Tribunal de Justicia de la Unión Europea

Case C-297/02 ()

Fecha: 01-Jun-2002

OPINION OF ADVOCATE GENERAL
JACOBS
delivered on 18 March 2004

(1)

Case C-297/02

Italian Republic

v
Commission of the European Communities

()

1. In this case, Italy seeks the partial annulment of Commission Decision 2002/523/EC of 28 June 2002 excluding from Community financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) ('the contested decision'). (2)

2. Italy contests in particular the Commission's exclusion from Community financing of expenditure relating to the public storage of alcohol in 1998 and in the olive oil sector in the 1997/98 and 1998/99 marketing years.

The legal framework

The principal Community legislation

3. The basic rules on the financing of the Common Agricultural Policy are now contained in Regulation No 1258/1999. (3) At the material time, however, they were to be found in Regulation No 729/70, (4) and reference will therefore be made to the provisions of that Regulation.

4. Articles 1(3) and 3(1) of Regulation No 729/70 provided for the European Agricultural Guidance and Guarantee Fund (hereinafter, 'EAGGF' or 'the Fund') to finance, among other things, common measures adopted in order to achieve the objectives set out in Article 33(1)(a) EC, including intervention intended to stabilise the agricultural markets, undertaken in accordance with Community rules within the framework of the common organisation of agricultural markets.

5. Article 5 of Regulation No 729/70 provided for the clearance of the accounts submitted by the national bodies empowered to effect expenditure on transactions eligible to be financed by the Fund ('paying agencies'). The first subparagraph of Article 5(2)(c) explicitly required the Commission to exclude from Community financing expenditure not effected in compliance with Community rules.

6. Article 5(2)(c) further provided as follows:

'Before a decision to refuse financing is taken, the results of the Commission's checks and the replies of the Member States concerned shall be notified in writing, after which the two parties shall endeavour to reach agreement on the action to be taken.

If no agreement is reached, the Member State may ask for a procedure to be initiated with a view to mediating between the respective positions within a period of four months, the results of which shall be set out in a report sent to and examined by the Commission, before a decision to refuse financing is taken.

The Commission shall evaluate the amounts to be excluded having regard in particular to the degree of non-compliance found. The Commission shall take into account the nature and gravity of the infringement and the financial loss suffered by the Community. ...' 5 -Second, third and fourth subparagraphs of Article 5(2)(c).

7. Article 8(1) of Regulation No 729/70 required Member States to take measures to ensure correct execution of transactions financed by the Fund, to prevent irregularities and to recover sums lost thereby. In most agricultural sectors, specific Community measures set out in detail what measures the Member States must adopt in order to fulfil their general obligations under Article 8(1).

8. The Commission was empowered, under Article 9 of Regulation No 729/70, to take a number of measures to verify and supplement the information and documents furnished by the Member State authorities. It was able, for example, to carry out inspections on the spot and was entitled to access to all books and documents relating to expenditure financed by the Fund and to conduct or arrange with the Member States for the conduct of inquiries and inspections.

The Commission's guidelines

9. Commission Document VI/5330/97 of 23 December 1997 (6) ('the guidelines') sets out the guidelines which the institution intends to follow when applying financial corrections in the context of the clearance of EAGGF Guarantee accounts.

10. The guidelines note that where the Commission finds that a given item of expenditure was not in accordance with the Community rules, it must as a general rule refuse to finance it. Where a Member State does not comply with Community rules requiring the eligibility of aid applications to be checked, a refusal by the Commission to finance all the expenditure concerned would in some cases mean that the expenditure refused would probably exceed the financial loss suffered by the Community. In such cases it is appropriate to estimate the loss. In accordance with Article 5(2)(c) of Regulation No 729/70 the rate of correction must be clearly linked to the probable loss. There must be a significant failing in the application of explicit Community rules which must expose the Fund to a real risk of loss or irregularity.

11. Annex 2 concerns the financial consequences for the clearance of such accounts of inadequacies in the controls carried out by the Member States. For that purpose the guidelines distinguish between two categories of checks:

-: Key controls, which are the physical and administrative checks required to verify substantive elements, in particular the existence of the subject of the claim, the quantity, and the qualitative conditions including the observance of time-limits, harvesting requirements, retention periods, etc. They are performed on the spot and by cross-checks to independent data such as land registers.

-: Ancillary controls are the administrative operations required to process claims correctly, such as verification that they were submitted in time, identification of duplicate claims for the same subject, risk analysis, application of sanctions and appropriate supervision of the procedures.

12. The guidelines indicate that when one or more key controls are not applied or are applied so poorly or so infrequently that they are completely ineffective in determining whether claims are eligible or preventing irregularities, a correction of 10% is justified as it can reasonably be concluded that there is a high risk of wide-spread loss to the Fund. When all key controls are applied, but not in the number, frequency or depth required by the legislation, a correction of 5% is justified as it can reasonably be concluded both that they do not provide the expected degree of assurance that claims are regular and that the risk to the Fund was significant. When a Member State has adequately performed the key controls but completely failed to carry out one or more ancillary controls, a correction of 2% is justified since there is less risk of loss to the Fund and the infringement is less serious. Where implementation of the checking system has been non-existent or seriously inadequate and there are indications of very frequent irregularities and negligence in combating irregular or fraudulent practices, a correction of 25% is justified since the fact that claims may be submitted with impunity where there is no entitlement may reasonably be assumed to involve extremely high losses for the Fund.

13. The criteria for application of flat-rate adjustments laid down in the Commission's guidelines have been examined by the Court of Justice on a number of occasions. It is clear from that case-law that the Court considers those criteria to be valid. (7)

Community provisions applicable in relation to the public storage of agricultural products

14. Article 2(1) of Commission Regulation No 3597/90 of 12 December 1990 on the accounting rules for intervention measures involving the buying in, storage and sale of agricultural products by intervention agencies (8) provides as follows:

'Unless special provisions in the Annex provide otherwise, the value of missing quantities:

-: exceeding the tolerance for preservations and processing,

-: due to theft or other identifiable causes,

shall be calculated by multiplying these quantities by the basic intervention price in force for the standard quality on the first day of the current financial year, increased by 5%.'

Community provisions applicable to the olive oil sector

15. Regulation No 136/66 (9) establishes a common organisation of the market in oils and fats. Article 5 thereof provides that production aid shall be granted for olive oil.

16. Article 1(1) of Regulation No 2262/84 (10) requires Member States producing more than 3000 tonnes of olive oil over a reference period to set up a specific agency for the purpose of carrying out checks in connection with Community aid for olive oil. Under Article 1(2) of Regulation No 2262/84, Member States are required to draw up a draft work schedule for the agency, to ensure that the Community rules in respect of olive oil are correctly applied, which must be forwarded to the Commission for modification and approval. Commission Regulation No 27/85 (11) specifies in more detail the procedure and timetable for the adoption of a work schedule. Under Article 4(1), the Commission may within 30 days of receiving a draft work schedule request that the Member State concerned introduce any change that the Commission considers appropriate.

17. Article 14 of Regulation No 2261/84 (12) as amended in particular by Regulation No 1639/98 (13) lays down a system of checks which producer Member States are required to apply 'to ensure that the product in respect of which aid is granted is eligible for such aid'. Two types of check can be distinguished.

18. First, under Article 14(3), producer Member States are required to carry out 'on-the-spot checks on the activities and the stock records of a percentage of approved mills to be determined'. Such checks on mills are to be carried out 'in the course of each marketing year and during the oil-pressing period in particular'. According to the second subparagraph of Article 14(3), 'the mills selected must be representative of the pressing capacity of a production zone'.

19. Secondly, under Article 14(3a), producer Member States are required to carry out checks in respect of olive growers, 'for the purposes of paying aid' to those growers. In particular, they are required to check:

-: the accuracy of the crop declarations on the basis of criteria to be determined,

-: the correspondence between the quantity of oil entered in the aid application and that stated in the stock records of approved mills,

-: the compatibility between the olive production declared by each olive grower as having been pressed in an approved mill and the particulars given in his crop declaration on the basis of criteria to be determined.

20. More detailed rules relating to the checks set out in Article 14 of Regulation No 2261/84 were laid down by Regulation No 3061/84 (14) as amended in particular by Regulation No 928/91 of 15 April 1991 (15) and Regulation No 1318/92 of 22 May 1992, (16) which applied to measures relating to marketing years prior to 1998/99.

21. Article 10(1) of Regulation No 3061/84 provided that the checks on mills provided for in Article 14(3) of Regulation (EEC) No 2261/84 should cover at least 10% of the approved mills operating during the marketing year concerned.

22. Article 10(4) of Regulation No 3061/84 concerned the so-called compatibility check which Member States must perform in relation to olive growers under the third indent of Article 14(3a). In performing that check, Member States were required to refer to:

-: 'the olive and oil yields set in accordance with Article 18 of that Regulation for the zone in which the holding or holdings from which the olives pressed are located,

-: the average olive and oil yields in municipalities where the holding or holdings from which the olives come are located, if such yields are available in the Member States,

-: data from the register of olive cultivation,

-: the information on the production situation from the computerised files,

-: data from on-the-spot checks made on the grower.'

23. Regulation No 2366/98 (17) replaces Regulation No 3061/84. As regards the checks on mills, provided for in Article 14(3) of Regulation No 2261/84, Article 8(b) thereof, as amended by Commission Regulation No 1273/1999, (18) requires Member States to make provision from the 1998/99 marketing year for monthly statements of stock records to be sent not later than the 10th day of the month following the month concerned to the agency responsible for checks.

24. Also as regards checks on mills, Article 30(1) of Regulation No2366/98 provides, in so far as is relevant:

'From the 1998/99 marketing year, the checks as provided for in Article 14(3) of Regulation (EEC) No 2261/84 shall include an in-depth check of the consistency of the information and data supplied for each marketing year by at least 30% of approved mills selected on the basis of risk analysis. However, the number of checks in each Member State shall not be less than the number of checks on mills carried out under the 1997/98 marketing year.

In addition, to establish that the information is recorded and the conditions for approval are met, cursory checks shall be conducted at the following percentages of the mills at least [sic]:

-: 5% in 1998/99 ...'

25. Article 30(2) provides that such in-depth checks shall comprise:

'(a): an on-the-spot inspection of equipment, quantities and types of product in stock, accounts and other relevant documents;

(b): comparisons between the various data provided by the mills or available from other sources, in particular with supplies, the destination of oil and olive residue, electricity and water consumption and labour employed;

(c): comparisons between the quantities in the stock records and the overall quantities in the aid applications lodged by the olive growers concerned;

(d): the other checks referred to in Article 8; the sample analyses referred to in Article 8(a) shall be carried out for at least 25 % of the samples taken'.

26. As regards the checks on producers specified in Article 14(3a), point (b) of the first subparagraph of Article 28(1) of Regulation No2366/98 provides that, from the 1998/99 marketing year, checks of aid applications are to 'comprise the verifications referred to in the second and third indents of Article 14(3a) of Regulation (EEC) No2261/84'. It further provides that 'checks to ensure that the crop declarations and aid applications tally shall in particular take account of:

-: the olive and oil yields fixed in accordance with Article 18 of that Regulation for the zone in which the holding or holdings of origin of the olives pressed are located;

-: the average olive and oil yields in municipalities where the holding or holdings of origin of the olives pressed are located, if such yields are available in the Member States.'

27. The second subparagraph of Article 28(1) provides that:

'In cases where the checks made under the first subparagraph reveal inconsistencies, the procedure laid down in Article 25(2) and (3) for the number of olive trees shall apply mutatis mutandis to the other anomalous or missing information. However, the quantity of oil for which aid has been requested may not be changed.'

28. Article 25(2) of Regulation No 2366/98 provides, in so far as is relevant, that where the declared number of olive trees on a holding differs by more than 3% from the number determined in accordance with the criteria laid down in Article 25(1), the crop declaration shall be deemed to contain a discrepancy. The first subparagraph of Article 25(3) of Regulation No 2366/98 provides that olive growers are to be notified where their declarations contain discrepancies, and shall be granted a period of grace of up to three months, at the Member State's discretion, in which to provide justifications for the discrepancy or, when first informed thereof, to amend their declarations. The second subparagraph of Article 25(3) further provides:

'At the grower's request, where the justifications provided are insufficient for the Member State to accept the declared data, amended where applicable, a check shall be carried out in the presence of both parties, the cost of which is to be borne by the grower should the declared data, whether or not amended pursuant to the first subparagraph, not be confirmed.'

Procedure

29. In the present case, the grounds on which the Commission based its refusal to reimburse expenditure were set out in the Rapport de Synthèse (Summary Report) issued by the Commission on 23 January 2002 (19) following the mediation procedure required by Article 5(2)(c) of Regulation No 729/70.

Refusal of expenditure in the public storage sector

The Commission's findings and Italy's claims

30. As is explained in the Summary Report, the Italian authorities informed the Commission in October 1999 that an Italian court had ordered the sale of a quantity of alcohol forming part of the Community intervention stock.

31. The Commission considered the alcohol in question to be 'missing ... due to ... other identifiable causes' within the meaning of Article 2(1) of Commission Regulation No 3597/90. (20) It therefore applied the calculation provided for in that provision to arrive at the sum which it excluded from Community financing in the contested decision.

32. Italy argues that the Commission erred in law in applying Article 2(1) of Commission Regulation No 3597/90, and that it should instead have accepted the Italian authorities' proposal to replace the missing quantity of alcohol with an equivalent quantity drawn from the national stock.

33. The Commission rejected the substitution proposed by the Italian Government on the basis that such a solution was not explicitly authorised by Regulation No 3597/90, which specified instead that the budget should be rectified in accordance with Article 2(1).

34. However, in Italy's view, Regulation No 3597/90 should be considered to be a simple accounting measure, applicable only once quantities have been identified as missing from the Community stocks. A substitution of the kind proposed would operate at a prior stage, and would prevent the substituted quantity ever being classified as missing. As a consequence, Regulation No 3597/90 would be of no application. The fact that it does not explicitly provide for such a substitution would be irrelevant. Italy therefore concludes that the substitution which it proposed to the Commission was compatible with Community law.

35. It further submits that the judicial sale which led to the removal of the alcohol in question from the Community stock should be regarded as a case of force majeure, which the Italian authorities had opposed, and for which they cannot be held 'personally and directly' responsible. As a consequence, the only legitimate response to the sale on the part of the Commission would have been to authorise the substitution.

Assessment

36. I do not agree that the exclusion of expenditure relating to public storage in the contested decision was vitiated by any error of law.

37. In my view, the substitution proposed by the Italian authorities would not have been compatible with Community law. No express provision is made for it in the applicable Community legislation. Moreover, as the Conciliation Committee stated, such a solution would undermine the transparency and effectiveness of mechanisms for managing Community stocks.

38. If Member States could remedy any shortfall in the Community stocks under their jurisdiction by the simple expedient of substitution and thereby avoid the budgetary rectification provided for in Article 2(1) of Regulation No 3597/90, there would be no means of verifying that such stocks were being properly kept. As the Commission notes, the Member States would also escape the adverse financial consequences of budgetary rectification which serve to ensure respect for the Community rules.

39. Nor do I accept the argument that the judicial sale of the alcohol in question should be regarded as a case of force majeure, rendering Article 2(1) inapplicable.

40. First, there is nothing in Article 2(1) of Regulation No 3597/90 which suggests that a quantity should be considered as missing for other identifiable causes only if the Member State concerned can be shown to be 'personally and directly' responsible for the removal.

41. In any event, according to the Court's consistent case-law, Member States are liable for the action or inaction of all of the agencies of the State, even those which are constitutionally independent. (21) Italy therefore cannot disclaim responsibility for the actions of an Italian court.

42. The Italian Government's challenge to the exclusion relating to the public storage of alcohol must in my view therefore fail.

Refusal of expenditure in the olive oil sector

The Commission's findings

43. According to the Summary Report, audits carried out in 1999 and 2000 revealed the following shortcomings in the Italian system of checks relating to production aid for olive oil:

-: late communication of the production figures of mills by the paying agency, AIMA, to the agency responsible for checks, Agecontrol;

-: insufficient coordination of the various checks between AIMA and Agecontrol;

-: insufficient analysis and verification of the available data concerning risk factors.

44. Those problems were found to have considerably reduced the effectiveness of the checks conducted in Italy, in the following two regards in particular.

45. First, they undermined the compatibility checks required under Article 14(3a) of Regulation No 2261/84, (22) Article 10(4) of Regulation No 3061/84 (23) and Article 28(1)(b) of Regulation No 2366/98. (24) Those checks serve to identify cases of incompatibility, where the quantity of olive oil declared by a grower exceeds the production capacity of his trees (according to the yield of the zone in question), which carry a high risk of some irregularity in the aid application. In relation to such cases, the small number of on-the-spot checks which had taken place were conducted at too late a stage. The Italian authorities had also failed to detect those cases of incompatibility representing the highest risk, namely where the grower in question was also the owner of a mill and certified his own production (hereinafter, 'the highest risk cases').

46. Secondly, the shortcomings identified served to undermine the effectiveness of the checks on mills provided for in Article 14(3) of Regulation No 2261/84, Article 10(1) of Regulation No 3061/84 and Article 30 of Regulation No 2366/98. The late communication of monthly production figures from AIMA to Agecontrol meant that checks on mills were not properly prepared and were confined to formal aspects. Because production figures were analysed at too late a stage, the data obtained and the risks identified could not be taken into account either when preparing the checks in the current year or in the selection of samples for the following year. The highest risk cases could not be properly checked because no provision was made for performing a combined check of both grower and mill owner.

47. Accordingly, the Commission imposed a correction amounting to 2 per cent of the expenditure declared by Italy in the olive oil sector for the 1997 to 1999 financial years.

Italy's claims

Adequacy of coordination between AIMA and Agecontrol

48. Italy denies any lack of coordination between AIMA and Agecontrol. It submits that Agecontrol always requested the information which it required from AIMA in good time and in sufficient detail. When delays did occur, Agecontrol insisted on the need to produce the information in question. Moreover, AIMA signed formal protocols which committed it to supply data in timely fashion.

49. Given the significant quantities of data which needed to be processed, and the time constraints for such processing, Italy acknowledges that delays may sometimes have occurred in the communication of data from AIMA to Agecontrol. In that regard, Italy emphasises the difficulty of obtaining and processing information in the required time.

50. Italy also notes that the obligation to supply monthly statements of stock records before the 10th day of each month, laid down in Regulation No 2366/98, is applicable only from the 1998/99 marketing year, and therefore cannot be relied upon against the Italian authorities with respect to the 1997/98 marketing year.

51. Lastly, Italy denies that such delays as did occur in the supply of monthly statements posed any threat to the efficacy of the checking system, given that, in Italy's estimation, Agecontrol could only use those statements to select at most 50 per cent of checks to be performed. In any event, those statements would not have been entirely appropriate to the achievement of the operational objectives at stake.

The criteria used for selecting the sample of mills for checking

52. The Commission was supplied in advance with AGECONTROL's draft work schedules for each of the marketing years in question, which included details of the numerous criteria applied by the Italian authorities. In Italy's submission, it is unacceptable for the Commission to receive and approve those schedules and then to criticise arrangements subsequently. Such an approach runs counter to the procedural scheme provided for in Regulation No 27/85, which allows for the Commission to propose modifications to the draft work schedules which it receives.

53. In any event, Italy submits that the criteria used by its authorities did ensure that checks were carried out in cases raising objective doubts. In particular, where an incompatibility came to light during the course of a check on a producer, the mill where that producer's olives had been pressed would be considered to be at risk and would be made the subject of a check, during either the same or the following marketing year.

54. Italy notes that in the 2000/2001 marketing year, adjustments were made to take account of the importance attached by the Commission to cases of incompatibility in the context of risk analysis.

55. Italy submits that the high percentage of mills subject to an in-depth check in each of the marketing years reduced the importance of the criteria used in selecting the sample. As a result, the sample of mills checked was guaranteed to include many mills which pressed the olives of producers in respect of whom an incompatibility existed ('incompatible producers'), including the highest risk cases.

The adequacy of checks on producers

56. Italy denies that not enough checks were conducted on incompatible producers. The number of such checks carried out for each of the marketing years in question exceeded that specified in the work schedule submitted to and approved by the Commission. They also encompassed the highest risk cases of incompatible producers owning their own mill. Contrary to the Summary Report, the checks were conducted in good time and with appropriate expertise.

57. In any event, an analysis of the results of checks carried out over the last five marketing years on the highest risk cases reveals a level of irregularity practically identical with that observed across the whole category of producers checked.

58. Moreover, since the 1998/99 marketing year, Italy has been required to apply the second subparagraph of Article 28(1) of Regulation No 2366/98 (25) in cases where the checks made under the first subparagraph reveal inconsistencies, which further explains why checks on incompatible producers were not included in the work programmes as from that time.

The use of production figures supplied by mills and the conduct of checks

59. Italy rejects the Commission's finding that, as a consequence of the late communication of production figures supplied by mills, checks were insufficiently prepared and were confined to formal aspects. It describes the conduct of such checks in order to show that they included also a substantive element. The effectiveness of those checks is said to emerge from the high number of irregularities which they brought to light.

60. The Italian Government also contests the finding that double checks were not possible of a grower and mill-owner. It asserts that inspectors could request authorisation to conduct additional checks where those appeared necessary, and could obtain permission immediately by telefax.

The role of average yields as a control tool

61. Italy considers that the importance attributed by the Commission to average yields as a control tool is excessive and incompatible with statements made by the Commission in Special Report No 11/2000 of the European Court of Auditors on the support scheme for olive oil. (26)

The amount of the correction

62. In its Reply, Italy asserts that the existence of a risk of financial loss for the Fund has not been demonstrated by the Commission.

63. Italy claims that, in imposing the two per cent correction in respect of expenditure in the olive oil sector, the Commission failed to take account of the policy of prevention announced in the guidelines. The Commission is also alleged to have acted contrary to Article 2(1) of Regulation No 2988/95, (27) which provides that:

'Administrative checks, measures and penalties shall be introduced in so far as they are necessary to ensure the proper application of Community law. They shall be effective, proportionate and dissuasive so that they provide adequate protection for the Communities' financial interests.'

64. Finally, Italy asserts that the correction arrived at by the Commission is not justified by proof of a failure to respect the demands of the Commission, and is excessively severe.

Assessment

65. I consider that it is open to question whether the Italian Government's application, at least as it relates to the corrections made by the contested measure in the olive oil sector, complies with the requirements, under Article 38(1)(c) of the Court's Rules of Procedure, to state the subject-matter of the proceedings and a summary of the pleas in law on which it is based. According to the settled case-law of the Court, that statement must be sufficiently clear and precise to enable the defendant to prepare its defence and the Court to rule on the application, if necessary, without any further information. In order to guarantee legal certainty, it is necessary, for the action to be admissible, that the basic legal and factual particulars relied on be indicated coherently and intelligibly in the application itself. (28)

66. As the Commission notes, Italy does not indicate the legal basis of its action, nor does it identify with any precision the provisions of Community law it considers the Commission to have breached in adopting the contested decision. Although it offers its own contrasting assessment of the checks applied by its authorities during the relevant marketing years, it does not elucidate the legal flaws to which the Commission's economic and technical analysis is in its view subject.

67. However, even assuming the admissibility of Italy's action as regards the exclusions in the olive oil sector, I can find nothing in its submissions capable of impugning that aspect of the contested decision.

68. As a preliminary point, it must be borne in mind that, according to the Court's case-law, although the Commission is required to justify its decision to refuse to charge expenditure effected by a Member State to the EAGGF by providing evidence of serious reasonable doubt as to the existence or appropriateness of checks carried out in that Member State, it is nevertheless not obliged to demonstrate exhaustively that the checks were inadequate or that there are irregularities in the figures submitted by that State, or even to provide details of the inadequacy of those checks or the inaccuracy of the data provided by it: it is the latter which is the best placed to collect and verify the data required for the clearance of EAGGF accounts and consequently it is for the State to adduce the most detailed and comprehensive evidence that it has made checks or that its figures are accurate and, if appropriate, that the Commission's assertions are incorrect. (29) The Member State cannot rebut the Commission's findings by mere assertions which are not substantiated by evidence of a reliable and operational supervisory system. (30)

The adequacy of coordination between AIMA and Agecontrol

69. As regards the coordination of checks between AIMA and Agecontrol, Italy's submissions relate exclusively to the late transmission of information.

70. In that regard, it should first be noted that Italy explicitly admits the existence of delays. Whether those delays were primarily attributable to AIMA or Agecontrol appears to me irrelevant. They still amount to a failure of coordination.

71. Nor, in my view, can the logistical challenges involved in applying an effective control system be used to excuse a failure on the part of the authorities in a Member State effectively to perform the functions assigned to them under Community law.

72. As to the inapplicability of Article 8(b) of Regulation No2366/98 prior to the 1998/99 marketing year, no specific reliance is placed on that provision in the Summary Report.

73. The allegation that delays were of no consequence to the effectiveness of the checking system is in my view insufficiently substantiated. The figure of 50 per cent, which the Italian Government cites as the proportion of checks in which the delayed data might have played a role, is in any event hardly negligible.

The criteria used for selecting the sample of mills for checking

74. In principle, it is in my view conceivable that, having approved specific aspects of a draft work schedule submitted to it pursuant to Regulation No 27/85, the Commission might subsequently be foreclosed from taking adverse measures against a Member State on the basis that those aspects were flawed in their design. The possibility is none the less a remote one given that such schedules will typically, of necessity, be relatively general in character.

75. In the present case, however, Italy has to my mind not succeeded in showing any inconsistency between the Commission's approval of its draft work schedules for the relevant marketing years and the criticisms contained in the Summary Report. Those criticisms appear to me to relate to the manner in which checks were implemented in practice. The Commission must in my view be given a wide margin to criticise the implementation of a scheme the broad outline of which it has previously approved in the context of Regulation No 27/85.

76. In any event, Italy does not sufficiently substantiate its allegation of inconsistency. It merely asserts that the Commission was supplied with details of the criteria which the Italian authorities intended to apply in selecting the sample of mills for checking. However, no specific or detailed reference is made to the content of those schedules.

77. The fact that Italy has since changed the criteria used for selecting the sample of mills for checking is clearly of no relevance to the present proceedings. Indeed, it may be thought to suggest that the earlier criteria were unsatisfactory.

78. Moreover, whilst the high percentage of mills subject to an in-depth check during the relevant marketing years may have reduced the importance of the criteria used in selecting the sample, Italy does not contend that it eliminated the importance of those criteria entirely.

The adequacy of checks on producers

79. Italy's assertion that more checks were carried out on producers in the relevant marketing years than had been specified in the draft work schedules approved by the Commission does not address the specific criticisms made in the Summary Report. Although the Summary Report notes that only a small number of checks were performed in the case of incompatible producers, criticism is principally directed at the lateness of such checks, as well as the failure to identify the highest risk cases. In response to those specific criticisms, Italy merely asserts that checks were timely and included some of the highest risk cases. Those assertions are in my view insufficiently substantiated.

80. Italy also makes reference to the second subparagraph of Article 28(1) of Regulation No 2366/98 (31) but does not adequately explain the significance which it attaches to that provision as an explanation for the failure to carry out checks on incompatible producers in the 1998/99 marketing year.

The use of production figures supplied by mills and the conduct of checks

81. The Italian Government's account of the virtues of the checks carried out by its authorities cannot assist it in its action. The relevant part of the contested decision does not rest on a finding that the Italian system of checks was wholly without merit. The Summary Report explicitly recognises that that system possessed numerous positive and effective elements. Rather, the exclusion of expenditure at issue is based on certain specific weaknesses identified in the Summary Report. The limited nature of those shortcomings is reflected in the low level of the exclusion settled upon by the Commission.

82. The Italian Government attempts to meet the Commission's criticism of the lack of double checks to deal with the highest risk cases by pointing to the possibility for inspectors to request authorisation to conduct additional checks in such cases. In my opinion, that possibility does not detract from the weakness identified in the Summary Report. Its operation is dependent upon the initiative of individual inspectors. No evidence is adduced as to the extent to which, if at all, the option identified by the Italian authorities was actually used.

The role of average yields

83. I do not consider that Italy's criticism of the importance attached by the Commission to average yields as a control instrument can impugn the contested decision. As the Court has consistently held, the Commission has a wide margin of discretion within the sphere of the Common Agricultural Policy.

84. It is not clear what legal significance the Italian Government attaches to the passages from the Special Report No 11/2000 of the European Court of Auditors to which it refers. In any event, the Commission acknowledges in that document a valid role for average yields as an instrument for detecting irregularities.

85. Moreover, it is clear that the applicable Community legislation requires national authorities to have regard to such yields as part of their checking system. That requirement was originally contained in Article 10(4) of Regulation No 3061/84, and is now provided for by Article 28(1)(b) of Regulation No 2366/98. The Court has held that where a regulation lays down specific measures of supervision, the Member States must apply them and it is unnecessary to examine the merits of their view that another system of supervision is more effective. (32)

The amount of the correction

86. Even assuming their admissibility under Article 38(1)(c) of the Court's Rules of Procedure, the arguments advanced by Italy relating to the calculation of the correction are in my view inadmissible under Article 42(2) of those Rules, given that they were not advanced in the application and are not based on matters of law or of fact which have come to light in the course of the procedure.

87. In any event, I consider those arguments to be lacking in any merit.

88. As the Court has held, it is for the Member State to demonstrate, if appropriate, that the Commission erred as to the action called for, on the financial level, as a result of a breach of the Community rules. (33) Where the Commission has endeavoured to establish rules for treating irregularities differently, depending on the extent of the shortcomings in the checks and the degree of risk to the EAGGF, it is for the Member State to show that those criteria are arbitrary or unfair. (34)

89. In my opinion, Italy has not shown that expenditure was increased only by an amount smaller than the two per cent excluded from Community financing. Nor has it shown that the contested decision is in any way contrary to Article 2(1) of Regulation No2988/95 (35) or the policy enunciated in the guidelines.

90. In my view, therefore, Italy has not succeeded in demonstrating any flaw in that part of the contested decision relating to exclusion of expenditure in the olive oil sector. Its action must accordingly be dismissed in its entirety.

Conclusion

91. In the light of the foregoing observations, it is my opinion that the Court of Justice should:

(1): dismiss the application;

(2): order the applicant to pay the costs.

1 -: Original language: English.

2 -: OJ 2002 L 170, p. 73.

3 -: Council Regulation (EC) No 1258/1999 of 17 May 1999 on the financing of the common agricultural policy, OJ 1999 L 160, p. 103.

4 -: Regulation (EEC) No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy, OJ English Special Edition 1970 (I), p. 218, as amended in particular by Council Regulation (EC) No 1287/95 of 22 May 1995, OJ 1995 L 125, p. 1.

5 -: Second, third and fourth subparagraphs of Article 5(2)(c).

6 -: Replacing Commission working Document VI/216/93 of 3 June 1993. The 1997 guidelines apply to decisions taken after 8 December 1997.

7 -: See for recent examples Case C-118/99 France v Commission [2002] ECR I-747, paragraph 49 of the judgment, Case C-157/00 Greece v Commission [2003] ECR I-153, paragraph 115, and Case C-331/00 Greece v Commission, paragraph 73 of the judgment of 18 September 2003, and for a review of the Court's approach paragraphs 21 to 25 of the Opinion of Advocate General Geelhoed in Case C-375/99 Spain v Commission [2001] ECR I-5983.

8 -: OJ 1990 L 350, p. 43.

9 -: Council Regulation (EEC) No 136/66 of 22 September 1966 on the establishment of a common organisation of the market in oils and fats, OJ, English Special Edition 1965-66 (I), p. 221.

10 -: Council Regulation (EEC) No 2262/84 of 17 July 1984 laying down special measures in respect of olive oil, OJ 1984 L 208, p. 11.

11 -: Commission Regulation (EEC) No 27/85 of 4 January 1985 laying down detailed rules for the application of Regulation (EEC) No 2262/84, OJ 1985 L 4, p. 5

12 -: Council Regulation (EEC) No 2261/84 of 17 July 1984 laying down general rules on the granting of aid for the production of olive oil and of aid to olive oil producer organisations, OJ 1984 L 208, p. 3.

13 -: Council Regulation (EC) No 1639/98 of 20 July 1998 amending Regulation (EEC) No 2261/84, OJ 1998 L 210, p. 38.

14 -: Commission Regulation (EEC) No 3061/84 of 31 October 1984 laying down detailed rules for the application of the system of production aid for olive oil, OJ 1984 L 288, p. 52.

15 -: Commission Regulation (EEC) No 928/91 of 15 April 1991 amending Regulation (EEC) No 3061/84, OJ 1991 L 94, p. 5.

16 -: Commission Regulation (EEC) No 1318/92 of 22 May 1992 amending Regulation (EEC) No 3061/84, OJ L 140, p. 11.

17 -: Commission Regulation (EC) No 2366/98 of 30 October 1998 laying down detailed rules for the application of the system of production aid for olive oil for the 1998/99, 1999/2000 and 2000/01 marketing years, OJ 1998 L 293, p. 50.

18 -: Commission Regulation (EC) No 1273/1999 of 17 June 1999 amending Regulation (EC) No 2366/98, OJ 1999 L 151, p. 12.

19 -: Do. No AGRI/50077/01-It-Final.

20 -: Set out at paragraph 14 above.

21 -: See, for example, Case 77/69 Commission v Belgium [1970] ECR 237, paragraphs 14 to 15 of the judgment.

22 -: Cited in note 12 above.

23 -: Cited in note 14 above.

24 -: Cited in note 17 above.

25 -: Cited in note 17 above.

26 -: OJ 2000 C 215, p. 1

27 -: Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities financial interests, OJ 1995 L 312, p. 1.

28 -: See, in the context of another case concerning the clearance of EAGGF accounts, Case C-178/00 Italy v Commission [2003] ECR I-303, at paragraphs 40, 48 and 53 of the judgment.

29 -: See for example Case C-157/00, paragraphs 16 and 17 of the judgment, and Case C-331/00, paragraph 66, both cited in note 7.

30 -: See for example Case C-157/00, cited in note 7, paragraph 18 of the judgment.

31 -: Cited in note 17 above.

32 -: See for example Case C-130/99 Spain v Commission [2002] ECR I-3005, paragraph 87 of the judgment.

33 -: See for example Spain v Commission, cited in note 32, paragraph 42 of the judgment.

34 -: See for example Spain v Commission, cited in note 13, paragraph 44 of the judgment.

35 -: Cited in note 27 above.