The defendants have pleaded the inadmissibility of the application made by the Commission on the ground that, instead of following as it did the procedure laid down in Article 169, the Commission was obliged to deal as a matter of priority and urgency with their request for authorization of protective measures pursuantto Article 226 and with their request that the Regulation of the Council of Ministers adopted pursuant to Article 235 should be applied, both requests having been made in good time. The defendants state that in these circumstances the Commission is deprived of the capacity and the legal interest necessary for the purposes of taking action and that therefore its cause of action has lost all legal effect.

The applicant has answered this allegation by referring to the delay in making the requests mentioned above and the deficiency of the reasoning on which they were based, the impossibility of rectifying the situation created by a refusal to comply with a reasoned opinion by means of a subsequent request for a derogation from that opinion, the absence of any connexion between the procedure under Article 169 and that under Article 226, and finally the Commission's interest in obtaining a decision to settle the dispute on the interpretation of Article 12.

The applicant states that a charge having equivalent effect to a customs duty within the meaning of Article 12 is a charge levied on imported products only. In its view there is only one effect on the movement of goods which is common to all customs duties, namely the taxation of imported products alone, to the exclusion of domestic products. It suggests that the first paragraph of Article 95 cannot be interpreted in any other way.

Although the Commission does not deny the legality of a special duty in respect of rye, which is a raw material for making gingerbread, because rye is covered by the agricultural provisions of the Treaty, it cannot equate gingerbread, which is a processed product excluded from Annex II to the Treaty, with an agricultural product.

The defendants plead that, to constitute a charge having equivalent effect to a customs duty, the charge must have similar effects in all respects and not just in one specific aspect, whether fiscal or protective.

They stress the following points:

According to the terms of Article 9, the Community is based on a customs union founded on the prohibition of customs duties and of all charges having equivalent effect. By Article 12 it is prohibited to introduce any new customs duties on imports … or charges having equivalent effect and to increase those already in force.

The position of these Articles towards the beginning of that Part of the Treaty dealing with the Foundations of the Community — Article 9 being placed at the beginning of the Title relating to Free Movement of Goods, and Article 12 at the beginning of the section dealing with the Elimination of Customs Duties — is sufficient to emphasize the essential nature of the prohibitions which they impose.

The importance of these prohibitions is such that, in order to prevent their evasion by different customs or fiscal practices, the Treaty sought to forestall any possible breakdown in their application.

Thus it is specified (Article 17) that the prohibitions contained in Article 9 shall be applied even if the customs duties are fiscal in nature.

Article 95, which is to be found both in that Part of the Treaty dealing with the Policy of the Community and in the Chapter relating to Tax Provisions, seeks to fill in any loop-hole which certain taxation procedures might find in the prescribed prohibitions.

This concern is taken so far as to forbid a State either to impose in any manner higher taxation on the products of other Member States than on its own or to impose on the products of those States any internal taxation of such a nature as to afford indirect protection to its domestic products.

It follows, then, from the clarity, certainty and unrestricted scope of Articles 9 and 12, from the general scheme of their provisions and of the Treaty as a whole, that the prohibition of new customs duties, linked with the principles of the free movement of products, constitutes an essential rule and that in consequence any exception, which moreover is to be narrowly interpreted, must be clearly stipulated.

The concept of a charge having equivalent effect to a customs duty, far from being an exception to the general rule prohibiting customs duties, is on the contrary necessarily complementary to it and enables that prohibition to be made effective.

This expression, invariably linked to that of'customs duties' is evidence of a general intention to prohibit not only measures which obviously take the form of the classic customs duty but also all those which, presented under other names or introduced by the indirect means of other procedures, would lead to the same discriminatory or protective results as customs duties.

In order to see whether a charge has an equivalent effect to a customs duty, it is important to consider this effect in connexion with the objectives of the Treaty, notably in that Part, Title and Chapter containing Articles 9 and 12, that is in relation to the free movement of goods, and still more generally the objectives of Article 3 which are aimed at preventing the distortion of competition.

It is, therefore, of little importance to know whether all the effects of customs duties are present at the same time, or whether it is merely a question of one only, or again whether side by side with these effects other principal or ancillary objectives were intended, since the charge jeopardizes the objectives of the Treaty and is the result not of a Community procedure but of a unilateral decision.

It follows from all these factors that a charge having equivalent effect within the meaning of Articles 9 and 12, whatever it is called and whatever its mode of application, may be regarded as a duty imposed unilaterally either at the time of importation or subsequently, and which, if imposed specifically upon a product imported from a Member State to the exclusion of a similar domestic product, has, by altering its price, the same effect upon the free movement of products as a customs duty.

The duty on gingerbread, introduced in Belgium by Royal Decree of 16 August 1957 and in Luxembourg by Grand Ducal Decree of 20 August 1957, is described as a special import duty… levied on the issue of import licences. The legality of this duty, imposed after the signing of the Treaty but before it entered into force, cannot be disputed.

The same cannot be said, however, of the increases in that duty subsequent to 1 January 1958 or of the extension of the said duty, by the respective Decrees of 24 and 27 February 1960 passed in the two countries, to products similar to gingerbread, coming under Heading No 19.08 of the Common Customs Tariff.

Determined unilaterally after the Treaty entered into force, these increases in a special duty, levied at the time and on the occasion of the importation of the products in question and imposed solely on these products by reason of their importation, raise a presumption of the existence of discrimination and protection contrary to the fundamental principle of the free movement of products which would be destroyed by the general application of such practices.

The defendants rebut this presumption — by asserting that the first paragraph of Article 95 of the Treaty permits the institution of such a duty if it constitutes the counterpart of internal charges affecting domestic products to meet the needs of an independent marketing policy. They regard the duty in dispute as the corollary of the supported price established for the benefit of national producers of rye under the derogations contained in the agricultural provisions of the Treaty.

However, the application of Article 95, with which Chapter 2 of Part Three of the Treaty dealing with Tax Provisions begins, cannot be extended to every kind of charge. In the present case the duty in dispute does not appear, either by its form or by its clearly proclaimed economic purpose, to be a tax provision capable of coming within the scope of Article 95. Moreover, the field of application of this Article cannot be extended to the point of allowing compensation between a tax burden created for the purpose of imposition upon an imported product and a tax burden of a different nature, for example economic, imposed on a similar domestic product.

If such compensation were permitted, every State, by virtue of its sovereignty in its own domestic affairs, could in this manner compensate the widest variety of tax burdens imposed on any product and this practice would open an irreparable breach in the principles of the Treaty.

Although the first paragraph of Article 95 by implication allows taxation on an imported product, it is only to the limited extent to which the same taxation is imposed equally upon similar domestic products. Moreover, it must be stated that in the present case the duty in dispute has as its object not the equalization of taxes imposing unequal burdens on domestic products and imported products but of the very prices of these products.

The defendants have in effect asserted that the charge in dispute was intended to equate the price of the foreign product with the price of the Belgian product (Statement of Defence, p. 19). They have even expressed doubt whether it is compatible with the general scheme of the Treaty that within the Common Market the producers of one country may acquire raw materials at a cheaper price than the producers of another Member State (Rejoinder, p. 29).

This argument ignores the principle according to which the activities of the Community shall include the institution of a system ensuring that competition in the Common Market is not distorted (Article 3 (f)).

To accept the argument of the defendants would lead, therefore, to an absurd situation which would be the exact opposite of that intended by the Treaty.

It follows from Article 38 (2) that the derogations allowed in the case of agriculture from the rules laid down for the establishment of the Common Market constitute measures which are exceptional in nature and must be narrowly interpreted.

They cannot, therefore, be extended otherwise than by making the exception the rule and therefore allowing a large proportion of processed products to escape the application of the Treaty.

The list contained in Annex II must consequently be regarded as being restrictive, and this is confirmed by the second sentence of Article 38 (3). Gingerbread does not appear in the products enumerated in Annex II and has not been added to the list under the Community procedure laid down by Article 38 (3).

To resolve the difficulties which might arise in a given economic sector, the Member States wished Community procedures to be established in order to prevent unilateral intervention by national administrations. In the present case, however, the increases and extension of the duty in dispute were determined unilaterally. It follows from all these factors that the presumption of discrimination and protection raised against the defendants has not been rebutted. Moreover, until their request of 8 November 1962 for the reopening of the oral procedure they did not dispute that their market policy results indirectly in protection (oral arguments on behalf of Belgium, p. 21), this being, according to them, only a side-effect and not the essential effect of the duty in dispute.

The said application of 8 November 1962, which contradicts this assertion, recognizes however that the special duties in dispute certainly constitute a hindrance to the free movement of goods.

Finally, in its letter of 27 November 1961, the Belgian Government, which in its Rejoinder (p. 13) submits that the Commission was the cause of the perpetuation of the infringement which the defendant had shown that it was prepared to terminate, did not deny that a unilateral measure is of its very nature open to criticism.

From all these considerations it must be concluded that the special import duty on gingerbread, increased and extended in Belgium and Luxembourg after the Treaty entered into force, contains all the elements of a charge having equivalent effect to a customs duty referred to in Articles 9 and 12.

It must therefore be declared and adjudged that the decisions to increase or extend this duty, taken after 1 January 1958, constituted infringements of the Treaty.