Report for the Hearing in Case C-180/88

I — Facts and procedure

1. Legal context

Since around 1973 the steel industry in the Community has faced particular difficulties which have placed the viability of many undertakings in that sector under serious threat. In order to alleviate those difficulties some Member States granted aid to steel undertakings. At the end of 1977 the Commission announced a series of measures with the aim of restructuring the industry; these included the preparation, pursuant to the first paragraph of Article 95 of the ECSC Treaty, of a system of aid enabling national subsidies to be coordinated at Community level. That system was intended to ensure that aid was directed towards fundamental restructuring and could not give rise to distortions of competition contrary to the common interest.

It was in those circumstances that the Commission adopted Decision No 257/80/ECSC of 1 February 1980 establishing Community rules for specific aids to the steel industry (First Aids Code, Official Journal 1980 L 29, p. 5). That decision was replaced by Decision No 2320/81/ECSC of 7 August 1981 (Second Aids Code, Official Journal 1981 L 228, p. 14). The Code has two main goals: first, the progressive elimination of the granting of aid in any form whatsoever and, secondly, the restoration of the steel industry's competitiveness by means of restructuring, including reductions in production capacity.

According to Article 1 of the Code, the Commission must decide, using a uniform procedure, whether plans to grant aid, which must be notified to it no later than 30 September 1982, may be considered compatible with the orderly functioning of the common market. The aid plans must comply with the general conditions laid down in Article 2 of the Code and with the more detailed conditions specified in Articles 3 to 7 of the Code. According to Article 2, the recipient undertaking must be engaged in the implementation of a restructuring programme capable of restoring its competitiveness and of making it financially viable; the programme must result in an overall reduction in the production capacity of the undertaking; the amount and intensity of the aid must be progressively reduced; the aid must not entail distortions of competition or affect trading conditions to an extent contrary to the common interest; lastly, the aid must be authorized not later than 1 July 1983 and must not lead to aid payments after 31 December 1985. Articles 3 to 7 differentiate between investment aid, aid for closures, aid for continued operation, emergency aid and aid for research and development. The stringency of the conditions laid down in those articles varies according to the type of aid in question.

On 29 June 1983 the Commission, acting pursuant to the Second Aids Code, issued nine separate decisions addressed to nine Member States approving various grants of aid. In particular, by Decision 83/399/ECSC (Official Journal 1983 L 227, p. 26), it authorized the grant of aid by the Government of the United Kingdom to the British Steel Corporation (hereinafter referred to as BSC) The total amount of the aid authorized was UKL 1474 million. Payment of the aid was made subject to a number of conditions set out in the decision. For example, the undertaking was to carry out certain reductions in its production capacity (Article 2), it was to fulfil its obligations in respect of the ECSC Treaty's rules, in particular those governing production quotas (Article 4) and none of the proposed aid was to be paid unless the undertaking could return to viability by the end of 1985. Article 6 provided that for the purpose of monitoring aid payments for compliance with the conditions and requirements laid down in the decision the Commission could require certain information; it could also carry out on-the-spot inspections to verify that the reductions in capacity had been implemented. According to Article 7, the Commission could order the suspension of aid payments if at any time it found that aid had been paid in disregard of the conditions attached to its authorization, that the information supplied gave reason to doubt that the undertaking concerned would return to financial viability by the end of 1985, or that the undertaking concerned had breached its obligations under the ECSC Treaty, in particular those governing the system of production quotas.

The aid to BSC was paid in successive tranches, each of which was released by a Commission decision. That system enabled the Commission to monitor the application of Decision 83/399 and to verify that the conditions imposed had been complied with. Thus the Commission released the following amounts (in millions UKL):

By Decision No 1018/85/ECSC of 19 April 1985 (Official Journal 1985 L 110, p. 5) the Commission amended certain deadlines laid down in the Second Code in order to permit the authorization of additional aid for a further year. Additional aid was made subject to the criteria laid down in Article 2 of the Second Code. Furthermore, the Commission could authorize additional aid only in order to cover costs occasioned by capacity reductions or to carry out financial restructuring so as to reduce financing costs to the level borne by undertakings that were profitable in 1984. The Commission set that level of financing costs at 4% of 1984 turnover.

2. Background to the case

On 22 September 1983 the Federal Republic of Germany brought proceedings pursuant to the first paragraph of Article 33 of the ECSC Treaty for the annulment of four of the nine decisions of 29 June 1983 referred to above, one of which was Decision 83/399 concerning BSC (Case 214/83 Germany v Commission). According to the German Government the aid authorized was excessive in relation to the required cuts in capacity and thus favoured steel producers from the four Member States concerned, who had already been heavily subsidized for a long time.

The Wirtschaftsvereinigung Eisen- und Stahlindustrie (Iron and Steel Industry Association, hereinafter referred to as WESI), the applicant in the present case, is an association within the meaning of Article 48 of the ECSC Treaty, the members of which are major German iron and steel undertakings; WESI intervened in Case 214/83 in support of the conclusions of the German Government. At that time WESI complained of the uneven burden of the restructuring of the steel industry. In its view the Commission had exceeded its powers under the Second Aids Code when it approved aid for continued operation enabling uneconomic plant to be retained and aid to undertakings whose competitiveness could not be guaranteed after 31 December 1985 without State aid.

By a judgment of 3 October 1985 [(1985] ECR 3053), the Court dismissed the Federal Republic of Germany's application.

In spring 1987, WESľs experts carried out an analysis of the annual accounts of steel undertakings from 1980 to 1985. They discovered that the aid actually paid to the undertakings had been much higher than that authorized by the Commission. With regard to BSC the difference between the aid authorized and the aid actually paid amounted to ECU 3226 million. By a letter of 28 April 1987, WESI asked for an explanation from the Commission.

The Commission replied in a letter of 26 June 1987. It explained that the figures in the 1980 accounts included transactions which did not fall within the Aids Code, that the figures taken into account also related to the results of operations outside the steel sector and that certain financial transactions covered by the Code took place only after 1985.

By a letter of 30 March 1988, WESI complained to the Commission pursuant to Article 35 of the ECSC Treaty. It pointed out that during the period of application of the Second Aids Code, BSC had received from the UK Government more aid than was necessary for restructuring the undertaking. Thus BSC enjoyed considerable financial advantages in relation to its competitors. However, pursuant to Article 5 of the ECSC Treaty the Commission was obliged to ensure that the purpose of the aid (restoration of viability by restructuring) had been achieved without causing avoidable distortions of competition. It therefore asked the Commission to take all the steps necessary to prevent distortions of competition arising from the fact that BSC had received more aid than was necessary to restore its viability. In support of its request WESI referred, in the annex to its letter, to the very low level of BSCs financing costs, which, it said, was a result of the aid that had been authorized or tolerated.

By a letter of 26 May 1988, the Commission replied that the improvement of BSCs operating results could be explained by factors other than the aid paid, such as the strong rise in demand in the United Kingdom since 1985 and the improvement of exchange rates. For those reasons the Commission rejected the request that it take measures in respect of aid that was alleged to be excessive.

On 20 May 1988, WESI sent a further letter to the Commission, informing it of the results of a study prepared at its request by the Betriebswirtschaftliche Institut der Eisenhüttenindustrie (Institute for the Study of Steel Industry Management). That study examined the extent to which the aid granted to BSC exceeded the amount necessary to restore its viability. In the same letter WESI pointed out a large discrepancy between the amount of aid authorized, that is to say ECU 5574 million, and the amount of aid actually received by BSC during the period from 1 April 1980 to 31 March 1986, that is to say ECU 8800 million. It concluded that the amount of aid authorized by the Commission had thus been exceeded. Finally, WESI requested the Commission to take those facts into account in deciding on the request of 30 March 1988.

WESI's letter of 20 May 1988 and the Commission's letter of 26 May 1988 crossed in the post, and it was not until 25 July 1988 that the Commission replied in a further letter. It stated that during the period Decision No 2320/81 was in force, that is to say from August 1981 until the end of 1985, it authorized aid of ECU 5574 million. According to the information supplied by the UK Government, BSC had in fact received an amount of ECU 5169 million. The Commission acknowledges that BSC received total aid of ECU 8847 million during the period 1980 to 1986. However, this was made up of aid approved before the Second Aids Code entered into force, aid under a system of regional aid not subject to prior authorization by the Commission, aid not covered by the ECSC Treaty and aid granted before the adoption of the First Aid Code. Thus the aid in question could not be regarded as having been granted without the Commission's prior approval.

On 1 July 1988 WESI brought proceedings pursuant to Article 33 of the ECSC Treaty for the partial annulment of the decision of 26 May 1988, inasmuch as the Commission had refused to take measures in connection with the unlawful aid granted to BSC by the Government of the United Kingdom. In the alternative, pursuant to Article 35 of the EEC Treaty it sought the annulment of the implied decision of refusal to take the necessary measures.

3. Procedure

WESI's application was lodged at the Court Registry on 4 July 1988.

By an application lodged at the Court Registry on 10 October 1988, the United Kingdom requested leave to intervene in support of the Commission's conclusions. By an order of 27 October 1988, the Court granted that request.

By an application lodged at the Court Registry on 19 October 1988, the Commission lodged an objection of inadmissibility.

By a decision of 26 April 1989, the Court decided to reserve its decision on the objection of inadmissibility until final judgment.

By a decision of 21 February 1990, 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

WESI, the applicant, claims that the Court should:

The Commission, the defendant, contends that the Court should:

The United Kingdom, the intervener, requests the Court to:

III — Submissions and arguments of the parties

1. Subject-matter of the dispute

It appears from the documents before the Court that the applicant's application relates to two distinct issues.

First, BSC is alleged by the applicant to have received in the period between 29 June 1983 (the date of Decision 83/399) and the end of 1985 UKL 713 million in aid which, although it had been authorized by the Commission, was excessive. That aid is alleged to have exceeded the amount needed to restore BSC to viability.

Secondly, during that same period, the UK Government is alleged to have granted BSC UKL 217 million in aid not authorized by the Commission.

2. Admissibility

(a) Authorized aid

The Commission points out first of all that the grant of aid to BSC formed the subject-matter of Decision 83/399. The action brought against that decision was dismissed by the Court in its judgment in Case 214/83, referred to above. These proceedings are an attempt to have the same decision reviewed by the Court a second time.

Secondly, according to the Commission and the United Kingdom, Decision 83/399 and the three decisions releasing aid are no longer open to challenge since the timelimits for bringing such proceedings have long since expired.

The Commission goes on to point out that the applicant is in reality endeavouring to obtain retroactive rectification of the authorization for the grant of aid; however, such rectification is not possible in law. In any case the Commission is not empowered to carry out such a rectification.

The applicant replies, first, that it is not challenging Decision 83/399, which is merely a framework decision establishing the conditions under which aid may be granted. The Commission is, however, obliged to verify, before each specific authorization of aid, whether the conditions continue to be satisfied. In this case the Commission failed to undertake such verification before approving aid to BSC.

The applicant goes on to argue that the application does not concern the individual decisions releasing aid either. It is aimed solely at eliminating distortions of competition resulting from the fact that the decisions were in breach of higher-ranking provisions. The applicant maintains only in the alternative that the period allowed for bringing an action has not yet expired because it became aware of the contents of the final decision to release aid (dated 24 December 1985) only from the observations of the UK Government in the present case.

Finally, the applicant observes that the argument concerning legal impossibility goes to the merits of the case. It cannot therefore lead to a ruling of inadmissibility.

In its rejoinder the Commission maintains that the time-limit for bringing an action has expired. It explains that the existence of released aid is shown in a number of documents of which the applicant has long had cognizance, in particular in BSC's accounts, which, as stated by the applicant itself, it analysed in spring 1987; in a document from the Commission to the Council concerning the application of the rules for aid to the steel industry in the years 1984 to 1985; and in the Fourteenth and Fifteenth Commission Reports on Competition Policy.

(b) Unauthorized aid

The Commission contends that in its letter of 30 March 1988 bringing the matter before the Commission the applicant raised only the issue of aid granted to BSC that was not necessary to restore its viability. The applicant made no mention of unauthorized aid. In consequence, the Commission did not deal with that issue in its reply of 26 May 1988. It was only in its second letter, dated 25 July 1988, that the Commission refused to accept the applicant's argument that BSC had benefited from unauthorized aid. Therefore, in so far as unauthorized aid is concerned, the applicant should direct its action against the decision of 25 July 1988 rather than the decision of 26 May 1988.

According to the applicant, the letter of 30 March 1988 also covered the issue of unauthorized aid paid to BSC. The applicant claims in particular that it asked the Commission to take action in relation to aid that had been authorized or tolerated.

That form of words shows that the request concerned unauthorized as well as authorized aid. Furthermore, the applicant's letter referred to all aid granted, whether authorized or not. In the context of the case the Commission should have realized that the request related equally to unauthorized aid.

(c) Admissibility of the alternative claim

As regards the alternative claim, founded on the third paragraph of Article 35 of the ECSC Treaty, the Commission considers this to be inadmissible on the same grounds as the principal claim.

According to the applicant, the arguments it puts forward against the objection that the principal claim is inadmissible apply mutatis mutandis.

The United Kingdom adds that there was an excessively long delay between the events giving rise to the applicant's complaints and the applicant's letter dated 30 March 1988. The applicant did not address a request to the Commission within a reasonable period. Furthermore, the letter of 30 March 1988 was not sufficiently clear and precise to enable the Commission to understand what decision the applicant was asking it to adopt. Such a vague letter cannot constitute the basis for an action pursuant to Article 35 of the ECSC Treaty.

(3) The substance of the case

(a) Whether the authorized aid was excessive

According to the applicant, the Commission approved the grant of aid considerably in excess of what was needed to restore BSC to viability. The difference between the amount needed and the amount authorized is alleged to be UKL 713 million.

In support of that argument the applicant refers to the report of the Betriebswirtschaftliches Institut der Eisenhüttenindustrie, referred to above, and to the report drafted at the Commission's request by Messrs Colombo, Friderichs and Mayoux on Community Steel Policy of 15 November 1987 (Official Journal 1988 C 9, p. 6), known as the report of the Three Wise Men. The German Institute arrives at the conclusion that since the middle of 1983 BSC has received from the UK Government roughly UKL 930 million more than was necessary on the basis of the criteria laid down by the Commission itself concerning the calculation of aid for the financial restructuring of other European steel undertakings. In the Three Wise Men's report it is stated that several State enterprises now have very low financial costs, or perhaps no financial costs at all, a fact which indicates that the aid granted has gone far beyond its objectives. The excessive nature of the aid to BSC is illustrated, says the applicant, by the fact that the consequence of the aid in question was to reduce the undertaking's financing costs below 4% of its turnover, which was the threshold fixed by the Commission and applied to other undertakings. Thus BSC enjoyed a far from negligible competitive advantage.

The applicant goes on to claim that the Commission was bound, not solely by virtue of Decision 83/399 but also by Article 4(c) and the second paragraph of Article 5 of the ECSC Treaty, to verify before each decision releasing part of the aid granted whether the conditions to which the payment of aid was subject continued to be satisfied, in particular when the following tranche of aid was needed to restore the undertaking to viability. According to the applicant, the Commission manifestly breached that obligation to verify. Although it was aware of the improvement in BSC's operating results and consequently of the fact that BSC no longer needed aid to restore it to viability, it nevertheless released the final tranche of aid.

Finally, according to the applicant, the Commission ignored the provisions of Decision 83/399 according to which the recipient undertaking must comply with its obligations under the quota rules. In 1985 and 1986 it imposed heavy fines on BSC for having breached the quota system.

The Commission contends that the applicant's calculations cannot be accepted. They constitute an ex post facto evaluation. When the Commission is called upon to assess the approximate amount of aid that will be needed to restore an undertaking to viability it has only forecasts to go on. In the early 1980s the Commission was obliged to estimate the future needs of undertakings at a time when the entire steel industry, including BSC, was suffering heavy losses and most restructuring efforts still had to be undertaken. That is why, ex post facto, the aid granted may in certain cases appear to have been too high. However, ex post facto rectification of the Commission's initial assessment, in the light of experience gained in the meantime, particularly with regard to restructuring efforts on the part of undertakings, is not permissible. When the aid was released the Commission was in a position to intervene only if the conditions set out in Decision 83/399 had not been satisfied. That the aid should be needed to restore an undertaking to viability was not one of those conditions.

The Commission goes on to explain that the ceiling of 4% of turnover for debt service by recipient undertakings was introduced only in 1985, that is to say after the aid to BSC was authorized. Furthermore, the Commission applied that criterion in cases where supplementary aid for restructuring was notified to it in accordance with Decision No 1018/85. The criterion did not apply at all to aid already authorized in 1983.

Finally, the Commission disputes the alleged causal link between aid and the undertaking's results which, in its view, forms the basis of the applicant's argument that BSC obtained a competitive advantage to the detriment of other steel undertakings. By presuming that there was such a link the applicant has disregarded the existence of other factors, external and internal, which might have contributed to the positive operating results of BSC, such as reduced inflation, interest rate changes and improved labour productivity.

The United Kingdom supports the Commission's position on this point entirely and puts forward similar arguments.

(b) Payment of unauthorized aid

The applicant claims that BSC in fact received a total of UKL 1691 million, although the Commission had authorized a total of only UKL 1474 million in aid in Decision 83/399. Thus the UK Government paid to the undertaking UKL 217 million that had not been authorized.

The Commission points out first that its letter of 26 May 1988 which is challenged in these proceedings did not adopt any position on the issue of unauthorized aid. In consequence the applicant's account is lacking in relevance. In the alternative, the Commission explains that the amount of aid granted to BSC without authorization, as the applicant alleges, corresponds approximately to aid not covered by the Second Code or even by the ECSC.

The UK Government contends that the applicant has used erroneous figures because in reality the amount of aid approved exceeded the amount paid.

1 Language of the case: German.