Report for the Hearing delivered in Case 304/85

I — Facts and procedure

1. Context of the case — Community regulation of national aids to the steel industry

Since 1973 the steel industry in the Community has experienced particular difficulties caused by a combination of various factors including surplus capacity and falling prices. As a result of that trend the viability of many undertakings in the steel sector has been seriously threatened. In view of the position several Member States have granted aid to steel undertakings. In response to these developments, in late 1977 the Commission announced a number of measures intended to bring about a profound reorganization of the sector and including plans for a system of aid enabling subsidies granted by the Member States to be coordinated at a Community level.

It was against that background that the Commission, with the Council's assent, first adopted Decision 257/80 of 1 February 1980 establishing Community rules for specific aids to the steel industry (Official Journal 1980, L 29, p. 5). That decision, referred to as the First Aids Code, was replaced by Commission Decision 2320/81 of 7 August 1981 establishing Community rules for aids to the steel industry (Official Journal 1981, L 228, p. 14); Article 13 of the latter decision (the Second Aids Code) stated that the decision was to apply until 31 December 1985. According to the preamble to the Second Aids Code the same broad objectives as before were to be retained but stricter rules, designed to phase out aids within a fixed period, were to ensure that restructuring, including reductions in capacity, would be carried through with all the necessary speed.

The Second Aids Code established a uniform procedure for determining whether aids to the steel industry, in any form whatsoever, could be regarded as compatible with the orderly function of the common market. If so, they were treated as Community aids on satisfying the general rules in Article 2 which included the requirement that the undertaking in question should be engaged in a restructuring programme and that aid authorized should not lead to any payment after 31 December 1985. Proposed aid had also to satisfy the specific conditions in Articles 3 to 7 of the code, the severity of which depended on the kind of aid proposed. In that respect the provisions of the code distinguished between investment aid, aid for closures, aid for continued operation, emergency aid and aid for research and development.

In 1983, on the basis of the Second Aids Code, the Commission adopted a number of decisions addressed to the German, Belgian, British, French, Greek, Irish, Italian, Luxembourg and Netherlands Governments. By those nine decisions it approved the grant in the Member States of all the abovementioned kinds of aid apart from emergency aid, which according to Article 6 of the code could no longer be approved after 31 December 1981. The decisions involved aid totalling million ECU 21900 and envisaged a reduction in production capacity for hot finished products of 26.7 million tonnes (the Community restructuring objective for the period 1980-86 was a reduction in capacity of some 30 to 35 million tonnes).

By Decision 1018/85 of 19 April 1985 (Official Journal 1985, L 110, p. 5) the Commission, after referring to market trends, amended certain time-limits laid down in the Second Aids Code so as to allow payment of aid for continued operation to be made for an additional year and to make possible the approval of additional aid. According to the preamble to the decision additional aids must satisfy the criteria in Article 2 of the Second Aids Code and may be approved only for carrying out financial restructuring to reduce debt-service charges to the level borne by undertakings that were profitable in 1984 or for covering costs occasioned by capacity reductions.

In adopting Decision 1018/85 the Commission amended several provisions of the Second Aids Code so that:

2. Background to the case

As regards the Italian steel industry, the Commission, by a decision of 14 June 1983 pursuant to the Second Aids Code in its original form, authorized aid for the private sector amounting to LIT 550000 million. By a decision of 29 June 1983 it authorized aid totalling LIT 10290000 million for Finsider, a steel company partly owned by the State, and an additional LIT 550000 million for private steel undertakings. The release of the aid was made subject to a reduction in capacity of 5.8 million tonnes. Of that total, 4.8 million tonnes was to be achieved in the first instance by Finsider and one million by undertakings from the private sector. In response to a request by the Italian Government the Commission agreed to a revision of that distribution of the burden of restructuring: 3.8 million tonnes of reduction was to be achieved by Finsider and 2 million tonnes by the private sector.

In 1984 the applicant, Acciaierie e Ferriere Lombarde Falck, a private sector Italian steel producer and a major competitor of Finsider in the manufacture of flat products, wrote to the Italian Government and the Commission with reservations in respect of the extension of the system of aids, the major beneficiaries of which were undertakings in which the Member States had direct interests. At the same time it argued that no additional aid should be granted to producers which had already received large amounts of aid without proportionate aid being granted to private undertakings. To that end Falck, which had already been granted aid amounting to LIT 150000 million, requested the Italian Government to include in new aid proposals to be notified to the Commission an amount of LIT 300000 million for its financial restructuring.

In reply to that request, in early 1985 the Italian Government proposed that Falck should cooperate with the Finsider group with a view to achieving a degree of synergy. The plan was that Falck would transfer its production quotas to Finsider to permit the transfer to Finsider's hot-rolled wide strip mill at Bagnoli of all of Falck's production at its coil and strip mill at Sesto San Giovanni, which would then be closed. The Finsider group would thus be able to bring production at its plant at its Bagnoli plant up to its full capacity. Falck laid down a number of conditions to compensate it for the loss of its own plant; it made its agreement subject to obtaining a higher subsidy from the Italian Government and a price of LIT 235000 million from the Finsider group as consideration for the sale of the production quotas of its mill at Sesto San Giovanni.

It appears from the documents before the Court that the negotiations on that proposal led to no agreement.

In the meantime, by a letter dated 28 May 1985, the Italian Government had notified the Commission of a request for additional aids within the meaning of Decision 1018/85. The request contained three branches : (a) aids for closures in the private sector amounting to LIT 150000 million; (b) aids to the Finsider group amounting to LIT 2985000 million and (c) a financial contribution of LIT 550000 million towards plans for cooperation (synergy) between various Italian steel producers which would lead to further reductions in production capacity.

By a letter dated 1 July 1985 Falck informed the Commission that if it approved plans for aids from which Falck was excluded Falck would have no choice but to bring an action before the Court of Justice.

By a decision of 1 August 1985 which is the subject of these proceedings the Commission approved two alternative plans of aids. In that respect it appears from the documents before the Court that when it considered the Italian Government's request the Commission had not yet been informed of the results of the synergy plans referred to in the notification of 28 May 1985 and in particular of the plan for cooperation between the Finsider group and Falck. For the same reason the decision at issue contains two alternative decisions, one of which presupposes the achievement of synergy between Finsider and Falck and the other that nothing comes of the plan for cooperation.

In the first case (synergy) the Commission approved all the aids notified in favour of the Finsider group, namely LIT 3142000 million, and in addition aids amounting to LIT 600000 million for steel producers in the private sector. The approval was subject to the proviso that there should be reductions in production capacity of 400000 tonnes by Finsider, 600000 tonnes by the private sector and 330000 tonnes as a result of the abovementioned synergy.

In the second case (no synerg) the Commission approved all the aid proposed for Finsider subject to reductions in capacity of 800000 tonnes. It approved aids for closures in the private sector in the amount of 50 thousand million lire and stated that the amount could be increased by LIT 275000 million if, in the absence of synergy, reductions in capacity could be made in the private sector other than those contemplated in the first case. It is clear from the statement of the reasons for the contested decision that the Commission did not agree to the use of those LIT 275000 million for financial restructuring as contemplated by the Italian Government in a telex message of 22 July 1985. The Commission considered that such a plan ought to have been notified to it before 31 May 1985 as provided in the third indent of Article 1 of Regulation No 1018/85.

The Commission's decision was notified to Falck on 20 September 1985.

3. Procedure

The application was received at the Court Registry on 11 October 1985.

The written procedure followed the normal course.

By a decision of 16 May 1986 under Article 95 (1) and (2) of the Rules of Procedure the Court assigned the case to the Sixth Chamber; upon hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry.

II — Conclusions of the parties

In its application Acciaierie e Ferriere Lombarde Falck, the applicant, claims that the Court should:

The Commission of the European Communities, the defendant, contends that the Court should:

III — Submissions and arguments of the parties

Summary

In support of its application the applicant company puts forward three submissions, the first of which is based on discrimination in the implementation of Decision 1018/85 in that the Commission refused to take into consideration a request for aid for financial restructuring of private undertakings, such as the applicant, on the ground that the request had been notified to it out of time, although the contested decision approved an aid proposal which was not notified within the stipulated time-limit either. The second submission asserts a breach of the principle of equal treatment and the rules of fair competition, in that the approval of the grant of additional aid to Finsider without a proportionate grant of aid to the applicant would necessarily result in a serious distortion of competition affecting it. The applicant's third submission is based on an alleged failure to state adequate reasons for the contested decision, in that the Commission, in adopting the decision, simply considered two cases on which it had not been duly informed, in the absence of a precise programme for the restructuring of the Italian steel industry.

The Commission considers all the submissions to be unfounded.

The submission of discrimination in the implementation of Decision 1018/85

The applicant states that by its decision of 1 August 1985 the Commission authorized aids amounting to LIT 275000 million for additional closures in the private sector; those aids were notified by the Italian Government to the Commission in a telex message of 22 July 1985, that is to say well after the expiry of the time-limit laid down in that respect by Decision 1018/85 (31 May 1985). In the same decision, however, the Commission refused to consider a request for aids for the financial restructuring of private steel undertakings on the ground that the request had been notified to it for the first time in the said telex of 22 July 1985. If the aid of LIT 275000 million was not notified to the Commission out of time the same must be true of the aid intended for the financial restructuring of private undertakings.

The Commission explains that the only request for aids submitted to it by the Italian Government under Decision 1018/85 was that of 28 March 1985, which concerned inter alia the approval of LIT 550000 million as a financial contribution to the reductions in production capacity arising from plans for synergy between various Italian steel producers. By a telex message of 22 July 1985, however, the Italian Government amended its request, seeking approval to use the sum of LIT 550000 million not only to encourage synergj between Finsider and Falck but also foi possible additional closures in the long products sector and for financial restructuring in the private sector. In so far as the amendment involved a plan for simple financial restructuring of undertakings it was obviously a new application going far beyond the scope of the notification of 28 May 1985 and could therefore not be considered, in view of the time-limit in Decision 1018/85. On the same basis it was fair to make a decision on the additional application of the Iulian Government. It has in the past applied the time-limit in the same way in similar circumstances, and that was held by the Court to be consistent with the Second Aids Code in the judgment of 3 October 1985 (Case 214/83 Federal Republic of Germany v Commission [19851 ECR 3053).

Breach of the principle of equal treatment and the rules of fair competition

The applicant states that any action by a Community institution, including approval of the grant of aids to the steel industry, must comply fully with the fundamental provisions of the ECSC Treaty, in particular Article 4 (b) which requires observance of the principle of equal treatment. For the same reason the eighth recital to the Second Aids Code expressly stated that when assessing aid no discrimination must be practised between undertakings, notably on account of their ownership, whether public or private. In the present case the Commission seriously infringed its obligation to ensure fair competition and equality of treatment between steel undertakings.

In support of its argument the applicant states that it is the only direct Italian competitor of the Finsider group in the flat products sector; its production capacity in that sector represents some 10% of Finsider's. It has made reductions in capacity equal to 75% of the closures carried out by Finsider, but so far it has been granted only 1% of the aids paid to the Finsider group. In those circumstances the Commission ought not to have approved the grant of such large additional aids to Finsider without the grant of aids of a proportionate amount to the applicant. It adds that the contested decision will have catastrophic effects on its competitiveness vis-à-vis Finsider, to the extent that its viability will be endangered.

The Commission replies first of all that the system of aids as established by the Second Aids Code cannot be interpreted as including a principle to the effect that all steel producers should receive an amount of aid proportionate to their market position. Only if they contribute to the restructuring of the market are they eligible for financial aid, if all the other conditions laid down in the Second Aids Code are satisfied. It must be stressed that it is for the Member States to draw up the necessary plans for restructuring, and the Commission can approve only aid proposals which have been notified to it by the Member State; accordingly, it has no initiative in determining which undertakings are eligible to benefit under the Second Aids Code. It is the Commission's duty, however, to consider whether the aids contemplated do not entail distortions of competition and do not affect trading conditions to an extent contrary to the common interest (fourth indent of Article 2 (1) of the Second Aids Code). If aid is authorized there is always some distortion of the balance of competition. In that respect the Commission adds that the applicant has provided no evidence of the alleged deleterious effect of the contested decision on its competitiveness.

As regards the present case the Commission goes on to state that it approved the grant of considerable aid to the applicant in the event of its taking part in the restructuring provided for by the proposal for synergy with Finsider. It is true that in the event of that proposal not being carried through no aid was provided for the applicant, but it must be borne in mind that in that case the applicant was not engaged in any effort to restructure whereas the Finsider group would have to make considerable reductions in capacity. It follows from that that the applicant and Finsider were certainly not in a comparable situation. Consequently, the complaint that the principle of equal treatment was not observed is without foundation.

Failure to state reasons

The applicant states that according to the first indent of Article 2 (1) of the Second Aids Code no aid proposal can be approved unless the recipient undertaking is engaged in the implementation of a systematic and specific restructuring programme covering the different aspects of restructuring. In the present case the Commission, without serious study, simply considered two alternatives: cooperation (synergy) and no cooperation. It appears moreover from the contested decision that the Italian Government was to provide the Commission with deuils of the synergy proposal no later than 30 October 1985, that is to say after the time-limit provided for a definite decision (1 August 1985). It is therefore clear that the Commission was not in a position to check whether all the conditions laid down in the Second Aids Code were observed. That is corroborated by the fact that the same aids were approved for Finsider whether or not there was synergy, although the financial situation of Finsider would obviously be different depending on the fate of its plant at Bagnoli. In those circumstances the Commission apparently adopted the contested decision without there being a specific restructuring programme. The statement of reasons for the decision is therefore merely empty verbiage intended to conceal the lack of study.

The Commission replies that the contested decision contains a full statement of reasons in respect of the effect of the contemplated aid on the viability and competitiveness of the recipient undertakings and the amount of reductions in capacity provided for in relation to the programme for the restructuring of the Italian steel industry as established in previous decisions made pursuant to the Second Aids Code, in particular those of 29 June 1983.

Measures pursuant to Article 34 of the ECSC Treaty

The applicant claims that it has suffered harm as a direct result of the decision in question. The Commission has in effect deprived it of additional aid for its financial restructuring of some LIT 275000 million, which would have enabled it to counterbalance the discrimination and distortion of competition which it has suffered. The Commission must accordingly take steps under Article 34 of the ECSC Treaty to ensure equitable redress for the resulting harm.

The Commission considers that for the reasons set out above the action is unfounded and that there is accordingly no case for applying Article 34 of the ECSC Treaty.

1 Language of the Case: French.