JUDGMENT OF THE COURT (First Chamber)

16 December 1999 (1)

(Agriculture — Common organisation of the market — Beef and veal — Exportrefunds — Beef processed before entering the country of import — Internationalagreements — Effects — Cooperation Agreement between the EuropeanEconomic Community, of the one part, and the countries parties to the Charterof the Cooperation Council for the Arab States of the Gulf, of the other part)

In Case C-74/98,

REFERENCE to the Court under Article 177 of the EC Treaty (now Article 234EC) by the Østre Landsret, Denmark, for a preliminary ruling in the proceedingspending before that court between

DAT-SCHAUB amba

and

Ministeriet for Fødevarer, Landbrug og Fiskeri

on the interpretation of Article 17(2) of Commission Regulation (EEC) No 3665/87of 27 November 1987 laying down common detailed rules for the application of thesystem of export refunds on agricultural products (OJ 1987 L 351, p. 1),

THE COURT (First Chamber),

composed of: L. Sevón (Rapporteur), President of the Chamber, P. Jann andM. Wathelet, Judges,

Advocate General: J. Mischo,

Registrar: H.A. Rühl, Principal Administrator,

after considering the written observations submitted on behalf of:

—    DAT-SCHAUB amba, by A. Fischer, of the Copenhagen Bar,

—    the Ministeriet for Fødevarer, Landbrug og Fiskeri, by K. Hagel-Sørensenand B. Moll Sørensen, of the Copenhagen Bar,

—    the Commission of the European Communities, by H.P. Hartvig, LegalAdviser, acting as Agent,

having regard to the Report for the Hearing,

after hearing the oral observations of DAT-SCHAUB amba, the Ministeriet forFødevarer, Landbrug og Fiskeri and the Commission at the hearing on 6 May 1999,

after hearing the Opinion of the Advocate General at the sitting on 3 June 1999,

gives the following

Judgment

1.

    By order of 12 March 1998, received at the Court on 17 March 1998, the ØstreLandsret referred to the Court for a preliminary ruling under Article 177 of the ECTreaty (now Article 234 EC) a question on the interpretation of Article 17(2) ofCommission Regulation (EEC) No 3665/87 of 27 November 1987 laying downcommon detailed rules for the application of the system of export refunds onagricultural products (OJ 1987 L 351, p. 1).

2.

    That question was raised in proceedings between DAT-SCHAUB amba and theMinisteriet for Fødevarer, Landbrug og Fiskeri (the Danish Ministry of Food,Agriculture and Fisheries) concerning the Ministry's refusal to grant it exportrefunds for beef exported to the United Arab Emirates which, after beingprocessed there without first being cleared through customs for release forconsumption, was exported to other countries parties to the Charter of theCooperation Council for the Arab States of the Gulf (hereinafter 'GCCcountries‘).

The Community legislation

3.

    Regulation No 3665/87 lays down common detailed rules for the application of thesystem of export refunds, inter alia under Regulation (EEC) No 805/68 of theCouncil of 27 June 1968 on the common organisation of the market in beef andveal (OJ, English Special Edition 1968(I), p. 187).

4.

    Article 3(5)(a) of Regulation No 3665/87 prescribes that the document used forexport to enable products to qualify for a refund must include inter alia adescription of the products in accordance with the nomenclature used for refunds.

5.

    Article 5(1) of that regulation states that, in certain circumstances listed therein,payment of the differentiated or non-differentiated refund is conditional not onlyon the product having left the customs territory of the Community but also, savewhere it has perished in transit as a result of force majeure, on its having beenimported into a non-member country and, where appropriate, into a specific non-member country within 12 months following the date of acceptance of the exportdeclaration.

6.

    Articles 16 to 18 of that regulation, as amended by Commission Regulation (EEC)No 354/90 of 9 February 1990 amending Regulation (EEC) No 3665/87 as regardsproof of arrival at destination in third countries of agricultural products qualifyingfor a variable refund (OJ 1990 L 38, p. 34), lay down additional conditions forproducts for which there are differentiated refunds according to destination,relating in particular to proof that they have been cleared for release forconsumption in the non-member country.

7.

    With respect to payment of refunds, Article 17 of Regulation No 3665/87prescribes:

'1.    The product must have been imported in the unaltered state into thenon-member country or one of the non-member countries for which the refund isprescribed within 12 months following the date of acceptance of the exportdeclaration. However, that period may be extended under the conditions laid downin Article 47.

2.    Products shall be regarded as having been imported in the unaltered stateif there is no evidence whatsoever of processing.

However:

...

—    a product which was processed before being imported shall be regarded ashaving been imported in the unaltered state if the processing took place in

the non-member country into which all the products resulting from suchprocessing were imported.

3.    A product shall be considered to have been imported when it has beencleared through customs for release for consumption in the non-member countryconcerned.‘

8.

    The products for which refunds are given and the amounts of those refunds aredetermined, as far as the main proceedings are concerned, by CommissionRegulation (EEC) No 2253/90 of 31 July 1990 (OJ 1990 L 203, p. 63) andCommission Regulation No 656/91 of 19 March 1991 (OJ 1991 L 73, p. 9) fixingthe export refunds on beef and veal and amending Regulation (EEC) No 3846/87establishing an agricultural product nomenclature for export refunds.

9.

    Annex I to each of those regulations specifies the product code, destination andamount of refunds. Under note 7 to the annex, destinations of exports areidentified by a numerical code, destination 02 comprising 'North African, Near andMiddle East third countries, West, Central, East and South African third countries,except Lebanon, Cyprus, Botswana, Kenya, Madagascar, Swaziland, Zimbabwe andNamibia‘. In this connection, the third countries are stated to be as definedrespectively in Commission Regulation (EEC) No 420/90 of 19 February 1990 (OJ1990 L 44, p. 15) and Commission Regulation No 91/91 of 15 January 1991 (OJ1991 L 11, p. 5) on the country nomenclature for the external trade statistics of theCommunity and statistics of trade between Member States. In those regulationseach GCC country is mentioned individually.

10.

    On 30 June 1993 the Commission adopted a decision on the payment of an exportrefund on beef and veal exported for processing to the United Arab Emirates, inconnection with Regulation No 3665/87 (C(93) 1723 final, hereinafter 'theDecision‘). Under Article 1(1) of the Decision:

'An export refund may be granted for beef exported to the United Arab Emirates(UAE) and processed there into meat products under temporary admissionprocedure for inward processing, where the latter products are subsequentlyexported from there to another non-member country which is a member of theGulf Cooperation Council (GCC).‘

11.

    In accordance with Article 2 thereof, the Decision applies only to exports for whichthe export declaration was accepted in the period from its notification until 31December 1994.

12.

    The Cooperation Agreement between the European Economic Community, of theone part, and the countries parties to the Charter of the Cooperation Council forthe Arab States of the Gulf (the State of the United Arab Emirates, the State ofBahrain, the Kingdom of Saudi Arabia, the Sultanate of Oman, the State of Qatarand the State of Kuwait) of the other part, approved on behalf of the Community

by Council Decision 89/147/EEC of 20 February 1989 (OJ 1989 L 54, p. 1,hereinafter 'the Cooperation Agreement‘) provides in Article 11:

'1.    In the field of trade, the objective of this Agreement is to promote thedevelopment and diversification of the reciprocal commercial exchanges betweenthe Contracting Parties to the highest possible level, inter alia by studying ways andmeans of overcoming trade barriers for the access of each Contracting Party'sproducts to the other Contracting Party's market.

2.    The Contracting Parties shall enter into discussions concerning thenegotiation of an agreement aimed at the expansion of trade in accordance withthe provisions of the Joint Declaration annexed hereto.

3.    Pending the conclusion of the trade agreement referred to in paragraph 2,the Contracting Parties accord each other most-favoured-nation treatment.‘

13.

    Further, under Article 19 of the Cooperation Agreement:

'In the fields covered by this Agreement and without prejudice to its provisions:

...

—    the arrangements applied by the Community in respect of the GCCcountries shall not give rise to any discrimination between them, theirnationals, or their companies or firms.‘

The main proceedings

14.

    It appears from the order for reference that between 8 November 1990 and 20December 1992 DAT-SCHAUB exported frozen beef from Denmark to adestination stated in the export declarations to be the United Arab Emirates, andobtained refunds on that basis. The beef was processed in the Jebel Ali Free Zonein the Emirate of Dubai, but without first having been cleared through customs forrelease for consumption. The processed products were then exported in part toother GCC countries to be marketed there.

15.

    Since they considered that the products re-exported to countries other than theUnited Arab Emirates mentioned in the export declarations did not giveentitlement to the refunds DAT-SCHAUB had received, the Danish authoritiesrecovered those refunds, in the amount of DKK 9 898 936.75, by setting off thesums they had paid against those corresponding to the securities which had beenlodged with a view to obtaining those refunds.

16.

    The Østre Landsret, before which DAT-SCHAUB brought proceedings against theMinistry for recovery of the sum thus recovered by the latter, stayed proceedingsand referred the following question to the Court for a preliminary ruling:

'Having regard to the Cooperation Agreement between the European EconomicCommunity and the countries parties to the Charter of the Cooperation Councilfor the Arab States of the Gulf, approved by Council Decision 89/147 of 20February 1989, must the term ”non-member country” in the second subparagraphof Article 17(2) of Regulation No 3665/87 laying down common detailed rules forthe application of the system of export refunds on agricultural products beconstrued as meaning that countries parties to the Charter are treated as one singlenon-member country, with the result that a product which, after processing in theJebel Ali Free Zone in the United Arab Emirates, is imported into and releasedfor consumption in another of the countries parties to the Charter is to be regardedas having been imported in the unaltered state within the meaning of Article 17 ofthe regulation?‘

The question referred for a preliminary ruling

17.

    By its question the national court is essentially asking whether the second indentof the second subparagraph of Article 17(2) of Regulation No 3665/87 is to beinterpreted as meaning that the GCC countries are regarded, where products areprocessed before being cleared through customs on the territory of one of thosecountries and then exported to others, as a single country into which all theproducts resulting from that processing have been imported.

18.

    DAT-SCHAUB submits that the question should be answered in the affirmative,as the term 'non-member country‘ in the second indent of the secondsubparagraph of Article 17(2) of Regulation No 3665/87 refers also to a group ofStates with which the European Community has concluded a cooperationagreement and fixed uniform rates of refunds for each of the States concerned.

19.

    It submits that an interpretation to the effect that refunds are granted only forproducts released for consumption in the GCC country where they have beenprocessed would be contrary to the prohibition of discrimination in Article 19 ofthe Cooperation Agreement and to the principle of proportionality: first, the samerefund rate applies to all those countries, and, second, a correct reading of thesecond indent of the second subparagraph of Article 17(2) of Regulation No3665/87 should take into consideration the more flexible wording of paragraph 1of that article, which states that 'the product must have been imported in theunaltered state into the non-member country or one of the non-member countriesfor which the refund is prescribed ...‘. Thus, by assimilating the GCC countries forrefund purposes, the Decision merely confirms the existing legal position byclarifying various points, for example with reference to the documents to beproduced.

20.

    Finally, DAT-SCHAUB points to its good faith in the interpretation of Article17(2) of Regulation No 3665/87.

21.

    The Ministry and the Commission, on the other hand, contend that that provisionmust be interpreted as meaning that a right to refunds exists only where theproducts are imported and released for consumption in the same country in whichthey are processed. In particular, the wording of the provision, which isunambiguous in using the expression 'non-member country‘ in the singular, doesnot lend itself to being read as denoting a whole group of non-member countries.

22.

    The Ministry refers here to the sixth recital in the preamble to CommissionRegulation (EEC) No 568/85 of 4 March 1985 amending for the 10th timeRegulation (EEC) No 2730/79 laying down common detailed rules for theapplication of the system of export refunds on agricultural products (OJ 1985 L 65,p. 5), which is the source of the corresponding passage in the second indent of thesecond subparagraph of Article 17(2) of Regulation No 3665/87. It states: '...however, a product which is processed in the importing non-member country beforebeing released for home use should be regarded as having been imported in theunaltered state when proof is provided that processing took place in the non-member country in which all the products resulting from such processing have beenreleased for home use‘.

23.

    The Ministry and the Commission further submit, the Commission as an alternativesubmission after observing that the national court has not questioned the Court onthis point, that application of the principle of proportionality does not necessarilyimply such an assimilation of the GCC countries to a single non-member country,as the requirement of import in the unaltered state into the declared country ofdestination is intended to facilitate checking the routing of the products, inparticular that they are actually released for consumption in the country for whichthe refund is provided. For this purpose it is immaterial that the rate of refund isthe same for other countries to which the products are said to have been re-exported. Moreover, the rate is not specific to the GCC countries, but applies alsoto various other non-member countries.

24.

    As regards the Cooperation Agreement, the Ministry and the Commission submitthat this is only a framework agreement which lays down certain objectives andprinciples but implies that a proper trade agreement will subsequently beconcluded, and therefore cannot be of direct application. In any event, a literalapplication of the second indent of the second subparagraph of Article 17(2) ofRegulation No 3665/87 to each of the GCC countries would not involvediscrimination between them within the meaning of Article 19 of the CooperationAgreement.

25.

    As regards the Decision, the Ministry and the Commission submit that it introducesa derogation, for a limited time, from that provision of Regulation No 3665/87, andis not intended to resolve problems of documentation.

26.

    It should be pointed out that, according to Regulation No 805/68, the granting ofrefunds on exports of beef and veal to non-member countries, equal to thedifference between prices on the world market and those within the Community,is intended to safeguard Community participation in international trade in beef andveal.

27.

    It should also be noted that, according to settled case-law, the system ofdifferentiated export refunds is intended to gain or to maintain access forCommunity exports to the markets of the non-member countries concerned, thereason for differentiated refunds being the desire to take account of the particularcharacteristics of each import market in which the Community wishes to play a part(see Case 89/83 Hauptzollamt Hamburg-Jonas v Dimex [1984] ECR 2815, paragraph8, and Case C-299/94 Anglo Irish Beef Processors International and Others v Ministerfor Agriculture, Food and Forestry [1996] ECR I-1925, paragraph 21).

28.

    It is essential for that purpose of the system of differentiated refunds that productsin respect of which a subsidy is granted in the form of a refund actually reach theirmarket of destination so that they can be marketed there (see Anglo Irish BeefProcessors International, paragraph 28).

29.

    Thus, in accordance with the provisions of Regulation No 3665/87, payment ofrefunds is conditional, in the case of differentiated refunds, on the product havingbeen imported into a non-member country and on the formalities for its release forconsumption having been completed (see Case C-263/97 R v Intervention Board forAgricultural Produce, ex parte First City Trading and Others [1998] ECR I-5537,paragraph 27).

30.

    The fact that the product is re-exported before being released for consumption inthe country of destination therefore rules out the possibility of its being regarded,for the purposes of payment of the differentiated refund, as having been importedwithin the meaning of Article 5(1) of Regulation No 3665/87 (see HauptzollamtHamburg-Jonas v Dimex, paragraph 17, and Anglo Irish Beef Processors International,paragraph 23).

31.

    In first place, as regards DAT-SCHAUB's argument that the GCC countries shouldbe regarded as forming a single country for the purposes of applying the secondindent of the second subparagraph of Article 17(2) of Regulation No 3665/87, itmust be observed, to begin with, that the wording of that provision is clear andunambiguous in referring, in the singular, to 'the non-member country into whichall the products ... were imported‘ to designate the place where the products mayfirst be processed without the right to the refund being lost.

32.

    That conclusion is not invalidated by the wording of Article 17(1) of Regulation No3665/87, which mentions 'non-member countries‘, thus using the plural todesignate the place into which the product must have been imported in theunaltered state. That provision relates to importation in the unaltered state withoutprocessing and refers to other agricultural products whose export may attractrefunds which are differentiated not by countries but by zones comprising severalcountries of destination. By contrast, Article 17(2) intentionally, for reasons ofsupervision, excludes any re-export after processing. There is thus no contradictionbetween the wording of the first two paragraphs of Article 17 of Regulation No3665/87.

33.

    It follows, next, from a reading of Article 3(5)(a) of Regulation No 3665/87 inconjunction with Annex I to Regulation No 2253/90 and Annex I to Regulation No656/91 that an operator seeking a refund for exports of beef and veal is obliged tomention each country of destination individually in his export declaration, inaccordance with the country nomenclature in the annex to Regulation No 420/90.That nomenclature does not include any collective entity such as 'the GCCcountries‘. On the contrary, it makes separate mention of each of the GCCcountries, which must therefore be recognised as such as separate destinations forthe purposes of export refunds.

34.

    Finally, as regards DAT-SCHAUB's argument based on Article 19 of theCooperation Agreement, it is sufficient to observe that the second indent of thesecond subparagraph of Article 17(2) of Regulation No 3665/87 applies withoutdistinction to each of the GCC countries and does not discriminate between them.

35.

    In the second place, as regards the question whether that provision complies withthe principle of proportionality, it must be pointed out that effective supervision isessential to the proper functioning of the system of refunds, as the refunds can bepaid only if the goods are correctly identified (see Case 276/84 Metelmann vHauptzollamt Hamburg-Jonas [1985] ECR 4057, paragraph 11).

36.

    The Court held in that judgment, with respect to the repackaging of a product indifferent units, that the principle of proportionality does not preclude it being heldthat any alteration in the presentation of the goods entails forfeiture of the refund,where it is liable to render customs control more difficult and for that reason toaffect the proper functioning of the system of refunds (Metelmann, paragraph 13).

37.

    For similar reasons deriving from the need not to render customs controls moredifficult, the second indent of the second subparagraph of Article 17(2) ofRegulation No 3665/87 does not infringe the principle of proportionality.

38.

    In the third place, as regards the Decision, it is common ground that, as stated inArticle 2 thereof, it applies only to exports for which the export declaration wasaccepted in the period from its notification until 31 December 1994, that is, a

period later than that of the facts at issue in the main proceedings. The Decision,which has no retroactive effect, therefore cannot apply to those facts.

39.

    DAT-SCHAUB's argument that the Decision merely confirms explicitly a previouslyaccepted interpretation of the second indent of the second subparagraph of Article17(2) of Regulation No 3665/87 is precluded by the very wording of the Decision.

40.

    As stated in the second recital in the preamble to the Decision, the above provisionprecluded the possibility of processing a Community product in the non-membercountry of destination under a temporary admission procedure in order then toexport it to another non-member country while being entitled to an export refund.

41.

    It was because that situation might entail the loss of markets for Communityproducts, and, according to the eighth recital in the preamble to the Decision, atthe request of the Kingdom of Denmark, that it was decided to allow for a fixedperiod the re-export of processed products to other GCC countries with the benefitof the refunds prescribed for one of them, the United Arab Emirates, which is thecountry mentioned in the export declaration.

42.

    It therefore follows from the wording and from the objective of the Decision thatit constitutes a derogation for a limited time from the second indent of the secondsubparagraph of Article 17(2) of Regulation No 3665/87. The Decision thus doesnot have the scope attributed to it by DAT-SCHAUB, namely a confirmation ofa previously existing situation resulting from the application of that provision.

43.

    Finally, DAT-SCHAUB submits that a typical operator could in good faith haveunderstood the provision as allowing re-exports to other GCC countries from oneof them, as the rates of refunds applicable to all those countries were the same.

44.

    On this point, it is sufficient to observe that, as stated in paragraphs 31 and 32above, the wording of the second indent of the second subparagraph of Article17(2) of Regulation No 3665/87 is sufficiently clear to be understood as referringonly to processing operations in the territory of the country in which the resultingproducts are then released for consumption. Consequently, no legitimateexpectation as to a broader interpretation of that provision could have been drawnby economic operators from its wording.

45.

    Accordingly, the answer to the Østre Landsret's question must be that the secondindent of the second subparagraph of Article 17(2) of Regulation No 3665/87 is tobe interpreted as meaning that the GCC countries are not regarded, whereproducts are processed before being cleared through customs on the territory ofone of those countries and then exported to others, as a single non-member countryinto which all the products resulting from that processing have been imported.

Costs

46.

    The costs incurred by the Commission, which has submitted observations to theCourt, are not recoverable. Since these proceedings are, for the parties to the mainproceedings, a step in the action pending before the national court, the decision oncosts is a matter for that court.

On those grounds,

THE COURT (First Chamber),

in answer to the question referred to it by the Østre Landsret by order of 12 March1998, hereby rules:

The second indent of the second subparagraph of Article 17(2) of CommissionRegulation (EEC) No 3665/87 of 27 November 1987 laying down common detailedrules for the application of the system of export refunds on agricultural productsmust be interpreted as meaning that the countries parties to the Charter of theCooperation Council for the Arab States of the Gulf are not regarded, whereproducts are processed before being cleared through customs on the territory ofone of those countries and then exported to others, as a single non-membercountry into which all the products resulting from that processing have beenimported.

SevónJann Wathelet

Delivered in open court in Luxembourg on 16 December 1999.

R. Grass

L. Sevón

Registrar

President of the First Chamber

1: Language of the case: Danish.