3.(a) The Commission states that the abolition of the production refund for quellmehl is only one aspect of the comprehensive change in the Community's subsidies policy in the case of products processed from cereals, one of the consequences of which is the reduction of refunds for starch. A charge of discrimination cannot therefore be based on the abolition per se of refunds in the case of quellmehl but at most on the fact that the refund granted for pre-gelatinized starch was not abolished in its entirety.(b) From the legal standpoint Commission contends that an economic decision of the same kind as the contested measure cannot be discriminatory unless it was based on considerations which are manifestly erroneous; judgment of the Court of 24 October 1973 in Case 43/72, Merkur v Commission [1973] ECR 1055.(c) The Commission accordingly sets forth the considerations on which the contested measures were based: the financial burdens of the common agricultural policy had to be reduced; price arrangements under the system of production refunds had to be adjusted to economic realities: the supply price (the basis of calculation of the production refund, which represents the difference between this price and the Community threshold price) had not followed the trend of market and threshold prices, which was steadily rising and the refunds were, in consequence, pratically doubled; and, because of the increase in the price of synthetic products which are in competition with cereal-based starch as the result of the rise in price of oil products, consideration was being given to the need for a fundamental reappraisal of the policy of granting refunds.(d) Because starch was in competition with synthetic substitute products, the Council did not abolish production refunds for starch but merely reduced the relevant amounts.(e) In consequence the question arose whether the timing of the reduction in the production refund for quellmehl should be the same as in the case of starch.An analysis of the competitive position of these two products disclosed vital differences which made it unnecessary to keep the regulations governing the refund so completely in parallel as they had been hitherto. The explanation why quellmehl and starch are treated alike in Article 11 of Regulation No 120/67/EEC lies in the political argument of the “preservation of the acquired rights” of quellmehl manufacturers rather than in economic necessity and the similarity of economic conditions. In this connexion it must be borne in mind that the manufacture of quellmehl has benefited from a German internal subsidy since 1930.(f) The amount of the refunds is based on the overall assumption that 161 kg of maize are required for the manufacture of 100 kg of starch. On the other hand the extraction rate for quellmehl is, at most, between 102 and 110 kg and the manufacture of quellmehl involves much less work and requires much less technical knowhow than the manufacture of starch.Furthermore, cereals themselves need not necessarily serve as raw material for quellmehl. All the other cheaper starch-producing products of the milling industry can be used.(g) The interchangeability of the two products in question has, in practice, been hitherto of little importance.On this point the Commission quotes the plaintiff in the main action in Case 16/77 as follows:“… quellmehl has better technical qualities. The capacity to absorb water in particular … is higher in the case of quellmehl; … quellmehl has better qualities from the nutritional point of view …;”“… In the end, however, the choice between the two products is only a matter of price since the use of a greater quantity of pre-gelatinized starch makes it possible to obtain absolutely the same capacity to absorb water …”Given that the cost price of the raw material is the same, the refund, adapted to the needs of starch manufacture, has over-subsidized the already cheaper production of quellmehl. This difference in price, together with the ability to use cheaper low grade flour, makes it possible for the quellmehl industry to invade the market in animal feed.It is for this reason that the Community institutions reached the conclusion that there was no compelling reason to adhere to the principle of strict equality of treatment between the manufacturers of quellmehl and manufacturers of starch.In view of the substantial reductions which took place in the production refunds for starch simultaneously with the abolition of the refund for quellmehl, there is no reason to suppose that great and irreparable harm would be done to the competition with pre-gelatinized starch.In the animal feed industry, the higher prices of maize as a raw material could have been easily offset by the use of lower-grade flours which are cheaper.Similarly, there is little reason to suppose that pre-gelatinized starch is forcing rye-flour cooking agents out of the traditional market Pre-gelatinized starch is certainly coming to supersede quellmehl but not specific cooking agents because it does not possess their qualities.(h) Nor is there any reason to fear that the natural advantage possessed by quellmehl-based products in terms of competition will be reversed as a result of the undue advantage granted to pre-gelatinized starch in terms of price.The increase in the price of raw material caused by the abolition of the refund is not reflected fully but only in part in the price of quellmehl, which is also considerably influenced by other factors. The effect of this increase on the price of cooking agents ready to be marketed, like those manufactured by the plaintiffs in the main actions, is even less significant.Similarly the reduction, owing to the maintenance of refunds, in the price of maize as a raw material compared with the cost price of quellmehl has only a partly favourable effect on the price of pre-gelatinized starch as the finished product.Price fluctuations due to changes in the amount of the refunds amount to discrimination only if they cause the price of quellmehl to rise appreciably above that of starch.Like quellmehl producers, the starch manufacturing industry had to bear substantial price increases for maize as its raw material. The advantage which that industry enjoyed in terms of price compared with quellmehl manufacturers lay only in the maintenance of a lower production refund. The amount of the refund which, in the beginning, was as much as 20.40 units of account per tonne fell to 18.45 units of account per tonne in July 1975 and, after August 1975, to 10 units of account per tonne. This was not enough even to come within reach of the advantage of at least DM 100 which quellmehl previously enjoyed as a finished product.Nor has experience gained in the meantime supplied any evidence of competition which makes it possible for pre-gelatinized starch to replace quellmehl because of the refunds it receives.
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