Report for the Hearing delivered in Case 102/87

I — Facts and procedure

1. Background to the case

(a) The system of loans by the Fonds industriel de modernisation

The Fonds industriel de modernisation (FIM) (Industrial Modernization Fund) was set up by the French Government by order of 28 July 1983 to encourage the modernization of French industry. For that purpose the FIM granted loans intended to support financial programmes likely to encourage technical innovation in French industry including in particular the following: installation of high technology machines and equipment in undertakings, office automation and the development of memory cards, installation of microcomputers in schools and training colleges and the development of highly fuel-efficient vehicles.

The procedure for the grant of FIM loans was as follows: The undertaking submitted its modernization project either to its bank or directly to the agence nationale pour la valorisation de la recherche (National Agency for the Valorization of Research) (hereinafter referred to as the agence nationale), which reports to the Ministry for Industry. The agence nationale made a technical study and the bank undertook a financial evaluation. The application was then forwarded to the FIM governing board for approval. If there was agreement the FIM forwarded the application to the caisse de modernisation industrielle (the Industrial Modernization Bank), which charged it against its budget. The caisse informed the caisse de depots et consignation (CDC) which transferred the money to the undertaking's bank and instructed it to make the payment. The funds were finally made available to the customer.

FIM loans were financed out of the comptes de développement industriels (Industrial Development Accounts), known as Codevi, which were private very-short-term deposit accounts intended to enable French households through their savings to share in the industrial modernization contemplated. The interest received by Codevi holders was fixed by the State at a much lower level than that of the market but was exempt from the payment of income tax.

Pursuant to the Law setting up the Codevi, part of the funds so raised was allocated by the banks to the caisse de depots et consignation which converted half into treasury bills and retained the other half for lending as FIM loans. In exchange it issued to the collecting banks industrial development certificates for a period of five to seven years bearing 8% interest.

The rate of interest on FIM loans depended on the sum of the costs of the Codevi, namely the interest payable to account holders, a bank margin, the management costs of the caisse de modernisation industrielle and a contribution payable to the guarantee fund managed by Sofaris.

The FIM was abolished on 1 August 1986.

(b) The Commission decision of 19 December 1984

In December 1984 the Commission addressed to the French Government a decision on the French system of assistance to industry comprising special investment loans, subsidized loans to enterprises, additional refinancing loans and FIM (Industrial Modernization Fund) loans (Decision 85/378/EEC, Official Journal 1985, L 216, p. 12).

With regard to FIM loans the Commission took the view that the interest on those loans was systematically set at less than the market rate. The low interest was possible because the source of the funds necessary for the loans, the Codevi, was very cheap since the accounts were exempt from tax. In the Commission's view the combination of the two transactions amounted to the grant of an interest subsidy at the cost of the State's revenue resources. In consequence FIM loans included an element of State aid within the meaning of Article 92 (1) of the Treaty. There was an additional element of aid in the fact that any margin of risk incurred by the banks in relation to FIM loans was covered by the State.

While observing that this system of FIM loans constituted, as such, a system of aids, the Commission took the view that their compatibility with the Treaty could be determined only in each particular case. In consequence it decided that the French Government had to notify significant cases of aid already granted or to be granted by way of FIM loans. The decision laid down the criteria for determining which cases were be regarded as significant. In the preamble to the decision the Commission informed the French Government that it regarded aid already granted in the form of FIM loans as unlawful until such time as it reached a definite decision and that they might be the subject of recovery in significant individual cases.

In a note dated 25 February 1985 the French Government denied that the FIM loans constituted aid but did not bring an action against the decision. In April 1985, pursuant to the decision, it forwarded to the Commission several files relating to undertakings which had received FIM loans including that relating to the société européenne de brasserie (hereinafter referred to as the société européenne).

(c) The aid at issue

In 1984 the société européenne obtained a FIM loan of FF 40 million at a rate of 9.25% for a period of seven years towards an investment of FF 181.05 million. The investments were intended to introduce new techniques into the undertaking's production process. In particular the brewhouse was to be modernized and outdoor tanks installed.

The société européenne's file gave rise to proceedings under Article 93 (2) of the Treaty which led to the contested Commmission decision of 14 January 1987 (87/303/EEC).

2. The contested decision

According to Article 1 of the decision, the FIM loan contained elements of aid within the meaning of Article 92 (1) of the Treaty in view of the interest subsidy of 4.75 percentage points and was incompatible with the common market. Moreover the loan was granted unlawfully in infringement of the provisions of Article 93 (3) of the Treaty. Article 2 of the decision provided that the aid must be recovered.

During the proceedings before the Court the Commission explained that the loan was granted at a rate of 9.25% whereas the market rate for such a loan was 14%. The FIM loan relieved the société européenne, through State resources, of part of the cost of the investment which it would normally have had to bear.

According to the preamble to the decision, the consumption of beer was static or falling slightly in the countries of the Community. External trade between Member States represented some 4% of all sales of beer in the Community. Sales in France represented some 9% of total sales in the Member States. France imported a little more than 10% of its requirements from other Member States. It exported some 1.5% of its production to other Member States. The société européenne held some 20% of the French market. It was wholly owned by a French group whose beer production accounted for over 50% of the French production.

In view of the market situation in beer and the position of the société européenne on that market the Commission considered that the aid at issue was likely to affect trade between Member States and distort competition. It did not fall within one of the categories of exemptions provided for in Article 92 (3) of the Treaty.

3. Procedure

The French Government's application was lodged at the Court Registry on 6 April 1987.

The written procedure followed the normal course.

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.

The Court nevertheless requested the Commission and the French Government to answer in writing certain questions.

II — Conclusions of the parties

The applicant claims that the Court should:

Declare that the Commission decision of 14 January 1987 on an FIM loan to a brewery is void;

Order the defendant to pay the costs.

The defendant contends that the Court should:

Dismiss the action as unfounded;

Order the applicant to pay the costs.

III — Submissions and arguments of the parties

1. Infringement of Article 92 (1) of the Treaty

The French Government considers that the conditions of Article 92 (1) are not satisfied and that the contested loan cannot be regarded as aid incompatible with the common market. In that respect it puts forward two arguments.

In the first place the State's role in the FIM machinery is very limited. The modest interest on loans is attributable to factors other than State intervention. The latter took only one form, namely tax exemption. If such exemption does constitute aid, it is quite negligible and of a minimal amount. The French Government supports its argument with several calculations. It relates the tax exemption to the amount of investment and loan.

In the second place, the French Government maintains that in view of the minimal amount of aid and the fact that the société européenne exports only 3% of its production, the aid cannot affect trade between Member States.

The Commission considers that the applicant is confusing the relative amount of aid with the amount of the tax exemption. The French Government's calculations are inaccurate and irrelevant. Account should be taken of the economic benefit to the recipient rather than the impact of the measure on the State budget. In the present case the economic benefit which the borrower undertaking derives from the advantageous conditions of the loan is considerable since the interest subsidy which it enjoys amounts to 4.75 percentage points. In its decision of 19 December 1984 the Commission held that all cases where investments exceed ECU 9 million (some FF 62.1 million) must be regarded as significant cases.

With regard to the effect on trade between Member States, the Commission contends that there is competition between the société européenne's products and similar products from other Member States. In that respect it points out that France imports a little more than 10% of its beer requirements and that the société européenne's share of the French market is some 20%.

In its reply the applicant claims that had the société européenne obtained commercial finance the interest rate would have been a maximum of 13%. Accordingly the Commission's argument that there was an interest subsidy of 4.75 percentage points is in any event quite wrong.

2. Infringement of Article 190 of the Treaty

The French Government considers that there is an insufficient statement of reasons for the contested decision. The Commission made no mention of the volume of the société européennes exports to other Member States; it made no mention of any Community surplus capacity in beer production; and it gave no explanation of the alleged interest subsidy of 4.75 percentage points in the preamble to the decision. It thus did not enable the French authorities to follow the Commission's reasoning. In particular the lack of explanation of the interest subsidy makes the decision difficult to understand.

The Commission contends that the statement of reasons in the contested decision fully satisfies the requirements of the Court's case-law. The statement of reasons shows that there is substantial intra-Community trade in the beer sector, that there is competition between producers, that 10% of sales in France originate from other Member States, that sales in France represent. 9% of total Community consumption (excluding Greece), that the société européenne has a 20% share of the French market and that consumption is static or falling.

With regard to the interest subsidy, the Commission explains that the rate which it used for the calculation is that used for plant and equipment loans from the crédit national, a rate fixed by agreement with the French authorities as the reference rate in the Communication of the Commission on Regional Aid Systems (Official Journal 1979, C 31, p. 9). It thus used figures which were well known to the French authorities.

3. Infringement of the general principle of legal certainty

The French Government claims that the operative part of the decision, in particular the requirement to recover the aid in question, is not clear and does not enable the French Government to determine the actual amount of aid declared to be unlawful which must be recovered. The Commission has thus created an ambiguous situation which is incompatible with the principle of legal certainty.

In the Commission's view the French Government's obligation is perfectly clear: it must recover the interest subsidy of 4.75 percentage points. The Commission also refers to a letter from the French Government which shows that it had well understood what was the element of aid in the loan from the Fund. Finally, the Commission refers to its decision of 19 December 1984 which stated that a loan from the Fund amounted to State aid because the interest on the loans was systematically fixed at a level lower than the market rate. It adds that the contested decision expressly referred to the decision of 19 December 1984.

IV — Answers to questions put by the Court

1. First question

Since the decision challenged in the present case may be regarded as a sequel to the Commission Decision of 19 December 1984, the Court requested the parties' observations on the legal relationship between the two decisions. The Court also asked whether or not the French Government had accepted the criteria contained in the 1984 Decision by not bringing any action to challenge it.

The French Government replied that it followed from the Decision of 19 December 1984 that even aids which constituted significant individual cases within the meaning of that decision were not necessarily unlawful. In that respect it referred in particular to the penultimate recital in the preamble to the decision which reads: To enable the Commission to determine the compatibility of such individual awards, the French Government must be required to notify it of such cases before 20 February 1985. Accordingly the definition of significant individual cases in that decision can be only of procedural interest, namely with regard to notification and not substance.

As regards the second part of the queston the French Government observed that it could not challenge the lawfulness of the Decision of 19 December 1984 in the present action but it did not exclude making other observations in that respect if that question were validly put to the Court in another action.

The Commission replied that the Decision of 19 December 1984 was the legal basis for the contested decision but, from the point of view of procedural law and steps to contest, the two measures were quite independent.

The 1984 Decision definitively classes the interest subsidy on FIM loans as a State aid and determines the basis of calculation in relation to the market rate; it states that the aid is compatible with the Treaty if it is insignificant and provides that the specific significant aid cannot be granted without prior notification to the Commission and the latter's express authorization. The contested decision concerns such a significant specific case. It quantifies the element of aid in a particular case, finds that the aid is unlawful as being in breach of Article 93 (3) and Article 92 (3) of the Treaty, and requires the aid to be recovered.

The Commission considers that it follows from that relationship between the two decisions that the French Government cannot in the present action call in question the facts and law which characterize the general system of FIM loans. Since it did not bring any action against the 1984 Decision, the French Government can challenge only any errors of assessment made by the Commission in relation to the amount of interest subsidy granted to the société européenne, breach of the procedural rules of Article 93 (3) of the Treaty and the analysis of the beer market.

2. Second question

In its second question the Court asked the French Government to explain the precise role and legal nature of the caisse de depots et consignation, the caisse de modernisation industrielle and Sotaris.

The French Government's reply may be summarized as follows:

The caisse de depots et consignation's role is centralization and the investment of much of the savings exempt from tax. It manages the funds in the public interest and under the supervision and with the guarantee of the legislative authority. Its assets are largely made up of short-term savings, in particular the funds gathered in the two savings networks, namely the caisse nationale d'épargne and the caisses d'épargne et de prévoyance. The caisse de dépôts et consignation converts the short-term savings into long-term loans mainly to local authorities and social housing schemes. In addition, it administers large life assurance companies, pension funds, the crédit local de France and various bodies which have recently been created. Finally it is the parent of a number of subsidiaries of different kinds.

The caisse de modernisation industrielle is a specialized credit establishment, created by agreement between the State and the caisse de depots et consignation, whose object is to arrange, manage and recover FIM loans.

The Sofaris was set up in 1982 to promote the sharing of the risks of the financial system vis-à-vis small and medium-sized undertakings to allow them better access to resources by way of their own funds and loans. For that purpose Sofaris is responsible for certain guarantee procedures, such as, until 1986, that covering FIM loans.

1 Language of the Case: French.