Opinion of Mr Advocate General Van Gerven

Mr President,

Members of the Court,

1. In this application, the Italian Republic (the applicant) seeks the annulment of Commission Decision 89/43/EEC of 26 July 1988 on aids granted by the Italian Government to ENI-Lanerossi (the contested decision). The contested decision of the Commission (the defendant) is based on the first subparagraph of Article 93(2) of the Treaty, and is worded as follows:

Facts and restructuring proposals

2. It appears from the contested decision that in 1962 Lanerossi SpA was taken over by the State holding company Ente Nazionale Indrocarburi (ENI) in order to resolve the economic and financial problems of a number of private textile and clothing companies which had in turn been taken over for that purpose by Lanerossi. It also appears that by means of considerable restructuring efforts it was possible over the years to return some of those subsidiaries to viability but that four subsidiaries in the mens' outer wear sub-sector (Lanerossi Confezioni, Intesa, Confezioni di Filottrano and Confezioni Monti) continued to make losses and to receive financial assistance from the State in the form of loss compensation.

3. After the defendant had initiated the procedure under the first subparagraph of Article 93(2), the applicant informed the defendant by letter of 28 May 1985, an initial reply in which it also requested more time in which to submit its comments, that the workforce was being reduced, that restructuring could not succeed in the short term in view of the state of the businesses at the time when they were taken over by ENI/Lanerossi (in 1962), and that it had now been realized that the factories were probably unrestructurable and must therefore be reconverted to other activities. However, this would take time and would require further intervention by the State. At a bilateral meeting held on 21 June 1985 the applicant announced additional information on the new programme to restructure certain parts of these factories and to reconvert others and indicated that this would shortly lead to a definitive solution.

4. At a bilateral meeting on 11 September 1987, it transpired that a transfer of the factories to the private sector and a reconversion to other activities was under way but had not yet been finalized. Finally, the applicant informed the defendant at a meeting held on 26 January 1988 that by March 1988 ENI/Lanerossi would transfer all the factories to the private sector; that in fact took place and was confirmed by telex message of 5 March 1988 and by letter of 22 July 1988. The applicant accordingly informed the defendant that the losses made up amounted to LIT 45.9 thousand million in 1986 and LIT 37.5 thousand million in 1987. As it had already stated at the meeting on 26 January 1988, the applicant confirmed that as a result of the various transfers, of the original 3563 employees in 1983 38% would have taken early retirement, 25% would have been transferred to the private mens' outer wear sector (civil), 20% to the private mens' outer wear sector (military) and 17% to other sub-sectors of the textile and clothing industry and other branches of industry, for instance shoes. According to the applicant, production (capacity) had been reduced and transferred in the same manner and to the same extent. According to the Commission, however, it was by no means certain that production capacity had really been reduced by 55%, as the applicant asserted.

5. That lengthy account of the facts, which is not contested by the applicant, reveals, in my view, that during the period from 1983 to 1987 to which the contested decision relates the applicant initially submitted to the Commission a restructuring plan for the years from 1983 to 1986 which, as the applicant itself acknowledged subsequently, could not lead to a recovery, and it went on to announce restructuring plans which existed at best only in outline or still had to be worked out in detail, even though the factories had been regarded as unrestructurable by the management itself since 1983.

Aid granted by a Member State or through State resources in any form whatsoever

6. According to Article 92(1) of the EEC Treaty, any aid granted by a Member State or through State resources in any form whatsoever ... is incompatible with the common market where it distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods and affects intra-Community trade. The requirement of an adverse effect on trade will be discussed below (in section 17 et seq.), following consideration of the distortion or threatened distortion of competition (in section 8 et seq.).

7. In this case the aid was implemented and financed by ENI through its wholly owned subsidiary Lanerossi SpA.

Aid which distorts or threatens to distort competition

8. I now turn to the question whether the defendant was right in the contested decision to start from the premise that the aid in question is incompatible with the common market because it distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods. In support of that argument the defendant relies on the finding that the losses were made up by injections of capital in circumstances which a private investor would have found unacceptable in a market economy.

9. After the Court had acknowledged in its judgment in Intermills thatno distinction can be drawn between aid granted in the form of loans and aid granted in the form of a holding acquired in the capital of an undertaking, it gave full recognition to the prudent private investor criterion in the Leeuwarder Papierwarenfabriek judgment, the relevant passages of which are as follows:

10. In its more recent judgments, the Court has consistently adhered to that principle, in particular in the Meura case, in which the criterion was applied to circumstances such as the size of the losses, the existence of over-capacity in the sector and, in particular, the absence of a credible restructuring plan. In view of the similarity with this case, I shall set out the following passages in extenso:

11. It is clear from the foregoing that the prudent private investor criterion has been accepted by the Court and correlated to the existence of a credible restructuring plan. The Commission was therefore entitled to apply that criterion in the contested decision as a factor in its assessment.

12. In the light of that case-law, the applicant claimed that the four subsidiaries concerned were in fact the object of a restructuring operation which, however, lasted longer than anticipated, and that the capital injected in connection with that operation was necessary for the undertakings' survival. Those injections of capital must therefore be considered permissible since it would have been reasonable for a private investor to have acted in the same way.

Unequal treatment of public and private undertakings

13. Carrying on from the foregoing, it is necessary to consider the principle of equal treatment of public and private undertakings. The parties are agreed that both Article 90 and Article 222 of the EEC Treaty call for equal treatment. According to the applicant, however, the defendant is wrong to lose sight of the fact that a State holding company such as ENI must be able to transfer funds from one subsidiary to another as part of a long-term strategy.

14. It seems to me that in that regard public and private undertakings do not operate in fundamentally different ways. The phrase in the Mettra judgment to the effect that the public authorities must be compared with a private shareholder in similar circumstances who takes a decision to subscribe capital having regard to the foreseeability of obtaining a return and leaving aside all social, regional-policy and sectoral considerations is in my view perfectly reconcilable with the principle of equal treatment. The passage leaving aside all social or regional policy considerations cannot be taken literally in the sense that a private investor would be wholly uninfluenced by considerations of a social nature or of regional or sectoral policy. In a mixed economy in which the interests of the private and public sector are closely interwoven and the interests of workers are strongly represented, even a large private holding company cannot remain totally insensitive to employment and economic development in the area in which it operates. Partly in view of such considerations it will be prepared to transfer funds from one subsidiary to another in order to help cover temporary losses. However, it would be in breach of its obligations towards its shareholders, creditors and employees if it covered the losses of undertakings operating in a sector characterized by over-capacity and accumulated losses amounting to a substantial share or even the whole of its turnover without drawing up a serious restructuring plan and attempting to implement it to the best of its ability.

Regional development

15. Allow me also to devote some attention to the argument concerning regional development put forward by the applicant to justify the compatibility of the aid with the common market. According to the applicant, at least one of the factories of the four subsidiaries concerned is located in a province which is regarded as eligible for Community aid under Council Regulation No 219/84; on that ground, it says, compensation for losses is exempt under Article 92(3)(a) of the Treaty.

16. In my view, the Commission's position is correct. Since the Court's judgment in Philip Morris it has been clear that the Commission has a broad discretion with regard to the grant of exemption under Article 92(3) of the EEC Treaty; in other words, there is no enforceable, let alone directly applicable, right to exemption for national measures based on considerations of regional policy. In the contested decision (Parts VII and VIII) the Commission explained convincingly that the applicant had failed to comply with the guidelines which the Commission had previously communicated to the Member States as regards aid to the textile sector and rescue aid. The possibility of granting aid within the framework of a Community programme of the European Regional Development Fund does not authorize the Member States to grant aid outside the scope of that programme on their own initiative and without prior notification.

Effect on trade between Member States

17. According to the applicant, the defendant has not given sufficient reasons in its decision for the statement that the requirement laid down in Article 92(1) of the Treaty of an effect on trade between Member States has been fulfilled. In the applicant's view, there was no such effect, in view of the small market share held by the four undertakings in the mens' outer wear sector in Italy and the relatively small proportion of their output that is exported to other Member States of the Community.

18. In the contested decision, the defendant points repeatedly to the existence of overcapacity in the sector in question, a factor which the Court in the Mettra case, amongst others, has acknowledged is relevant as evidence of an effect on intra-Community trade, just as it regularly points to the existence of keen competition in this sector. It goes on to state that the four undertakings concerned are large undertakings, in relation to the average size of undertakings in the sector in which they operate. In its view, that must be taken into account in assessing their exports. Furthermore, the contested decision lays emphasis on the fact that although the four undertakings in receipt of aid themselves exported only a relatively small proportion of their output (14%), they nevertheless took an active part in intra-Community trade in the sector in question, which is intensive and of increasing importance. Finally, the decision refers to the fact that Italian products and exports account for a substantial share of intra-Community trade in textiles and clothing, especially in the mens' outer wear sector, and that the industry derived from the aid complained of an advantage which may adversely affect trade between Member States.

19. In my view, the applicant has failed to establish that the Commission was not entitled to come to the conclusion that the aid at issue was capable of affecting trade between Member States. It bases its argument primarily on the small individual share of the four undertakings in intra-Community trade in the products concerned. That is insufficient, however, in the light of the case-law of the Court, to refute the abovementioned details of the contested decision.

20. In the light of that case-law, it seems to me that the applicant's plea cannot succeed. The figures produced at the Court's request in no way detract from that conclusion: the Italian producers' share of the market in the textile and clothing sector as a whole rose from 27.1% to 29.1% between 1983 and 1987; for the four categories of mens' outer wear at issue in this case, their average market share between 1983 and 1987 remained fairly stable at a high level, namely between 35% and 40%. I therefore conclude that the Commission remained within the limits of its power of assessment in the statement of reasons for the contested decision also as regards the requirement of an effect on intra-Community trade.

Article 93(3) and the failure to notify the aid

21. The applicant claims to have complied with Article 93(3) in substance. In its view, the defendant was given an opportunity to submit its comments in good time. The aid was paid only when the defendant refrained from stating its position for four years. Since the survival of an undertaking is a matter of some importance, the Commission should have reacted sooner if it intended to do so at all.

22. In addition, the applicant and the defendant have also expressed their views on a matter which is not relevant to the solution of the present dispute, namely whether the absence of notification is in itself sufficient to bring the aid into conflict with the Treaty. A significant indication in that regard emerged from the Court's judgment in the Boussac case. In that judgment, the Court considered that the absence of notification did not necessarily render any examination of the fundamental requirements superfluous: it is only where the Member State has disregarded a specific order from the Commission to provide information concerning aid which has not been notified that the Commission can call for the recovery of the aid without a (thorough) examination of the conditions for exemption in Article 92(2) and (3) (see paragraph 22).

Recovery of the aid — legitimate expectations

23. The applicant puts forward various arguments in support of the view that the recovery of the aid complained of, required by the Commission, is unlawful. In the first place, it adduces an argument based on the principle of the protection of legitimate expectations. Secondly, it states that it is impossible to recover the sums paid to make up losses because no account was taken of the possibility of recovery when the conditions for the sale of the four subsidiaries to the private sector were laid down. Thirdly, the applicant claims that recovery presupposes the exercise of discretion, for which reasons must be stated, which was not done in this case, and that the identity of the persons who are to enforce the order for recovery is not made clear.

24. I now turn to the argument concerning the protection of legitimate expectations. According to the applicant, the Court's judgment in the RSV case must be applied in this case. In that judgment, the Court stated that by allowing 26 months to elapse before terminating the procedure under Article 92, the Commission had failed to comply with the rules of good administration; since the sector in question had previously been in receipt of authorized aid, the Commission's delay was capable of arousing a legitimate expectation which made the recovery of the aid unlawful. According to the applicant, that judgment is applicable in view of the fact that no formal procedure was initiated in this case before December 1984.

25. As the defendant rightly contends, this plea cannot be upheld. It is quite clear from the chronological order of events, as set out in the contested decision and not disputed in any way by the applicant, that any delay on the defendant's part in initiating proceedings was attributable primarily to the applicant's delay in providing information and to the applicant's breach of the duty of notification which it had undertaken to comply with.

26. It is also difficult to maintain that the length of the official procedure itself, from its initiation in December 1984 until the notification of the contested decision in August 1988, can in any way assist the applicant in its arguments. A chronological survey of that period in the contested decision reveals an impressive series of delaying factors: applications for an extension of time, missing or incomplete answers, constantly renewed and purportedly definitive restructuring proposals for the near future, and an ever-changing policy: from restructuring to reconversion and then privatization. In the end it was not until the end of 1987 or the beginning of 1988 that the defendant received all the information which it had sought for so long, and on the basis of which it adopted the contested decision on 26 July 1988. That is sufficient to preclude any attempt to rely on the principle of the protection of legitimate expectations in respect of that period also. It may be pointed out for the sake of completeness that the applicant granted unauthorized aid even after the initiation of the procedure in December 1984.

Impossibility of recovering the aid after transfer of the undertakings

27. The question remains whether the authorities' obligation to recover aid must be fulfilled unconditionally even when the undertakings in receipt of the aid have been sold, possibly as separate establishments or in smaller units, and the consequences of any recovery were not provided for in the conditions of sale. This question raised by the Italian Government must be set in its proper context.

Conclusion

28. In the light of the foregoing, I propose that the Court dismiss the application in its entirety and order the applicant to pay the costs, making it quite clear that the applicant was and is under an obligation, in accordance with Article 5 of the Treaty, to initiate proceedings for recovery under national law and to consult the Commission on the manner in which any difficulties in the path of recovery can be overcome.

1 Original language Dutch

2 OJ 1989 L 16. p. 52

3 Contested decision, Part I, first paragraph

4 Contested decision, Part I, second and third paragraphs

5 Contested decision, Part I, third and fourth paragraphs.

6 Contested decision, Pan I, sixth paragraph. It may be noted that in the same letter the defendant informed the applicant that in respect of another of Lanerossi's subsidiaries in the same sub-sector, namely Lebole SpA, the assistance which it had received in the form of compensation for losses was matched by restructuring efforts already implemented and to be implemented shortly afterwards, with the result that the aid granted could benefil from the derogation in Article 92(3)(c) (contested decision, Part I, fifth paragraph).

7 Contested decision, Part I, sixth paragraph.

8 Contested decision, Part I, seventh paragraph.

9 Contested decision, Part I, eighth paragraph.

10 Contested decision, Pan I, ninth paragraph.

11 Contested decision, Part I, tenth paragraph. The applicant has so far failed to produce, at the Court's request, a copy of that letter, whose contents it does not dispute, with the result that the form in which it is reproduced in the decision may be considered accuraie.

12 Contested decision, Part II, first and second paragraphs

13 Contested decision, Part III, first paragraph

14 Contested decision, Part III, third paragraph

15 Contested decision, Part III, fourth and fifth paragraphs

16 Contested decision, Part III, sixth paragraph

17 Contested decision, Part III, eighth paragraph.

18 Contested decision, Part III, ninth paragraph

19 Contested decision, Part III, tenth and twelfth paragraphs.

20 Contested decision, Part III, tenth and twelfth paragraphs.

21 Contested decision, Part III, tenth paragraph.

22 Contested decision, Part IX, fourth paragraph.

23 Contested decision, Part III, sixth and twelfth paragraphs; and Part VII, seventh, tenth, eleventh and twelfth paragraphs.

24 Case 290/83 [1985] ECR 439, at paragraph 14. See also the judgment in Case 57/86 Greece v Commission [1988] ECR 2855, at paragraph 12

25 judgment in Joined Cases 67, 68 and 70/85 Van der Kooy v Commission [1988] ECR 219, at paragraphs 36 and 37.

26 Article 12 of Law No 136 of 10 February 1953 setting up the ENI (Official Gazette of the Italian Republic No 72 of 27 March 1953), as frequently amended, inrer alia by Law No 1153 of 14 November 1967 (Official Gazette of the Italian Republic No 310 of 13 December 1967)

27 In the Meura case (Case 234/84 Belgium v Commission [1986] ECR 2263) the role of the public investment company SRIW as a channel for State aid in the form of the acquisition of capital holdings was not even called in question.

28 Article 7 of Law No 136, cited above.

29 Report of the Italian parliamentary experts' committee on State holdings (known as the Chiarelli Committee), No 19, second paragraph, published in Foro Amministrativo II (1975) p. 653, at p. 666.

30 During the written procedure and at the hearing the defendant referred to the publication in Official Gazette of the Italian Republic No 6 of 9 January 1986, at p. 40, of a decision of the Comitato Interministeriale per la Programmazione Economica of 28 November 1985. The applicant objected to the examination of that measure because it is not mentioned in the contested decision and was referred to only in the written procedure. However, its existence cannot be disputed.

31 Part IV of the contested decision.

32 Bulletin EC 9-1984, pp. 98 to 100; reference in the Fourteenth Report on Competition Policy, 1984, point 198.

33 Judgment in Case 323/82 Intermills v Commission (1984] ECR 3809, at paragraph 31

34 Judgment in Joined Cases 296 and 318/82 Netherlands and Leeuwarder Papierwarenfabriek v Commission [1985] ECR 809.

35 Judgment in Case 234/84 Belgium v Commission [1986] ECR 2263, at paragraphs 14 to 17

36 See the judgment in Case C-142/87 Belgium v Commission [1990] ECK I-959, at paragraphs 26 to 30, and the judgment in Case C-301/87 France v Commission [1990] ECR I-307, at paragraphs 38 to 41 and 54.

37 Contested decision, Part II.

38 Judgment in Case 234/84 Belgium v Commission [1986] ECR 2263, at paragraph 14.

39 Council Regulation (EEC) No 219/84 of 18 January 1984 instituting a specific Community regional development measure contributing to overcoming constraints on the development of new economic activities in certain zones adversely affected by restructuring of the textile and clothing industry (OJ 1984 L 27, p. 22).

40 See the contested decision, Part I, seventh paragraph.

41 Judgment in Case 730/79 Philip Morris v Commission [1980] ECR 2671, at paragraphs 16, 17 and 24, and judgment in Case C-142/87 Belgium v Commission [1990] ECR I-959, at paragraph 56.

42 Fourth paragraph of Part VI, third indent of Part VIII, penultimate paragraph of Part VIII, also the second paragraph of Part X and the eighth paragraph of Pan IX, in relation to the economic pressure on undertakings to reduce their capacity.

43 Judgment in Case 234/84 Belgium v Commision [1986] ECR 2263, at paragraph 22. Reference in the penultimate paragraph of Part VIII of the contested decision.

44 Part VIII, first paragraph; and Part VI, second paragraph.

45 Part VI, third paragraph, and Pan VII, eleventh paragraph.

46 Contested decision, Part VI, third paragraph.

47 Contested decision, Part VI, first paragraph.

48 Contested decision, Part VI, tenth paragraph.

49 Case 259/85 France v Commission [1987] ECR 4393, at paragraph 24.

50 Judgment in Case 102/87 France v Commission [1988] ECR 4067, at paragraph 19.

51 In thai connection, see the Eighteenth Repon on Competition Policy — 1988, 1989, point 164, third paragraph.

52 In its judgments in Case 730/79 Philip Morris v Commission [1980] ECR 2671, at paragraph 11, and in Case 259/85 France v Commission (1987] ECR 4393, at paragraph 16, adopted by the Court in its judgment of 21 March 1990 in Case C-142/87 Belgium v Commission (Tubemeuse) 11990] ECR I-959, at paragraph 43, the Court pointed out that the small size of the undertaking in receipt of aid or the small amount of aid does not as such exclude the possibility that trade between Member States may be affected The judgment in SEB, however, goes even further.

53 Contested decision, Part I, eight paragraph, referred to in section 2 above. The applicant has still not succeeded in producing a copy of that telex at the Court's request, and nas not contested its contents, so that the form in which it is reproduced in the Commission's decision may be regarded as accurate.

54 Case 301/87 France v Commission [1990] ECR I-307.

55 Judgment in Case 70/72 Commission v Germany [1973] ECR 813, at paragraph 20.

56 Judgment in Case C-142/87 Belgium v Commission [1990] ECR I-959, at paragraph 66, with reference to the judgment in Case 310/85 Deitfil v Commission [1987] ECR 901.

57 Judgment in Case 223/85 RSVv Commisiion [1987] ECR 4617.

58 Contested decision, Part I, eighth paragraph.

59 Contested decision, Paa I, ninth paragraph.

60 Contested decision, Part I, tenth paragraph.

61 See Annex III to the Commission's defence

62 See the contested decision, Part II, eighth paragraph, in which the date is 19 December instead of 14 December.

63 For the same view, see the Opinion of Advocate Genera] Jacobs in Case C-301/87 France v Commission, cited above, at paragraphs 21 and 22.

64 Contested decision, Part II, first paragraph.

65 Part III of the contested decision.

66 Judgment in Case 94/87 Commission v Germany [1989] ECR 175, at paragraph 9. See also the judgment in Case 52/84 Commissions Belgium [1986] ECR 89, at paragraph 16. The rule that a Member State cannot usually rely on the principle of the protection of legitimate expectations has once again been strongly reaffirmed by the Court in the recent judgment in Case C-5/89 Commission v Germany [1990] ECR I-3437, at paragraphs 17 and 18.

67 Judgment in Case C-142/87 Belgium v Commission [1990] ECR I-959, at paragraph 61, and the judgment in Case C-5/89 Commission v Germany, cited in the previous footnote, at paragraph 12. See also the judgment in Joined Cases 205 to 215/82 Deutsche Milchkontor v Germany [1983] ECR 2633.

68 See the judgments cited in footnote 65, in particular the judgment in Case 52/84, at paragraph 16.

69 Judgment in Case 52/84, cited in footnote 65 above, at paragraph 15.

70 Judgment in Case 94/87, cited in footnote 65 above, at paragraph 10, and the other two judgments cited in that footnote.

71 As pointed out above (in section 23), this is normally the ultimate recipient, that is to say the undertaking in receipt of the aid. In some cases, others may be required to repay the aid, for instance a parent company which has taken over the undertaking's assets and liabilities as part of a settlement, or has otherwise obtained the undertaking's added value resulting from the grant of aid That question arises in another case pending before the Court, namely Case C-305/89 Italy v Commission (Alfa Romeo).

72 Judgment in Case C-142/87, cited in footnotes 55 and 66 above, at paragraph 63