Draft International Agreement on Natural Rubber Case (Opinion 1/78)

• Jurisdiction: European Union
• Date: 04 October 1979
• Court: European Court of Justice

Court of Justice of the European Communities.

(Kutscher, President; Mertens de Wilmars, Lord Mackenzie Stuart, Presidents of Chamber; Pescatore, Sørensen, O'Keeffe, Bosco, Touffait, Koopmans, Judges; Capotorti, Mayras, Reischl and Warner, Advocates-General1)

Draft International Agreement on Natural Rubber Case (Opinion 1/78)

Treaties — Power to conclude — European Economic Community — Treaty-making powers of the Community and its Member States — Community possessing power to adopt internal legislation on subject — Parallel power to conclude international agreements — Common commercial policy — Agreements falling within the scope of common commercial policy — Not confined to traditional trade and tariff agreements — Agreement for creation of an international organization to regulate the market in natural rubber — Whether Community competent to become party to the agreement — Whether Community powers exclusive of Member States — Agreement also dealing with commodity prices and availability of strategic product — Development aid aspects — Agreement applicable to certain dependent territories outside Community — Whether sufficient to remove agreement from scope of Community competence — Financial burden to be borne by Member States — Whether preventing Community competence becoming exclusive — Mixed agreements

International organizations — Establishment and membership — Proposal to create international rubber organization — Whether European Economic Community able to participate — Whether Member States of Community able to participate concurrently

Economics, trade and finance — Commodity agreements — Draft agreement to regulate market in natural rubber — Use of buffer stock — Financing of buffer stock — Participation of European Economic Community — Whether part of common commercial policy of Community — The law of the European Economic Community

Summary: The facts:—In 1978 negotiations began, under the auspices of the United Nations Conference on Trade and Development ‘unctad’ for the conclusion of an agreement (‘the Agreement’) the objective of which was to achieve a balanced growth between the supply and demand for natural rubber by stabilizing the price at which it was sold on the international markets. The initial draft of the Agreement provided for the establishment of an international organization which would operate a buffer stock for the purposes of purchasing surplus supplies of rubber when prices were declining and selling rubber from its stocks when prices were rising. Financing for the buffer stock was to come from contributions by the contracting parties. A disagreement subsequently developed between the

Council and the Commission of the European Communities as to the delimitation of the respective powers of the Community and its Member States to negotiate and conclude the Agreement. As a result, the Commission, acting pursuant to Article 228(1) of the EEC Treaty,2 asked the Court to give its opinion as to the compatibility of the Agreement with the EEC Treaty and, in particular, whether the Community was competent to conclude the Agreement.

In its submissions to the Court, the Commission contended that the subject matter of the Agreement came within the framework of the common commercial policy, which fell, pursuant to the provisions of Article 113 of the EEC Treaty,3 within the exclusive competence of the Community and that, as a result, only the Community was entitled to participate in the negotiation and conclusion of the Agreement. The Council contended that the question of the division of powers between the Community and its Member States in matters of external relations was not a question falling within the ambit of Article 228(1) of the EEC Treaty and that, in any event, the Commission's request for an opinion was premature as negotiations were still at a preliminary stage, so that the Agreement did not constitute an ‘agreement envisaged’ within the meaning of Article 228. The Council further contended that, although the subject matter of the Agreement implicated the common commercial policy, the Agreement concerned the supply of raw materials, which was an area that fell within the field of general economic policy over which the Member States had exclusive competence, and that rubber was a ‘strategic product’, so that the Agreement had an effect upon the defence policy of Member States, which was an area outside the competence of the Community. The Council also maintained that the Agreement had various aspects which in effect constituted a form of ‘development aid’, a field over which the Community did not have exclusive competence. Finally, the Council contended that the Community was precluded by the EEC Treaty from raising the necessary funds to meet its share of the costs of financing the buffer stock and that any such costs would have to be borne directly by Member States which in turn required that they participate in the Agreement. As a result, the Council submitted that Member States of the Community were entitled to participate alongside

the Community in the negotiation and conclusion of the Agreement by virtue of Article 116 of the EEC Treaty.4

Held:—The subject matter of the Agreement fell within the common commercial policy of the Community and the Community was thus empowered to participate in the attendant negotiations. However, the Community would only have exclusive competence if it were directly to bear the burden of financing the buffer stock.

(1) The Court, when giving an opinion pursuant to Article 228(1) of the EEC Treaty, was entitled to consider all questions concerning the compatibility of an international agreement with the EEC Treaty, including the question as to whether one of its institutions had the power to enter into the international agreement in question. Accordingly, the request by the Commission fell within the ambit of Article 228(1) (pp. 359–60).

(2) Although the Agreement contained a number of unresolved issues, the Court had sufficient information before it to render a sufficiently certain judgment on the questions raised by the Commission. The Commission also had an interest in lodging its request immediately after its disagreement with the Council. Accordingly, the Commission's request for an opinion pursuant to Article 228(1) of the EEC Treaty was not premature (pp. 360–1).

(3) In empowering the Community to formulate a commercial policy based on ‘uniform principles’, Article 113 revealed that the question of external trade had to be viewed from a broad perspective so as to include more structured and elaborate instruments such as commodity agreements which aimed at the regulation of the world market, as well as agreements concerning traditional aspects of external trade. This interpretation was confirmed by the fact that the enumeration in Article 113 of the subjects covered by the commercial policy had not been intended to be exhaustive, thus indicating that the Community was free to engage in any agreement concerned with the regulation of external trade (p. 365).

(4) The fact that the Agreement required the granting of advantages which were characteristic of development aid did not alter the fact that the purpose and essence of the Agreement was to stimulate international trade. Accordingly, the inclusion of development aid within the Agreement did not take it out of the domain of the common commercial policy (p. 364).

(5) The fact that the Community's economic links with non-Member countries could have repercussions on certain aspects of the Community's economic policy such as the supply of raw materials to Member States, as was the case with the regulation of international trade in commodities, did not constitute a reason for excluding the conclusion of such agreements from the scope of the common commercial policy. Similarly, the fact that a product had political significance on account of its strategic importance did

not constitute a reason for excluding that product from the domain of the common commercial policy (p. 367).

(6) Although Articles 113 and 116 of the EEC Treaty both had the same overall objective, namely the realization of a common policy in the conduct of international economic relationships, each of the Articles served a different purpose within the framework of that objective. Article 113 gave the Community exclusive authority to determine the common commercial policy and to conclude any relevant agreement relating to that policy. Article 116, on the other hand, was conceived with a view to achieving common action by Member States within the framework of international organizations to which the Community did not yet belong and was relevant where the only appropriate method of achieving the Community's economic objectives was through joint action by Member States in their capacity as members of the international organization in question. However, where negotiations concerning the common commercial policy were concluded within the framework of an international organization of which the Community was not a member, the provisions of Article 113 were nevertheless to be applied if the negotiations in question were intended to lead to an internationally binding agreement with entities which were subject to international law (pp. 367–8).

(7) Although the subject matter of the Agreement fell within the ambit of Article 113 of the EEC Treaty which in principle gave the Community exclusive powers of participation, the exclusive nature of those powers depended upon the arrangements for the financing of the operation of the buffer stock which was a question that had not yet been settled. If the burden of financing the buffer stock fell upon the Community budget the Community would have exclusive competence to participate in the Agreement. However, if the charges were to be borne directly by the Member States this would imply that those States should participate in the Agreement alongside the Community and the Community would not...