rates of exchange with the Resolution of the Council of 22 March 1971 concerning the establishment of an economic and monetary union, the plaintiff in the main action states that according to points 6 and 7 of heading III of this Resolution, the Community must not make use, in respect of rates of exchange between Member States, of any provisions which may allow, on an international basis, a relaxation of the international exchange system. It follows that, in respect of the parities used by Member States between themselves, the fixed margins of fluctuation should be respected in any case so that the floating of exchange rates is prohibited.

The plaintiff adds that if the measures proposed in heading I of the Resolution of 22 March 1971 amount to no more than a declaration of intent with regard to policy, it is otherwise in respect of the measures under heading III which the Council and the representatives of the Governments of the Member States decided to bring into force as from 1 January 1973.

The plaintiff suggests that a reply be sent to the third question put by the national court to the effect that the prohibition of freeing rates of exchange applied as between Member States at the latest as from 1 January 1970, the end of the transitional period, and that in addition the same prohibition is set out in points 6 and 7 of heading III of the Resolution of the Council of 22 March 1971 which is legally binding upon the Community and the Member States.

On the first question

The German Government considers that Regulation No 974/71 is a measure of conjunctural policy and is rightly based on Article 103 of the Treaty. A conjunctural policy has as its aim the lessening of the fluctuations inherent in general economic development, by means of short term measures. This is precisely the object of Regulation No 974/71 which attempts to eliminate the disturbances, particularly in the sphere of prices and incomes, due to the freeing of the rates of exchange of certain Member States, with a view to promoting continuous economic development in the agricultural sector.

Since the specific powers provided for in the Treaty are intended, particularly in the agricultural domain, to meet structural needs above all, it cannot be assured that they exclude the use of Article 103. It is, on the contrary, a matter of concomitant powers.

Neither is the system of compensatory amounts payable at frontiers contradictory to the idea of ‘common concern’ referred to in Article 103 because it was not adopted in the interests of a class of traders but to protect the agricultural common market.

The exercise of powers in connexion with conjunctural policy also allows action to be taken in relation to the free movement of goods within the Community even after the expiration of the transitional period, because Article 103 is one of the provisions under which, pursuant to Article 8 (7) of the Treaty, derogations may be made.

The common agricultural policy in fact precedes a more advanced stage of integration in respect of economic policy as a whole, which will be achieved only gradually. In the meanwhile whenever the general economic rhythm of the Member States is abruptly altered in different directions, short-term measures limiting the free movement of agricultural products are permitted.

With regard to the fact that the conjunctural measures in question were cast in the form of a Regulation rather than in that of a directive, the German Government points out that the argument of the plaintiff in the main action rests on a purely literal construction of the German text of Article 103 alone and that this provision does not prevent the Council, acting unanimously, either from resorting to the making of Regulations, or from delegating the execution of its Regulations to the Commission in accordance with Article 155 of the Treaty.

On the second question

According to the German Government, the circumstances which warranted the introduction of a system of compensatory amounts in May 1971 had not, at the date of the importation in question (16 May 1972) changed to such a degree that Regulation No 974/71 had ceased to be applicable by virtue of Article 8 thereof.

Although, consequent upon the Washington agreements the fluctuations of rates of exchange had been reduced, the need to offset the effects of these fluctuations continued because agricultural prices expressed in units of account continued to be converted into the national currencies of the Member States on the basis of the previously established official parities.

On the other hand, the Washington agreements do not imply a fixing of parities within the meaning of the IMF rules. The rates allowed in Washington are no more than indicative rates, though they possess in addition expanded margins of fluctuation and thus allow the States affected ‘to observe the purposes of the Fund to the maximum extent possible during the temporary period preceding the resumption of effective par values …’ as the Executive Board of the IMF emphasized in its Decision No 3463 of 18 December 1971 (Annual Report of the IMF, 1972, p. 85).

Lastly, the mere fact that it is clear that the Member States will not return to the former parities is not sufficient to fulfil the conditions required by Article 8, which is based on the assumption of a return to the official IMF parities.

On the third question

This question enquires whether Articles 5 and 107 of the Treaty and the Resolution of the Council of 22 March 1971 concerning the establishment in stages of an economic and monetary union are to be construed in such a manner as to prohibit Member States from freeing their rates of exchange.

According to the German Government the reply to these questions is in the negative.

Article 107 restricts the powers ordinarily possessed by Member States in that it requires them to treat their policies with regard to rates of exchange as a matter of common concern, but does not preclude them from altering their rates of exchange, as may be seen in particular from Article 107 (2) which provides, in the event of the abuse of this right, for the Commission to authorize the other Member States to take the necessary protective measures. Regulations Nos 129/62 and 653/68 also take this eventuality into account.

Furthermore floating is not incompatible with the International Monetary Fund's system under which floating has been authorized on several occasions in the past.

As to the Resolution of the Council of 22 March 1971, this document has no legal force, but expresses practical aims and it is not possible to read into it an obligation on the part of Member States to refrain from freeing their rates of exchange.

Finally such a prohibition could not be inferred from Article 5 of the Treaty either, because this provision could not have a more restrictive effect than Article 107.

In conclusion, in the opinion of the Government or the Federal Republic, there are grounds for replying affirmatively to the first question, and negatively to the second and fourth questions.

On the first question

According to the Commission, Article 103 provides a sufficient legal basis for Regulation No 974/71 because the latter is essentially a conjunctural measure. It was in fact, conceived as a short-term measure with the aim of compensating for the effect of monetary measures which themselves lie within the sphere of conjunctural policy. It amounts to a device which is not derived as such from the agricultural policy, but which is intended to cover, as it were, the agricultural aspect of a comprehensive conjunctural policy. Furthermore considered in itself, it also displays characteristics of a conjunctural nature.

With regard to the relationship between Article 103 and other provisions of the Treaty the Commission mentions first that Article 103 is not of a subsidiary order in comparison with Article 43. On the contrary, it confers a general power overlapping the powers conferred in the various sectors.

For the same reasons it is necessary to reject the proposition that Article 103 does not permit the enacrment of measures which restrict the free movement of goods within the Community, since Article 103 takes precedence over Article 8 (7).

On the other hand, the ambit of Article 103 should not be mistaken for that of Article 226 which allows protective measures during the transitional period, because Article 103 relates co measures serving the common interest, which is precisely the case with Regulation No 974/71. The latter, in other respects, is confined to measures which are quite indispensable and the system introduced has a less restrictive effect on the free movement of goods than would have been the case if quantitative restrictions had been adopted.

The compensatory amounts only reflect reality inasmuch as by introducing a common agricultural policy based on a price system linked to a common unit of account, the Community institutions anticipated the creation of the economic and monetary union.

The Commission makes the same reply to the argument according to which the compensatory amounts cannot have Article 103, as their legal basis, because it is not possible to derogate from the rules of the Treaty in agricultural matters except to the extent provided for in Articles 39 to 46. The general nature of the powers provided for in Article 103 precludes such an interpretation.

With regard to the fact that the system of compensatory amounts was cast in the form of a Regulation, the Commission points out that the use of the word ‘decide’ in Article 103 (2) is not a reference to the legal concept of ‘decision’ within the meaning of Article 189. The measures for which provision is made in Article 103 (2) may be enacted in what is considered to be the most appropriate form. The fact that in the case of a simplified decision-making procedure — by qualified majority — reference is made in paragraph 3 of the same Article to the simpler process of the directive, does not have the effect of depriving the Council of the powers which it has, under Article 155 of the Treaty, of delegation to the Commission the necessary powers for applying the rules which the Council makes.

On the second question

According to the Commission the circumstances prescribed by Article 8 of Regulation No 974/71 for ending the system of compensatory amounts had not come about by 16 May 1972, the date of the importation in question. The Member States did not ‘again apply the international rules on margins of exchange rate fluctuation around official parity’ [Article 8 (2)] either after the Washington Conference of 18 December 1971 or after the first devaluation of the dollar on 9 May 1972, since the ‘central rate’ adopted for the DM, the Guilder, and the Belgian Franc was fixed straight away beyond the margin of fluctuation permitted by the international rules (in this case the Bretton Woods Agreements). Moreover a margin of fluctuation of 4,5 % was permitted at Washington, whilst the above Agreements allowed a margin of only 2 %.

As to part (b) of the second question, this also calls for a negative reply. The question is whether the fact that after the Washington Conference in December 1971 it was certain that there would be no return to the former parities previously declared to the International Monetary Fund, was such as to fulfil the condition referred to in Article 8 of Regulation No 974/71 for the ending of the system of compensatory amounts. Such is not the case. Although Article 8 does not necessarily envisage a return to the parties in use prior to May 1971, it nevertheless envisages at least, a return to fixed parities. The precarious nature of the Washington agreements makes it impossible to consider the margins allowed at that Conference as fulfilling this condition.

On the third question

The Commission proposes that a reply be given in the negative to the question asked by the national Court, namely whether the floating of the DM ought to be regarded as both a breach of Article 107 of the Treaty and of the Resolution of the Council and the representatives of the Governments of the Member States of 22 March 1971 concerning the establishment of an economic and monetary union. Article 107 does not impose obligations in respect of the content of the exchange policy pursued by the Member States. If floating exchange rates are, in the long run clearly irreconcilable with the monetary concepts on which the Treaty is based this would not, nevertheless, involve an absolute prohibition preventing the Member States from resorting in exceptional circumstances to this monetary technique. It is the same if the problem is considered from the point of view of the international obligations entered into under the Bretton Woods Agreements, since the Community as such, as long as it has no monetary policy, is not bound by those Agreements. In addition the Bretton Woods Agreements do not, a priori, preclude the possibility of floating exchange rates.

The same conclusion is unavoidable in respect of the compatibility of the floating of the DM with the Resolution of 22 March 1971. This Resolution amounts to a political commitment but could not be regarded as an act having binding legal effect. Furthermore it is necessary to observe that a narrowing of the margins of fluctuation would have pre-supposed concerted action in relation to the dollar as provided for in point III/7 of the Resolution. The conditions for such action had still not come about in May 1972.

The Commission suggests that a reply be sent to the Finanzgericht of Baden-Württemberg to the effect that

1. the questions put by that Court do not reveal anything calculated to affect the validity of Regulation No 974/71;

2. that the conditions imposed by Article 8 of this provision for the ending of the system which it sets up had not been met by 16 May 1972; and

3. that neither Articles 5 and 107 of the Treaty nor the Resolution of the Council of 22 March 1971, prohibited the Member States at the time in question from freeing the rates of exchange of their currencies.

The legal basis of Regulation No 974/71

This question concerns, first, whether the validity of the above Regulation could be affected by the fact that it is based on Article 103 of the Treaty, which does not touch on the common agricultural policy, the latter being governed by the specific provisions of Articles 38 to 47 of the Treaty, and that in any case, the said Article 103 authorizes only the adoption of conjunctural measures, which the disputed measures are not.

Article 40 of the Treaty states that Member States shall bring the common agricultural policy into force by the end of the transitional period at the latest and that, in order to attain the objectives set out in Article 39 a common organization of agricultural markets is to be established.

The same Article provides that this common organization may include any measures required and in particular regulation of prices, aids for production and marketing, storage and carry-over arrangements and common machinery for stabilizing imports and exports.

By virtue of the third paragraph of Article 43 (2), the Council shall, on a proposal from the Commission and after consulting the Assembly, acting, after the end of the second stage of the transitional period, by a qualified majority, make regulations, issue directives, or take decisions in this sphere.

It is evident from these provisions that the powers conferred for implementing the common agricultural policy do not relate merely to possible structural measures but extend equally to any immediate short-term economic intervention required in this area of production, and that the Council is empowered to resort to them in accordance with the decision-making procedures there set out.

On the other hand, Article 103 refers to Member States' conjunctural policies, which they must regard as a matter of common concern.

Consequently it does not relate to those areas already subject to common rules, as is the organization of agricultural markets.

The real object envisaged by Article 103 is the coordination of Member States' conjunctural policies, and, according to the terms of paragraph 2 of that Article, the adoption of common measures appropriate to the situation.

The floating of the exchange rates for the German and Dutch currencies, deemed essential if the wave of speculative capital into the Federal Republic and the Netherlands was to be checked, imperilled the unity of the common market and made measures designed to safeguard the machinery and objectives of the common agricultural policy imperative.

The introduction of compensatory amounts was not intended to provide extra protection, but to maintain uniform prices, the foundation of the present organization of the markets, despite the temporary departure from fixed parities, thus preventing the collapse of the intervention price system and preserving the normal flow of trade in agricultural products both within the Community and with third countries.

These measures, intended to compensate temporarily for the harmful effects of national monetary measures, so that the process of economic integration may meanwhile continue its progress, are of an essentially transitory nature, and would normally have had to be adopted by virtue of the powers conferred on the Council by Articles 40 and 43 and in accordance with the procedures set out therein, in particular after consulting the Assembly.

However, owing to the time needed to give effect to the procedures laid down in Articles 40 and 43, a certain amount of trade might then have passed free of the regulations, and this could jeopardise the relevant common organizations of the market.

There being no adequate provision in the common agricultural policy for adoption of the urgent measures necessary to counteract the monetary situation described above, it is reasonable to suppose that the Council was justified in making interim use of the powers conferred on it by Article 103 of the Treaty.

Consequently, while the suddenness of the events with which the Council was faced, the urgency of the measures to be adopted, the seriousness of the situation and the fact that these measures were adopted in an area intimately connected with the monetary policies of Member States, the effects of which they had partially to offset, all prompted the Council to have recourse to Article 103, Regulation No 2746/72 shows that this state of affairs was only a temporary one, since the legal basis for the measure was eventually found in other provisions of the Treaty.

The form in which the disputed measure was adopted

The next question is whether Regulation No 974/71 is invalid on the ground that Article 103 of the Treaty, notably in paragraph 3, authorizes the adoption of measures only in the form of a directive or decision, not in the form of a regulation.

It is alleged that such an interpretation is borne out by the wording of Article 103 and is justified in view of the fact that in the realm of conjunctural policy no more than a coordinating role has been given to the institutions.

Although by Article 103 (1) Member States are bound to regard their conjunctural policies as a matter of common concern, the wording does not preclude Community institutions from having power to lay down themselves, without prejudice to other procedures set out in the Treaty, conjunctural measures on matters within the spheres of their competence.

On the contrary, Article 103 (2), by declaring that the Council may, ‘acting unanimously … decide upon the measures appropriate to the situation,’ confers on that body — subject to the condition referred to above — the powers necessary to adopt, in principle, any conjunctural measures which may appear to be needed in order to safeguard the objectives of the Treaty.

Without some such faculty, the natural concomitant of any kind of economic administration, the institutions of the Community would find it impossible to accomplish the tasks entrusted to them in this field.

The phrase ‘measures appropriate to the situation’ in Article 103 (2) means that, as regards form, too, the Council may choose whichever seems best suited to the case in hand.

Subject to the requirement of a unanimous decision, Article 103 (2) refers to the general procedures whereby the Council may exercise its powers, described in Articles 145, 155 and 189, including, therefore, its right to delegate to the Commission the implementation of regulations it has laid down.

Article 103 (3) differs from Article 103 (2) in that, as the use of the phrase ‘where required’ shows, it envisages the possibility that the Council might not be able to reach the unanimity required to carry into effect the rules for the application of the conjunctural measures decided on.

In that circumstance only, these rules would be binding on Member States so far as they concerned the result to be obtained, but would have to leave to the national authorities the choice of form and method.

Whether the application of compensatory amounts within the Community is compatible with Articles 8, 9, 12 and 13 of the Treaty

Next, it is asked whether the disputed Regulation can be reconciled with the prohibition, at the end of the transitional period, against all customs duties or charges having equivalent effect on imports and exports in trade between Member States, under Articles 8, 9, 12 and 13 of the Treaty.

Although the compensatory amounts do constitute a partitioning of the market, here they have a corrective influence on the variations in fluctuating exchange rates which, in a system of market organization for agricultural products based on uniform prices, might cause disturbances in trade in these products.

Diversion of trade caused solely by the monetary situation can be considered more damaging to the common interest, bearing in mind the aims of the common agricultural policy, than the disadvantages of the measures in dispute.

Consequently these compensatory amounts are conducive to the maintenance of a normal flow of trade under the exceptional circumstances created temporarily by the monetary situation.

They are also intended to prevent the disruption in the Member State concerned of the intervention system set up under Community regulations.

Furthermore, these are not levies introduced by some Member States unilaterally, but Community measures which, bearing in mind the exceptional circumstances of the time, are permissible within the framework of the common agricultural policy.

Thus the Council, by adopting them, did not contravene the provisions referred to by the national court.