Parties Grounds Operative part

In Case C‑494/06 P,

APPEAL under Article 56 of the Statute of the Court of Justice lodged on 24 November 2006,

Commission of the European Communities, represented by V. Di Bucci and E. Righini, acting as Agents, with an address for service in Luxembourg,

appellant,

the other parties to the proceedings being:

Italian Republic, represented by I.M. Braguglia, acting as Agent, and P. Gentili, avvocato dello Stato,

Wam SpA, established in Cavezzo di Modena (Italy), represented by E. Giliani, avvocato,

defendants at first instance,

THE COURT (First Chamber),

composed of P. Jann, President of the Chamber, M. Ilešič, A. Tizzano, A. Borg Barthet (Rapporteur) and E. Levits, Judges,

Advocate General: E. Sharpston,

Registrar: M. Ferreira, Principal Administrator,

having regard to the written procedure and further to the hearing on 21 February 2008,

after hearing the Opinion of the Advocate General at the sitting on 20 November 2008,

gives the following

Judgment

1. By its appeal, the Commission of the European Communities requests the Court to set aside the judgment of the Court of First Instance of the European Communities of 6 September 2006 in Joined Cases T‑304/04 and T‑316/04 Italy and Wam v Commission (‘the judgment under appeal’) by which the Court of First Instance annulled Commission Decision 2006/177/EC of 19 May 2004 on State aid No C 4/2003 (ex NN 102/2002) implemented by Italy for WAM SpA (OJ 2006 L 63, p. 11; ‘the contested decision’).

Background to the dispute

2. Article 2 of Law No 394 of 29 July 1981 (GURI No 206 of 29 July 1981) on support measures for Italian exports provides the legal basis under which the Italian authorities may grant subsidised finance to exporting companies undertaking market penetration programmes in non-member States.

3. Wam SpA (‘Wam’) is an Italian company which designs, manufactures and sells industrial mixing machinery and components, mainly for use in the food, chemical, pharmaceutical and environmental industries.

4. On 24 November 1995, the Italian authorities decided to award Wam a first grant of aid consisting of a subsidised loan of ITL 2 281 485 000 (approximately EUR 1.18 million) in order to facilitate its penetration of the Japanese, South Korean and Taiwanese markets. Following an economic crisis in Korea and Taiwan, the planned projects were not implemented in those countries. Wam actually received a loan of ITL 1 358 505 421 (approximately EUR 700 000) towards the establishment of permanent structures and the costs of trade promotion in the Far East.

5. On 9 November 2000, the same authorities decided to award Wam a second grant of aid consisting of a second subsidised loan of ITL 3 603 574 689 (approximately EUR 1.8 million). The programme financed by that loan was to be implemented in China by Wam and by Wam Bulk Handling Machinery (Shanghai) Co. Ltd, a local business fully controlled by Wam.

6. Following receipt of a complaint in 1999, the Commission opened an inquiry into the State aids allegedly granted to Wam. On 21 January 2003, it decided to initiate the formal investigation procedure under Article 88(2) EC, a decision which targeted the State aid allegedly granted to WAM.

7. On 19 May 2004, the Commission adopted the contested decision. With regard to the question whether the first and second grants of aid (‘the aid at issue’) constitute ‘State aid’ within the meaning of Article 87(1) EC, as recitals 75 to 79 of the contested decision states:

‘(75) [The aid at issue] consists of transfers of public funding, in the form of subsidised loans, to a specific undertaking, WAM SpA. These loans improve the financial situation of the aid recipient. As regards the potential effect on trade between Member States, it has been stressed by the Court of Justice that, even if the aid is intended to promote exports outside the EU, intra-Community trade may be affected. Moreover, having regard to the interdependence between the markets on which Community undertakings operate, it is possible that such aid might distort competition within the Community.

(76) WAM SpA has subsidiaries all around the world, including in almost all the EU Member States, including France, the Netherlands, Finland, the United Kingdom, Denmark, Belgium and Germany. In particular, the complainant stressed that it competed on the Community market directly with “WAM Engineering Ltd” which is the subsidiary for the United Kingdom and Ireland of WAM SpA, and that it was losing many orders to the Italian company. Furthermore, as regards outward-looking competition among Community undertakings, it transpired that the programme financed by the [second grant of aid] and designed to support business penetration in China, was to be jointly carried out by WAM SpA and & “WAM Bulk Handling Machinery Shangai Co. Ltd”, a local firm wholly owned by WAM SpA.

(77) According to the case law of the Court of Justice, even if the recipient exports almost its entire production outside the EU, the EEA and the accession countries, any subsidising of export activities can affect trade between Member States.

(78) Moreover, in the case at hand, it has been ascertained that in the period 1995-1999 sales abroad accounted for between 52% and 57,5% of the overall annual turnover of WAM SpA, two thirds of which was generated inside the EU (in absolute figures, some EUR 10 million compared with EUR 5 million).

(79) Accordingly, irrespective of whether [the aid at issue] supports exports to other Member States or outside the EU, it has the potential to affect trade between Member States and is, therefore, caught by Article 87(1) [EC].’

The action before the Court of First Instance and the judgment under appeal

8. The Italian Republic and Wam applied separately for the annulment of the contested decision before the Court of First Instance. The actions were subsequently joined. The Italian Republic relied on seven grounds in its application. Wam relied on ten. Among the grounds invoked was the allegation that the Commission had breached its obligation to give adequate reasoning for the contested decision.

9. By the judgment under appeal, the Second Chamber of the Court of First Instance annulled the contested decision. It did so on the basis that the Commission had breached the obligation to state reasons.

10. The Court of First Instance pointed out in paragraph 59 of the judgment under appeal that the classification as ‘aid’, in the sense of State aid incompatible with the common market, requires that all the conditions set out in Article 87(1) EC are fulfilled. Those conditions are as follows. First, there must be an intervention by the State or through State resources. Second, the intervention must be likely to affect trade between Member States. Third, it must confer an advantage on the recipient by favouring certain undertakings or the production of certain goods. Fourth, it must distort or threaten to distort competition.

11. The Court of First Instance held, in paragraph 63 of the judgment under appeal, that it was not automatically established that the aid at issue had affected trade between Member States or that it distorted or threatened to distort competition and that such a possibility should have been illustrated. In that respect, the Commission should have mentioned in the contested decision the relevant information concerning the foreseeable effects of the aid at issue. However, the Court of First Instance emphasised that the Commission was not under an obligation to show its real effect.

12. The Court of First Instance held in paragraph 66 of the judgment under appeal that the reasoning set out in recitals 75 and 77 of the contested decision was ‘based on a reference to the legal principles drawn from case-law and on the fact that effects on trade and on competition cannot be excluded, and cannot in itself be regarded as fulfilling the requirements of Article 253 EC’.

13. Regarding the finding at recital 75 of the contested decision that ‘[t]hese loans improve the financial situation of the aid recipient’, the Court of First Instance held that it is not directly connected to the conditions relating to the effects on trade and the distortion of competition but, in a more general manner, to the conferral of an advantage on a specific undertaking which is a further characteristic of the notion of State aid within the meaning of Article 87(1) EC. The Court went on to find in paragraph 67 of the judgment under appeal that ‘the grant of aid to a specific undertaking, which is inherent in every State aid, and the associated improvement of the financial situation of that undertaking is not sufficient to show that that aid fulfils all the criteria of Article 87(1) EC’.

14. With regard to the reasons in recitals 76 and 78 of the contested decision, the Court of First Instance found at paragraph 68 of the judgment under appeal that they were ‘information which make it possible to show that Wam is active on the global and Community market, that it was engaged in trade, in particular [by means of] its exports, and that it competes with other undertakings’.

15. On the other hand, the Court found at paragraph 69 of the judgment under appeal that ‘the information fails to indicate how, due to the grant of the aid at issue and having regard to its characteristics as well as the circumstances of the present case, trade between Member States was likely to be affected or competition was likely to be distorted or in danger of being distorted. However, they are just one set of circumstances, amongst others, which must be appraised in order to analyse the possible effects of the aid at issue’.

16. The Court rejected the Commission’s argument that the distortion of competition is due to the fact that, by virtue of the aid at issue, Wam’s position was strengthened vis-à-vis undertakings from other Member States who are potential competitors.

17. The Court of First Instance held that the argument was not relevant since the contested decision did not contain any express indication to that effect or sufficient material concerning such a strengthening. For the same reasons, the Court of First Instance rejected the argument that the aid at issue enabled Wam to implement its programme designed to penetrate foreign markets and to free resources at Community level for other purposes.

18. The Court of First Instance dismissed the Commission’s assertion that it was not necessary to examine the interdependence between Community and Far Eastern markets, since Wam is engaged in intra-Community trade. The Court held at paragraph 74 of the judgment under appeal that ‘the bald statement that Wam was involved in intra-Community trade was inadequate to show a likely effect on such trade or a distortion or threatened distortion of competition and, therefore, a detailed examination of the effects of the aid was necessary, taking into account, in particular, the fact that it met expenses incurred on the Far Eastern market, as well as, to the extent necessary, the interdependence between that market and the EU market’.

19. Furthermore, the Court of First Instance found in paragraph 74 of the judgment under appeal that the contested decision refers to the interdependence of the markets in which Community undertakings operate but without putting forward, contrary to the judgment in Case C‑142/87 Belgium v Commission [1990] ECR I‑959 (‘ Tubemeuse ’), paragraphs 36 to 38, precise probative material to support the contention, in recital 75 of that decision, and applying the ‘ Tubemeuse principle’ that such interdependence means that the aid at issue is likely to affect competition within the Community.

20. Finally, regarding recital 79 of the contested decision, which mentions that ‘irrespective of whether [the aid at issue] support[s] exports to other Member States or outside the EU, it has the potential to affect trade between Member States and is, therefore, caught by Article 87(1) EC’, the Court of First Instance held at paragraph 75 of the judgment under appeal that the contested decision ‘did not contain a formal assessment of the distortion of competition and therefore apparently disregards the necessity of that condition for the application of that article’.

21. In paragraph 75 of the judgment under appeal, the Court of First Instance held, first, that ‘there is no clear evidence that the aid at issue is intended to support exports to other Member States and second, that its aim is not to directly and immediately support exports outside the EU, but to finance an export programme designed to penetrate a third-country market’.

22. The Court held in paragraph 76 of the judgment under appeal that the reasons set out in recitals 74 to 79 of the contested decision do not make it possible to understand, in the circumstances of the present case, how the aid at issue is capable of affecting trade between Member States and of distorting or threatening to distort competition and that, therefore, the circumstances referred to in the contested decision do not constitute a sufficient statement of reasons to support the conclusions which the Commission reached with regard to the application of Article 87(1) EC.

23. Accordingly, the Court of First Instance, without considering the other pleas put forward by the Italian Republic and by Wam, annulled the contested decision for the inadequacy of the statement of reasons on which it is based, inasmuch as the reasons given were not adequate to justify the conclusion that the aid granted met all the conditions of Article 87(1) EC.

Forms of order sought

24. By its appeal, the Commission claims that the Court should:

– set aside the judgment under appeal;

– by giving final judgment in the matter, dismiss the appeal as inadmissible;

– in the alternative, refer the case back to the Court of First Instance for re-examination; and

– order the Italian Republic and Wam to pay the costs of the proceedings before both courts.

25. The Italian Republic contends that the Court should declare inadmissible or dismiss the Commission’s appeal and order it to pay the costs of the proceedings.

26. Wam requests the Court, as the main plea, to dismiss the application as being inadmissible or, in the alternative, as being unfounded. Wholly in the alternative, Wam requests the Court to declare that the contested decision is invalid for other reasons or, in the further alternative, to refer the case back to the Court of First Instance for judgment, and in any event to order the Commission to pay all the costs of the case, including those in these proceedings.

The appeal

Admissibility

27. Both Italy and Wam contest the admissibility of the appeal.

28. Italy argues that the Commission’s contention that the judgment of the Court of First Instance is inconsistent with the case-law of the Court of Justice is a ground of appeal which does not relate to a point of law.

30. As the Advocate General states in point 20 of her Opinion, the Commission’s appeal is based, precisely, upon the allegation that the Court of First Instance has infringed Community law by failing to follow and apply the interpretation of Articles 87 EC and 253 EC laid down in the case-law of the Court of Justice.

31. It follows that the Italian Republic’s argument that the appeal is not based on a point of law must be rejected.

32. Regarding Wam’s argument that the Commission’s appeal invites the Court of Justice, first, to review the substance of the judgment under appeal rather than being limited to a review of an ‘essential procedural requirement’ as laid down in Article 230 EC, and, second, to carry out a review of the substance over which the Court of Justice has no jurisdiction at the appeal stage, it should be noted that Article 230 EC gives the Court of Justice jurisdiction to review acts of Community institutions other than the Court of First Instance. Appeals against the judgments of the Court of First Instance are governed, however, by the terms of Article 225(1) EC and the Statute of the Court of Justice.

34. It follows that Wam’s argument concerning the admissibility of the Commission’s single ground of appeal must be dismissed.

35. Accordingly, the appeal must be held admissible.

Substance

Arguments of the parties

36. The Commission relies on one ground of appeal, alleging that the judgment under appeal is vitiated by an error of law in that it finds the statement of reasons in the contested decision inadequate. It maintains that, having held that for the purposes of Article 87(1) EC the mere finding of an undertaking’s involvement in intra-Community trade is not sufficient to establish the existence of an effect on trade or of a distortion of competition, the Court of First Instance infringed the combined provisions of Article 87(1) EC and Article 253 EC. The Commission submits that, by requiring such a statement of reasons, the Court of First Instance contradicts the Court of Justice’s settled case-law on that matter.

37. The Commission contends that the involvement of Wam in intra-Community trade shows by itself the effect that the subsidy could have on that trade.

38. Challenging paragraphs 73 and 74 of the judgment under appeal which criticise the lack of sufficient evidence in the contested decision of the strengthening of Wam’s position with regard to competition, the Commission argues that, according to the case-law of the Court, when an aid releases an undertaking from costs which it usually has to bear and strengthens its position compared with other competitors in intra-Community trade, it influences trade and generally distorts competition. In that regard, the Commission stresses that it is not obliged to examine the actual consequences of the aid.

39. The Commission criticises the judgment under appeal to the extent that it finds a failure to state reasons in the fact that the contested decision does not contain any arguments concerning the interdependence between the Comunity and Far Eastern markets affected by the aid at issue. According to the Commission, the Court ignored the obvious consideration that money is fungible and therefore, when an undertaking carries out an activity within the Community, it is not necessary to specifically demonstrate the possibility that the aid intended to support the external market penetration also has an effect on trade between Member States and is likely to give rise to distortion of competition.

40. Finally, the Commission relies on the case-law of the Court of Justice, according to which, when it is apparent from the very circumstances in which the aid is granted that the aid is capable of affecting trade between Member States and distorting or threatening to distort competition, the Commission may confine itself to setting out those circumstances in the statement of reasons for its decision. According to the Commission, that is precisely what it did in the contested decision.

41. Wam argues that the appeal is wholly unfounded. According to Wam, the Court of First Instance was correct to apply the settled case-law of the Court of Justice, according to which the obligation to state reasons has not been fulfilled by a statement of reasons based on abstract or merely hypothetical assessments. Wam argues that the conditions regarding the effect on trade and the distortion of competition can be considered fulfilled only on the grounds of findings of fact which prove, in a specific and not merely abstract manner, how, in the circumstances of the case, an intervention by the State or through State resources strengthens the competitive position of the beneficiary undertaking and reduces its production costs.

42. According to the Italian Republic, the Court of First Instance did not infringe Article 87(1) EC and followed the general trend of the case-law. Case 730/79 Philip Morris Holland v Commission [1980] ECR 2671 defined the effect on trade as meaning that the subsidy should ‘strengthen the position of an undertaking compared with other undertakings competing in intra-Community trade’.

43. The Italian Republic argues that an examination, even of a general nature, of the features of the intra-Community competition potentially affected by the aid and therefore the theory of a ‘relative strengthening’, which is said to explain the effect of intra-Community trade, is exactly what is missing in the contested decision. The reference in paragraph 15 of the appeal to the possible strengthening effect is inadmissible, since the Court of First Instance held in paragraph 73 of the judgment under appeal that this effect was relied upon for the first time at the hearing.

44. The Italian Republic relies on the same objection of inadmissibility with regard to the remark, referred to in paragraph 15 of the appeal, concerning the distorting effect on competition which allegedly flows from the fact that the undertaking, by virtue of the subsidy, was released from costs which it would normally have to bear.

45. According to that Member State, paragraph 56 of Case C‑372/97 Italy v Commission [2004] ECR I‑3679 indicates that the statement of reasons is adequate when the Commission identifies, at least generally, the normal costs of the category of undertakings concerned and how they relate to the objective of the aid. In the present case, the reason why the expenditure constitutes ‘normal costs’ is not mentioned in the statement of reasons of the contested decision.

46. Furthermore, the Italian Republic argues that the Tubemeuse judgment clearly indicates that one cannot presume that any advantage obtained in the field of competition outside the Community is also advantageous in the field of Community competition. The Court of First Instance was therefore entitled to hold that there is a lack of reasoning in that regard.

47. Finally, the Italian Republic submits that the Commission’s arguments that the Court of First Instance did not take into account the fungible quality of money is inadmissible since it falls outside the scope of the plea alleging that the contested decision is insufficiently reasoned and is an additional reasoning to that contained in the contested decision. In any event, the ‘releasing of resources’ theory does not constitute an adequate statement of reasons in the absence of additional information, since it could just as well establish that the aid at issue does not have any effect on the Community market.

Findings of the Court

55. In the circumstances of the present case, it must be held that the Court of First Instance did not infringe the case-law cited above concerning the Commission’s obligation to state reasons in matters of State aid by holding in paragraph 76 of the judgment under appeal that the reasoning provided in recitals 74 to 79 of the contested decision does not make it possible to understand how, in the circumstances of the present case, the aid at issue was likely to affect trade between Member States and to distort or threaten to distort competition.

59. With regard to the practical implementation of those principles, the Court of First Instance was right to hold, in paragraph 66 of the judgment under appeal, that a general reasoning such as that contained in recitals 75 and 77 of the contested decision, which is based on the reaffirmation of the principles flowing from the Tubermeuse judgment cannot, by itself, be considered to satisfy the requirements arising under Article 253 EC.

60. Regarding the reasons set out at recitals 76 and 78 to the contested decision, the Court of First Instance, without erring in law, held, in paragraphs 68 to 74 of the judgment under appeal, that those recitals, even when read in combination with the principles set out in recital 75 of the contested decision and with the finding that the financial situation of Wam has improved are not sufficient to permit an understanding of how the aid at issue is liable, in the present case, to affect trade between Member States and to distort or threaten to distort competition in that sector.

61. Contrary to the claim of the Commission in that respect, the mere fact that Wam took part in intra-Community trade by exporting an important part of its production within the EU cannot suffice, in the particular circumstances of the case recalled in paragraph 55 of this judgment, to demonstrate those effects.

63. Finally, as to the case-law cited in paragraph 54 of this judgment, according to which, in principle, the aid which is intended to release an undertaking from costs which it would normally have had to bear in its day-to-day management or normal activities distorts the conditions of competition, it is sufficient to note that the aid at issue is not in fact intended to release Wam from such costs.

65. Furthermore, that conclusion is not invalidated by the arguments advanced by the Commission with regard to the findings of the Court of First Instance in paragraph 74 of the judgment under appeal. Those findings on the examination of the interdependence between EU and Far Eastern markets relate to the possibility of an indirect effect on trade and intra-Community competition, such as that referred to principally in the Tubemeuse judgement. While it is true that the examination of such interdependence cannot be required if it is demonstrated that the State aid directly affects the intra-Community markets, it must however be held that the contested decision, as has been confirmed in the preceding paragraphs of this judgment, does not adequately demonstrate this.

66. It follows from all the above considerations that the appeal must be dismissed.

Costs

67. Under Article 69(2) of the Rules of Procedure, which applies to appeal proceedings by virtue of Article 118 of those rules, the unsuccessful party is to be ordered to pay the costs, if they have been applied for in the successful party’s pleadings. The Italian Republic and Wam have applied for costs and as the Commission has been unsuccessful, the latter must be ordered to pay the costs at both instances.

On those grounds, the Court (First Chamber) hereby:

1. Dismisses the appeal;

2. Orders the Commission of the European Communities to pay the costs at both instances.