Court of Justice 26-02-1976 ECLI:EU:C:1976:32

1. General considerations

The United Kingdom Government considers that the questions raised by the national court must be approached in the light of the fact that the orders in question of the CIP relate to the fight against rising prices, a fight which is especially urgent in relation to necessities, such as a large number of food products.

Although all the Member States agree on the necessity of combating inflation, they have not as yet managed to achieve a sufficiently close coordination of their economies to enable the anti-inflation measures to be adopted to be more or less the same. The Council in a series of resolutions has declared that it is the task of the Member States to ensure that their efforts are concerted and mutually reinforcing. Whilst recognizing that measures adopted in one country of the Community can have profound effects in other countries, the Council had recognized “the specific and changing nature of the inflation problem throughout the Community”.

If no possibilities existed for Member States to intervene in price formation Member States would be prevented from fulfilling their obligations under Article 104 of the Treaty, that is, “to ensure the equilibrium of [their] overall balance of payments and to maintain confidence in [their] currency, while taking care to ensure a high level of employment and the stable level of prices”. There would be the consequent danger to the financial stability of the Member States which Article 6 (2) enjoins the institutions of the Community not to prejudice.

The Commission first of all describes the situation existing in the Member States as regards the fixing of maximum consumer prices for different agricultural products, pointing out that each Member State with the exception of the Federal Republic of Germany has engaged in such fixing in respect of one or more products.

The Commission proposed to the Council in 1968 the adoption of regulation in the milk sector the object of which was to limit the power of Member States to fix maximum consumer prices in respect of milk. This proposal was not adopted because the national delegations unanimously maintained that in this matter the power to lay down rules belonged to the Member States alone.

2. First and second questions

The plaintiffs in the main action state that these questions are, in essence, the same as those which the Court was called upon to answer in its judgment of 23 January 1975 (Case 31/74, Galli [1975] ECR 47). Moreover, the system of prices established for sugar by Regulation No 1009/67 is in every respect the same as the system of prices put into effect for cereals by Regulation No 120/67 of the Council of 13 June 1967 (OJ English Special Edition, 1967, p. 304), which is the subject of Case 31/74. In these circumstances, the propositions developed in the Galli judgment are equally applicable in the present case.

In particular, Regulation No 1009/67:

• is intended to create a common organization of the markets and especially “a single market for sugar” (fourth recital);

• considers that this objective involves the removal at the internal frontiers of the Community of all obstacles to the free movement of the goods in question (eighth recital);

• puts into effect a prices system which, while allowing prices to vary, guarantees that they shall not fall below the intervention price;

• provides, under Articles 21 and 39, machinery which enables the Community and Member States to deal with any disturbance.

The Italian system of prices is obviously incompatible with a legal system conceived on that basis. The spirit of Regulation No 1009/67 requires particularly that, owing to the freeplay of supply and demand, the market should allow the formation of prices higher than the intervention price. The fixing of maximum prices, to be observed on pain of heavy penalties, puts a stop to such a development and, consequently, the working of the machinery provided for in the said regulation. The situation is rendered even more serious by the fact that Italian sugar production falls far short of the quota assigned to it, with the result that the whole of. it is subject to the intervention price guarantee.

The national measures under consideration here are even more restrictive than those involved in Galli which, even though subject to prior authorization, at least made it possible for the list prices laid down by the undertakings themselves, and notified to the administration, to vary. In the present case, the CIP fixed on its own initiative prices which are in practice inalterable because it is economically impossible for Italian producers to sell below these prices. These were fixed at a level substantially lower than that of the market prices prevalent at the time both in the Community and on the world market, and this constituted a serious hindrance to imports.

In fixing trade margins (‘maximum charges for packing’ and ‘maximum charges for distribution’) as well as maximum prices to the consumer, the contested order affected production prices, by freezing them, which the judgment in Galli held to be not permissible. But even apart from these factors, the fixing of prices to the consumer inevitably influences production prices and, in consequence, is incompatible with the Community rules.

Nor can any justification for the orders in question be based on Article 103 of the Treaty, as is apparent from grounds 23 and 24 of the judgment in Galli. As soon as a common organization of the market has been put into effect, the only way, compatible with Community law, in which any subsequent difficulties arising within the sector concerned can be solved, is by recourse to the machinery provided for under the said organization.

The Italian Government considers that this question must be answered in the negative. It cannot be inferred from the judgment in Galli, and it is not correct, that the Member States have lost their power unilaterally to fix maximum consumer prices. The objective of the national rules in question in the case of Galli was a freezing of prices at the production and wholesale marketing stages, whereas the present case is concerned with rules relating to prices to be applied at the retail and consumer stages, in respect of which the judgment in Galli confirmed the principle of maintaining the power of Member States ‘to take the appropriate measures relating to price formation’.

The common organization of the market in sugar is in substance no different from that of the market in cereals which was the subject of the judgment in Galli. In particular the price system which it established also concerns only the production and wholesale stages; its main objective is likewise ‘to ensure that the necessary guarantees in respect of employment and standards of living are maintained for Community growers’ (2nd recital to Regulation No 1009/67).

National rules on prices applicable to the retail and consumer stages is therefore incompatible with Regulation No 1009/67 only if it indirectly affects the prices fixed by the latter, for example by laying down a maximum consumer price lower than the intervention price or, in a more general manner, by fixing a maximum price in such a way as to affect the Community prices. This is not so in the present case since the maximum price fixed by Order No 28/1974 of the CIP, assumes a price ex-factory appreciably higher than the Community threshold price and therefore than the target and intervention prices.

The United Kingdom Government gives a detailed analysis of the judgments of the Court concerned with the compatibility or incompatibility with the Community system of national interventions in the price formation of products subject to a common organization of the market. One lesson which can be drawn from all these judgments is that:

• In the first place the scope and purpose of the Community regulation in question must be looked at, having regard to the provisions of the Treaty and in particular Articles 38 to 40.

• It seems that, according to the Court, both the effects and the objectives of the national rules relevant to a particular case must be compatible with the Community objectives.

A national measure comprising the fixing of maximum selling prices could well be in accordance with the objectives of Regulation No 1009/67, namely to achieve a stable market and to guarantee to growers security of employment and a fair standard of living whilst avoiding over-production. This regulation merely prevents such prices from being fixed at a level the object or effect of which would be to prevent these objectives from being attained.

According to the Commission the principle confirmed by the judgment in Galli that Member States can no longer take action unilaterally affecting the machinery of price formation as established under the common organization of the market in cereals and the market in fats likewise applies to sugar. This arises from the nature and function of the price system of Regulation No 1009/67 which aims at the complete liberalization of intra-Community trade and at the consequential regulation of trade with countries outside the Community.

On the other hand the judgment in Galli recognized that national measures relating to prices at the retail and consumption stages are compatible with the Community rules ‘on condition that they do not jeopardize the aims or functioning of the common organization of the market in question’. In order to consider whether this is so in the present case it is necessary to deduct from the maximum consumer prices fixed by the CIP all the factors contributing to the cost of the goods from the time when they left the factory to when they are sold to the consumer (marketing costs, duties and taxes, transport costs etc); the price ex-factory is then obtained. The Commission proceeds to do this in tables annexed to its written observations. The outcome of the calculation is as follows:

• The ex-factory price calculated on the basis of the prices fixed by Order No 9/74 was higher than the target price, the same as the derived intervention price, and lower than the threshold price. As, accordingly, the said order fixed consumer prices on the basis of an ex-factory price aligned on the derived intervention price, it was incompatible with the aims and the functioning of the common organization of the market in sugar. Under the Community rules, sugar prices on the internal market could have moved up to the level of the threshold price (beyond that point, both the sugar imports from third countries and the Community measures adopted to deal with a situation of shortage would have intervened and had a controlling influence on prices).

• On the other hand, the ex-factory price calculated on the basis of the maximum prices fixed by Order No 28/74 were higher than the threshold price fixed by the Community and a fortiori therefore, than the intervention price and the target price. Order No 28/74 did not, therefore, jeopardize either the aims or the functioning of the common organization.

Apart from these considerations it may nevertheless be asked whether the judgment in Galli does not lead to the denial of any power vested in the Member States with regard to the fixing of agricultural prices. Such a conclusion would, however, be hasty since the Community has never claimed an exclusive power in this field, a power the exercise of which would have serious implications in the political and economic spheres.

3. Third question

The argument, set out at (2) above, of the plaintiffs in the main action is, wholly or in part, intended to deal with the third question too. In particular, they point out that the argument leads to the conclusion that the contested measures cannot be justified by ‘the need to protect the economy against speculators and to ensure that supply meets demand’.

The Italian Government states that the question can be divided into two parts, namely (a) whether a national system such as that involved in this case is ipso facto incompatible with the Community provisions governing the free movement of goods and (b) whether, if this is the case, such a system can, exceptionally, be justified by ‘the need to protect the economy against speculation and to provide the necessary guarantee to the consumer in view of the disturbance of the conditions on which the Community rules depend’.

The answer to the first part of the question is in the negative. Such incompatibility could only result from special circumstances in a given case; this occurs, for example, when the maximum price is fixed at a level lower than that of the threshold price. This does not apply in the present case.

In order to reply to the second part of the question and to demonstrate that the contested rules are compatible with the Treaty, there is no need whatever to have regard to considerations such as those taken into account by the national court nor, moreover to Article 103 of the Treaty (see the second question).

If, as would appear to be indicated by the wording of the third question, the national court were to take the view that the said rules were adopted in order to make good alleged defects in the Community system, it would be working from a false premise. On the contrary, the maximum prices fixed by the Italian authorities allow for the fact that there are Community prices relating only to the production and wholesale stages and, so to speak, complement them in respect of the retail and consumer stages, which are not covered by Community regulations.

The United Kingdom Government infers from the case-law of the Court that national rules affecting prices are in no way caught ipso facto by the prohibition on measures having an effect equivalent to quantitative restrictions whether or not they relate to agricultural products. It is necessary in each case to consider the scope, the effect an the objective of the rules in question.

The provisions contained in Article 30 of the Treaty are subject to a certain number of exceptions apart from those mentioned in Article 36. Thus interference in the process of price formation may frequently be an element in the conjunctural policy referred to in Article 103. While Article 103 may not apply to create an exception to the specific provisions contained in the rules of the common organizations of the market, it plainly does apply in the general field governed by the principle contained in Article 30.

Certain agreements concluded between the Community and third countries involved a prohibition similar to that in Article 30 of the Treaty. The Community has never accepted, however, the argument that pricing systems laid down under a common organization of the market have effects equivalent to quantitative restrictions on imports.

The Commission gives a similar opinion without however expressing itself specifically on whether the rules in question are compatible with the Community rules.

A national measure such as that in the present case would be equivalent to a quantitative restriction only if, while appearing formally to apply without distinction to national products and imported products, it were drawn up in such a way as to constitute a hindrance to imports which could be effected without it, whereas the sale of national products do not suffer the same degree of disadvantage. This is the case when, for example, the price fixed is lower than that for which the imported product could be sold by reason of the fact that the national authority has not taken into account, in respect of imported products, possibly different marketing margins or costs inherent in imports. It is possible, moreover, that a national measure, which at the beginning was not capable of affecting adversely the free movement of goods, may become so subsequently. This could occur for example when the said measure makes it impossible to increase the price of the imported product to cover the increase in the production costs arising, for example, in the producer Member State. The provisions of Directive No 70/50/EEC referred to by Mr Tasca (see above) would then apply. It would then be for the national court to compare the prices laid down by the orders of the CIP at the time when the facts with which Mr Tasca is charged occurred with the prices then obtaining on the markets of the other Member States.

In Case 65/75 (Tasca), the Court asked the Italian Government to reply in writing, before the hearing, to four questions, the fourth of which was at the same time addressed to the Commission.

The replies, which have also been communicated to the plaintiffs in the main action in the present cases, may be summarized as follows:

1. First and second questions put by the Court

   The questions were worded as follows:

   What is meant by ‘sale to the consumer’ in Order No 28/1974 of the CIP? In particular: Do prices laid down by this order apply only to sales effected by the retailer to the ultimate consumer or also to other transactions (and if so, to which)?

   Can the sale of a large quantity of sugar (for example 25 000 kg of caster sugar) also constitute a sale to the consumer within the meaning of the order?

   The Italian Government states that the prices fixed by Order No 28/1974 apply only to sales in which the immediate buyer is the ultimate consumer. The expression ‘sale to the consumer’ is the same as ‘retail sale’. Sales made to other traders, wholesalers, retailers, industrial users or other bulk users must be regarded as wholesale sales.

   The quantity of products involved in a particular transaction is irrelevant for the purposes of the distinction between ‘sales to the consumer’ and ‘wholesale sales’. Even a transaction, such as the one in the present case, involving 25 000 kg of caster sugar, may constitute a ‘sale to the consumer’. However the Italian Government does not know whether the sale in question was or was not made to an ultimate consumer.

2. Third question put by the Court

   This question called upon the Italian Government:

   to give more detailed reasons … for its statements that Orders Nos 28/1974 and 39/1974 of the CIP are not concerned with the production and wholesale stages whereas Order No 39/1974 states that components of the maximum consumer prices include the maximum ex-factory price, the maximum price free-at-warehouse and the maximum charge for wholesale and retail distribution, and fixes the amount of these components.

   The Italian Government replies that Order No 39/1974, according to its first recital, was adopted ‘having regard to the need to show how the price of sugar referred to in Order … No 28/1974 was made up’. It does not therefore involve either fixing maximum consumer prices or a fortiori fixing ex-factory prices or free-at-wholesaler's warehouse prices but is limited to stating these factors, and the maximum charges intended to cover distribution costs, as components of the. said maximum prices.

   In using the expressions ‘ex-factory maximum prices’, ‘maximum prices free-at-wholesaler's warehouse’, and 'maximum charges for wholesale and retail distribution Order No 39/1974 was not expressed precisely. It was in fact concerned with cost factors which had to be taken into account in fixing the maximum consumer prices but which were not made mandatory.

   The Italian Government annexes to its reply a table containing an analysis of the consumer prices fixed by Order No 28/1974. This table confirms what has been said and shows that the CIP took into account an ex-factory price well above the Community threshold price then in force.

3. Fourth question put by the Court

   This question requested the Italian Government and the Commission:

   to state in more detail … in what circumstances in their opinion national price rules of the kind presently in question may:

   1. alter the formation of prices as provided for under the common organization of the market in sugar:

   2. in a more general way jeopardize the aims and functioning of this common organization.

   Whereas the Italian Government has not given an opinion on this matter the Commission has submitted the following observations, stating that it is not dealing with the question of the compatibility of the measures in question with Article 30 of the Treaty.

   The common organization of the market in sugar is orientated around three basic prices, the target price, the threshold price and the intervention price. The target price is the ‘policy’ that is the desired price, but is not imposed. In order to help this price to be obtained on the common market the Community has had recourse to a series of indirect methods: publication of the fixed target price, import levies, intervention on the internal market and export refunds.

   Before the judgment in Galli the Commission's position with regard to measures taken unilaterally by certain Member States in the sphere of agricultural prices was as follows:

   • As regards production and wholesale prices Member States could fix maximum sale prices only in so far as this was not likely adversely to affect the functioning of the machinery of the common organization of the market or at least to impede it or make it more difficult. Thus to fix a maximum selling price at a lower level than the intervention price would have amounted to an infringement for it would have directly prevented the price level guaranteed by Community law from being attained. It would have been the same if the prices had been fixed at a level lower than the target price since in such a case the national measure would have prevented the target price from being attained. Finally if the maximum selling prices had been fixed at a level higher than the target price it would have been necessary to examine each case to see whether or not the national measure prevented this price from being attained.

   • As regards consumer prices, Member States retained the power to fix them in so far as this was not incompatible with Community provisions taken within the framework of the relevant common organization.

     Nevertheless, the common organizations of the market are capable of extending their scope also to the consumer stage as appears from Article 39 (1) (e) of the Treaty according to which an objective of the common agricultural policy is inter alia‘to ensure that supplies reach consumers at reasonable prices’. To judge whether a maximum consumer price laid down by a Member State is compatible with the Community prices it is necessary to inquire what, having regard to the average profit margins of the middle men is the price level free-factory assumed by the said maximum price.

     The judgment in Galli leads the Commission, as regards more particularly the present case, to the following considerations:

   The case submitted to the Court is of a special nature in that of all agricultural products sugar is the one which shows most clearly the relationship between the selling prices at the production and wholesale stages on the one hand and on the other the selling prices at the retail and consumer stages. The orders in question of the CIP show that in Italy, and as regards sugar, it is possible ‘to control prices without distinction by regulation one or the other stage’.

   • Although in its written observations the Commission stated that because the consumer price laid down by Order No 28/1974 assumed an ex-factory price above the Community threshold price it did not jeopardize the objectives and functioning of the common organization of the markets in sugar, it is aware that this opinion is open to criticism. First the distinction between production and the wholesale trade on the one hand and the retail trade on the other hand is not clear-cut. Then the method chosen by the Commission to establish that the prices in question are compatible with the Community rules, a method which consists in going back to the ex-factory price, could lead to the objection that it is incompatible with the judgment in Galli

   • During the oral procedure, which took place on 16 December 1975, the plaintiffs in the main action, represented by Mauro de Andrè, Antonio Sorrentino et Severo Giannini, of the Rome bar, the British Government, represented by Gordon Slynn of the Treasury Solicitor's Department, the Italian Government, represented by Ivo Maria Braguglia, Vice-avvocato dello Stato, the Commission represented by its Legal Adviser, Cesare Maestripieri, and the Council, represented by its Legal Adviser, M. C. Giorgi, amplified the arguments set out in the written procedure.

   The new factors put forward on that occasion may be summarized as follows:

   The plaintiffs in the main action contend that, contrary to the statements of the Italian Government, the contested orders do not only fix the prices to the consumer but also maximum production prices. It cannot be accepted that the CIP, which is responsible for fixing prices, described the factors making up the price to the consumer, including the maximum ex-factory price, merely for information

   Moreover, the Italian Government's explanation runs contrary to the interpretation placed on the said orders by Italian case-law.

   The Italian Government states that, although the objective of Regulation No 1009/67 is to guarantee the employment and standards of living of sugar producers, it attains this objective by means of fixing the intervention price, the only binding Community price, and ensuring that producers are never forced to produce at a loss. In other words, the regulation guarantees producers a minimum return but not the maximum profit which producers could obtain if they were free to determine the consumer prices. In reply, more particularly, to the fourth question put by the Court in Case 65/75 (Tasca) after the written procedure was closed, the Italian Government states that the fixing of maximum consumer prices does not jeopardize the aims and the functioning of the common organization unless it is done in such a way as to make it impossible, or more difficult, to achieve the said minimum return.

   Contrary to the statements of the Commission, the price to the consumer fixed by Order No 9/1974 was based on an ex-factory price higher than the threshold price, as the Italian Government explains in detail.

   The Advocate-General delivered his opinion on 21 January 1976.