Coöperatieve Stremsel- en Kleurselfabriek v Commission of the European Communities (61/80)

Contents

In Case 61/80Coöperatieve Stremsel- en Kleurselfabriek, Leeuwarden, The Netherlands, represented by P. J. P. Verloop, of the Amsterdam Bar, with an address for service in Luxembourg at the Chambers of L. H. Dupong, 14a, Rue des Bains,The Government of the French Republic, represented by G. Guillaume, Director of the Department of Legal Affairs at the Ministry of Foreign Affairs, acting as Agent, assisted by A. Carnelutti, Secretary for Foreign Affairs, acting as Deputy Agent,vCommission of the European Communities, represented by its Legal Adviser, B. Van der Esch, acting as Agent, assisted by P. J. Kuyper, a member of its Legal Department, with an address for service in Luxembourg at the office of its Legal Adviser, M. Cervino, Jean Monnet Building, Kirchberg,THE COURTcomposed of: J. Mertens de Wilmars, President, P. Pescatore and T. Koopmans (Presidents of Chambers), A. O'Keeffe, G. Bosco, O. Due and A. Chloros, Judges,Advocate General: J.-P. WarnerRegistrar: A. Van Houttegives the following

Judgment

Facts and Issues

The facts of the case, the course of the procedure, the conclusions and the submissions and arguments of the parties may be summarized as follows:

I —Facts and written procedure

1.By Decision 80/234 of 5 December 1979 (Official Journal L 51 of 25 February 1980, p. 19) addressed to the applicant, the Coöperatieve Stremsel- en Kleurselfabriek (hereinafter referred to as “the Cooperative”) and its members, the Commission, which is the defendant, found (Article 1) that the exclusive purchasing obligation imposed on the members of the Cooperative and the obligation requiring a resigning member to pay a sum proportionate to the quantity of rennet purchased each year from the Cooperative, which are both laid down in the rules of the Cooperative, constitute infringements of Article 85 (1) of the Treaty.Article 2 of the decision refuses to apply Article 85 (3) of the Treaty and Article 3 requires the addressees of the decision to bring those infringements to an end.

2.The applicant is a Netherlands cooperative producing rennet of animal origin and colouring agents for cheese. Rennet is a ferment extracted from the fourth stomach of calves which has the property of curdling milk and is used in the making of cheese.Dairy cooperatives which are based in the Netherlands or elsewhere may qualify for membership of the Cooperative. All the Netherlands dairy cooperatives making cheese have joined. The Cooperative also supplies rennet and colouring agents to undertakings which are not members. The rules of the Cooperative, which were notified to the Commission, require its members to purchase from the Cooperative the quantities of rennet and colouring agents for cheese which they require for their own use. A fine of HFL 500 is imposed if there is an infringement of that obligation. In the event of an infringement of the rules or rules of procedure or of actions contrary to the interests of the Cooperative, any member may be expelled by a decision of the general meeting passed by a two-thirds majority. The rules provide that any member which resigns its membership or is expelled has to pay to the reserve fund of the Cooperative a sum of HFL 2.50 per litre of the average annual quantity of rennet purchased from the Cooperative over the previous five years' membership.

3.The decision further states that the Cooperative accounts for 100% of national output of animal rennet which is the only type of rennet at present authorized in the Netherlands for the making of cheese as well as 90% of the output of colouring agents, and it supplies 94% of its rennet output and 80% of its output of colouring agents to members who account for over 90% of Netherlands dairy products. The remainder of the output is sold to non-member cheese-makers in the Netherlands.In the decision there is a table which shows that between 1976 and 1978 the Netherlands imponed 16 tonnes of rennet from other Member States whilst the other Member States imported quantities going from 113 to 745 tonnes. The Cooperative has never supplied rennet to other Member States or the Community; the quantities exported from the Netherlands to those States consist only of synthetic rennet.There are no official statistics concerning trade in colouring agents produced by the applicant. According to the information obtained by the Commission, Denmark is the principal exporter which supplies, in particular, France, the United Kingdom, Belgium and the Netherlands.

4.As regards the application of Article 85 (1) of the Treaty, the decision states that the purchasing obligation, which is enforced by the threat of a fine and reinforced by the possibility of expulsion and the payment of a sum, appreciably restricts competition within the common market. Owing to that obligation the members belonging to the Cooperative, which represent over 90% of the Netherlands dairy-products industry, are prevented from purchasing rennet and colouring agents for cheese from other suppliers. Trade between Member States is liable to be affected since the other suppliers are mainly located in the other Member States.The Commission then goes on in its decision to calculate the sum to be paid upon the voluntary resignation of an average-sized member. It concludes that in view of the rather limited financial resources of Netherlands dairy cooperatives, payment of such a sum might prove an appreciable burden, the size of which is increased for members having large rennet requirements because the sum is proportionate to the amount of rennet purchased annually from the Cooperative. That payment makes resignation very difficult, if not impossible, for any member wishing to obtain supplies from some other source in the Community or to produce its own rennet and thus compete with the Cooperative. In view of the share of the market held by the Cooperative and since there is no other manufacturer of that product in the Netherlands the requirement constitutes an appreciable restriction of competition within the common market.That restriction is liable to affect appreciably trade between Member States since it is difficult for members to resign from the Cooperative, whether in order to purchase in other Member States or to set up competing production centres which could also sell rennet in other Member States.In relation to Article 85 (3) the decision accepts that the first two conditions are fulfilled : the founding of the Cooperative has contributed to improving production of rennet and as a result its membership was extended and the Cooperative began to supply large quantities of rennet to non-members. The fact that the Cooperative maintains stocks constitutes an economic advantage because it allows a constant and regular supply of the products concerned. Consumers have had a fair share of the benefit resulting from the agreement and cost savings achieved in production have been passed on in the price of the products sold.On the other hand the third condition is not fulfilled, since in order to obtain the advantages obtained by the Cooperative less restrictive solutions exist such as an obligation to purchase a limited quantity of products from the Cooperative, or an obligation to give notice of withdrawal; those solutions would not prevent planning relating to the manufacture and stocking of the products concerned. That is all the more true since non-member users of rennet have been purchasing the product from the Cooperative without being subject to any purchasing obligation.The fourth condition of Article 85 (3) is not fulfilled either since competition is virtually eliminated on almost the whole of the Netherlands market in the products in question.In the decision the Commission refused to apply Council Regulation No 26/62 of 4 April 1962 applying certain rules of competition to production of and trade in agricultural products (Official Journal, English Special Edition 1959-1962, p. 129) on the ground that rennet is not listed in Annex II to the Treaty.

5.By application lodged at the Court Registry on 6 February 1980 the applicant brought this action under Article 173 of the Treaty for the Commission decision of 5 December 1979 to be declared void.By statement lodged on 26 June 1980 the French Government asked to be allowed to intervene in the case. Leave to intervene was granted by order of 2 July 1980.Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry.

II —Conclusions of the parties

1.The applicant claims that the Court should declare the contested decision void and order the Commission to pay the costs.The Commission claims that the Court should declare the action unfounded and order the applicant to pay the costs.

III —Submissions and arguments of the parties

The applicant's first submission

1.The applicant contends in the first place that in its decision the Commission has misunderstood the traditional system of production and supply cooperatives. That system means, first, that cooperatives have no other function but to supply their members and, secondly, that members are tied to the cooperative by exclusive obligations.In France that form of mutual cooperation is prescribed by law. In other Member States, the Netherlands in particular, it is founded upon tradition.The exclusive purchasing obligation constitutes a basic requirement for the system. For example, French Law No 72-516 of 27 June 1972 on cooperative farming (Journal Officiel of the French Republic of 28 June 1972, p. 6619) provides that only associations whose rules require their members to use their services for a specified period may claim to be cooperatives.Members of a cooperative are willing to assume the financial liability of the rules adopted between them only on the basis of the exclusive purchasing obligation and it is only on that basis that associations may limit the individual provision of authorized capital.The exclusive purchasing obligation is designed not to restrict competition but to promote optimum production of rennet and to guarantee supplies to members of the Cooperative. The Cooperative has no other commercial object. The price of the rennet which it sells is calculated retrospectively in order to cover all the costs of production.The application further contends that for the purposes of Article 85 (1) of the Treaty production and supply cooperatives in the agricultural sector should not be regarded as independent undertakings but as a form of mutual cooperation whose effect on competition is not felt externally but only at the level of competition between the members of the cooperative. In its own case, that competition operates on the market in cheese. Moreover, the contested decision does not raise the issue of the restriction of competition between the members of the Cooperative.The applicant concludes that the Commission was wrong to take the view that the exclusive purchasing obligation appreciably restricts competition in the common market.

2.The Commission does not see how the fact that the exclusive purchasing obligation may be legally or economically necessary for a specific kind of cooperation results in competition within the common market not being restricted.Nor can the fact that the exclusive purchasing obligation is provided for by law in France, or that it has its roots in tradition in the Netherlands, prevent the application of Article 85 (1) of the Treaty.The Commission states that there is nothing in the Treaty or in the regulations based on the Treaty to exclude cooperatives in the agricultural sector from the application of Article 85 (1) even if the competition between their members is not affected. It refers in that regard to its decisions in the sugar cases (2 January 1973, Official Journal L 140 of 26 May 1973, p. 17) and in the cauliflower case (2 December 1977, Official Journal L 21 of 26 January 1978, p. 23) and to the Court's judgment of 16 December 1975 (Joined Cases 40 to 48, 50, 54 to 56, 111, 113 and 114/73 Suiker Unie and Others [1975] ECR 1663).The Commission believes that the distinction between competition between the members of the Cooperative on the one hand and competition between the Cooperative and other rennet suppliers on the other is artificial and a misunderstanding of the considerations stated in paragraphs 22 and 24 of its decision.Other reasons why it is impossible to regard the Cooperative as an independent undertaking are that it sells rennet and colouring agents to non-members, that it manufactures and sells other products, and also that it concludes agreements with third parties independently.

The applicant's second submission

1.The tenor of this submission is that the exclusive purchasing obligation is not liable to affect trade between Member States: in order to guarantee the highest quality of their products Netherlands cheese-producers have never resorted to imports; even if there were no obligation to purchase, members of the Cooperative would not obtain supplies from other producers unless there were temporarily a clear price advantage; non-member producers have likewise always bought all of their rennet and colouring agents from the Cooperative; the statistics on Community trade in rennet contained in the contested decision include not only animal rennet but also synthetic rennet the use of which is prohibited in the Netherlands.The applicant concludes that the exclusive purchasing obligation does not disturb the normal patterns of trade in the sense of paragraph 22 et seq. of the Court's judgment of 31 May 1979 in Case 22/78 Hugin v Commission [1979] ECR 1869 and that it is apparent from, for example, paragraph 27 et seq. of the Court's judgment of 26 November 1975 in Case 73/74 Papiers Peints and Others v Commission [1975] ECR 1491 that the Commission should have analysed the economic context in which that obligation exists.

2.The Commission believes that it has demonstrated that the exclusive purchasing obligation is liable to affect trade between Member States. It points out in this regard that such an obligation accounting for approximately 90% of Netherlands demand makes purchases from other undertakings, mainly in the other Member States, legally impossible since the Cooperative is practically the only Netherlands manufacturer and that fact necessarily strengthens national protection.That situation is borne out by the statistics contained in the decision from which it appears that imports into the Netherlands are less than in any other Member State.The Commission further observes that neither technical production difficulties nor technical obstacles to trade or transport nor even any economic reasons enable it to be shown that in the absence of the exclusive purchasing obligation members of the Cooperative would not have recourse to importation.The Commission cannot accept the comparison between the present case and Case 22/78 Hugin since there is a normal pattern of trade in rennet between Member States.

The applicant's third submission

1.In this submission the applicant contends that the sum to be paid upon the expulsion or resignation of a member of the Cooperative does not represent a serious obstacle for a member which wishes to change its supplier of rennet. The amount of HFL 2.5 to be paid for each litre of rennet bought each year is equivalent to only one-ninth of the price of a litre of rennet and the sum to be paid represents only 0.08% of the value of annual cheese output and 0.032% of the entire annual turnover of the members.

2.The Commission points out that in its decision it calculated the average sum to be paid in the event of the resignation or expulsion of a member on the basis of the annual supply by the members and it concludes that, for the members, the prospect of having to pay the sum in question constitutes a not inconsiderable financial charge which makes their resignation more difficult.

The applicant's fourth submission

1.This submission is to the effect that the Commission was wrong to consider that the absence of any obligation to pay a certain sum in the event of resignation would help to set up competing production centres which could also sell rennet in other Member States : collective production is the only way of guaranteeing a regular supply of rennet of good, consistent quality; although there is a market at cheese-producer level for all the services constituted by such supply, there is no market at the Community level in animal rennet as a commercial product and that is because the relative value of rennet in relation to that of cheese is too low; regular supplies of rennet of good, consistent quality are so important that cheese-makers try to maintain a stable relationship with a trustworthy supplier; if the applicant failed in its duties the members would try to discover the reasons for this within the Cooperative and attempt to remedy them. What is more, there is nothing to prevent the Cooperative from selling its produce in other Member States or from admitting cheese-producers in other Member States as members.

2.In the Commission's view it is not true that collective production is the only means of guaranteeing regular supplies of rennet of good, consistent quality: the best guarantee is to make rennet oneself; other arrangements could achieve the same result, as, for example, a contractual obligation on the part of the rennet supplier to supply the user with all the rennet which he needs.The Commission further observes that an exclusive purchasing obligation does not increase the guarantee that the rennet user will receive regular supplies. On the contrary, a user's freedom to purchase rennet elsewhere is a better guarantee.The existence of a market in rennet cannot be questioned. After all, rennet is sold by the Cooperative both to its members and to third parties. What is more, statistics show that rennet is even sold and purchased beyond the frontiers of the Member States in quantities which are not insignificant. The fact that rennet represents only a small percentage of the price of cheese does not prevent that product from being dealt in independently.Furthermore, there is nothing to prevent rennet from being exported to other Member States. The AKZO group, which produces synthetic rennet, exports considerable quantities to other Member States without any difficulty. What is more, the Cooperative itself exports other products.

The applicant's fifth submission

1.The applicant further contends that by virtue of Regulation No 26/62 Article 85 (1) of the Treaty has no application to animal rennet since contrary to what the Commission claims in its decision it does not come under heading 35.07, which is not referred to in Annex II to the Treaty, but under heading 05.04 or 05.15 which appear in that Annex. The three headings in question are worded as follows :05.04Guts, bladders and stomachs of animals (other than fish), whole and pieces thereof.05.15Animal products not elsewhere specified or included; dead animals of Chapter 1 or Chapter 3, unfit for human consumption.35.07Enzymes; prepared enzymes not elsewhere specified or included.In the applicant's view the reference twice to products not specified elsewhere enables it to be said that heading 35.07 governs only synthetic rennet.Such an interpretation of Annex II to the Treaty is made more inescapable by the fact that Article 38 (1) of the Treaty provides that “agricultural products” means not only the products, amongst others, of stockfarming, but also products of first-stage processing, like the rennet manufactured by the applicant, directly related to these products.The Explanatory Notes on the Customs Cooperation Council Nomenclature, according to which rennet obtained from the fourth stomach of calves comes under heading 35.07, have no application in this case since there are Community provisions, namely Article 38 (1) of the Treaty and Annex II thereto.Even if rennet, as produced by the applicant, does not come under Annex II to the Treaty, it falls within the ambit of Regulation No 26/62 because the method of production in question is necessary to achieve the objectives set out in Article 39 of the Treaty and because the applicant must be regarded as a collective organization for the processing of agricultural products within the meaning of Article 2 of Regulation No 26/62.

2.The Commission's reply is that it is apparent from Article 38 (3) of the Treaty as well as from Articles 1 and 2 of Regulation No 26/62 that the agricultural products to which that regulation applies are only those listed in Annex II to the Treaty. That method was selected in order to avoid any doubts concerning the category of agricultural products.Animal rennet is not listed in that annex because it comes under heading 35.07 of the Brussels Nomenclature.The Commission recalls that Annex II to the Treaty expressly refers to the Customs Cooperation Council Nomenclature and considers that those provisions of the Treaty must be construed in the light of that nomenclature and not the other way round.It stresses that where there are no Community provisions on the matter the Explanatory Notes on the Customs Cooperation Council Nomenclature are authoritative. Since Article 38 of the Treaty is not intended to interpret Annex II there is no Community provision on rennet.As regards the applicant's arguments relating to the application of Article 2 of Regulation No 26/62, the Commission takes the view that they are not tenable since animal rennet is not an agricultural product within the meaning of Annex II to the Treaty.

The applicant's sixth submission

1.The sixth submission is to the effect that the exclusive purchasing obligation and the obligation to pay a certain sum in the event of resignation are covered by Article 85 (3) because they are indispensable for the attainment of the advantages which the Commission, too, acknowledges in its decision.Thanks to the close ties which it maintains with its members the Cooperative is in fact able to maintain a stock of finished products and raw materials sufficient to last three and six months respectively; to do without a separate sales organization; to pay for redemption of securities according to the timetable agreed whien they are decided upon, since the whole of the real cost of running the factory is borne by the customers; and to fix its prices at the level required to cover production costs.The applicant adds that the sum to be paid in the event of resignation is not even enough to cover the fixed costs attributable to the outgoing member during the year following that in which the member resigned. That sum is therefore reasonable and thus forms an essential part of an indispensable system.

2.The Commission emphasizes that it has not condemned all purchasing obligations but only the exclusive nature of the obligation imposed, and it is that exclusive nature which it does not regard as indispensable for the attainment of the advantages referred to in the decision. It states that, even if the advantages stemming from cooperation do therefore perhaps justify the existence of a certain tie between the Cooperative and its members, those advantages cannot by themselves furnish the proof that the exclusive purchasing obligation is indispensable.In the Commission's opinion the advantages in question may be obtained just as well by allowing members the freedom to purchase some of their products elsewhere. The fact that a not inconsiderable number of non-members obtain supplies from the applicant shows, in the Commission's opinion, that the exclusive purchasing arrangements are not indispensable for the attainment of the advantages listed in its decision.As regards the sum to be paid in the event of resignation, the Commission refers to its arguments put forward in relation to the third submission.

The applicant's seventh submission

1.In this submission the applicant points out that the exclusive purchasing arrangement does not eliminate competition on almost the entire Netherlands market in rennet and colouring agents for cheese: the payment of an amount of 0.08% of the average annual production costs cannot be of decisive importance in determining which rennet will be used in the making of cheese because of the overriding need to have regular supplies of rennet of good, consistent quality.The applicant takes the view that a long period of notice might have a more restrictive effect than the payment of a sum as the cost of resignation because it would actually prevent a customer who is worried about an unforeseen drop in quality or by irregular supplies from looking for another rennet supplier in order to maintain his cheese production.

2.In the Commission's opinion that submission ignores both the impossibility for members of the Cooperative to make purchases outside the Cooperative as well as the position which the Cooperative occupies, namely more than 90% of the Netherlands market in rennet.The Commission finally observes that a refusal to declare the provisions of Article 85 (1) inapplicable under Article 85 (3) needs only one of the four conditions to be unfulfilled and in its opinion the third condition is not.

Observations of the French Government

The French Government observes that owing to the general nature of the terms in which it is cast the Commission's decision seems likely to have a serious adverse effect on agricultural cooperation.In its opinion, owing to its very object, which is to enable small farms to have common use of all the means required to further their economic activities, agricultural cooperation requires the creation of preferential ties between the farmers on the one hand and the farmers and the cooperative on the other. Such ties are not only a condition for the cooperative's prosperity but above all guarantee its credibility in the eyes of third parties.One of the obligations designed to ensure the fidelity of members (which is mandatory in French law and in other Member States and optional elsewhere, in particular in the Netherlands) is the obligation that every member should use all or part of the services provided by the cooperative. Such an obligation is the only one which can enable a cooperative to acquire the outlets for its production of for the services which it is intended to provide.Similarly, among the rules which affect members' fidelity is the obligation not to withdraw from the cooperative before the expiry of a certain period except on lawful grounds. That obligation, like the obligation not to infringe the rules, must necessarily be subject to pecuniary sanctions or it will not have any practical effect.To challenge such rules by contending that in any event they are per se and irrespective of their context contrary to Article 85 (1) of the Treaty is tantamount to depriving agricultural cooperation of any capacity to survive.The French Government accepts that rennet does not come within the material scope of application of Regulation No 26/62 and that that regulation is consequently inapplicable in this case. But the fact remains, in its view, that in appraising any possible effects on competition the Commission and the Court should take the greatest possible account of the specific circumstances of agricultural production and the particular requirements of the special kind of organization constituted by agricultural cooperation.The French Government states that the Commission does not condemn any purchasing obligation per se, only the exclusive nature of that obligation. It cannot however accept that such an obligation is per se contrary to Article 85 (1) regardless of an appraisal of the economic and social environment in which the cooperative operates and the effects of that provision on that environment.Most often, particularly in mountain regions, an exclusive supply obligation is the only one which can enable a cooperative to be set up with a reasonable chance of success.In these circumstances the adverse effects which the applicant may have on competition could, in the opinion of the French Government, legally justify the contested decision only by reason of the quasi-monopoly which the applicant has acquired on the Netherlands market in rennet and colouring agents. Owing to the general nature of the reasons on which it is based, the decision does not seem to accord with either the letter or with the spirit of the Treaty. Nor can the French Government agree with the categorical statements in paragraphs 22, 24 in fine and 31 of the decision, which seem to create a presumption of illegality.For similar reasons it considers that the condemnation a priori of a clause making provision for the payment of a fine on resignation is questionable.The French Government emphasizes in this context that joining a cooperative is a voluntary act which does not make the member a prisoner of his cooperative since he has the right contained in the rules to resign at the end of a specified period of commitment. That period is always restricted in time and varies according to each cooperative. In France it is generally five years.It concludes in this regard that a compensatory sum restraining a member from leaving may be condemned only if the amount thereof is such as to prevent the member's resignation.Finally, it is also unable to accept the argument adopted by the Commission to rule out the applicability of Article 85 (3) of the Treaty. Only where a sum to be paid on resignation is excessive should it be possible for the application of that provision to be excluded.

IV —Oral procedure

The Coöperatieve Stremsel- en Kleurselfabriek, represented by P. J. P. Verloop, of the Amsterdam Bar, the French Government, represented by G. Guillaume, Director of the Legal Department at the Ministry of Foreign Affairs, acting as Agent, and the Commission, represented by its Legal Adviser, B. Van der Esch, acting as Agent, assisted by P.J. Kuyper, a member of its Legal Department, presented oral argument at the sitting on 14 January 1981.In reply to a question from a member of the Court the Commission stated that it was certain that Denmark exported animal rennet and that it was plausible that some rennet imports into Denmark consisted of rennet of animal origin.The Advocate General delivered his opinion at the sitting on 18 February 1981.

Decision

1By application lodged at the Court Registry on 26 February 1980, the Coöperatieve Stremsel- en Kleurselfabriek (hereinafter referred to as “the Cooperative”), which is a cooperative producing animal rennet and colouring agents for cheese, established at Leeuwarden in the Netherlands, has brought an action under the second paragraph of Article 173 of the EEC Treaty for a declaration that the Commission Decision of 5 December 1979 relating to a proceeding under Article 85 of the Treaty (Official Journal 1980, L 51, p. 19) is void. By order dated 2 July 1980 the French Republic was granted leave to intervene in the case in support of the Cooperative.

2Article 1 of the decision at issue states that the exclusive purchasing arrangements resulting from the rules of the Cooperative and the obligation laid down in those rules requiring a resigning member to pay a sum proportional to the quantity of rennet purchased each year from the Cooperative constitute infringements of Article 85 (1) of the Treaty. Article 2 of the decision refuses to apply Article 85 (3) of the Treaty. Article 3 of the decision requires the Cooperative and its members to bring to an end the infringements referred to.

3The rules of the Cooperative require its members to purchase from it all the quantities of rennet and colouring agents for cheese which they require for their own use. A fine of HFL 500 is imposed if there is an infringement of that obligation. In the event of infringement of the rules any member may be expelled from the Cooperative. In the event of the resignation or expulsion of a member the rules stipulate that the member shall pay to the reserve fund of the Cooperative a sum of HFL 2.50 per litre of the average annual quantity of rennet purchased from the Cooperative over the previous five years' membership.

4According to the contested decision the Cooperative manufactures 100% of Netherlands rennet output and approximately 90% of the output of colouring agents for cheese, and supplies 94% of its rennet output and 80% of its colouring agent output to its members which, according to the Commission, represent more than 90% of the Netherlands dairy-products industry. The remainder of the output is sold to non-member Netherlands cheese-makers. As regards intra-Community trade in rennet, including synthetic rennet, the decision states that between 1976 and 1978 the Netherlands imported 16 tonnes of rennet from other Member State whilst the other Member States, Belgium and Luxembourg being treated as one market, imported quantities from 113 to 745 tonnes. Finally, it may be seen from the decision that the value of the Cooperative's output of colouring agents is minimal compared to that of its rennet output which in 1978 was 830000 litres.

5In the decision the Commission's finding as to the application of Article 85 (1) is that both the exclusive purchasing obligation, which is enforced by the threat of a fine and reinforced by possible expulsion and the payment of a sum for infringement of that obligation, and the obligation to pay an equivalent sum in the event of resignation, appreciably restrict competition within the common market and are liable to affect appreciably trade between Member States as their effect is to prevent the Cooperative's members, which represent over 90% of the Netherlands dairy products industry, from purchasing the products in question from other suppliers located, in particular, in other Member States.

6The Commission accepts in the decision that the first two conditions contained in Article 85 (3) are fulfilled because the forming of the Cooperative has contributed to improving the production and distribution of the products in question while allowing consumers a fair share of the resulting benefit. The third and fourth conditions are not met, however, first because there are less restrictive solutions for attaining the advantages obtained by the Cooperative, such as, for example, an obligation to purchase a limited quantity of products, or an obligation to give notice of withdrawal and, secondly, because competition is virtually eliminated on almost the whole of the Netherlands market in the products in question.

7The decision rules out the application of Regulation No 26/62 of the Council of 4 April 1962 applying certain rules of competition to production of and trade in agricultural products (Official Journal, English Special Edition 1959-1962, p. 129) on the ground that the scope of that regulation is determined by Annex II to the Treaty in which rennet is not listed.

8In support of its application for a declaration that the contested decision is void the Cooperative makes seven submissions based on the infringement of Article 85 (1) and (3) and Regulation No 26/62. The main purpose of the French Government's intervention is to safeguard the particular requirements and needs of agricultural cooperation in general.

Article 85 (1)

9In its first submission the Cooperative denies that the exclusive purchasing obligation appreciably restricts competition in the common market. That obligation is intended not to restrict competition but to promote optimum rennet output and to guarantee members' supplies. The decision at issue prejudices the traditional system of cooperatives for which the exclusive purchasing obligation is a fundamental condition. From the point of view of Article 85 (1) of the Treaty cooperatives in the agricultural sector should not be regarded as independent undertakings but as a form of cooperation necessarily based on the exclusive purchasing obligation which cannot therefore restrict competition between the cooperative on the one hand and its members or third parties on the other. Nor can it restrict competition between members. That competition operates without limitation on the market in cheese.

10The Cooperative's second submission is to the effect that the exclusive purchasing obligation is not liable to affect trade between Member States because both the members of the Cooperative and non-member Netherlands manufacturers have always bought all their rennet and colouring agents from the Cooperative and would continue to do so even if that obligation did not exist.

11In its third submission the Cooperative contends that the sum to be paid in the event of a member's expulsion or resignation is not a serious obstacle for a member wishing to change its rennet supplier and in its fourth submission it states that the Commission was wrong to consider that if there were no requirement to pay a certain sum in the event of resignation that would help to set up competing production centres which might also be in a position to sell rennet in other Member States. Common production is the only way of guaranteeing regular supplies of rennet of good, consistent quality. There is no market in animal rennet as a commercial product at Community level and that is because the relative value of rennet in relation to that of cheese is too low. Regular supplies of rennet of good, consistent quality are so important that cheese-makers try to maintain a stable relationship with a trustworthy supplier.

12Before evaluating those arguments it should be recalled that for the agreement at issue to be caught by the prohibition contained in Article 85 (1) it must have “as its object or effect the prevention, restriction or distortion of competition within the common market”. The Cooperative's rules, which require its members to purchase from the Cooperative all the rennet and colouring agents for cheese which they need, and which reinforce that obligation by stipulating the payment of a not inconsiderable sum in the event of resignation or expulsion, have clearly as their object to prevent members from obtaining supplies from other suppliers of rennet or colouring agents or from making them themselves should those alternatives offer advantages from the point of view of quality or price. Since, according to information which has not been challenged, the members now account for more than 90% of Netherlands cheese output, those provisions in addition contribute to maintaining the present situation, in which the Cooperative is virtually the only supplier of rennet on the Netherlands market.

13Those provisions are thus of such a nature as to prevent competition, at the level of the supply of rennet and colouring agents for cheese, between producers holding a large part of the Community market in cheese, and also tend to rule out the possibility of creating a competitive situation on the whole of the Netherlands market in these ancillary substances which are indispensable in the making of cheese. In the circumstances, there is no need to examine the question whether other factors help to maintain the Cooperative's dominant position on the relevant market and whether such factors are sufficient to consolidate that position, even in the absence of the aforesaid provisions.

14In order to determine whether the agreement is contrary to Article 85 (1) it is also necessary to consider whether it is liable to affect trade between Member States, that is to say whether, according to the consistent case-law of the Court, it is possible to foresee with a sufficient degree of probability that it may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States, thus rendering more difficult the interpénétration of trade which the Treaty is intended to create.

15It emerges from information supplied by the Commission that there is already trade in animal rennet and colouring agents between Member States and no mention has been made of technical or economic difficulties standing in the way of the expansion of such trade. On the other hand, bearing in mind the economic context to which they belong, the obligations contained in the rules of the Cooperative are precisely of such a nature as to reinforce the partitioning of markets on a national basis, thereby holding up the economic interpénétration which the Treaty is designed to bring about.

16The Cooperative's first four submissions should therefore be rejected.

Article 85 (3)

17The Cooperative's sixth and seventh submissions are to the effect that not only are the first two conditions of Article 85 (3) of the Treaty fulfilled, as the Commission agreed in its decision, but that the third and fourth conditions of that provision are fulfilled as well. The exclusive purchasing obligation and the obligation to pay a sum in the event of resignation are indispensable measures for the attainment of the advantages acknowledged by the Commission in its decision and they do not afford the Cooperative the possibility of eliminating competition on a substantial part of the common market.

18In this regard it is necessary to recall once again the factor of assessment contributed by the Cooperative's position on the Netherlands market in the products in question. It is accepted that the members of the Cooperative account for more than 90% of cheese output in the Netherlands and that non-member Netherlands producers also buy virtually all the rennet which they need from the Cooperative. In those circumstances provisions of such a constraining nature as a 100% purchasing obligation, reinforced by an obligation to pay a not inconsiderable sum in the event of a resignation or expulsion, are not indispensable for the attainment of the objects referred to in Article 85 (3). What is more, it follows from the foregoing that those provisions in any event contribute to maintaining a situation in which competition is eliminated in respect of a substantial part of the products in question. The Commission was therefore right to find that the last two conditions for the application of Article 85 (3) are not fulfilled.

The applicability of Regulation No 26/62

19The Cooperative's fifth submission is to the effect that by virtue of Regulation No 26/62 Article 85 (1) of the Treaty does not apply in this case because animal rennet comes under heading 05.04 or heading 05.15 of the Customs Cooperation Council Nomenclature, which are cited in Annex II to the Treaty, and not under heading 35.07 under which, according to the Explanatory Notes on the Customs Cooperation Council Nomenclature, that product is wrongly classified. Furthermore the Cooperative stresses the point that Article 38 (1) of the Treaty provides that “agricultural products” means not only the products of stockfarming but also products of first-stage processing directly related to those products. Even if animal rennet does not fall under Annex II to the Treaty it still comes under Regulation No 26/62 because the production in question is necessary to attain the objectives stated in Article 39 of the Treaty and because the Cooperative must be regarded as a collective organization for the processing of agricultural products within the meaning of Article 2 of that regulation.

20Since there are no Community provisions explaining the concepts contained in Annex II to the Treaty and that annex adopts word for word certain headings of the Customs Cooperation Council Nomenclature, it is appropriate to refer to the Explanatory Notes on that Nomenclature in order to interpret the annex. According to the Explanatory Note on heading 35.07 animal rennet comes under that heading and does not therefore come under the headings listed in Annex II to the Treaty.

21According to Article 42 of the EEC Treaty the provisions of the chapter relating to rules on competition are to apply to production of and trade in agricultural products only to the extent determined by the Council. Article 38 (3) of the Treaty provides that the products subject to the provisions of Articles 39 to 46 are listed in Annex II to the Treaty and that the Council could add other products to Annex II within two years of the entry into force of the Treaty. It was in accordance with those provisions of the Treaty that the scope of Regulation No 26/62 applying certain rules of competition to production of and trade in agricultural products was restricted by Article 1 thereof to the production of and trade in the products listed in Annex II to the Treaty. That regulation may not therefore be applied to the manufacture of a product which does not come under Annex II even if it is a substance ancillary to the production of another product which itself comes under that annex. In order for the regulation to be applicable to rennet that product must therefore itself come under Annex II to the Treaty. It follows that Regulation No 26/62 can have no application in this case and that the applicant's fifth submission must be rejected.

The observations of the Government of the French Republic

22The Government of the French Republic submits inter alia that, even outside the scope of Regulation No 26/62, it is necessary when assessing the possible effects of competition to take the greatest possible account of the specific circumstances of agricultural production and the particular requirements of the special kind of organization constituted by agricultural cooperation. In its view, by virtue of its very object, which is to enable small farms to have common use of all the means required to further their economic activities, agricultural cooperation requires the creation of preferential ties between the farmers on the one hand and the farmers and the cooperative on the other. Thus, in the view of the French Government, neither an exclusive supply obligation nor an obligation to pay a severance fee, unless the latter is prohibitive, cannot be regarded as being, in principle, incompatible with Article 85 (1). As such obligations are more often than not indispensable in order to enable a cooperative to be set up with reasonable chances of success, it is not possible either to rule out comprehensively the application of Article 85 (3).

23The French Government accordingly takes the view that any effect which the Cooperative may have on competition could form the legal basis for the contested decision only by virtue of the quasi-monopoly which it has acquired on the Netherlands market in rennet and colouring agents.

24During the oral proceedings the Commission stated that it was largely in agreement with the points of view of the French Government as far as typical farming cooperatives were concerned.

25In those circumstances, and bearing in mind that the contested decision describes in detail the particular economic context to which the relevant provisions belong, it should be stated that as the position of the farming cooperatives referred to by the French Government comes within a different context, it is not at issue in the present case.

26For all those reasons the application must be rejected in its entirety.

Costs

27Under Article 69 (2) of the Rules of Procedure the unsuccessful party is to be ordered to pay the costs. Since the applicant has been unsuccessful it must be ordered to pay the costs.

Operative part

On those grounds,THE COURThereby:

1.Dismisses the application;

2.Orders the applicant to pay the costs.

Delivered in open court in Luxembourg on 25 March 1981.