Court of Justice 26-06-1985 ECLI:EU:C:1985:274

The products casein and caseinates

The Special Report of the Court of Auditors on aid to skimmed milk processed into casein and caseinates (Official Journal 1984, C 41) provides a useful survey of the market in casein and caseinates and the system of aid applying to those products.

Casein is obtained from skimmed milk by coagulation in an acidic environment or in the presence of rennet. The product which is left is insoluble and is then washed and dried. Caseinates are obtained from casein by incorporating salts which produces an insoluble end product. Depending on their quality, these two concentrated high-grade protein products are used for making feeding-stuffs, pharmaceutical products, fibrin and glutin.

The international market in these products used to be dominated by New Zealand. However, after the introduction of a system of aid for the manufacture of these products, EEC production has continually increased so that by 1980 it had become the world's largest producer accounting for 40% of world production.

The position of casein and casemates in Community law

As far as concerns the position of casein and caseinates in Community law, it must first be stated that neither product appears in the list of agricultural products contained in Annex II to the EEC Treaty. The two products are not therefore subject to Articles 38 to 46 of the Treaty dealing with agriculture. Although Council Regulation (EEC) No 3033/80 of 11 November 1980 laying down the trade arrangements applicable to certain goods resulting from the processing of agricultural products (Official Journal 1980, L 323, p. 1) does apply to casein and caseinates, Article 16 of that regulation states that the application of the arrangements it lays down is to be deferred until further decision of the Council. The import levies provided for in that regulation to protect domestic production are not therefore applicable to casein and caseinates. This point is important since owing to that exclusion casein and caseinates do not belong to the range of products for which Regulation No 974/71 of the Council (Official Journal, English Special Edition 1971 (I), p. 257) requires monetary compensatory amounts to be fixed if the conditions laid down therein are fulfilled. Casein and caseinates therefore fall under the Common Customs Tariff (heading 35.01). Owing to the relatively low customs duties on them, which are consolidated under the GATT, the intra-EEC price of these products is therefore determined to a considerable degree by the world market price.

Since they are nonagricultural products, casein and caseinates do not fall under Regulation No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk products (Official Journal, English Special Edition 1968 (I), p. 176). However, as one of the measures to promote the disposal of stocks, Article 11 of that regulation provides for aid to be granted for the processing of skimmed milk into casein and caseinates. The rules governing the aid are laid down in Regulation No 987/68 of the Council of 15 July 1968 (Official Journal, English Special Edition 1968 (I), p. 262) and in Regulation No 756/70 of the Commission (Official Journal, English Special Edition 1970 (I), p. 201), which was replaced by Regulation No 1331/82 (Official Journal 1982, L 159, p. 75). The aid varies depending on whether the skimmed milk is processed into casein or caseinates and on the quality of the end product. The aid is fixed in such a way that the return on milk processed in that way is the same as the return on skimmed milk processed into skimmed-milk powder. The purpose of the aid is for it to be passed on to the producer of skimmed milk in order to create an alternative, outlet. It is clear that, owing to the aid, Community production of casein and caseinates has increased considerably, both in quantity and in quality.

The application

In view of the foregoing it is undisputed that the price of casein and caseinates is closely related to the intervention price for skimmed-milk powder. Since the producers of skimmed milk have the alternative of processing skimmed milk into skimmed-milk powder and offering it for intervention, the casein producer will have to pay a price for the skimmed milk that is in the region of that price less the production costs for skimmed-milk powder. Even if, as the Council and the Commission contend, the actual price for skimmed-milk powder does not always correspond to the intervention price, particularly in periods of abundant supply, there is nevertheless a clear tendancy in that direction. The intervention price for skimmed-milk powder is converted into national currency at the representative or ‘green’ exchange rates (with which the Court will be very familiar), as laid down in 1983 in Regulation No 1223/83 (Official Journal, L 132, p. 33). Since those rates differ from the actual rates, the cost price of skimmed-milk powder in the Federal Republic of Germany, a country with a strong currency, is at a higher level than in France, which has a weak currency. In principle the Council and the Commission recognize the existence of these disadvantages. Meggle contends that this detrimental difference in competitive positions is the cause of a sharp increase in French exports of casein to the Federal Republic of Germany whereas it finds it impossible or very difficult to get a foothold on the French market. In its view, three important conclusions follow from the extensive statistical data which it has submitted. First, that the shares of EEC production and exports to nonmember countries of the countries with weak currencies, France and Ireland, have increased disproportionately whilst the countries with strong currencies, the Netherlands and the Federal Republic of Germany, have fallen behind. Secondly, that there has been a marked decline in imports from nonmember countries owing to increased production in the countries with weak currencies. Thirdly, that French exports to the Federal Republic of Germany have increased owing to the aforementioned competitive advantage of the French industry and the resultant price undercutting whereas German exports to France have decreased. Meggle has estimated its loss arising from the reduced possibility of selling casein and caseinates on the French market at approximately DM 20 million using an abstract as well as a detailed method of calculation. It claims that its loss was caused by unlawful action on the part of the Community which discriminated between French and German producers of casein and caseinates by applying the representative rates to the intervention price for skimmed-milk powder without adopting measures offsetting those disadvantages.

Governing principles

For the assessment of this case two legally relevant facts are established. First, that the system of representative exchange rates in the agricultural sector may alter competition on the Community market in agricultural products. This has also been recognized by the Court. With reference to the co-responsibility levy in the milk products sector, which is expressed in ECU and converted into national currency at the representative rates, the Court held in its judgment in Case 138/78, Stötting v Hauptzollamt Hamburg-Jonas [1979] ECR 713, paragraph 10 at p. 723), that:

‘Although in certain transactions the application of these exchange rates may possibly involve advantages or disadvantages which may appear as discrimination, it none the less remains true that in general such application serves to remedy monetary situations which in the absence of a measure such as Regulation No 878/78 would result in much more serious, obvious and general discrimination. Although it is not without certain drawbacks, the adoption of the system of the so-called green exchange rates is therefore justified by the prohibition on discrimination and the requirements of a common agricultural policy.’

Secondly, with regard to casein and caseinates, the Community has not adopted any measures to compensate wholly or in part for the effects of any disadvantages of the application of the representative rates to the intervention price of skimmed-milk powder. Moreover, as I have already pointed out, the Community could not do this as far as the fixing of monetary compensatory amounts for trade in casein and caseinates is concerned since the relevant legislation does not provide for this and furthermore it would be contrary to the Community's obligations under the GATT. The probable alternative would be the introduction of aid varying from Member State to Member State. As the Commission has rightly argued, the introduction of differential aid, as applied in the market organization for grape and sunflower seed and advocated by Meggle, cannot be applied by analogy since casein and caseinates are not agricultural products and therefore such a power does not exist, at least as far as the application of Article 43 of the EEC Treaty is concerned.

The question is then whether the Community was obliged to introduce measures in the period suggested by Meggle. It is clear from the Court's judgment in Stölting, cited above, that this is not automatically the case. Even if certain disadvantages arise, the Community is not automatically obliged to act. Such disadvantages then form part of the business risk which the trader runs on a market on which a multiple exchange rate system is used. The trader cannot simply expect the disadvantages which he experiences under the system of representative rates or the advantages which he does not enjoy to be made good by the Community. The Community is bound to act only if the effects of the representative rates are such that they prevent the market or market organization, from functioning properly. This is clear from the system of Regulation (EEC) No 974/71 of the Council of 12 May 1971 on certain measures of conjunctural policy to be taken in agriculture following the temporary widening of the margins of fluctuation for the currencies of certain Member States (Official Journal, English Special Edition 1971 (I), p. 257). Under that regulation, monetary compensatory amounts must be introduced for the products falling within its scope if the main condition, laid down in Article 1 (3), namely the existence or threat of disturbances in trade in the relevant products, is fulfilled. I would point out that, according to its wording, that provision is mandatory. If that condition is not or no longer fulfilled, monetary compensatory amounts may not be introduced or must be abolished. I refer in this regard to the Court's judgment in Joined Cases 67 and 85/75, Lesieur Cotelle et Associés SA and Others v Commission, [1976] ECR 391, paragraph 17 at p. 409).

The fact that no monetary compensatory amounts could be introduced in this case does not matter. As I have already stated, this does not follow from Regulation No 974/71 but from the fact that Regulation No 3033/80 is declared temporarily inapplicable to casein and caseinates. The point is that Community law lays down a criterion which requires the Community to take action if the representative rates have such an effect on trade that there is or may be a‘disturbance’. Only if the Community does not then take action is the application of those rates unlawful and discrimination exists. It is in that light that the Court spoke of ‘disadvantages’ instead of discrimination in its judgment in Staking. The Court's decisions on monetary compensatory amounts have clarified this criterion of disturbance in a number of ways. The wording of the provision in question makes it quite clear that the Commission has a wide discretion when deciding whether a disturbance or a threat of a disturbance exists. This was recognized by the Court in 1975 in its judgment in Case 74/77, CNTA v Commission [1975] ECR 533 in which it held that not only must monetary factors be considered but market conditions may also be taken into account. The Court's judgment in Case 95/80, Société Havraise Dervieu-Delahais SA and Others v Directeur General des Douanes et Droits Indirects, [1981] ECR 317 makes it clear that this involves assessing the common market in the relevant product. In its judgment in Lesieur v Commission, cited above, and in its judgment in Case 29/77, SA Roquette Frères v French State [1977] ECR 1835 the Court held that it was not for the Commission to prove that there was a risk of a disturbance but this burden was on the applicant (paragraphs 28 and 14). In general, the Court's decisions on this matter make it clear that the Court is not primarily concerned with protecting traders against the disadvantages of the existing exchange rate system but with ensuring that the market or the market organization continues to function properly which thus indirectly protects the trader against any discrimination arising from a disturbance.

Market trends

The parties have submitted many statistics to the Court; of those I consider the following figures relevant.

The figures provided by the Commission and not disputed by Meggle enable the following data on the market shares of the four leading countries producing casein and caseinates to be calculated:

Those statistics do in fact show the fall in Germany's market share emphasized by Meggle but they also show nearly the same decline in France's market share between 1973 and 1983. The effect of the devaluated currency in that country has not therefore had the effect of increasing its market share. Furthermore, the Netherlands, a country with a strong currency, has not lost ground on the market. The connection which Meggle contends exists between weak currencies and stronger competitive positions and between strong currencies and weaker competitive positions is not therefore proved by those figures.

It is also possible to calculate the percentage increases in production, imports and exports within the EEC and in trade with nonmember countries during the period 1973 to 1983 using the figures which have been provided by the Commission in its written observations and which Meggle does not dispute:

Those figures also show that Germany's relative increase in production has not fallen below the EEC average or that of France. The shifts which have occurred consist of a marked increase of France's exports to other Member States whilst German exports have increased, especially to nonmember countries. The higher percentage increase in German exports to nonmember countries and the lower French figure cannot be explained by the differences between strong and weak currencies. Differences in quality will be more relevant in this regard and German exports on the world market will have increased mainly because of the higher quality of the casein and caseinates produced in that country, a fact to which the French Government also referred in its intervention. The increase in France's share within the EEC is to be explained above all by the fact that France produces casein and caseinates for industrial processing.

Did disturbances occur on this market? I do not think so. It cannot be deduced from the statistics given earlier concerning the changes in market shares and the percentage increases in production, imports and exports within the EEC and in imports and exports from and to nonmember countries that disproportionate changes occurred on the market in casein and caseinates or that there were large-scale shifts in trade. In my view, there can be no question of a ‘disturbance’ of the market.