as customs duties. 5. Although the first paragraph of Article 95 by implication allows it is only to the limited extent to

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1 JUDGMENT OF JOINED CASES 2 AND 3/62 application, may be regarded as a duty imposed unilaterally eir at time of importation or subsequently, and which, if imposed upon a product specifically imported from a Member State to exclusion of a similar domestic product, has, by altering its price, same effect on free movement of products as a customs duty. This concept, far from being an exception to general rule prohibiting customs duties, is on contrary necessarily complementary to it and enables it to be made effective. The concept of a charge having equivalent effect, invariably linked discriminatory or protective results as customs duties. 5. Although first paragraph of Article 95 by implication allows 'taxation' on an imported product, it is only to limited extent to which same taxation is imposed equally upon similar domestic products. The field of application of this Article cannot be extended to point of allowing compensation between a tax burden created for purpose of imposition upon an imported product and a tax burden of a different nature, for example economic, imposed on a similar domestic product. to that of'customs duties', is evidence of a general intention to prohibit not only measures which obviously take form of classic customs duty but also all those which, presented under or names or introduced by indirect means of procedures, would lead to or same 6. To resolve difficulties which might arise in given economic a sector, Member States wished Community procedures to be established in order to prevent unilateral intervention by national administrations. In Cases 2 and 3/62 COMMISSION OF THE EUROPEAN ECONOMIC COMMUNITY represented, Hubert Ehring, Legal Adviser of European Executives, acting as Agent, with an address for service in Luxembourg at Chambers of Henri Manzanarès, Secretary of Legal Service of European Executives, 2 Place de Metz, by applicant, v 1. GRAND DUCHY OF LUXEMBOURG (Case 2/62) represented by Jean Rettel, Legal Adviser attached acting as Ministry of Foreign Affairs, 5 rue Notre-Dame, to Ministry of Foreign Affairs, Agent, with an address for service in Luxembourg at and 2. KINGDOM OF BELGIUM (Case 3/62) represented by its Deputy Prime Minister and Minister of Foreign Affairs, having appointed as its Agent 426

2 Increases The Facts COMMISSION v LUXEMBOURG & KINGDOM OF BELGIUM Jacques Karelle, Director of of Ministry Foreign Affairs and Foreign Trade, assisted by Marcel Verschelden, Advocate of Cour d'appel of Brussels, with an address for service in Luxembourg at Belgian Embassy, 9 Boulevard du Prince-Henri, defendants, Application for a ruling on legality of: in special duty levied by Belgium and Luxembourg issue of import licences for gingerbread; and on extension of that duty Heading No of Common Customs Tariff; to products similar to gingerbread under which is contested on ground that y were introduced after 1 January 1958; THE COURT composed of: A. M.Donner, President, L. Delvaux and R. Rossi (Presidents of Chambers), O. Riese, Ch. L. Hammes, A. Trabucchi and R. Lecourt (Rapporteur), Judges, Advocate-General K. Roemer Registrar: A. Van Houtte gives following JUDGMENT Issues of fact and of law I and procedure In Belgium and Luxembourg, by Decrees of 16 August 1957 and 20 August 1957 respectively, a special import duty was created which was to be levied upon issue of import licences for gingerbread. After entry into force of Treaty on 1 January 1958, amount of this duty, which was originally fixed at 35 francs per 100 kg., was progressively increased to 137 francs in 1961 and reafter reduced to 95 francs and n to 70 francs at end of that year. Finally, by Decrees of24 and 2 7 February 427

3 Conclusions JUDGMENT OF JOINED CASES 2 AND 3/ respectively, special duty was extended in both countries to products similar to gingerbread coming under No of Common Heading Customs Tariff. The Commission complained to Belgian and Luxembourg Governments by letter of 19 May 1961 that y had failed to fulfil ir obligations under Article 12 of Treaty and, after receiving ir observations, sent m on 2 October 1961 a reasoned opinion dated 27 September 1961 stated that y Treaty in which it had infringed and invited m to take necessary measures to comply Treaty Having with within a period of one month. obtained an extension of this period until end of November, two Governments by letters of 27 November and 4 December 1961, without denying that 'a unilateral measure is of its very nature open to criticism', expressed wish to obtain authorization of Commission, under Article 226 of Treaty, to levy on imports of gingerbread coming from Member States a charge having equivalent effect to special duty. By a letter dated 20 December 1961 Commission declared that it was prepared to examine as a matter of urgency particular situation with regard to products in question, on condition that special duty, which had been increased or. put into effect after 1 January 1958, should be suspended until a decision had been given on protective measures sought. The Governments concerned did not agree to this proposal and, by letters dated 1 and 17 February 1962, y declared that y were relying upon a decision taken under Article 235 of Treaty, and confirmed on 4 April 1962 by Council of Ministers of Community, which provided for imposition of duties on imports of certain goods arising from processing of agricultural products. The Commission n brought two actions before Court under Article 169 of Treaty, in which it sought declarations that Belgium and Luxembourg had failed to fulfil ir obligations under Treaty. The applications were lodged at Court Registry on 21 February By an Order dated 19 June 1962 Courtjoined two cases on ground that y related to same subject matter, since Grand Duchy of Luxembourg had adopted same conclusions and arguments as Kingdom ofbelgium. The procedure followed normal course. Following an application to Court by defendants which was lodged at Court Registry on 10 November 1962, and thus made after oral procedure had closed, and which contained a request for of reopening said procedure, Court dismissed request by December II an Order dated 3 of parties The Commission asks Court 'to find that, by increasing special import duty levied on issue of import licences for gingerbread after Treaty entered into force, and by extending levy of this duty to products similar to gingerbread coming under Heading No of Common Customs Tariff, Luxembourg and Belgium have 'failed to fulfil ir obligations under Treaty'. It furr asks Court to order Belgium and Luxembourg to pay costs. The defendants ask Court to 'declare application inadmissible' and 'state that re are no grounds for upon adjudicating it'. They also ask Court to 'declare unfounded' application in any event to be and to 'dismiss it and order applicant to pay costs'. to 428

4 Arguments COMMISSION v LUXEMBOURG & KINGDOM OF BELGIUM III of parties On Admissibility The defendants have pleaded inadmissibility of application made by Commission on ground that, instead of following as it did procedure laid down in Article 169, Commission was obliged to deal as a matter of priority and urgency with ir request for authorization of protective measures pursuantto Article 226 and with ir request that Regulation of Council of Ministers adopted pursuant to Article 235 should be applied, both requests having been made in good time. The defendants state that in se circumstances Commission is deprived of capacity and legal interest of taking necessary for purposes action and that refore its cause of action has lost all legal effect. The applicant has answered this allegation by referring to delay in making requests mentioned above and deficiency of reasoning on which y were based, impossibility of rectifying situation created by a refusal to comply with a reasoned opinion by means of a subsequent request for a derogation from that opinion, absence of any connexion between procedure under Article 169 and that under Article 226, and finally Commission's interest in obtaining a decision to settle dispute on interpretation of Article 12. On substance of case only. In its view re is only one effect on movement of goods which is common to all customs duties, namely taxation of imported products alone, to exclusion of domestic products. It suggests that first paragraph of Article 95 cannot be interpreted in any or way. Although Commission does not deny legality of a special duty in respect of rye, which is a raw material for making gingerbread, because rye is covered by pro agricultural visions of Treaty, gingerbread, it cannot equate which is a processed product excluded from Annex II to Treaty, with an agricultural product. The defendants plead that, to constitute a charge having equivalent effect to a customs duty, charge must have similar effects in all respects and not just in one specific aspect, wher fiscal or protective. They stress following essential effect of special duty at issue is not to impose burdens on foreign products but, through operation of an independent marketing policy, to align ir prices on those in domestic market by means of a kind of compensation; effect of special duty is to enable domestic market to be organized, and this is not illegal; duty on gingerbread varies in accordance with duty on legality called in question; points: rye of which has not been Council of Ministers has provided The applicant states that a charge having equivalent effect to a customs duty within of meaning Article 12 is a charge levied on imported products for levy of a countervailing charge on certain goods resulting from of processing agricultural products. Grounds ofjudgment On admissibility In claiming application to be inadmissible, defendants submit that 429

5 which would cannot JUDGMENT OF JOINED CASES 2 AND 3/62 Commission has prevented rectification of situation under consideration by improperly demanding suspension of measures criticized before deciding upon requests for derogation put forward by m both under Article 226 of Treaty and under a Regulation adopted by Council of Ministers on 4 April 1962, pursuant to Article 235. By 'abusing its powers and by adopting an excessively legalistic attitude' and by failing to decide as a matter of urgency upon requests, as it was obliged to do, Commission has in defendants' submission, lost right to take proceedings against defendants for infringement of Treaty. As Commission is obliged by Article 155 to ensure that provisions of Treaty are applied, it cannot be deprived of right to exercise an essential power which it holds under Article 169 to ensure that Treaty is observed. If it were possible to prevent application of Article 169 by a request for rectification, that Article would lose all its effect. A request for derogation from general rules of Treaty moreover, made at a very late date in this case, have effect of legalizing unilateral measures which conflict with those rules and cannot refore legalize retroactively initial infringement. The procedures for seeking a derogation used in present case, outcome of which depended upon view taken by Commission, are entirely distinct both in ir nature and effects from warning procedure available to Commission under Article 169: y cannot in any way frustrate latter procedure. There is no need to consider wher a possible abuse by Commission of its rights can deprive it of all methods available to it under Article 169, as it suffices to state that in this case no proof of such an abuse has been given or tendered. It emerges from oral procedure, moreover, that defendants neglected to furnish Commission with necessary details to enable it to decide upon ir requests. What is more, any wrongful act or default on part of Commission would have to be decided upon in an action especially brought on this point not in any way affect proceedings for infringement of Treaty brought in respect of decisions which still subsist at present and legality ofwhich Court is bound to examine. The applications must refore be declared admissible. 430

6 1. A is or COMMISSION v LUXEMBOURG & KINGDOM OF BELGIUM On substance of case The applications are brought for purpose of obtaining a declaration of illegality in respect of increase of special import duty on gingerbread imposed after Treaty entered into force, and of extension of that duty to or similar products considered as a charge having equivalent effect to a customs duty prohibited by Articles 9 and 12. charge having equivalent effect to a customs duty According to terms of Article 9, Community is based on a customs union founded on prohibition of customs duties and of 'all charges having equivalent effect'. By Article 12 it is prohibited to introduce any charges having equivalent effect' 'new customs duties on imports... and to increase those already in force. The position of se Articles towards beginning of that Part of Treaty dealing with 'Foundations of Community' Article 9 being placed at beginning of Title relating to 'Free Movement of Goods', and Article 12 at beginning of section dealing of Customs Duties' prohibitions which y impose. with 'Elimination sufficient to emphasize essential nature of The importance of se prohibitions is such that, in order to prevent ir evasion by different customs or fiscal practices, Treaty any possible breakdown in ir application. sought to forestall Thus it is specified (Article 17) that prohibitions contained in Article 9 shall be applied even if customs duties are fiscal in nature. Article 95, which is to be found both in that Part of Treaty dealing with 'Policy of Community' and in Chapter relating to 'Tax Provisions', seeks to fill in any loop-hole which certain taxation procedures might find in prescribed prohibitions. This concern is taken so far as to forbid a State eir to impose in any manner higher taxation on products of or Member States than on its own or to impose on products of those States any internal taxation ofsuch a nature as to afford indirect 'protection' to its domestic products. 431

7 JUDGMENT OF JOINED CASES 2 AND 3/62 It follows, n, from clarity, certainty and unrestricted scope of Articles 9 and 12, from general scheme of ir provisions and of Treaty as a whole, that prohibition of new customs duties, linked with principles of free movement of products, constitutes an essential rule and that in consequence any exception, which moreover is to be narrowly interpreted, must be clearly stipulated. The concept of 'a charge having equivalent effect' to a customs duty, far from being an exception to general rule customs prohibiting duties, is on contrary necessarily complementary to it and enables that prohibition to be made effective. This expression, invariably linked to that of'customs duties' is evidence of a general intention to prohibit not only measures which obviously take form of classic customs duty but also all those which, presented under or names or introduced by indirect means ofor procedures, would lead to same discriminatory or protective results as customs duties. In order to see wher a charge has an equivalent effect to a customs duty, it is important to consider this effect in connexion with objectives of Treaty, notably in that Part, Title and Chapter containing Articles 9 and 12, that is in relation to free movement of goods, and still more generally objectives of Article 3 which are aimed at preventing distortion of competition. It is, refore, oflittle importance to know wher all effects of customs duties are present at same time, or wher it is merely a question of one only, or again wher side by side with se effects or principal or ancillary objectives were intended, since chargejeopardizes objectives of Treaty and is result not of a Community unilateral decision. procedure but of a It follows from all se factors that a charge having equivalent effect within meaning of Articles 9 and 12, whatever it is called and whatever its mode of application, may be regarded as a duty imposed unilaterally eir at time of importation or subsequently, and which, ifimposed specifically upon a product imported from a Member State to exclusion of a similar domestic product, has, by altering its price, movement of products as a customs duty. same effect upon free 2. Application to present case The duty on gingerbread, introduced in Belgium by Royal Decree of 16 August 1957 and in Luxembourg by Grand Ducal Decree of 20 August 432

8 .. levied COMMISSION v LUXEMBOURG & KINGDOM OF BELGIUM 1957, is described as 'a special import duty.. on issue of import licences'. The legality of this duty, imposed after signing of Treaty but before it entered into force, cannot be disputed. The same cannot be said, however, of increases in that duty subsequent to 1 January 1958 or of extension of said duty, by respective Decrees of 24 and 27 February 1960 passed in two countries, to products similar to gingerbread, coming under Heading Tariff. No of Common Customs Determined unilaterally after Treaty entered into force, se increases in a 'special duty', levied at time and on occasion of importation of products in question and imposed solely on se products by reason of ir importation, raise a presumption of existence of discrimination and protection contrary to fundamental principle of free movement of products which would be destroyed by general application of such practices. The defendants rebut this presumptionby asserting that first paragraph ofarticle 95 of Treaty permits institution ofsuch a duty ifit constitutes counterpart of internal charges affecting domestic products to meet needs of an independent marketing policy. They regard duty in dispute as corollary of supported price established for benefit of national producers of rye under derogations contained in agricultural provisions of Treaty. However, application of Article 95, with which Chapter 2 of Part Three of Treaty dealing with 'Tax Provisions' begins, cannot be extended to every kind ofcharge. In present case duty in dispute does not appear, eir by its form or by its clearly proclaimed economic purpose, to be a tax provision capable of coming within scope of Article 95. Moreover, field of application of this Article cannot be extended to point of allowing compensation between a tax burden created for purpose of imposition upon an imported product and a tax burden of a different nature, for example economic, imposed on a similar domestic product. Ifsuch compensation were permitted, every State, by virtue ofits sovereignty in its own domestic affairs, could in this manner compensate widest variety of tax burdens imposed on any product and this practice would open an irreparable breach in principles of Treaty. 433

9 product' that competition in Common Market is not distorted (Article 3 (f) ). JUDGMENT OF JOINED CASES 2 AND 3/62 Although first paragraph of Article 95 by implication allows 'taxation' on an imported product, it is only to limited extent to which same taxation is imposed equally upon similar domestic products. Moreover, it must be stated that in present case duty in dispute has as its object not equalization of taxes imposing unequal burdens on domestic products and imported products but of very prices of se products. The defendants have in effect asserted that charge in dispute was intended to 'equate price of foreign product with price of Belgian (Statement of Defence, p. 19). They have even expressed doubt wher it is 'compatible with general scheme of Treaty that within Common Market producers ofone country may acquire raw materials at a cheaper price than producers of anor Member State' (Rejoinder, p. 29). This argument ignores principle according to which activities of Community shall include institution of a system ensuring To accept argument of defendants would lead, refore, to an absurd situation which would be exact opposite of that intended by Treaty. It follows from Article 38 (2) that derogations allowed in case of agriculture from rules laid down for establishment of Common Market constitute measures which are exceptional in nature and must be narrowly interpreted. They cannot, refore, be extended orwise than by making exception rule and refore a allowing large proportion of processed products to escape application of Treaty. The list contained in Annex II must consequently be regarded as being restrictive, and this is confirmed by second sentence of Article 38 (3). Gingerbread does not appear in products enumerated in Annex II and has not been added to list under Community procedure laid down by Article 38 (3). To resolve difficulties which might arise in a given economic sector, Member States wished Community procedures to be established in order to prevent unilateral intervention by national administrations. In present 434

10 protection' COMMISSION v LUXEMBOURG & KINGDOM OF BELGIUM case, however, increases and extension of duty in dispute were determined unilaterally. It follows from all se factors that presumption of discrimination and protection raised against defendants has not been rebutted. Moreover, until ir request of 8 November 1962 for reopening of oral procedure y did not dispute that ir market policy 'results indirectly in (oral arguments on behalf of Belgium, p. 21), this being, according to m, only essential effect of duty in dispute. a side-effect and not The said application of 8 November 1962, which contradicts this assertion, recognizes however that special duties in dispute 'certainly constitute a hindrance to free movement of goods". Finally, in its letter of 27 November 1961, Belgian Government, which in its Rejoinder (p. 13) submits that Commission 'was cause of perpetuation of infringement which defendant had shown that it was prepared to terminate', did not deny very nature open to criticism'. that 'a unilateral measure is of its From all se considerations it must be concluded that 'special import duty' on gingerbread, increased and extended in Belgium and Luxembourg after Treaty entered into force, contains all elements of a charge having equivalent effect to a customs duty referred to in Articles 9 and 12. It must refore be declared and adjudged that decisions to increase or extend this duty, taken after 1 January 1958, constituted infringements of Treaty. Costs The defendants, having failed in all ir submissions, must, by virtue of Article 69 (2) of Rules of Procedure, be ordered to bear costs. On those grounds, Upon reading pleadings; Upon hearing report of Judge-Rapporteur; Upon hearing parties; Upon hearing opinion of Advocate-General; Having regard to Articles 3, 9, 12, 17, 38, 95, 155, 169, 226 and 235 of Treaty establishing European Economic Community; Having regard to Protocol on Statute of Court ofjustice of European Economic Community; 435

11 Translated OPINION OF MR ROEMER JOINED CASES 2 AND 3/62 Having regard to Rules of Procedure of Court of Justice of European Communities, especially Article 69 (2); THE COURT hereby Rules 1. that Applications 2 and 3/62 brought by Commission of European Economic Community against Grand Duchy of Luxembourg admissible and well founded; and Kingdom of Belgium are 2. Declares that increases in special duty determined by Luxembourg and Belgium on issue ofimport licences for gingerbread, and extension of that duty to products similar to gingerbread coming under Heading No of Common Customs Tariff, introduced after 1 January 1958, are contrary to Treaty; 3. Orders defendants to pay costs. Donner Delvaux Rossi Riese Hammes Trabucchi Lecourt Delivered in open court in Luxembourg on 14 December A. Van Houtte Registrar On behalf of President L. Delvaux President of Chamber OPINION OF MR ADVOCATE-GENERAL ROEMER DELIVERED ON 30 OCTOBER 1962 <appnote>1</appnote> Mr President, Members of Court, The Commission of European Economic Community which, in accordance with Treaty, supervises application of its provisions in order to ensure proper functioning and development of Common Market (Article 155), has instituted two actions, 1 from German. 436