Case C-110/02

Commission of the European Communities

v

Council of the European Union

(Aid granted by the Portuguese Government to pig farmers – Aid intended to allow the repayment of aid declared incompatible with the common market – Council decision declaring such aid compatible with the common market – Illegality – Third subparagraph of Article 88(2) EC)

Summary of the Judgment

State aid – Power of the Council to authorise aid by way of derogation in view of exceptional circumstances – Conditions for exercise – Application to the Council by the Member State concerned before a decision by the Commission declaring the aid incompatible with the common market and taking of a decision within a period of three months – Limit – Thwarting of a previous decision by the Commission

(Arts 87 EC, 88 EC and 89 EC)

The intention of the EC Treaty, in providing through Article 88 EC for aid to be kept under constant review and supervised by the Commission, is that the finding that aid may be incompatible with the common market is to be arrived at, subject to review by the Community judicature, by means of an appropriate procedure which it is the Commission’s responsibility to set in motion. Articles 87 EC and 88 EC thus reserve a central role for the Commission in determining whether aid is incompatible.

As is clear from its very wording, the third subparagraph of Article 88(2) EC covers an exceptional case. In fact, the Council, acting unanimously, ‘on application by a Member State’, may decide that aid which that State is granting or intends to grant must be regarded as compatible with the common market ‘in derogation from the provisions of Article 87 or from the regulations provided for in Article 89’, if such a decision is justified by ‘exceptional circumstances’.

The power conferred upon the Council by the third subparagraph of Article 88(2) EC being therefore clearly exceptional in character, the further provisions in the third and fourth subparagraphs of Article 88(2), whereby, on the one hand, application to the Council by a Member State suspends examination in progress at the Commission for a period of three months, and, on the other, in the absence of a decision by the Council within that period, the Commission is to give a ruling, undeniably indicate that, where that period has expired, the Council is no longer competent to adopt a decision under that third subparagraph in relation to the aid concerned. The taking of decisions the operative parts of which might prove contradictory is thereby avoided.

Consequently, if the Member State concerned has made no application to the Council under the third subparagraph of Article 88(2) EC before the Commission declares the aid in question incompatible with the common market and thereby closes the procedure referred to in the first subparagraph of Article 88(2), the Council is no longer authorised to exercise the exceptional power conferred upon it by the third subparagraph in order to declare such aid compatible with the common market.

Nor can the Council thwart the effectiveness of such a decision by declaring compatible with the common market, in accordance with that provision, an aid designed to compensate the beneficiaries of the unlawful aid declared incompatible with the common market for the repayments they are required to make pursuant to that decision.

(see paras 29-33, 45)

JUDGMENT OF THE COURT (Full Court) 29 June 2004 (1)

(Aid granted by the Portuguese Government to pig farmers – Aid intended to allow the repayment of aid declared incompatible with the common market – Council decision declaring such aid compatible with the common market – Illegality – Third subparagraph of Article 88(2) EC)

In Case C-110/02,

applicant,

v

defendant, supported by

and andand

APPLICATION for the annulment of Council Decision 2002/114/EC of 21 January 2002 authorising the Government of Portugal to grant aid to Portuguese pig farmers who were beneficiaries of the measures granted in 1994 and 1998 (OJ 2002 L 43, p. 18),

THE COURT (Full Court),,

composed of: V. Skouris, President, P. Jann, C.W.A. Timmermans, A. Rosas, C. Gulmann, J.-P. Puissochet and J.N. Cunha Rodrigues, Presidents of Chambers, A. La Pergola, R. Schintgen, F. Macken, N. Colneric, S. von Bahr and K. Lenaerts (Rapporteur), Judges,

Advocate General: F.G. Jacobs,

gives the following

‘(2)

If the State concerned does not comply with this decision within the prescribed time, the Commission or any other interested State may, in derogation from the provisions of Articles 226 and 227, refer the matter to the Court of Justice direct.

On application by a Member State, the Council may, acting unanimously, decide that aid which that State is granting or intends to grant shall be considered to be compatible with the common market, in derogation from the provisions of Article 87 or from the regulations provided for in Article 89, if such a decision is justified by exceptional circumstances. If, as regards the aid in question, the Commission has already initiated the procedure provided for in the first subparagraph of this paragraph, the fact that the State concerned has made its application to the Council shall have the effect of suspending that procedure until the Council has made its attitude known.

If, however, the Council has not made its attitude known within three months of the said application being made, the Commission shall give its decision on the case.

(3)

‘Exceptional aid by the Portuguese Government to the Portuguese pig sector involving the grant of aid to beneficiaries covered by the Commission Decisions of 25 November 1999 and 4 October 2000, totalling not more than EUR 16,3 million, equivalent to the amounts which those beneficiaries must reimburse under those Decisions, shall be considered compatible with the common market.’

Arguments of the parties

Findings of the Court

On those grounds,

THE COURT

hereby:

Skouris

Jann

Timmermans

Rosas

Gulmann

Puissochet

Cunha Rodrigues

La Pergola

Schintgen

Macken

Colneric

von Bahr

Lenaerts

Delivered in open court in Luxembourg on 29 June 2004.

Registrar

President

R. Grass

V. Skouris