Court of Justice 09-10-1973 ECLI:EU:C:1973:100

On the first question

When Article 15 of Regulation No 121/67/EEC states that the difference between quotations may be covered by an export refund, this can in the context only be understood to mean that the higher domestic price of the Community may be reduced to the world market price level by means of an export refund and the second recital is to the same effect.

This system of export refunds ought not to result in the amount of the refund's exceeding the price paid on the domestic market for the product exported in such a way that after the grant of the export refund this price would eventually fall below zero.

Of course, Article 15 (1) of Regulation No 121/67/EEC is not in fact concerned with domestic prices. Export refunds are not granted by reference to the manufacturing cost price which has to be substantiated in every individual instance, or to the quotations and prices current on the world market. On the contrary, the amount of the export refund depends on the rate of refund which the institutions of the EEC fix by regulation … The exit certificate and the application for an export refund are in no way indicative of the value of the goods exported.

The opinion of the Hamburg Finanzgericht is that this does not exclude the possibility that where the purchase price paid for the goods exported is extremely low, it may be necessary, in the course of the refund procedure, to examine the question whether it is in accordance with the spirit and purpose of Article 15 of Regulation No 121/67/EEC to grant an export refund when its amount exceeds the purchase price of the product exported. There is no equalization of prices if the refund manifestly exceeds the value of the subsidized product, including the sale price, as expressed in the purchase price. In the present case, the applicant paid for the product subsequently exported a purchase price of between MO DM and 1,28 DM per kg plus 5 % VAT, and he agreed a sale price of approximately 0,20 DM per kg. The refund, on the other hand, amounted to 1,80 DM per kg.

On the second question

1. The relevant conditions, in the opinion of the Hamburg Finanzgericht, are not those which exist in each exporting country of the EEC, but those which exist uniformly in all the Member States, since Regulation No 1041/67/EEC is binding in its entirety and directly applicable in all Member States.

2. If the meaning and purpose of an export refund is to reduce the higher Community price to the level of the world market price it must be assumed that the quality of the sausages exported is such that they will reach on the world market a price which, taking into account the export refund, will be higher than zero.

On the third question

No formal interpretation exists in Community law for the designation ‘sausages and the like’ contained in EEC law. Similarly, the explanatory notes to the Brussels Nomenclature, reference to which is a valuable aid to interpretation, according to the judgment of the Court in Case 14/70 — Deutsche Bakels GmbH v Oberfinanzdirektion München, Rec. 1970, and in Case 30/71 — Kurt Siemers and Co./Hauptzollamt Bad Reichenhall, Rec. 1971, draw no distinction between sausages made of pigmeat and those of other meat. The explanatory notes to the customs tariff of the European Communities, based on Regulation No 97/69/EEC were not published until after the date of export, the decisive date in this case.

According to Margin No 3 of the Brussels explanatory notes, the principal edible offals are the head, the feet, the tail, the udders and specified internal organs. Consequently, even if pigs' heads were not to be classified as pigmeat, the text of the abovementioned EEC Regulations would not exclude the possibility of sausages and the like being manufactured, for instance, from fat, bacon, flare-fat and edible offals as well as seasoning. Sausages and the like may in fact contain ‘meat or offals of swine’. The Finanzgericht doubts whether sausages and the like can be made without the inclusion of pigmeat. Annex I of Regulation No 137/67/EEC includes under the ‘pilot’ product ex. 02.01 AIII (a)‘hams’ and ‘shoulders’, and sausages and the like are also expressly mentioned as being derived products. According to the Finanzgericht this means that hams and shoulders are to be included among the typical ingredients of sausages and the like. The amount of the refunds laid down in Regulation No 222/68/EEC makes it appear that sausages and the like are to contain not only offals of swine but also a substantial proportion of high quality pigmeat. The refund rate of 45 u.a. per 100 kg of sausages and the like is considerably higher than that for liver sausage, 11,20 u.a. per 100 kg, and half as much again as that for products other than sausages and black pudding, which is 30 u.a. per 100 kg. Moreover, it is only slightly below the refund rate applicable to hams and cuts thereof, unboned, and to hams, loins and shoulders, and cuts thereof, boned, under heading ex 02.06 B-b-2 or ex. 6, which is 46,9180 u.a. per 100 kg.

For the Federal Republic, sausages and the like are preserved products made chiefly of raw muscle meat, without sinews and finely chopped.

If the products exported cannot be classified as sausages and the like, for example because no pigmeat is present, it is necessary to know whether they can be classed under tariff heading (c) ‘other’.

The order containing the reference was lodged at the Registry of the Court on 21 February 1973.

The Commission of the European Communities submitted written observations.

After hearing the report of the Judge Rapporteur, and the opinion of the Advocate-General, the Court decided to commence oral proceedings without any preparatory inquiry.

The oral observations of the plaintiff in the main action and of the Commission of the European Communities were made at the hearing on 3 July 1973.

The plaintiff in the main action was represented by Mr Röll of the Hamburg Bar.

The Commission of the European Communities was represented by its legal adviser, P. Kalbe.

On the first question

The Commission points out that the refund granted under the system for the common organization of the agricultural markets is a single sum per unit of weight of products exported, for the award of which commercial value and price are not taken into account. The amount of the refund is calculated by making a general overall comparison between prices inside and those outside the Community.

To grant the same amount of refund per unit of weight for all the different varieties of a product which is defined simply by a nomenclature necessarily of a general character when there may be appreciable differences in price between one variety and another, tends to favour the cheaper variety since in relation to the value of the goods they benefit from a higher percentage of refund than do better, more costly varieties of the same product.

When the refund rates for sausages are being fixed, the Commission is reasonably well-informed of general price levels for basic products, as well as their prices inside and outside the Community. It is therefore in a position to fix refund levels, on the basis of the average quality of current products, in such a way that there is in general no obvious disproportion between the refund and the price of the lowest quality products currently available. The requirement that the products be ‘of sound and fair marketable quality’ is a useful but not always sufficient, safeguard against abuse.

In support of its claim that refunds are only to be granted where a genuine commercial transaction is concerned, the Commission refers to the wording of Article 15 (1), of Regulation No 121/67/EEC with respect to which the relevant recital states that the granting of refunds ‘should serve to safeguard Community participation in international trade in pigmeat’.

There are two aspects to the refund: the reduction of surpluses and, more particularly, compensation for the higher price levels within the Community as compared with world market prices. The two aspects vary in their importance. For the various products in the pigmeat sector, where there are no permanent surpluses in the Community, the aspect of control of the market by reducing surpluses loses a considerable amount of its relevance.

The Commission considers that the judgment delivered in Case 13/72 — Government of the Kingdom of the Netherlands v Commission [1973] E. C. R., 27, where the Court states that refunds could not be refused for exports undertaken by way of food aid does not apply to the present case. In that case the decisive factor was that the exports concerned fell clearly within the framework of the objectives of the common agricultural policy as set out in Article 39 of the EEC Treaty. The facts and issues in the main action in this case are fundamentally different from the issues which fell to be decided in Case 13/72. Deliveries effected on behalf of a Member State within the framework of food aid are quite a different matter from exports where goods are sent beyond the Community frontiers solely in order to obtain the refund.

The issue in this case is clearly one of the abuse both of the legislation — having regard to the purposes for which it was intended — and of common legal institutions.

On the second question

(a) The Commission takes the view that the possibility of marketing ‘on normal terms’ referred to in the recitals to Regulation No 1041/67/EEC cannot be taken to mean that the right to a refund must depend solely on market conditions and on the legislation of a given recipient country. If such were the case, it would be possible for a refund to be granted for goods which were no longer marketable within the Community. No refund should be refused for a product still marketable within the Community, if it has ceased to be accepted as marketable in the recipient country in question.

The Community legislature defines the products capable of benefiting from a refund according to type, using the nomenclature which is for the most part adopted by the scale of levies or by the Common Customs Tariff. It leaves no doubt that in interpreting this Community nomenclature, only classifications recognized by Community law and the particular modes of interpretation appropriate to this end are relevant. The customs treatment of goods concerned in the recipient country is quite irrelevant.

The Community legislature also defines products capable of benefiting from a refund according to their quality. Those provisions which relate to quality are also undeniably independent rules of Community law, with their own intrinsic value, and are to be applied, irrespective of any concepts relating to quality in the recipient countries. The requirement of ‘sound and fair marketable’ quality imposed by Article 6 of Regulation No 1041/67/EEC is a provision relating to quality. It would be an unjustifiable irrelevance to make the determination of the characteristics of quality uniformly required by the Community legislature by reference to the criteria applicable in the Community or in third countries, depend on the more or less precise formulation of the Community provisions on the subject. The concept of sound and fair marketable quality must therefore also be interpreted by reference to the criteria applicable in the Community and not according to the ideas of recipient countries.

When Article 6 refers to use of a product for purposes not limited to human consumption, the Community legislature is laying down the minimum requirements relating to the nature of the products exported. It is possible to arrive at an evaluation of such concepts on the basis of the situation as it exists in the Community.

Surpluses, the reduction of which is to be encouraged by refunds with a view to the control of the market a priori, only depress the Community market and its price levels to the extent to which the goods concerned are in fact marketable within the Community. Only where merchandise is marketable within the Community is it necessary to compensate for the differences in prices as against the world market, in order to enable Community products to be exported.

The Commission has therefore concluded that the concept of ‘sound and fair marketable’ quality, and the principle of unrestricted fitness for consumption, imposed by Article 6 of Regulation No 1041/67/EEC, must be interpreted solely on the basis of criteria applicable within the Community.

(b) The Commission points out that cost prices on the domestic market, thus constitute for sausages and the like one of several criteria in deciding whether in this instance, the goods are of marketable quality: any unusual disparity between the price of goods exported and current prices can be a reliable indication — as experience of daily life shows — that the quality is no longer marketable.

Significant price advantages can be gained only by increasing the fat content. If the fat content is increased considerably, the quality of the merchandise is automatically diminished. The same applies also where dearer meat is replaced by much cheaper offal.

On the third question

In its statement, the Commission first sets out the development of tariff heading 16.01. In Germany the notion of ‘Rohwurst’, is derived from a comparison with the categories ‘Koch-, Brüh-, and Bratwürste’. These are sausages and the like made from untreated meat which is ‘not pre-cooked’ and fat, with the addition of seasoning, and which, owing to the drying and bacterial maturation which they have undergone, are edible as they are, that is, without further treatment (as sausages to be spread, or eaten in slices).

When, in the context of the common organization of the markets it became necessary in the sector of pigmeat to distinguish sausages and the like by quality, for example ‘salami’ and others, the expression ‘Rohwurst’ known to German terminology and defined according to reasonably objective standards, appeared to be the expression which best answered both economic needs and the purposes of the legislature. In sub-heading 16.01-BI of the French text of Regulation No 222/68/EEC the expression ‘saucisses et saucissons secs’ is used. Regulation No 1215/68/EEC, on the subject of refunds, adds ‘non cuits’ and Regulation No 835/71/EEC says ‘saucisses et saucissons secs ou a tartiner, non cuits’. The Italian text contains terms similar to heading 16.01 with the words: ‘salsicce, salami e simili…’ and under sub-heading B1, with terms already used in Regulation 222/68/EEC, ‘salsicce e salami, stagionati, anche da spalmare non cotti’. The original Dutch text ‘Worst van alle soorten’ becomes ‘gedroogde worst en smeerworst, niet gekookt en niet gebakken’.

As far as the tariff classification is concerned, the Commission reaches the following conclusions:

1. Sausages and the like (Rohwurst) means primarily sausages within the meaning of the explanatory notes to the Brussels nomenclature, under heading 16.01, paragraph one.

2. The distinguishing feature, in relation to other kinds of sausage, is that preparation does not involve cooking and the ingredients are neither cooked nor treated beforehand.

The term ‘Rohwurst’ also applies to sausage which has to some extent been preserved by natural maturation (bacterial).

A sausage must contain meat because it will not reach the necessary state of preservation if composed entirely of offal. Moreover, the difference between the rates of refund for these sausages and for ‘other’ can only be explained by the presence of a higher meat content.

The addition of water is incompatible with the concept of dry sausage.

Drying in air is of course one of the most common processes of bacterial maturation, but is not the only one possible.

A dry sausage must not be made solely of fat but must also contain meat. For the purposes of the grant of the refund, the admixture of fat is an important consideration in determining whether goods are of ‘sound and fair marketable quality’.

As for the heading ‘other’ (16.01 B 1c), this is a residual classification. The only requirement for this classification is that such sausages be ‘destined for human consumption’ and fit therefor.

On the first question

The plaintiff in the main action points out that to refuse export refunds where the exporter has purchased his basic materials at an excessively low price would result in the creation of a state of complete legal uncertainty. In the present case there is no question of overstepping the boundary of the law: the regulations in force at the relevant time provided for a refund for dry sausages even if they were composed only of offal or products of inferior quality. At the time there was a surplus of bacon owing to the unpopularity within the Community of products with a high calorific content. This affected the price of lean meat, and so the Community had an interest in getting the surplus exported. The plaintiff therefore believes that the first question should be answered in the negative.

On the second question

The soundness test for merchandise should be applied in accordance with current ideas in the Community. On the other hand, the fact that these surpluses are of no marketable value in the Community means that the test needs to be determined on the basis of marketable value and marketability as they exist in third countries. This argument accords with the history of Article 6 of Regulation No 1041/67/EEC. The expression ‘fair marketable quality’ was introduced by that Article precisely to remedy the situation in which exporters might export a composite product which was marketable in the Community but not in third countries, in order to divide it into its separate constituents in these countries.

As for question 2 b, it is impossible to maintain that there is any rule of evidence that the price paid for a product may lead to a conclusion as to its normal marketable quality. The claim made by the Commission that there is a basic recipe accepted throughout the Community is not correct.

On the third question

According to Regulation No 222/68/EEC, sausages can be made entirely from offal. The principle of legal certainty makes it necessary to have regard to the general and unspecific wording of the Regulation in question.

The arguments resorted to by the Commission as regards the so-called normal quality of dry sausages do not accord with reality. Had the new definition of dry sausages in the Annex to Regulation No 2403/69/EEC (OJ No 303, 1969) been in force at the time in question this Regulation would have been superfluous. The Commission could simply have issued an explanatory declaration.

If the sausage in question cannot be considered to be dry sausage, it should be classed under heading ex. 16.01-B-1 c)‘others’.