In order to prevent differences between national customs warehousing procedures from provoking deflection of trade and diversion of customs revenue, particularly in view of the fact that if goods are placed in warehouses, no customs duties, charges having equivalent effect or agricultural levies may be collected, on 4 March 1969 the Council adopted Directive 69/74/EEC on the harmonization of provisions laid down by law, regulation or administrative action relating to customs warehousing procedure (Official Journal, English Special Edition 1969 (I), p. 82).

The first subparagraph of Article 9 (1) of Directive 69/74/EEC provides that: It must be possible for goods deposited in warehouses to undergo there, under the conditions laid down by the competent authorities, such usual forms of handling as are needed to ensure preservation or to improve packaging or marketable quality. Article 9 (2) provides that: Goods which undergo treatment other than the usual forms of handling referred to in paragraph (1) shall be subject to the rules in force relating to inward processing. The common list of usual forms of handling which may be carried out in the different types of warehouses was established, in accordance with the second subparagraph of Article 9 (1) of Directive 69/74 by Council Directive 71/235 of 21 June 1971.

The Netherlands legislation adopted pursuant to Directive 71/235 is in conformity with the provisions of Community law inasmuch as Article 210 of the Decree implementing the Algemene Wet inzake Beschuit de Douane en Accijnzen [General Law on Customs and Excise, hereinafter referred to as the the General Law] as amended by the Royal Decree of 9 February 1976 (Stbl. 1976 No 58), refers to the list of authorized usual forms of handling which is set out in Article 1 of Directive 71/235. However, the view of the Netherlands authorities regarding the contents of the list is at variance with the manner in which those contents have been defined by the Council.

By letter of 27 February 1979, which was sent to the Commission in response to the latter's request for information of 6 February 1978, the Netherlands Permanent Representation.stated that the packing in small packages of butter imported from non-member countries. and stored in customs warehouses prior to re-exportation was carried out in the Netherlands as a usual form of handling under the customs warehousing procedure, in accordance with the provisions of Article 1 of Directive 71/235.

By letter of 14 March 1980, the Commission initiated against the Netherlands the procedure provided for in Article 169 of the EEC Treaty. In the Commission's opinion, the packing of butter in small packages, as it is carried out in the Netherlands, cannot be regarded as a usual form of handling within the meaning of Directive 71/235 inasmuch as the requirement that an operation must be simple in order to be regarded as a usual form of handling precludes mixing or separation of foodstuffs as well as shaping and weighing since such operations involve, in addition, the use of large amounts of equipment.

Taking the view that authorization to pack butter in small packages constituted an infringement of the provisions of Directive 71/235, the Commission requested the Netherlands Government to submit its observations within a period of one month.

In its reply of 21 April 1980, the Netherlands Permanent Representation stated that the Netherlands Government regarded the packing of butter as a usual form of handling within the meaning of subparagraph 8 of Article 1 (1) of Directive 71/235 since packing was involved. The fact that the packing machines used to carry out the packing work and shape the butter without adding any other substance to it cannot in any way affect the description of the form of handling. The Permanent Representation added that the word simple in subparagraph 8 of Article 1 (1) of the directive relates solely to decanting and transfer into other containers and not, for example, to packing. That is clear, it is claimed, from both the Dutch and the French versions of the directive.

On 18 February 1981, the Commission delivered a reasoned opinion in accordance with the first paragraph of Article 169 of the EEC Treaty. In that opinion, it concluded that the Kingdom of the Netherlands, by authorizing the packing in small packages of butter stored in warehouses and imported from non-member countries, has failed to fulfil its obligations under the EEC Treaty. The opinion, which was forwarded to the Netherlands Government on 20 February 1981, contained a request that it should be complied with within a period of two months.

On 22 May 1981, the Netherlands Government re-stated its point of view and emphasized, in particular, that, despite the use of considerable amounts of equipment, the operation was essentially a simple one, regard being had to the quantities and the speed and efficiency of the contested form of handling, and that it must therefore be regarded as a usual form of handling.

The Commission lodged this application at the Court Registry on 11 February 1982.

Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided in accordance with Article 21 of the Statute of the Court of Justice and Article 45 of the Rules of Procedure, to hold a preparatory inquiry.

By letter of 18 November 1982, the Registrar of the Court wrote to the Commission and the Kingdom of the Netherlands.

The Commission claims that the Court should:

The Kingdom of the Netherlands contends that the Court should:

The Commission considers that the packing of butter which is authorized in the Netherlands does not come within any of the forms of handling referred to in subparagraph 8 of Article 1 (1) of Directive 71/235 of the Council of 21 June 1971, namely, packing, unpacking, change of packings, repair of packings, decanting and simple transfer into other containers. In particular, working, shaping and weighing cannot come within the concept of packing. The argument to the effect that those operations, which precede and are necessary for packing, all form part of a single continuous process is not relevant since packing is, in reality, only the final stage of the contested form of handling.

According to the Commission, the usual forms of handling within the meaning of Article 1 (1) of Directive 71/235/EEC can only be simple operations, as is clear from the use of the adjective simple in subparagraphs 5, 8, 10, 11, 12 and 19 of the same provision, and that that rules out the employment of large amounts of equipment.

In the Commission's opinion, the expression usual form of handling must be strictly interpreted in view of the nature and the function of customs warehouses. According to the sixth recital in the preamble to Directive 69/74, the essential purpose of customs warehouses, in which goods may be placed pending their shipment to another destination, is to store the goods and not to provide facilities for preparation or processing. It was only in order to take economic realities into account that some forms of handling were authorized with a view to ensuring preservation of the goods or improvement of their packaging or marketable quality. Such authorizations must however be regarded as exceptions to the rule.

The Commission states that although Article 9 (1) of the framework directive, Council Directive 69/74 of 4 March 1969, provides for the establishment of a common list of the usual forms of handling, that certainly does not mean that the list constitutes an inventory of all the usual practices authorized in the Member States. An inventory of national practices is drawn up only in the first stage of harmonization when various factors are taken into consideration. In the explanatory note to Article 1 (1) of Directive 71/235, attached to the proposal for the directive in question, the Commission points out that the list of usual forms of handling was drawn up on the basis of: the usual forms of handling in force in the Member States, traditional commercial practices, existing requirements of users of customs warehouses and of free zones and the development of techniques and of means of control (Working Paper No 54/71 of 4 June 1971, p. 14). Accordingly, certain usual forms of handling authorized in the Member States were included in the common list definitively adopted by the' Council whilst others were excluded from it.

The Commission wishes to emphasize that when the Netherlands Government forwarded the list of usual forms of handling authorized within its territory, it merely referred to Articles 15 (2) and 40 of the General Law and that it was impossible for the Commission to conclude on the basis of the wording of those provisions that the contested form of handling fell within one of the categories specified therein.

The Commission also points out that the infringement of Community law by the Netherlands authorities cannot be justified by the fact that the contested form of handling is authorized in another Member State, namely the Federal Republic of Germany. In any event, the packing of butter in German customs warehouses was forbidden as from 24 June 1980.

In the Commission's opinion, the fact that the contested form of handling is not a usual form of handling which is subject to the rules relating to customs warehouses is beyond dispute since, in the first place, the Committee for Customs Processing Systems had expressed- support, at its meeting on 25 and 26 January 1978, for the proposition that the packing of bulk butter into small packages for sale by retail was an operation which could not be carried out as a usual form of handling but which was subject to the rules in force governing inward processing and, secondly, the Commission had already expressed that view in Regulation (EEC) No 3352/75 of 23 December 1975 prohibiting the use of inward processing arrangements in respect of butter (Official Journal L 330, p. 28).

According to the Netherlands Government, the restrictive interpretation proposed by the Commission on the basis of the function of customs warehouses is incorrect, in so far as it takes no account whatsoever of the manner in which the list of the usual forms of handling was drawn up.

The Netherlands Government recalls that according to Article 9 (1) of the framework directive, Council Directive 69/74. of 4 March 1969, it must be possible for goods deposited in warehouses to undergo there under the conditions laid down by the competent authorities the usual forms of handling set out in the common list which was to be drawn up by the Council on a proposal from the Commission.

According to the Netherlands Government, it is clear from that provision that the common list set out in Article 1 (1) of Directive 71/235 of 21 June 1971 reflects the usual, that is to say traditional, practices which at the time were authorized and applied by the Member States and were recorded by the Council. The fact that not all the usual forms of handling authorized by the Member States were included in the common list in no way detracts from the validity of that proposition.

The Netherlands Government emphasizes that since the packing operation referred to in Articles 15 (2) and 40 of the Netherlands General Law concerns different kinds of goods, it did not consider it necessary to specify that the packing of butter was authorized on the basis of those provisions.

The Netherlands Government considers that the argument to the effect that the usual forms of handling must be simple operations reflects only the Council's initial intentions. A comparison of the text of the proposal submitted to the Council on 3 March 1971 (Doc. R/319/71 — Eco 32), which is attached to the rejoinder, with the final text of Directive 71/235, reveals in particular that the expression if only simple operations are involved was maintained only in certain specific cases. Furthermore, the nature of the operations referred to in subparagraph 20 of Article 1 (1) of the directive shows that the usual forms of handling specified in Directive 71/235 are not always simple operations.

The Netherlands Government contends that, contrary to the Commission's argument, the various operations which precede the packing of butter, namely working, shaping and weighing, must be regarded not as separate operations but as forming part of a continuous process.

Contrary to the view expressed by the Commission, Regulation No 3352/75 of 23 December 1975 does not, it is claimed, provide that the packing of butter cannot be carried out in customs warehouses and must therefore come within the scope of the inward processing procedure. The Netherlands Government considers that the regulation merely provides that the packing of butter falls outside the scope of the rules relating to inward processing. In its opinion, that cannot imply that the packing of butter in customs warehouses is prohibited.

The Netherlands Government takes note of the fact that in the Federal Republic of Germany the contested form of handling is now prohibited, whilst pointing out that the sole purpose of its observations in that connection was to show that the Member States quite clearly had differing views concerning the application of the directive.

In reply to the question of how the inward processing procedure differs from the customs warehousing procedure, the Commission and the Netherlands Government state that although under both of those procedures, it is possible to suspend for a given period the collection of taxes and duties, in particular, customs duties and agricultural levies on goods imported into the Community, they may be distinguished by reference to the following factors:

As regards the question relating to the advantages of the customs warehousing procedure over the inward processing procedure, the Commission states that it is difficult to compare or to classify them since the two procedures serve different purposes. The customs warehousing procedure enables traders to store imported goods for relatively long periods where, for example, the ultimate consignee of the goods is unknown at the time of importation or where the goods are released for consumption over a given period.

The purpose of the inward processing procedure is to enable Community undertakings to offer their products or services on foreign markets at competitive prices and to contribute towards making better use of the Community labour force.

It emerges from the Commission's observations that the grant by the Netherlands Government of authorization to pack butter in small packages under the customs warehousing procedure made it possible to circumvent the prohibition of the importation of butter from non-member States under the inward processing procedure during the period from 15 January 1966 to 1 April 1980 which was prescribed by Regulation No 3066/75 of the Council of 24 November 1975, by Council Regulation No 875/77 of 26 April 1977 and by Regulation No 3352/75 of the Commission of 23 December 1975.

According to the Commission, the situation of the market between 1976 and 1980 was such that it was necessary to accord priority to the marketing of EEC butter in non-member countries. One of the means of attaining that objective was to supply the processing industries of the Community with EEC butter instead of butter from non-member countries.

Thus, the effect of excluding butter imported from non-member countries from the scope of the inward processing procedure was to make any packing of such butter subject to the agricultural levy payable upon release of the product for consumption. By allowing Netherlands processing undertakings to pack butter under the customs warehousing procedure, the Netherlands authorities had granted preferential treatment to them, in contrast to the treatment accorded to processing undertakings from other Member States.

The Netherlands Government states that although the contested packing has made it possible to sell the butter outside the Community on more favourable terms than would have been the case if the packing had been carried out under the inward processing procedure, that possibility has existed since 1968.

In explaining the purpose of the contested form of handling carried out in Netherlands customs warehouses, the Netherlands Government gives the following details:

At the sitting on 2 February 1983, oral argument was presented by A. Prozzillo, assisted by J. F. Verstrynge, acting as Agents, for the Commission of the European Communities, and by A. Bos, acting as Agent, for the Kingdom of the Netherlands.

The Advocate General delivered his opinion at the sitting on 10 March 1983.