Opinion of Mr Advocate General Tesauro
Mr President,
Members of the Court,
1. The Belgian Government is complaining of the decision of 4 February 1987 in which the Commission found that the substantial financial aid (more than BFR 12000 million) granted in various forms (contribution to an increase in capital and for convertible bonds, conversion of guaranteed loans into capital and other grants in aid) by the Belgian Government to Tubemeuse, a steel company, in the period from 1984 to 1986 was unlawful (as being an infringement of Belgium's obligations under Article 93(3) of the EEC Treaty) and incompatible with the common market under the provisions of Article 92, and required the recovery of the said aid.
Preliminary question
2. Before considering the merits of the application it is necessary to consider a question with which the Commision dealt in some detail in its pleadings and at the hearing, and on which it has asked the Court to rule expressly.
3. Let me say first, that having regard to its scope and implications, the question raised by the Commission does not appear to be an objection of inadmissibility in the true sense of the term.
4. In asking the Court to rule on this question, the Commission emphasized its novelty and importance for the effectiveness of the system of supervision of State aid. It notes that, recently, there has been an increasing tendency to grant aid without giving prior notice thereof. With increasing frequency, therefore, the Member States, rather than giving notice of the aid when it is still at the planning stage — as is required by Article 93(3) — put it into effect directly. They simply wait until the Commission, of its own motion or as a result of a complaint lodged by a third party, asks for an explanation of the measures adopted. Then and only then does the Member State transmit the information requested, thereby permitting the initiation, if necessary, of the procedure under Article 93(2).
5. Further to the above comments, it should be pointed out that there are two new aspects to the Commission's argument. First, as has been said, the Commission is claiming a sort of new power of decision entitling it to establish the illegality of aid in regard to Article 93(3). It is therefore, at least prima facie, a power which is outside the procedural scope both of Article 169 (since the Commission itself declares the infringement to have occurred) and of Article 93(2) (since the decision in question does not take account of the question of compatibility).
6. The system of preventive supervision of new aid (or changes to existing aid) meets the essential objective of preventing such aid from being granted, and thereby producing distortive effects, without there first being an assessment of its compatibility at Community level.
7. That having been said, what are the consequences of an infringement of Article 93(3)?
8. It should also be observed, however, that the possibility of remedying an infringement of Article 93(3) at the national level appears to be limited by a series of factors. Among them are the following:
9. However, notwithstanding those difficulties, it cannot be concluded that the system of national protection is entirely ineffective.
10. With regard to the consequences of an infringement of Article 93(3) at Community level, it should be pointed out that the problem has already been considered on several occasions both by the Court and by the Commission.
11. The possibility of making use of those proceedings for the purpose of taking action against infringements of Article 93(3) has been confirmed on several occasions, in general terms, by the Commission itself. In a communication of 30 September 1980 (Official Journal C 252, p. 2), the Commission, after pointing out that no payments may be made in violation of the provisions of Article 93(3), adds that:
12. Those therefore are the procedures available at Community level. It should be emphasized that those procedures do not merely involve a finding that an infringement exists. There is a significant substantive consequence to be drawn from a finding that a proposed aid programme has been implemented in breach of the obligations contained in Article 93(3): the possibility that the Member States may be asked to recover the aid unlawfully granted.
13. It follows from those observations that an infringement of Article 93(3) may be the subject of proceedings at Community level and that, as a result, aid unlawfully paid may have to be recovered. The Commission states however that the practical effect of that sanction is significantly reduced by the fact that the decision under Article 93(2), which may require recovery of the aid, is adopted some considerable time after the actual State intervention. Consequently, the recovery of amounts unduly paid may prove difficult.
14. In the second place — and this is an aspect which seems to me to be of particular importance — there is a specific remedy permitting action to be taken in good time against the unlawful implementation of an aid project independently of the duration of the substantive verification procedure. As has already been stated, the Commission may act under Article 169 against a Member State which has not complied with the prohibition of implementation asking the Court at the same time (under Article 186) to order the necessary interim measures. It should be emphasized that, in Case 171/83, the order of the Court granting the interim measures applied for was made only three months after the date of the Commission's letter giving formal notice to the Member State concerned. For that reason, it seems to me to be an effective (having regard also to the importance of an order of the Court in possible national legal proceedings dealing with the same subject-matter) and, most importantly, rapid instrument, since it may be adopted relatively quickly after the receipt by the Commission of the first information concerning the implementation of the aid.
15. On the basis of the foregoing analysis, it is possible to consider specifically the arguments put forward by the Commission in this case.
16. The Commission's position is certainly not illogical. There is also no doubt that such a view involves a significant extension of the Commission's range of action: it would become the master of the verification procedure, being in a position to control the course of that procedure with a wide discretion and, most importantly, being able, where aid has been unlawfully implemented, to decide if and how that aid is to be assessed under Article 92(3).
17. In any event, as I have repeatedly emphasized, that is not the decisive aspect. The principal novelty in the Commission's argument is the possibility that the unlawful implementation of the aid, however determined, could permit the Commission not to initiate or pursue its verification of compatibility with the common market.
18. However, are those considerations sufficient to conclude, as the Commission claims, that the verification of compatibility need not take place?
19. There is a further consideration which I regard as important.
20. Finally, it should be observed that in the context of the procedure under Article 93(2), all interested parties, both Member States and private persons, are entitled to submit their comments (which in fact conforms to the principal objective, namely to ensure that the substantive assessment is as clear and complete as possible).
21. Naturally, if it appeared essential to ensure the effective functioning of the system of preventive supervision to subordinate the application of Article 92(3) to compliance with the obligations under Article 93(3), the Community legislature could intervene on the basis of Article 94. However, until such time as such intervention takes place, it seems to me that it must be accepted that the procedural obligations under Article 93(3) and the verification of compatibility are quite distinct and, therefore, the infringement of the former does not affect the requirement to carry out the latter in a proper and timely manner.
22. The conclusions I draw from the foregoing analysis are thus as follows:
Substance of the case
A — The application of Article 92(1)
The nature of the contribution to capital made by the Belgian Government
23. The Belgian Government denies that the financial intervention carried out in regard to Tubemeuse constitutes aid within the meaning of Article 92(1). On the contrary, it represents a perfectly normal addition to capital in accordance with current business practice in a market economy. In particular, the Belgian Government behaved like any shareholder which, having already made a substantial investment, found itself confronted with a difficult situation and felt obliged to make further contributions in order to ensure the continuation of the undertaking's activities and, therefore, the possibility of obtaining a return, however limited.
24. In that regard, I would point out that, according to now settled case-law, a State holding in the capital of an undertaking may be regarded as State aid if the conditions laid down in Article 92 are fulfilled.
25. In the contested decision, the Commission stated that Tubemeuse could not have obtained the finance in question on the private capital market for a series of reasons. In particular, it was demonstrated in detail that the sector involved was marked by a considerable structural excess of production capacity, that the demand for non-welded tubes for oil exploration, which represents the largest single source of demand for that product, was slowly contracting, that the financial situation of Tubemeuse has been marked for some time by substantial losses (in 1984, the loss was greater than 14% of turnover, including financial costs of 8.4%), which led to a gradual disengagement of the private shareholders.
26. Furthermore, the Commission replied convincingly to the arguments put forward by the Belgian Government to show that the financial contributions at issue could not be regarded as aid intended to save the undertaking from collapse.
The effect on intra-Community trade
In this context, the Belgian Government points out that, at the time at which it received aid, Tubemeuse exported 90%, that is to say, almost all, of its production, outside the Community, more precisely, to the Soviet Union.
The Belgian Government concludes firstly from that fact that the intervention in question may be regarded at most as aid for exports to third countries and is therefore a measure permitted under Article 112 of the Treaty.
In the second place, having regard to the quantity of the exports to nonmember countries, it must be concluded that the aid in question is not of such a nature as to have any influence on intra-Community trade. In any event, the Commission has not provided an adequate statement of the reasons on which that part of the decision is based.
27. With reference to Article 112, it should be pointed out that it cannot be ruled out a priori that aid for exports to nonmember countries might, at least in certain circumstances, have an effect on intra-Community trade thereby provoking distortions of competition. It may be, for example, that a subsidy scheme for exports to nonmember countries would permit the undertaking receiving the aid to offer prices on the Community market significantly below those which it would otherwise be possible to charge. In such a case, I do not believe that Article 112, which merely provides for the progressive harmonization of systems of aid for exports to nonmember countries, is of such a nature as to put an intervention by the public authorities outside the scope of Article 92.
28. What must therefore be decided is merely whether the production aid offered by the Belgian Government, through the financial contributions in question, is of such a nature as to affect trade within the Community.
29. The position of an undertaking which represents 17% of Community production certainly cannot be regarded as marginal; consequently, the massive aid granted to it is of such a nature as to alter the normal course of competition and, therefore, to have an effect on the flow of trade. Moreover, the fact that at the time that the aid was granted, the undertaking exported the greater part of its production to a nonmember country does not appear decisive. What is important is that the product in question is traded between the Member States and, in particular, that Tubemeuse was in a position to take part in that trade in a significant way. Moreover, the Court has already decided on other occasions that the fact that an undertaking endeavours to direct its exports to nonmember countries does not mean that aid granted to it will not hinder trade between the Member States.
B — The application of Article 92(3)
30. The Belgian Government considers that in this case, the Commission should have accepted that the aid in question fell under the exceptions provided for in Article 92(3) (a) and (c).
C — The implementation of the contested decision
31. In the view of the Belgian Government, the Commission did not take account of the fact that Tubemeuse was subject to judicial composition proceedings at the time that the contested decision was adopted and that, for that reason, the decision could not be implemented.
32. The arguments put forward by the Belgian Government, if correctly understood, lead to a result which is likely to undermine the effectiveness of the rules on aid. It would be sufficient for an undertaking which has obtained massive financial support from the State to enter into composition proceedings to prevent the application to it of the provisions of Article 92 et seq.
D — Failure to grant a fair hearing
33. The Belgian Government points out that, in the contested decision, the Commission refers to the observations submitted by three other Member States and four professional associations of producers of steel tubes. Those documents, relevant to the decision, were not produced to, and commented upon by, the parties concerned.
34. Having regard to all of the foregoing considerations, I conclude that the Court should:
1 Original language Italian
2 It should be pointed out that the question of the consequences of aid granted in breach of Article 93(3) being unlawful per se has been raised by the Commission in a series of applications. See, in particular, the judgments of 14 February 1990 in Case C-301/87 France v Commission [1990] ECR I-307, of 10 May 1990 in Case C-61/88 Commission v France, not yet published, of 4 July 1990 in Case C-162/88 Commission v France, not yet published, of 4 July 1990 in Case C-294/88 Commission v Poclain SA and Tenneco Europe, not yet published, and the order of 17 March 1990 in Case C-303/88 Italy v Commission, not yet published.
3 According to the information supplied by the Commission, more than 100 cases of aid granted in breach of Article 93(3) were identified in the period between 1984 and 1988.
4 To all of that must be added the risk that, confronted with public grants in aid not effectively opposed at Community level, the other Member States will decide to intervene directly by granting similar benefits to undertakings in their own country.
5 That procedure, as the Court will be aware, takes place in two stages. The first, preliminary in nature, consists of a summary examination of the aid project of which notice has been given and is intended to determine whether the project is, prima facie, compatible with the common market or if, on the contrary, there is at least a reasonable doubt as to its compatibility. In that case, the Commission is required to proceed to the next stage and initiate the procedure under Article 93(2) under which the audi alteram partem principle is respected. It should be pointed out that the preliminary stage necessarily presupposes that notice has been given of the project. Within two months of notice being given (in accordance with the judgment of 11 December 1973 in Case 170/73 Lorenz v Germany [1973] ECR 1471), one month if the aid is involved is individual aid, the Commission must decide whether the Article 93(2) procedure should be initiated. However, when the Commission considers that the preliminary examination is sufficient to conclude that the aid is compatible with the common market, it may close the procedure without adopting any formal decision. I would point out, finally, that even if there has been no preliminary examination (because the aid was not properly notified to the Commission), the Article 93(2) procedure can still be initiated, either of the Commission's own motion or on the initiative of any interested party who has complained to the Commission about the granting of the aid.
6 Judgment of 15 July 1964 in Case 6/64 CoiM v ENEL [1964] ECR 585
7 Judgment of 9 October 1984 in Joined Cases 91/83 and 127/83 Heineken Browenjen BV v Inspecteurs der Vennootschapsbelasting [1984] ECR 3435
8 Order of 20 September 1973 in Case 171/83 R Commune v French Republic [1983] ECR 2621 ; Judgment of 11 December 1973 in Case 120/73 Cebr. Lorenz GmbH v Gfrma7ry [1973] ECR 1471
9 Judgment of 19 June 1973 in Case 77/72 Capolongo v Maya [1973] ECR 611.
10 Judgments of 11 December 1973 in Case 120/73 Gebr. Lorenz GmbH v Germany [1973] ECR 1471, of 11 December 1973 ¡n Casc 121/73 Markmann KG v Germany [1973] ECR 1495, of 11 December 1973 in Case 122/73 Nordsee, Deutsche Hochseefischerei GmbH v Germany [1973] ECR 1511 and of 11 December 1973 in Case 141/73 Lohrey v Germany [1973] ECR 1527.
11 Judgment of 22 March 1977 in Case 78/76 Steinike and Weinlig v Germany [1977] ECR 595.
12 Those points were analysed in detail at the 12th FIDE Congress (Paris, 1986), to the proceedings of which reference should be made for more precise information.
13 See Reports to the FIDE Congress, cited above, pp 205 and 296, and E. H. Pinackcr Hordijk: Judicial protection of private interests under the EEC competition rules relating to State aids, in Legal ttitiei of European integration, 1985/1, p. 67 (in particular, pp. 74 to 78)
14 See FIDE Reports, cited above in footnote 11, pp. 79 and 299.
15 See FIDE Reports, supra, p. 78.
16 See FIDE Repons, supra, p. 183; see also the decision of 24 January 1989 of the Italian Council of State which expressly refuses to recognize the direct effect of a Commission decision under Article 93(2).
17 Corte costituzionale, 9 April 1963, No 49, Foro italiano, 1963, I, 859 and 8 July 1969, No 120, ibid., 1969, I, 2069.
18 The Constitutional Court decided that the regional legislative bodies had exceeded the limits of the powers granted to them by failing to take account of the procedural requirements of Article 93(3) of the Treaty, which had been properly specified by the competent organs of the State.
19 See the note by J. Flynn: Can misapplication of a fiscal measure constitute State aid?1, in Eur. Law Rev., 1986, p. 232.
20 Reference may be made, by way of example, to administrative legal proceedings in Italy concerning certain provisions of Law No 64 of 1 March 1986 (laying down the basic rules on special intervention measures in the Mezzogiorno), which has given rise to various preliminary references currently pending before the Court of Justice. See also, in particular Lazio Tar, Sez. Ill, 22 January 1985, in Foro amministrativo, 1985, p. 941.
21 Judgment of 2 July 1974 in Case 173/73 Italy v Commission [1974] ECR 709
22 The Court pointed out in particular that the means of recourse open to the Commission are not restricted to the more complicated procedure under Article 169.
23 Sec A- Dashwood: Control of State aids in the EEC. prevention and cure under Article 93, CMLR, Vol 12, 1975
24 That application was granted by the Court by order of 20 September 1983, cued above (the Commission was subsequently able to withdraw its main application).
25 Judgment of 10 July 1986 in Case 234/84 Belgium v Commission [1986] ECR 2263; order of 6 February 1986 in Case 310/85 R Deufil GmbH & Co. KG v Commission [1986] ECR 537; judgment of 2 February 1989 in Case 94/87 Commission v Federal Republic of Germany [19891 ECR 175.
26 In both of those communications, the Commission specifically referred to the judgment in Capolongo on the direct effect of Article 93(3).
27 See the communication of 24 November 1983, cited above; The Commission therefore wishes to inform potential recipients of State aid of the risk attaching to any aid granted them illegally, in that any recipient of an aid granted illegally, i.e. without the Commission having reached a final decision, may have to refund the aia Whenever it becomes aware that aid measures have been adopted by a Member State without the obligations under Article 93(3) having been fulfilled, the Commission will publish a specific notice in the Official Journal warning potential aid recipients of the risk involved. It was stated (see the Commission's answer to Written Question No 181/88, Official Journal C 151, 19.6.1989, p. 9) that the total amount of aid illegally granted which the Commission required the Member States to recover was of the order of ECU 5 million in 1985, ECU 11 million in 1986 and ECU 747 million in 1987 (the latter figure includes the recovery of ECU 210 million which Tubemeuse was requested to repay).
28 Judgment of 12 July 1973 in Case 70/72 Commission v Federal Republic oj Germany [1973] ECR 813.
29 See, in that regard, the Repons to the FIDE congress mentioned above in footnote II, in which it 15 observed, at p. 559, that the longer the gap between grant and recovery, the less effective recovery is, adding, however, that the gap is further lengthened by the Commission's dilatonness in enforcing recovery orders when Member States refuse to comply with them
30 The existence of a specific duty of cooperation in that regard, which is a particular expression of the general duty under Article 5 of the Treaty, is emphasized by Smit and Herzog: The Law of the EEC, 1982, Vol. 3, p. 414 et seq., which states the following: Article 93(1) obligates the Member States to cooperate with the Commission in its investigation and to supply it with ali necessary data. This obligation receives furtner support from Article 5, paragraph 1.
31 Judgment of 10 July 1986 in Case 234/84 Kingdom of Belgium v Commission [1986] ECR 2263.
32 With regard to the scope of the duty of cooperation in the procedure provided for in Article 93(2) see, in particular, Smit and Herzog, cited above in footnote 29, p. 415: Although the Member State wishing to grant an aid does not have the burden of proof in the technical sense, it must supply the Commission with those facts and data which the Commission cannot conveniently obtain itself.
33 Moreover, following the Commission's argument to its conclusion, the illegality stemming from the infringement of Article 93(3) would completely exclude the examination of compatibility under Article 92(3), since it is impossible to infer — on the basis of correct legal construction — any discretionary power on the part of the Commission (or on the part of the Court, as the Commission states itself in its pleading).
34 The basis of the power to declare aid unlawful could at first sight also be found in the provisions of Article 93(2) on the basis of which the Commission may decide that aid should be abolished if it is being misused However, it seems preferable to consider that mat expression refers not to aid granted in breach of Article 93(3) but to aid which has proved to be incompatible with tlie common market only at the implementation stage. In such cases, therefore, the Commission will adopt a decision on the substantive compatibility of the aid and not a decision on unlawfulness.
35 See, in particular, the judgments in Cases 171/83, 173/73, 234/84 and 94/87, cited above.
36 It seems that the Court's case-law confirms that the initiation or pursuit of the procedure under Article 93(2) is required even when there are merely doubts as to the compatibility of aid. An indication to that effect is to found in the judgment of 20 March 1984 in Case 84/82 Federal Republic of Germany v Commission [1984] ECR 1451 m which the Court granted the Federal Republic's application for a declaration that the Commission had infringed its obligations under Article 93(2) by failing to initiate the verification procedure in regard to compatibility In particular, the Court decided that one of the main characteristics distinguishing the examination under Article 93(2) from the preliminary examination under Article 93(3) resides in the fact that the Commission is under no obligation at the preliminary stage to give notice to the parties concerned to submit their comments However, such a procedure, which guarantees the other Member States and the sectors concerned an opportunity to make their views known and allows the Commission to be fully informed of all the facts of the case before taking us decision, is essential whenever the Commission has serious difficulties in determining whether a plan to grant aid is compatible with the common market(paragraph 13) Although that case was concerned with an aid project of which proper notice had been given, the Court's observations on the nature and scope of the examination of compatibility arc of general application and, for that reason, tne initiation of the relevant procedure is required even if the Commission has received notice of aid unlawfully granted.
37 In regard to the unitary and binding character of the verification of compatibility, see, in particular Smit and Herzog, cited above, p. 415: When investigating the incompatibility of an aid with the common market, the Commission should also examine on its own motion whether any of the exceptions of Article 92(2) or 92(3) are applicable, in particular if the facts and the arguments advanced indicate that an exception may be applicable.
38 See, in particular, the judgments of 14 November 1984 in Case 323/82 Intermilis v Commission [1984] ECR 3809, of 13 March 1985 in Joined Cases 296 and 318/82 Leeuwarder Papierwarenjabriek v Commission [1985] ECR 809, and of 10 July 1986 in Case 234/84 Belgium v Commission [1986] ECR 2281.
39 See, for example, Smit and Herzog, cited above in footnote 29, p. 397.
40 Those principles, laid down by the Court in the context of the interpretation of Articles 85 and 86 (see, in particular, the ludgment of 31 May 1979 in Case 22/78 Hugm v Commission [19791 ECR 1869) also concern Article 92, the condition concerning the effect on Community trade obviously having the same function in the context of all three provisions, which all form part of the chapter of the Treaty concerned with rules on competition.
41 Sec the judgment of 10 July 1986 in Case 234/84 Belgium v Commitsion [ 19861 ECR 2263, paragraph 23
42 See, on that subject, J. Mcgret: Le droit de la Communauté économique européenne. Vol 4, p. 384.
43 See, most recently, the judgment of 2 February 1989 in Case 94/87 Commission v Federal Republic of Germany [1989] ECR 175, in particular paragraphs 8 and 9 (footnote 24 above).