JUDGMENT OF THE COURT

23 November 1999 (1)

(Commercial policy - Access to the market in textile products - Productsoriginating in India and Pakistan)

In Case C-149/96,

Portuguese Republic, represented by L. Fernandes, Director of the Legal Serviceof the European Communities Directorate-General in the Ministry of ForeignAffairs, and C. Botelho Moniz, assistant in the Faculty of Law of the PortugueseCatholic University, acting as Agents, with an address for service in Luxembourgat the Portuguese Embassy, 33 Allée Scheffer,

applicant,

v

Council of the European Union, represented by S. Kyriakopoulou, Legal Adviser,and I. Lopes Cardoso, of its Legal Service, acting as Agents, with an address forservice in Luxembourg at the office of A. Morbilli, General Counsel in the LegalAffairs Directorate of the European Investment Bank, 100 Boulevard KonradAdenauer,

defendant,

supported by

French Republic, represented by C. de Salins, Deputy Director for InternationalEconomic Law and Community Law in the Department of Legal Affairs at theMinistry of Foreign Affairs, and G. Mignot, Secretary for Foreign Affairs in thesame Department, acting as Agents, with an address for service in Luxembourg atthe French Embassy, 8B Boulevard Joseph II,

and

Commission of the European Communities, represented by M. de Pauw and F. deSousa Fialho, of its Legal Service, acting as Agents, with an address for service inLuxembourg at the Chambers of C. Gómez de la Cruz, of the same Legal Service,Wagner Centre, Kirchberg,

interveners,

APPLICATION for annulment of Council Decision 96/386/EC of 26 February 1996concerning the conclusion of Memoranda of Understanding between the EuropeanCommunity and the Islamic Republic of Pakistan and between the EuropeanCommunity and the Republic of India on arrangements in the area of marketaccess for textile products (OJ 1996 L 153, p. 47),

THE COURT,

composed of: J.C. Moitinho de Almeida, President of the Third and SixthChambers, acting for the President, D.A.O. Edward, L. Sevón and R. Schintgen(Presidents of Chambers), P.J.G. Kapteyn (Rapporteur), C. Gulman, J.-P.Puissochet, G. Hirsch, P. Jann, H. Ragnemalm and M. Wathelet, Judges,

Advocate General: A. Saggio,

Registrar: H. von Holstein, Deputy Registrar,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 30 June 1998,

after hearing the Opinion of the Advocate General at the sitting on 25 February1999,

gives the following

Judgment

1.

    By application lodged at the Court Registry on 3 May 1996, the PortugueseRepublic brought an action under the first paragraph of Article 173 of the ECTreaty (now, after amendment, the first paragraph of Article 230 EC) for theannulment of Council Decision 96/386/EC of 26 February 1996 concerning theconclusion of Memoranda of Understanding between the European Communityand the Islamic Republic of Pakistan and between the European Community andthe Republic of India on arrangements in the area of market access for textileproducts (OJ 1996 L 153, p. 47, 'the contested decision‘).

Legal and factual background

International multilateral agreements in the Uruguay Round

2.

    On 15 December 1993 the Council unanimously approved the terms of the globalcommitment on the basis of which the Community and the Member States agreedto end the multilateral trade agreements of the Uruguay Round ('the agreementof principle‘).

3.

    On the same day, the Director General of the General Agreement on Tariffs andTrade ('GATT‘), Mr Sutherland, announced in Geneva to the committee formultilateral negotiations the closure of the negotiations of the Uruguay Round. Indoing so he invited some of the participants to pursue their negotiations on accessto the market, with a view to reaching a more complete and better balanced'market access‘ package.

4.

    Following the closure of those negotiations the negotiations on market access fortextile and clothing products ('textile products‘) with, inter alia, the Republic ofIndia and the Islamic Republic of Pakistan were pursued by the Commission, withthe assistance of the 'textile committee 113‘ of the Council ('the textilecommittee‘) designated by the Council to represent it in matters concerning thecommon commercial policy of the Community in the textile sector.

5.

    On 15 April 1994, at the Marrakesh meeting in Morocco, although the negotiationson access to the market in textiles had not yet been completed with Pakistan andIndia, the President of the Council and the Member of the Commission responsiblefor external relations signed the Final Act concluding the multilateral tradeagreements of the Uruguay Round ('the Final Act‘), the Agreement establishingthe World Trade Organisation ('the WTO‘) and all the agreements andmemoranda in Annexes 1 to 4 to the agreement establishing the WTO ('the WTOagreements‘) on behalf of the European Union, subject to subsequent approval.

6.

    Among those agreements, included in Annex 1 A to the agreement establishing theWTO, are the Agreement on Textiles and Clothing ('the ATC‘) and theAgreement on Import Licensing Procedures.

7.

    Following the signature of those measures the Council adopted Decision 94/800/ECof 22 December 1994 concerning the conclusion on behalf of the EuropeanCommunity, as regards matters within its competence, of the agreements reachedin the Uruguay Round multilateral negotiations (1986-1994) (OJ 1994 L 336, p. 1).

The agreements concluded with Pakistan and India

8.

    Following the signature of the WTO agreements negotiations with India andPakistan continued; they were conducted by the Commission with the assistance ofthe textiles committee.

9.

    On 15 October and 31 December 1994 the Commission, and India and Pakistanrespectively, signed two 'Memoranda of Understanding‘ between the EuropeanCommunity and India and Pakistan on arrangements in the area of market accessfor textile products.

10.

    The Memorandum of Understanding with Pakistan contains a number ofcommitments on the part of both the Community and Pakistan. In particular,Pakistan undertakes to eliminate all quantitative restrictions applicable to a seriesof textile products listed specifically in Annex II to the Memorandum ofUnderstanding. The Commission undertakes 'to give favourable consideration torequests which the Government of Pakistan might introduce in respect of themanagement of existing [tariff] restrictions for exceptional flexibility (includingcarry-over, carry-forward and inter-category transfers)‘ (point 6) and to initiateimmediately the necessary internal procedures in order to ensure 'that allrestrictions currently affecting the importation of products of the handloom andcottage industries of Pakistan are removed before entry into force of the WTO‘(point 7).

11.

    The Memorandum of Understanding with India provides that the IndianGovernment is to bind the tariffs which it applies to the textiles and clothing itemsexpressly listed in the Attachment to the Memorandum of Understanding and that'[t]hese rates will be notified to the WTO Secretariat within 60 days of the date ofentry into force of the WTO‘. It is also provided that the Indian Government may'introduce alternative specific duties for particular products‘ and that these dutieswill be indicated 'as a percentage ad valorem or an amount in Rs per item/squaremetre/kg, whichever is higher‘ (point 2). The European Community agrees to'remove with effect from 1 January 1995 all restrictions currently applicable toIndia's exports of handloom products and cottage industry products as referred toin Article 5 of the EC-India agreement on trade in textile products‘ (point 5). TheCommunity undertakes to give favourable consideration to 'exceptional flexibilities,in addition to the flexibilities applicable under the bilateral textiles agreement, forany or all of the categories under restraint‘, up to the amounts for each quota yearindicated in the Memorandum of Understanding for 1995 to 2004 (point 6).

12.

    On a proposal from the Commission dated 7 December 1995, the Council adoptedon 26 February 1996 the contested decision, which was approved by a qualifiedmajority; the Kingdom of Spain, the Hellenic Republic and the PortugueseRepublic voted against it.

13.

    The understandings with India and Pakistan were signed on 8 and 27 March 1996respectively.

14.

    The contested decision was published in the Official Journal of the EuropeanCommunities on 27 June 1996.

Community legislation

15.

    Council Regulation (EEC) No 3030/93 of 12 October 1993 on common rules forimports of certain textile products from third countries (OJ 1993 L 275, p. 1), asamended by Council Regulation (EC) No 3289/94 of 22 December 1994 (OJ 1994L 349, p. 85), lays down rules governing imports into the Community of textileproducts originating in third countries which are linked to the Community byagreements, protocols or arrangements, or which are members of the WTO.

16.

    Thus, according to Article 1(1) thereof, the Regulation applies to imports of textileproducts listed in Annex I originating in third countries with which the Communityhas concluded bilateral agreements, protocols or other arrangements as listed inAnnex II.

17.

    Article 2(1) of the regulation provides that the importation into the Community ofthe textile products listed in Annex V originating in one of the supplier countrieslisted in that annex is to be subject to the annual quantitative limits laid down inthat annex. Under Article 2(2), the release into free circulation in the Communityof imports subject to the quantitative limits referred to in Annex V is to be subjectto the presentation of an import authorisation issued by the Member States'authorities in accordance with Article 12.

18.

    Article 3(1) provides that the quantitative limits referred to in Annex V are not toapply to the cottage industry and folklore products specified in Annexes VI andVIa which are accompanied on importation by a certificate issued in accordancewith the provisions of Annexes VI and VIa and which fulfil the other conditionslaid down therein.

19.

    On 10 April 1995, pursuant to what had been agreed in the agreement of principle(paragraph 2 of this judgment) the Council, on a proposal from the Commission,adopted Regulation (EC) No 852/95 on the grant of financial assistance to Portugalfor a specific programme for the modernisation of the Portuguese textile andclothing industry (OJ 1995 L 86, p. 10).

20.

    On 20 December 1995 the Commission adopted Regulation (EC) No 3053/95amending Annexes I, II, III, V, VI, VII, VIII, IX and XI of Regulation No 3030/93(OJ 1995 L 323, p. 1). According to the fourteenth and sixteenth recitals in thepreamble to that regulation, the fact that the arrangement with India as regardsaccess to the market envisaged the abolition of quantitative restrictions on theimportation of certain folklore and cottage industry products originating in Indiawas one of the factors which led to the amendment of those annexes as from1 January 1995.

21.

    The fifth and sixth indents of Article 1 of Regulation No 3053/95 replace Annex VIto Regulation No 3030/93 by a new Annex V to Regulation No 3053/95, and repealAnnex VIa to that regulation as from 1 January 1995.

22.

    As Regulation No 3053/95 was vitiated by a procedural defect, the fifth and sixthindents of Article 1 were withdrawn with retroactive effect from 1 January 1995 byCommission Regulation (EC) No 1410/96 of 19 July 1996 concerning the partialwithdrawal of Regulation No 3053/95 (OJ 1996 L 181, p. 15, hereinafter 'thewithdrawal regulation‘). According to the first recital in the preamble to thewithdrawal regulation, the amendments provided for in the fifth and sixth indentsof Article 1 of Regulation No 3053/95 had been adopted at a time when, by virtueof Article 19 of Regulation (EEC) No 3030/93, the Commission was not yet entitledto adopt them, the Council not yet having decided to conclude or applyprovisionally the arrangements negotiated by the Commission with India andPakistan concerning access to the market in textile products.

23.

    By Regulation (EC) No 2231/96 of 22 November 1996 amending Annexes I, II, III,IV, V, VI, VII, VIII, IX and XI of Regulation No 3030/93 (OJ 1996 L 307, p. 1),the Commission adapted Regulation No 3030/93 to the Memoranda ofUnderstanding.

Substance

24.

    In support of its application, the Portuguese Republic relies, first, on breach ofcertain rules and fundamental principles of the WTO and, second, on breach ofcertain rules and fundamental principles of the Community legal order.

Breach of rules and fundamental principles of the WTO

25.

    The Portuguese Government claims that the contested decision constitutes a breachof certain rules and fundamental principles of the WTO, in particular those ofGATT 1994, the ATC and the Agreement on Import Licensing Procedures.

26.

    It claims that according to case-law it is entitled to rely on those rules andfundamental principles before the Court.

27.

    Although the Court held in Case C-280/93 Germany v Council [1994] ECR I-4973,paragraphs 103 to 112, that the GATT rules do not have direct effect and thatindividuals cannot rely on them before the courts, it held in the same judgment thatthat does not apply where the adoption of the measures implementing obligationsassumed within the context of the GATT is in issue or where a Communitymeasure refers expressly to specific provisions of the general agreement. In suchcases, as the Court held in paragraph 111 of that judgment, the Court must reviewthe legality of the Community measure in the light of the GATT rules.

28.

    The Portuguese Government claims that that is precisely the position in this case,which concerns the adoption of a measure - the contested decision - approving theMemoranda of Understanding negotiated with India and Pakistan following theconclusion of the Uruguay Round for the specific purpose of applying the rules inGATT 1994 and the ATC.

29.

    The Council, supported by the French Government and by the Commission, reliesrather on the special characteristics of the WTO agreements, which in their viewprovide grounds for applying to those agreements the decisions in which the Courtheld that the provisions of GATT 1947 do not have direct effect and cannot berelied upon.

30.

    They claim that the contested decision is of a special kind and is thus notcomparable to the regulations at issue in Case 70/87 Fediol v Commission [1989]ECR 1781 and Case C-69/89 Nakajima All Precision v Council [1991] ECR I-2069. The decision is not a Community measure intended to 'transpose‘ certainprovisions of the ATC into Community law.

31.

    The Portuguese Government replies that it is not GATT 1947 that is in issue in thepresent case but the WTO agreements, which include GATT 1994, the ATC andthe Agreement on Import Licensing Procedures. The WTO agreements are significantly different from GATT 1947, in particular in so far as they radically alterthe dispute settlement procedure.

32.

    Nor, according to the Portuguese Government, does the case raise the problem ofdirect effect: it concerns the circumstances in which a Member State may rely onthe WTO agreements before the Court for the purpose of reviewing the legality ofa Council measure.

33.

    The Portuguese Government maintains that such a review is justified in the caseof measures such as the contested decision which approve bilateral agreementsgoverning, in relations between the Community and non-member countries, mattersto which the WTO rules apply.

34.

    It should be noted at the outset that in conformity with the principles of publicinternational law Community institutions which have power to negotiate andconclude an agreement with a non-member country are free to agree with thatcountry what effect the provisions of the agreement are to have in the internal legalorder of the contracting parties. Only if that question has not been settled by theagreement does it fall to be decided by the courts having jurisdiction in the matter,and in particular by the Court of Justice within the framework of its jurisdictionunder the EC Treaty, in the same manner as any question of interpretation relatingto the application of the agreement in the Community (see Case 104/81Hauptzollamt Mainz v Kupferberg [1982] ECR 3641, paragraph 17).

35.

    It should also be remembered that according to the general rules of internationallaw there must be bona fide performance of every agreement. Although eachcontracting party is responsible for executing fully the commitments which it hasundertaken it is nevertheless free to determine the legal means appropriate forattaining that end in its legal system, unless the agreement, interpreted in the lightof its subject-matter and purpose, itself specifies those means (Kupferberg,paragraph 18).

36.

    While it is true that the WTO agreements, as the Portuguese Government observes,differ significantly from the provisions of GATT 1947, in particular by reason of thestrengthening of the system of safeguards and the mechanism for resolving disputes,the system resulting from those agreements nevertheless accords considerableimportance to negotiation between the parties.

37.

    Although the main purpose of the mechanism for resolving disputes is in principle,according to Article 3(7) of the Understanding on Rules and Procedures Governingthe Settlement of Disputes (Annex 2 to the WTO), to secure the withdrawal of themeasures in question if they are found to be inconsistent with the WTO rules, thatunderstanding provides that where the immediate withdrawal of the measures isimpracticable compensation may be granted on an interim basis pending thewithdrawal of the inconsistent measure.

38.

    According to Article 22(1) of that Understanding, compensation is a temporarymeasure available in the event that the recommendations and rulings of the disputesettlement body provided for in Article 2(1) of that Understanding are notimplemented within a reasonable period of time, and Article 22(1) shows apreference for full implementation of a recommendation to bring a measure intoconformity with the WTO agreements in question.

39.

    However, Article 22(2) provides that if the member concerned fails to fulfil itsobligation to implement the said recommendations and rulings within a reasonableperiod of time, it is, if so requested, and on the expiry of a reasonable period at thelatest, to enter into negotiations with any party having invoked the disputesettlement procedures, with a view to finding mutually acceptable compensation.

40.

    Consequently, to require the judicial organs to refrain from applying the rules ofdomestic law which are inconsistent with the WTO agreements would have theconsequence of depriving the legislative or executive organs of the contractingparties of the possibility afforded by Article 22 of that memorandum of enteringinto negotiated arrangements even on a temporary basis.

41.

    It follows that the WTO agreements, interpreted in the light of their subject-matterand purpose, do not determine the appropriate legal means of ensuring that theyare applied in good faith in the legal order of the contracting parties.

42.

    As regards, more particularly, the application of the WTO agreements in theCommunity legal order, it must be noted that, according to its preamble, theagreement establishing the WTO, including the annexes, is still founded, like GATT1947, on the principle of negotiations with a view to 'entering into reciprocal andmutually advantageous arrangements‘ and is thus distinguished, from the viewpointof the Community, from the agreements concluded between the Community andnon-member countries which introduce a certain asymmetry of obligations, orcreate special relations of integration with the Community, such as the agreementwhich the Court was required to interpret in Kupferberg.

43.

    It is common ground, moreover, that some of the contracting parties, which areamong the most important commercial partners of the Community, have concludedfrom the subject-matter and purpose of the WTO agreements that they are notamong the rules applicable by their judicial organs when reviewing the legality oftheir rules of domestic law.

44.

    Admittedly, the fact that the courts of one of the parties consider that some of theprovisions of the agreement concluded by the Community are of direct applicationwhereas the courts of the other party do not recognise such direct application is notin itself such as to constitute a lack of reciprocity in the implementation of theagreement (Kupferberg, paragraph 18).

45.

    However, the lack of reciprocity in that regard on the part of the Community'strading partners, in relation to the WTO agreements which are based on'reciprocal and mutually advantageous arrangements‘ and which must ipso factobe distinguished from agreements concluded by the Community, referred to inparagraph 42 of the present judgment, may lead to disuniform application of theWTO rules.

46.

    To accept that the role of ensuring that those rules comply with Community lawdevolves directly on the Community judicature would deprive the legislative orexecutive organs of the Community of the scope for manoeuvre enjoyed by theircounterparts in the Community's trading partners.

47.

    It follows from all those considerations that, having regard to their nature andstructure, the WTO agreements are not in principle among the rules in the light ofwhich the Court is to review the legality of measures adopted by the Communityinstitutions.

48.

    That interpretation corresponds, moreover, to what is stated in the final recital inthe preamble to Decision 94/800, according to which 'by its nature, the Agreementestablishing the World Trade Organisation, including the Annexes thereto, is notsusceptible to being directly invoked in Community or Member State courts‘.

49.

    It is only where the Community intended to implement a particular obligationassumed in the context of the WTO, or where the Community measure refersexpressly to the precise provisions of the WTO agreements, that it is for the Courtto review the legality of the Community measure in question in the light of theWTO rules (see, as regards GATT 1947, Fediol, paragraphs 19 to 22, andNakajima, paragraph 31).

50.

    It is therefore necessary to examine whether, as the Portuguese Government claims,that is so in the present case.

51.

    The answer must be in the negative. The contested decision is not designed toensure the implementation in the Community legal order of a particular obligationassumed in the context of the WTO, nor does it make express reference to anyspecific provisions of the WTO agreements. Its purpose is merely to approve theMemoranda of Understanding negotiated by the Community with Pakistan andIndia.

52.

    It follows from all the foregoing that the claim of the Portuguese Republic that thecontested decision was adopted in breach of certain rules and fundamentalprinciples of the WTO is unfounded.

Breach of rules and fundamental principles of the Community legal order

Breach of the principle of publication of Community legislation

53.

    The Portuguese Government claims that this principle has been breached becausethe contested decision and the Memoranda of Understanding which it approveswere not published in the Official Journal of the European Communities. In itsreply, it merely states that the validity of its argument has been recognised, sincethe contested decision was published after it lodged its application.

54.

    In that regard, it is sufficient to observe that the belated publication of aCommunity measure in the Official Journal of the European Communities does notaffect the validity of that measure.

Breach of the principle of transparency

55.

    The Portuguese Government contends that this principle has been breachedbecause the contested decision approves Memoranda of Understanding which arenot adequately structured and are drafted in obscure terms which prevent a normalreader from immediately grasping all their implications, in particular as regardstheir retroactive application. In support of this plea it relies on the CouncilResolution of 8 June 1993 on the quality of drafting of Community legislation (OJ1993 C 166, p. 1).

56.

    It should be noted that, as the Council has observed, that resolution has no bindingeffect and places no obligation on the institutions to follow any particular rules indrafting legislative measures.

57.

    Furthermore, as the Advocate General observes in point 12 of his Opinion, thedecision appears to be clear in every aspect, as regards both the wording of itsprovisions relating to the conclusion of the two international agreements and asregards the rules contained in the two Memoranda of Understanding, whichprovide for a series of reciprocal undertakings by the contracting parties with aview to the gradual liberalisation of the market in textile products. Furthermore,the Portuguese Government‘s complaint that the contested decision fails toindicate precisely what provisions of the earlier measures it amends or repeals isnot of such a kind as to vitiate that decision, since such an omission does notconstitute a breach of an essential procedural requirement with which an institutionmust comply if the measure in question is not to be void.

58.

    The Portuguese Government's claim that the contested decision was adopted inbreach of the principle of transparency is therefore unfounded.

Breach of the principle of cooperation in good faith in relations between theCommunity institutions and the Member States

59.

    The Portuguese Government maintains that the bilateral agreements with India andPakistan were concluded without regard for its position concerning the negotiationswith those two countries, which it had clearly stated throughout the negotiatingprocedure, in particular at the meeting of the Council on 15 December 1993 atwhich it was decided to accede to the WTO agreements and in a letter of 7 April1994 from the Portuguese Minister for Foreign Affairs to the Council.

60.

    It consented to the signature of the Final Act of the WTO and the annexes theretoon condition that, inter alia, the obligation imposed on India and Pakistan to openup their markets could not give rise, in the negotiations with those countries, toreciprocal concessions on the part of the Member States other than those providedfor in the ATC.

61.

    In approving the Memoranda of Understanding, which provide for an acceleratedprocess for opening the market in textile products in comparison with the ATCand, consequently, the dismantling of the Community tariff quotas for thoseproducts, the contested decision was adopted in breach of the principle ofcooperation in good faith in relations between the Community and the MemberStates as inferred from the wording of Article 5 of the EC Treaty (now Article 10EC), and should therefore be annulled on that ground.

62.

    The Portuguese Government also claims that the signature of the Final Actrequired the consent of all the Member States and not of a qualified majority ofthe members of the Council. Any change in the equilibrium on the basis of whichthe Final Act was signed required fresh deliberations in the same voting conditions,that is, with unanimity.

63.

    The Council considers that the position expressed by the Portuguese Government,in particular in the letter of 7 April 1994 from the Minister for Foreign Affairs, isof a political nature and that, furthermore, it was taken into consideration in so faras it led to the adoption of Regulation No 852/95, whereby the Council granted aseries of subsidies to the Portuguese textile industry.

64.

    The Council also refutes the Portuguese Government's argument that approval ofthe two Memoranda of Understanding should have been decided unanimously. Itclaims that since the contested decision constitutes a commercial policy measureit could be adopted by a qualified majority of the members of the Council on thebasis of Article 113(4) of the EC Treaty (now, after amendment, Article 133(4)EC). The adoption of both memoranda complied fully with the provisions of theTreaty, moreover, in particular Article 113.

65.

    The Commission supports the Council's argument and further contends that, evenif the Portuguese Republic expressed reservations in concluding the finalagreement, the Council's failure to act in accordance with that agreement could notconstitute a ground for annulling the contested decision.

66.

    The Court observes, first, that the contested decision is a measure of commercialpolicy, to be adopted by a qualified majority pursuant to Article 133(4) of theTreaty. Accordingly, since it is common ground that the contested decision wasadopted in accordance with that provision, the fact that a minority of MemberStates, including the Portuguese Republic, were opposed to its adoption is not ofsuch a kind as to vitiate that decision and entail its annulment.

67.

    Second, the Court observes, as did the Advocate General at point 32 of hisOpinion, that the principle of cooperation in good faith between the Communityinstitutions and the Member States has no effect on the choice of the legal basisof Community legal measures and, consequently, on the legislative procedure to befollowed when adopting them.

68.

    Accordingly, the Portuguese Republic's claim that the contested decision failed tocomply with that principle is unfounded.

Breach of the principle of legitimate expectations

69.

    The Portuguese Government claims that in adopting the contested decision theCouncil breached the principle of legitimate expectations as regards economicoperators in the Portuguese textile industry.

70.

    It maintains that the latter were entitled to expect that the Council would notsubstantially alter the timetable and rate of the opening of the Community marketin textile products to international competition, as fixed in the WTO agreements,in particular the ATC, and in the applicable Community legislation, in particularRegulation No 3030/93, as amended by Regulation No 3289/94, which transposedthe rules set out in the ATC into Community law.

71.

    The adoption of the contested decision entailed a significant acceleration of theprocess of liberalising the Community market and therefore altered the legislativeframework established by the ATC by making it significantly tougher. Thatsignificant and unforeseeable alteration of the conditions of competition in theCommunity market in textile products changed the framework in which thePortuguese economic operators implemented the restructuring measures which theCouncil itself, in adopting Regulation No 852/95, deemed indispensable, renderingthose measures less effective and causing serious harm to the operators concerned.

72.

    The Council contends, first, that Portuguese operators in the textiles sector couldnot rely on a legitimate expectation that a situation which was still the subject of negotiation would be maintained. Although they assumed that the markets in Indiaand Pakistan would be opened up without any reciprocal concessions, thatexpectation was not such as to found a legitimate expectation, having regard to thefact that it did not result from any legal commitment given by the Council.

73.

    Second, the Council contends that the approval of the two Memoranda ofUnderstanding does not call in question the outcome of the Uruguay Round. Thememoranda do not contain any provision modifying the level of restrictions in forceor the rate of expansion provided for in the bilateral agreements concluded withIndia and Pakistan. The Memoranda of Understanding provide only that theCommission is prepared to give favourable consideration to requests for exceptionalflexibilities (including carry-over, carry-forward and inter-category transfers)introduced by Pakistan or India, within the framework of the existing restrictionsand not exceeding, for each quota year, the amounts fixed in each memorandum. Those exceptional flexibilities, and in particular the possibility of carrying themforward, do not modify the restrictions in force and, in particular, do not have theeffect of altering the timetable for integration of the categories concerned intoGATT 1994.

74.

    The Commission maintains that the Portuguese Republic cannot reply on breachof the principle of legitimate expectations of the economic operators because, first,it does not have a direct and personal interest in the protection of their legitimateinterests and, second, it failed to forewarn those economic operators, although theinformation in its possession showed clearly and adequately that in order to reachan agreement the Community would probably have to grant additional concessions.

75.

    In that regard, it should be noted that it is settled law that the principle of respectfor legitimate expectations cannot be used to make a regulation unalterable, inparticular in sectors - such as that of textile imports - where continuous adjustmentof the rules to changes in the economic situation is necessary and thereforereasonably foreseeable (see to that effect Case C-315/96 Lopex Export [1998] ECRI-317, paragraphs 28 to 30).

76.

    Furthermore, for the reasons stated by the Advocate General at point 33 of hisOpinion, no appreciable differences in treatment were established between Indianand Pakistani producers, on the one hand, and those from other States which haveacceded to the WTO, on the other hand; in any event, if such differences exist theyare not of such a kind as to prejudice the expectations of the operators concerned.

77.

    It follows that the Portuguese Republic's claim that the contested decision wasadopted in breach of the principle of legitimate expectations is unfounded.

Breach of the principle of the non-retroactivity of legal rules

78.

    The Portuguese Government claims that the principle of the non-retroactivity oflegal rules has been breached, since the arrangements introduced by theMemoranda of Understanding approved in the contested decision have retroactiveeffect and apply to past situations without any reasons being stated for the need toderogate from the principle that legal rules apply only for the future.

79.

    Although they were signed on 15 October and 31 December 1994 respectively, andonly approved by the Council on 26 February 1996, the Memoranda ofUnderstanding concluded with Pakistan and India ratify the application of a systemof exceptional flexibilities which took effect, pursuant to paragraph 6 of eachmemorandum, as from 1994 in the case of Pakistan and 1995 in the case of India.

80.

    In that regard, it is sufficient to point out that the implementation of theseinternational commitments in Community law was to be effected by theCommission, pursuant to Article 19 of Regulation No 3030/93, by the adoption ofmeasures amending the annexes thereto.

81.

    Accordingly, it is only in the context of an action against the adoption of suchmeasures that their retroactive effect may be challenged.

82.

    It follows that the Portuguese Republic cannot rely on the claim that the contesteddecision failed to observe the principle of the non-retroactivity of legal measures.

Breach of the principle of economic and social cohesion

83.

    The Portuguese Government maintains that the contested decision was adopted inbreach of the principle of economic and social cohesion set out in Articles 2 and3(j) of the EC Treaty (now, after amendment, Articles 2 EC and 3(1)(k) EC), andalso of Articles 130a of the EC Treaty (now, after amendment, Article 158 EC),130b and 130c of the EC Treaty (now Articles 159 EC and 160 EC), and 130d and130e of the EC Treaty (now, after amendment, Articles 161 EC and 162 EC). TheCouncil itself referred to such a principle in the recitals in the preamble toRegulation No 852/95, when it stated that the adoption of that regulation hadbecome necessary owing to the adoption of legal arrangements which aggravatedinequalities and jeopardised the economic and social cohesion of the Community.

84.

    The Council maintains that the Community adopted Regulation No 852/95 infavour of the Portuguese industry in order to strengthen economic and socialcohesion. It also observes that the Community's obligation to integrate textileproducts and clothing within the framework of GATT 1994 in accordance with theprovisions of the ATC and Regulation No 3289/94 amending RegulationNo 3030/93, was not affected by the commitments contained in the two Memorandaof Understanding.

85.

    The Commission maintains that, contrary to what the Portuguese Republic claims,the EC Treaty does not set up economic and social cohesion as a fundamentalprinciple of the Community legal order, compliance with which is absolutely bindingon the institutions to the extent that any measure capable of having a negativeimpact on certain less-favoured areas of the Community is automatically void.

86.

    The Court would observe that although it follows from Articles 2 and 3 of theTreaty, and also from Articles 130a and 130e, that the strengthening of economicand social cohesion is one of the objectives of the Community and, consequently,constitutes an important factor, in particular for the interpretation of Communitylaw in the economic and social sphere, the provisions in question merely lay downa programme, so that the implementation of the objective of economic and socialcohesion must be the result of the policies and actions of the Community and alsoof the Member States.

87.

    Consequently, the Portuguese Government's claim that the contested decision wasadopted in breach of the principle of economic and social cohesion is unfounded.

Breach of the principle of equality between economic operators

88.

    The Portuguese Government claims that the contested decision favours woollenproducts over cotton products, since the measures opening the markets of Indiaand Pakistan established by the Memoranda of Understanding benefit virtuallyexclusively Community producers of wool products. Producers in the cotton sector- in which the essential part of the export capacity of the Portuguese industry isconcentrated - are thus doubly penalised.

89.

    The Council replies that the purpose of the negotiations with India and Pakistanwas to improve access to the Indian and Pakistan markets. If the products suppliedby those two countries tended to suit a particular category of economic operator,in this case those in the wool sector, that cannot constitute a breach of the principleof equality between economic operators, since the memoranda were not in any wayintended to discriminate between them.

90.

    The Commission maintains that the fact that India and Pakistan offered morefavourable treatment for wool products than for cotton products (an allegationwhich has not been proven by the Portuguese Republic) and thereby establisheda certain inequality of treatment between different categories of operators in thetextile industry cannot be attributed to the Council as discrimination on its part.Even if it could, the discrimination would be justified by the nature of the measurein question and the objective which the Council pursued in approving theMemoranda of Understanding, namely to improve, in the common interest, accessto the Indian and Pakistan markets for all products of Community origin.

91.

    The principle of non-discrimination requires that 'comparable situations should notbe treated in a different manner unless the difference in treatment is objectivelyjustified‘ (see, in particular, Germany v Commission, cited above, paragraph 67).

92.

    In the present case, as the Advocate General observes at point 35 of his Opinion,operators in the textile sector are active in two separate markets, the market inwool and the market in cotton, and, consequently, any economic prejudice sufferedby one of those two categories of producers does not imply a breach of theprinciple of non-discrimination.

93.

    Consequently, the Portuguese Republic's claim that the contested decision wasadopted in breach of the principle of equality between economic operators is alsounfounded.

94.

    It follows that its claim that the contested decision was adopted in breach of certainrules and fundamental principles of the Community legal order is unfounded;accordingly, the application must be dismissed in its entirety.

Costs

95.

    Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to beordered to pay the costs, if they have been applied for in the successful party'spleadings. Since the Council applied for the Portuguese Republic to be orderedto pay the costs and the Portuguese Republic has been unsuccessful, it must beordered to pay the costs. Under Article 69(4) of the Rules of Procedure, theMember States and institutions which have intervened in the proceedings are tobear their own costs.

On those grounds,

THE COURT

hereby:

1.    Dismisses the application;

2.    Orders the Portuguese Republic to pay the costs;

3.    Orders the French Republic and the Commission of the EuropeanCommunities to bear their own costs.

Moitinho de Almeida Edward Sevón Kapteyn Gulmann Puissochet Hirsch Jann Ragnemalm

Delivered in open court in Luxembourg on 23 November 1999.

R. Grass

G.C. Rodríguez Iglesias

Registrar

President

1: Language of the case: Portuguese.