Avis juridique important

Judgment of the Court of 21 March 1991. - Italian Republic v Commission of the European Communities. - State aid to undertakings in the textile and clothing sector. - Case C-303/88. European Court reports 1991 Page I-01433 Swedish special edition Page I-00115 Finnish special edition Page I-00127

Summary Parties Grounds Decision on costs Operative part

++++

(EEC Treaty, Art. 92(1) )

2. Aid granted by States - Concept - Financial support granted by a Member State to an undertaking - Criterion for assessment - Reasonableness of the transaction for a private investor pursuing a medium or long-term policy

(EEC Treaty, Art. 92(1) )

(EEC Treaty, Art. 92(1) )

(EEC Treaty, Art. 92(3) )

5. Aid granted by States - Aid granted contrary to the procedural rules laid down in Article 93 of the Treaty - Legitimate expectation on the part of the Member State granting the aid - Not permissible

(EEC Treaty, Arts 92 and 93)

6. Aid granted by States - Plans to grant aid - Failure to notify - Implementation before the final decision of the Commission - Commission' s power to make an interim order - Refusal to comply - Consequences

(EEC Treaty, Art. 93(2) and (3) )

7. Aid granted by States - Commission decision that the aid is incompatible with the common market - Difficulty of implementation - Obligation of the Commission and the Member State to cooperate in finding a solution which is consistent with the Treaty

(EEC Treaty, Arts 5 and 93(2), first paragraph)

1. In order to determine whether aid may be regarded as State aid for the purposes of Article 92(1) of the Treaty no distinction should be drawn between cases where aid is granted directly by the State and cases where it is granted by public or private bodies established or appointed by the State to administer the aid.

2. Capital placed by the State, directly or indirectly, at the disposal of an undertaking in circumstances which correspond to normal market conditions cannot be regarded as State aid.

A private shareholder who subscribes the capital necessary to secure the survival of an undertaking which is experiencing temporary difficulties but is capable of becoming profitable again, possibly after a reorganization, or a parent company which, for a limited period, bears the losses of one of its subsidiaries in order to enable the latter to close down its operations under the best possible conditions remains within those confines. Such decisions may be motivated not solely by the likelihood of an indirect material profit but also by other considerations, such as a desire to protect the group' s image or to redirect its activities.

However, when injections of capital by a public investor disregard any prospect of profitability, even in the long term, such provision of capital must be regarded as aid within the meaning of Article 92 of the Treaty.

3. Aid to an undertaking may be such as to affect trade between the Member States and distort competition even where the recipient undertaking does not itself export its products, so long as it competes with producers in other Member States. Where a Member State grants aid to an undertaking, domestic production may thereby be maintained or increased with the result that undertakings established in other Member States have significantly less chance of exporting their products to the market in that Member State. Furthermore, even aid of a relatively small amount is liable to affect trade between Member States where there is vigorous competition in the sector in which the recipient undertaking operates.

4. In relation to Article 92(3) of the Treaty the Commission enjoys a wide discretion, the exercise of which involves assessments of an economic and social nature which must be made within a Community context.

5. When a Member State grants aid contrary to the duty of notification laid down in Article 93(3) of the Treaty and subsequently displays reluctance to provide the appropriate information to the Commission, it is itself responsible for prolonging the examination procedure and cannot therefore rely on the length of that procedure as a ground for a legitimate expectation regarding the compatibility of the aid in question with the common market. If it could do so, Articles 92 and 93 of the Treaty would be set at naught, since national authorities would thus be able to rely on their own unlawful conduct in order to deprive decisions taken by the Commission under provisions of the Treaty of their effectiveness.

6. Where the Commission has established that aid has been granted without notification, it has the power to make an order. After giving the Member State in question an opportunity to submit its comments on the matter, it may issue an interim decision requiring it to suspend immediately the payment of the aid pending the outcome of the examination of the aid and to provide the Commission, within such period as it may specify, with all such documentation, information and data as are necessary in order to examine the compatibility of the aid with the common market.

Where the Member State complies in full with the Commission' s order, the Commission is obliged to examine the compatibility of the aid with the common market in accordance with the procedure laid down in Article 93(2) and (3) of the Treaty. However, if the Member State, notwithstanding the Commission' s order, fails to provide the information requested, the Commission is empowered to terminate the procedure and make its decision on the basis of the information available to it on the question whether or not the aid is compatible with the common market.

If the Member State fails to suspend payment of the aid, notwithstanding the Commission' s order, the Commission is entitled, while carrying out the examination on the substance of the matter, to bring the matter directly before the Court by applying for a declaration that such payment constitutes an infringement of the Treaty.

7. A Member State which encounters unforeseen difficulties in implementing a decision finding aid to be incompatible with the common market and ordering its recovery may submit those problems for consideration by the Commission. In such a case the Commission and the Member State concerned must, in accordance with the duty of genuine cooperation between Member States and the Community institutions stated in particular in Article 5 of the Treaty, work together in good faith with a view to overcoming the difficulties whilst fully observing the Treaty provisions, in particular the provisions on aid.

In Case C-303/88,

Italian Republic, represented by Luigi Ferrari Bravo, Head of the Diplomatic Legal Affairs Department, acting as Agent, assisted by Ivo M. Braguglia, Avvocato dello Stato, with an address for service in Luxembourg at the Italian Embassy, 5 Rue Marie-Adélaïde,

applicant,

supported by

Kingdom of Spain, represented by Javier Conde de Saro, Director-General for Community Legal and Institutional Co-ordination at the Ministry of Foreign Affairs, and Rosario Silva de Lapuerta, Abogado del Estado, a member of the State Legal Department for proceedings before the Court of Justice, acting as Agents, with an address for service in Luxembourg at the Spanish Embassy, 4 and 6 Boulevard Emmanuel Servais,

intervener,

v

Commission of the European Communities, represented by its Legal Adviser Antonino Abate, acting as Agent, with an address for service in Luxembourg at the office of Guido Berardis, a member of the Commission' s Legal Department, Wagner Centre, Kirchberg,

defendant,

APPLICATION for the annulment of Commission Decision 89/43/EEC of 26 July 1988 on aids granted by the Italian Government to ENI-Lanerossi (Official Journal 1989 L 16, p. 52),

THE COURT,

composed of O. Due, President, G. F. Mancini, T. F. O' Higgins, J. C. Moitinho de Almeida, G. C. Rodríguez Iglesias and M. Díez de Velasco (Presidents of Chambers), Sir Gordon Slynn, C. N. Kakouris, F. A. Schockweiler, F. Grévisse and M. Zuleeg, Judges,

Advocate General: W. Van Gerven,

Registrar: H. A. Ruehl, Principal Administrator,

having regard to the Report for the Hearing,

after hearing oral argument on behalf of the parties at the hearing on 12 July 1990,

after hearing the Opinion of the Advocate General delivered at the sitting on 11 October 1990,

gives the following

Judgment

1 By an application lodged at the Court Registry on 16 October 1988, the Italian Republic brought an action under the first paragraph of Article 173 of the EEC Treaty for the annulment of Commission Decision 89/43/EEC of 26 July 1988 on aids granted by the Italian Government to ENI-Lanerossi. That decision, which was notified to the Italian Government by letter of 10 August 1988, was published in the Official Journal on 20 January 1989 (Official Journal 1989 L 16, p. 52).

2 In that decision the Commission held that the aid granted between 1983 and 1987 to ENI-Lanerossi in the form of injections of capital into its men' s outer wear subsidiaries was contrary to Article 93(3) of the EEC Treaty and incompatible with the common market within the meaning of Article 92 of the Treaty. The aid was therefore to be withdrawn by recovery.

3 It appears from the statement of the grounds for the contested decision that ENI (Ente Nazionale Idrocarburi), a State holding company, took over Lanerossi in 1962. The losses suffered between 1974 and 1979 by four subsidiaries of Lanerossi in the men' s outer wear sector, Lanerossi Confezioni (Arezzo, Macerata, Orvieto), Intesa (Maratea, Nocera, Gagliano), Confezioni di Filottrano (Ancona) and Confezioni Monti (Pescara) (hereinafter referred to as "the four subsidiaries"), were made up by the Italian State. Acting on a complaint in that respect, the Commission informed the Italian Government by letter of 26 June 1980 that that aid could be granted exemption from the rule of incompatibility laid down in Article 92(1) of the Treaty only if it was granted for a limited period and if the restructuring programme which had been notified to the Commission was carried out in such a manner that the companies concerned were returned to viability and financial self-support in the short term.

4 The subsidiaries continued to experience difficulties, and by letter of 20 May 1983 the Commission stated that although it had not objected to the grant of aid until the end of 1982, in view of the social and regional importance of those undertakings, it doubted whether aid could continue to be paid without interfering with the orderly functioning of the common market. The Commission reminded the Italian Government of the obligation on Member States under Article 93(3) of the Treaty to inform the Commission of plans to grant or alter aid, and invited the Italian Government to indicate its intentions within two weeks of receipt of the letter. By a telex message of 24 June 1983 the Italian Government confirmed its intention to notify the Commission of any future intervention in favour of the subsidiaries. By letter of 2 November 1983 it informed the Commission that no further aid was envisaged in favour of those subsidiaries, since the management of ENI-Lanerossi considered that they could not be restructured.

5 In the light of press reports that the losses of the subsidiaries were continuing to be made up, although it had been notified of no plan in that regard, the Commission considered that the situation was contrary to the decisions which it had communicated to that Government; it therefore initiated the procedure under the first subparagraph of Article 93(2) of the Treaty and by letter of 19 December 1984 called on the Italian Government to submit its observations. That procedure led, on 26 July 1988, to the contested decision.

6 On 26 January 1989 the Italian Government submitted an application for interim measures seeking an order suspending the operation of Article 2 of Decision 89/43, which ordered the recovery of the aid that had been paid. That application was dismissed by order of the President of the Court of 17 March 1989.

7 By order of 15 March 1989 the Court granted the Spanish Government leave to intervene in support of the Italian Government.

8 Reference is made to the Report for the Hearing for a fuller account of the background to the case, the course of the procedure and the pleas in law and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

9 The Italian Government argues that the decision in issue was adopted contrary to Articles 92 and 93 of the Treaty. It raises a number of pleas in law based on the absence of any State aid within the meaning of Article 92(2) of the Treaty, breach of the principle of equal treatment as between public and private undertakings, the absence of any effect on Community trade and competition, infringement of Article 92(3)(a) and (c), breach of the principle of protection of legitimate expectations, the unlawful nature of the consequences given to the alleged failure to notify and the inadequacy of the statement of reasons for the recovery of aid which was ordered. Finally, it raises an argument based on the practical impossibility of recovering the aid in question.

The absence of any State aid within the meaning of Article 92 of the Treaty

15 The first plea in law put forward by the Italian Government must therefore be rejected.

Breach of the principle of equal treatment as between public and private undertakings

16 The Italian and Spanish Governments submit that the decision in issue is contrary to the principle of equal treatment as between public and private undertakings, which is recognized in Article 90 of the EEC Treaty.

25 The second plea in law put forward by the Italian Government must therefore be rejected.

The absence of effects on Community trade and competition

28 In this case, the Commission has stated in the contested measure that during the period under consideration (1983 to 1987), the textile industry was suffering from stagnation of demand, depressed prices and overcapacity. Intra-Community trade in this sector has increased significantly, rising from 19.3% of Community production in 1983 to 29.1% in 1986, indicating keen competition. The aid granted by ENI maintained the subsidiaries artificially in operation after 1982 and restored their finances, thus facilitating their reconversion and the selling off of certain production sites, the cost of which ENI-Lanerossi would normally have been obliged to bear.

29 Having regard to those factors, the Commission' s assessment that the aid gave the four subsidiaries a very considerable advantage over their competitors and was thus likely to affect trade and distort competition within the meaning of Article 92(1) of the Treaty is supported by sufficient reasons and is not manifestly incorrect. The plea in law raised in this regard by the Italian Government must therefore be rejected.

Infringement of Article 92(3)(a) and (c) of the Treaty

30 The Italian Government considers that the contested decision was adopted contrary, first, to Article 92(3)(a) and (c) of the Treaty, on the ground that the aid in question made it possible to promote regional and sectoral development, and, secondly, to the obligation to state reasons.

31 It denies first of all the Commission' s assertion that only some of the four subsidiaries' plants operated in regions where the standard of living was abnormally low or where there was serious underemployment as referred to in Article 92(3)(a). It argues in that regard that all the plants of two of the four subsidiaries were in areas regarded by the Commission as having a very low standard of living and suffering from serious underemployment, and that the province of Arezzo, which in the second paragraph of part X of the contested decision the Commission describes as not having an abnormally low standard of living or suffering from serious underemployment, is one of the zones where Community aid may be paid under Council Regulation (EEC) No 219/84 of 18 January 1984 instituting a specific Community regional development measure contributing to overcoming constraints on the development of new economic activities in certain zones adversely affected by restructuring of the textile and clothing industry (Official Journal 1984 L 27, p. 22).

32 More generally, the applicant argues that the efforts at restructuring and reconversion carried out with regard to the four subsidiaries facilitated the development of economic activities in the textile sector and in the areas concerned. It disputes the Commission' s conclusion that any reconversion should have taken place within a short period, and cites as an appropriate parameter the period of five years fixed for special intervention programmes under Article 3(6) of Regulation No 219/84, cited above, which corresponds to the five years (1983 to 1987) covered by the contested decision. Finally, the Italian Government submits that the reconversion of the four subsidiaries contributed to the achievement of the objectives of European policy in the men' s clothing sector by reducing production in that sector.

33 It should be observed that the Commission did not challenge the Italian Government' s assertions concerning the fact that two of the four subsidiaries were established in disadvantaged zones or that concerning the economic situation in the province of Arezzo.

35 Furthermore, even though the contested decision concerns only the aid granted to the four subsidiaries between 1983 and 1987, it is undisputed that the losses suffered by those undertakings were made up from 1974 onwards, that is to say for a total period of 14 years.

36 It is clear from the contested decision that the Commission' s negative assessment concerning the compatibility of the aid with the common market was based not only on the duration of the aid but also on its nature. The Commission correctly points out that the aid in question was not in accordance with the Community guidelines for aid to the textile and clothing industry communicated to the Member States by letters of 30 July 1971 and 4 February 1977 or with the guidelines on rescue aid communicated to the Member States by letter of 24 January 1979.

37 The guidelines concerning the textile industry permit the grant of aid for a short period and for specific operations with the aim in particular of providing the recipient with a level of competitiveness sufficient to ensure success on the Community market. In this case the aid was used in a general way to improve the financial situation of the four subsidiaries and artificially maintain them in operation. With regard to rescue aid, it appears from the Community guidelines that this must take the form of loans or loan guarantees and can be paid only for the time needed to draw up recovery measures, not to exceed six months. The aid granted in this case manifestly does not meet those criteria and cannot therefore be regarded as promoting the economic development of the areas and activities concerned.

39 In those circumstances it must be concluded that the Italian Government has provided no support for the conclusion that the Commission exceeded the limits of its discretion in considering that the aid in question did not meet the conditions which would entitle it to one of the derogations under Article 92(3).

Breach of the principle of protection of legitimate expectations

The unlawful nature of the effects attributed to the failure to notify

45 The Italian Government denies first of all that the failure to notify the aid makes that aid irremediably unlawful, as the Commission asserts in the second paragraph of part V of the contested decision. Secondly, it states that it did comply with the obligation laid down in Article 93(3), inasmuch as the Commission was informed of changes in the situation of the four subsidiaries in sufficient time to enable it to submit its comments.

47 Where the Member State complies in full with the Commission' s order, the Commission is obliged to examine the compatibility of the aid with the common market in accordance with the procedure laid down in Article 93(2) and (3) of the Treaty. However, if the Member State, notwithstanding the Commission' s order, fails to provide the information requested, the Commission is empowered to terminate the procedure and make its decision on the basis of the information available to it on the question whether or not the aid is compatible with the common market.

48 If the Member State fails to suspend payment of the aid, notwithstanding the Commission' s order, the Commission is entitled, while carrying out the examination on the substance of the matter, to bring the matter directly before the Court by applying for a declaration that such payment constitutes an infringement of the Treaty.

50 The plea based on the unlawful nature of the effects attributed to the absence of notification must therefore be rejected, and it is not necessary to reply to the second argument put forward by the Italian Government.

Insufficient statement of grounds for the order for recovery of the aid

51 The Italian Government submits first that the decision to order the recovery of the aid is a matter for the Commission' s discretion, the exercise of which must be supported by reasons. In this case the Commission has indicated no reason justifying the repayment of the aid.

53 When it initiated the procedure under Article 93(2) the Commission informed the applicant government that any aid which might be granted before the decision terminating the procedure could give rise to an order for recovery; that possibility was also pointed out in a Commission communication published in the Official Journal on 24 November 1983 (Official Journal 1983 C 318, p. 3).

The impossibility of recovering the aid

59 Finally, any uncertainty as to the identity of the addressees of the order for recovery was dispelled at the hearing of the application for interim measures in this case, on 13 March 1989, when the Commission' s agent stated that the order for recovery concerned exclusively the four subsidiaries.

61 It follows that the last argument of the Italian Government must be rejected.

62 Since none of the pleas in law put forward by the Italian Government have been upheld, the action must be dismissed in its entirety.

Costs

63 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs, including those of the application for interim measures. Since the applicant has been unsuccessful, it must be ordered to pay the Commission' s costs. The Government of the Kingdom of Spain must bear its own costs.

On those grounds,

THE COURT,

hereby:

1. Dismisses the application;

2. Orders the Italian Republic to pay the costs of the Commission, including those of the application for interim measures;

3. Orders the Kingdom of Spain to bear its own costs.