C-28/66

In Case 28/66

Government of the Kingdom of the Netherlands , represented by Professor W. Riphagen, Legal Adviser to the Ministry of Foreign Affairs at The Hague, assisted by D. J. Veegens, advocate of The Hague, with an address for service in Luxembourg at the Netherlands Embassy, 8 rue Pierre-d'Aspelt,

applicant,

v

Commission of the European Communities , taking the place of the High Authority of the ECSC by virtue of Article 9 of the Treaty of 8 April 1965, represented by its Legal Advisers, R. Baeyens and H. Matthies, acting as Agents, assisted by C. R. C. Wijckerheld Bisdom, Advocate of The Hague, with an address for service in Luxembourg at its offices, 2 place de Metz,

defendant,

Registrar: A. Van Houtte

gives the following

JUDGMENT

Issues of fact and of law

I — Facts obtained, or if the conditions on which approval was granted were not satisfied By letters of various dates between 30 May within the time-limit laid down. 1964 and 14 March 1966, the Government On 21 September 1966 the Government of of the Federal Republic of Germany in­ the Kingdom of the Netherlands lodged an formed the High Authority of the introduc­ application against this decision at the tion by the Deutsche Bundesbahn (German Court Registry by virtue of the first para­ Federal Railways) of special rates and con­ graph of Article 33 of the ECSC Treaty. ditions concerning the carriage of coal and steel to or from the Saarland. II — Conclusions of the parties By letter of 11 July 1966, supplemented by telex on 13 July 1966, the Federal German The applicant claimed that the Court Government requested the High Authority should: to grant, to the extent necessary, the '— annul Decision No 14/66 of the High authorizations required by virtue of Article Authority of 20 July 1966; 70 and the other applicable provisions of — order the High Authority to pay the the ECSC Treaty. costs.' Having regard in particular to the change The defendant contended that the Court which has taken place in the conditions of should: competition to the detriment of the ECSC '— dismiss the application brought by the undertakings in the Saarland as a result of Government of the Kingdom of the the canalization of the Main, the Neckar Netherlands as unfounded; and the Moselle', the High Authority by — order the applicant to pay the costs.' Decision No 14/66 of 20 July 1966 (Official Journal No 141 of 2 August 1966) gave con­ ditional approval to the introduction of III — Submissions and arguments special rates and conditions. of the parties Article 4(2) of this decision specifies that the authorizations granted would be Admissibility amended or withdrawn if the circumstances The defendant raises no objections to the which gave rise to the grant no longer admissibility of the application.

Substance canalization of the Main, the Neckar and the Moselle, and to which the High Author A — Infringement of the Treaty ity refers in the recitals to its decision, is The applicant alleges that the contested necessarily of a permanent rather than a decision is not in accordance with the pro temporary nature. visions of Articles 2 to 5 and Article 70 of Secondly, the improvement of the infra the Treaty and puts forward several argu structure of traffic routes by the public

policies to the new situation. ciples of the Treaty. Any authorization of Finally, the composition of the production special support tariffs adversely affects the costs of the undertakings of the Saarland, principle of non-discrimination which is within the meaning of that judgment, was fundamental to the Treaty. According to not changed as a result of these canaliza the case-law of the Court such an authoriza tions and the consequent reduction in rail tion in favour of special rates and conditions tariffs. These canalizations merely reduced which, as in this instance, do not derive the production costs of the competing from the method of transport, may only be undertakings, which benefited directly granted in exceptional cases. thereby.

specific political circumstances. Reference The applicant maintains that the contested should rather be made to the judgment of decision is based upon a policy which is the Court in Joined Cases 27, 28 and 29/58, likely to produce results contrary to the which concerned special rates and condi aims of the Treaty as defined in Articles 2 tions introduced for purely economic to 5. The authorization of support tariffs reasons. According to this judgment (Rec. to offset the difficulties suffered by certain 1960, p. 527), such support tariffs were undertakings as a result of changes in the only able to be authorized by virtue of the infrastructure such as those in this instance fourth paragraph of Article 70 of the risk perpetuating for ever the advantages Treaty if they enabled the undertakings in and disadvantages of each place of estab whose favour they were made to overcome lishment. exceptional and temporary difficultieswhich The applicant maintains that the recitals arose from unforeseeable circumstances set out under II(3) of the contested decision and were likely to result in a situation in (in which it was regarded as unnecessary to which the composition of the production consider the basic operating conditions of costs no longer corresponded to the natural each undertaking) clearly show that the conditions to which those undertakings arguments contained in the recitals under

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The the High Authority failed to distinguish factual situation resulting in particular between the causes of the difficulties from the canalization of the Moselle were encountered by the undertakings of the clearly unconnected with the factors which Saarland. This is shown inter alia by recital gave rise to these decisions of 9 February II(2) of the contested decision which refers 1958 and the judgments of the Court in to the difficulties caused to these under their regard. takings by the ever-increasing competition The second equally important reason con from other energy producers, without, cerns the social problem which would be however, considering that this competition created by a sharp reduction in the produc is to a great extent structural and also tion of the undertakings of the Saarland, affects the other coal industries of theECSC. even more so as the iron and steel and coal Finally, the High Authority infringed the industries play a leading role in that area fourth paragraph of Article 70 of the and are today meeting difficulties throughout Treaty in that, contrary to the provision the Community which were unforeseeable referring to the application of special in several years ago. The application to the ternal rates and conditions in the interest present case of the fourth paragraph of 'of one or more' undertakings, and to the Article 70 must be assessed in the light of principle laid down by the Court in its this new situation and taking into account judgment in Joined Cases 3 to 18, 25 and the fact that among the objectives of the 26/58 (Rec. 1960, p. 409), it authorized the Treaty set out in the second paragraph of rates and conditions in dispute without Article 2 the social objectives are particu examining the basic operating conditions of larly important and the decisions of the each of the undertakings of the Saarland High Authority of 9 February 1958 did not referred to. It cannot be accepted that the fail to refer to them. operating conditions of the undertakings The defendant then considers the various of the Saarland are so similar that they all arguments put forward by the applicant.

As decision amplifies the same concept as the that case concerned long-established sup decisions of the High Authority of 9 port tariffs governed by the seventh para February 1958, confirmed by the Court in graph of Article 10 of the Convention on its judgments in Joined Cases 3 to 18, 25 the Transitional Provisions, the situation and 26/58 and Joined Cases 27, 28 and examined by the Court at that time cannot 29/58, but in relation to a different situation be compared with the present position of and in economic conditions which have the undertakings of the Saarland.

JUDGMENT OF 8. 2. 1968 — CASE 28/66

It follows from these close to the frontier with the Soviet occupa judgments that the second paragraph of tion zone. Moreover, the canalization of a Article 2 of the Treaty clearly shows that certain number of important rivers cannot the most important objectives of the Com be regarded as part of the 'natural con mon Market is to ensure 'the most rational ditions' to which these undertakings are distribution of production at the highest subject, since the aim of the development of possible level of productivity'. the infrastructure was rather to modify A twofold secondary objective, also pro certain existing natural conditions on the vided for in the second paragraph of Article basis of certain requirements, principally of 2 of the Treaty consists in 'safeguarding an economic nature. continuity of employment and taking care Moreover, it is of no importance that in not to provoke fundamental and persistent this instance the composition of the pro disturbances in the economies of Member duction costs of the undertakings of the States'. In the context of this objective, a Saarland was not modified, as the essential temporary decline in employment and the point is the set-back to their competitive closure of undertakings incapable of con position suffered by certain undertakings, tinuing without constant and considerable in comparison to other undertakings, aid must be accepted.

On this stitute the fundamental reason or reasons point these judgments are of general appli for the authorizations granted. cation as a contrary conclusion cannot be The defendant maintains, finally, that it drawn from their grounds of judgment. was unnecessary for the High Authority to The applicant then maintains that, accord consider the basic operating conditions of ing to the interpretation of the Court itself, each undertaking of the Saarland, since, as the special difficulties which may be the competitors of these undertakings eliminated by the application of the fourth derive a general advantage from the im paragraph of Article 70 must be of a

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Journal No 144 of 1966) in respect of the geous transport rates which resulted from special tariffs applied by the SNCF for the the canalization, they requested that a canal carriage of coal from the collieries of be dug from the Saar to the Palatinate but Lorraine to Switzerland, illustrate the the Federal Government preferred to uncertain consequences of a system of authorize a certain number of special rates subsidies based upon the grant of reduced and conditions which have been introduced tariffs. Moreover, according to the case- since June 1964, the date on which the law of the Court, the concept of the 'natural canalized Moselle was opened to naviga­ conditions' of undertakings covers the tion. physical and technical circumstances in Although it is correct that the Federal which each of the various producers operate Government wished to justify these meas­ andwhich are subject to constant variations, ures by the potential competition of the including the factual situation resulting Saar-Palatinate canal, it is also true that from the infrastructure of traffic routes as the High Authority has always contested it exists naturally and as modified by man. this concept and that, without further Furthermore, the Commission of the EEC referring to the potential competition, the considers that, as regards its sphere of Federal Government sought the authoriza­ competence, the situation with regard to tion required by virtue of the Treaty. competition does not justify rates and By authorizing in Decision No 14/66 the conditions of the type in dispute in this case. application of the rates and conditions in Therefore, on the eve of the establishment of dispute, the High Authority found that a single Council and a single Commission, those rates and conditions: the High Authority's action jeopardized the — do not conflict with the second para­ introduction of a common transport policy. graph of Article 2 of the Treaty, since the Finally, the applicant concludes that if the disadvantages caused to the under­ Federal Government feared fundamental takings of the Saarland by the infra­ and persistent disturbances in its economy structure operations are the result of it could have invoked Article 37 of the circumstances which bear no relation to

JUDGMENT OF 8. 2. 1968 — CASE 28/66

mies of Member States are merely second considered that any difficulties could be ary. effectively remedied by the implementation As the objectives laid down in Articles 2 of other measures in the transport sector, and 3 cannot all be wholly realized simul submitted for the prior agreement of the taneously, the decisions of the High High Authority in accordance with the Authority are in accordance with the Treaty fourth paragraph of Article 70 of the where they lead to an adequate and reason Treaty. able implementation of these objectives, on Finally, as regards Decision No 15/66, the the basis of the facts established and the allegations made by the applicant are out possibilities of the case in point, and where side the context of the present action. they pursue the common interest referred

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In this instance such means could have According to the Court, full compensation consisted in having recourse to Article for the damage suffered cannot be required. 67(2) and (3) of the Treaty. Moreover, the Federal Government origi As regards the effects of the structural nally defended the rates and conditions in modifications of the energy market on coal, dispute as tariff rules which were justified measures of support could have been by the potential competition of the Saar- adopted within the framework of the Palatinate canal and it still holds this point Protocol on Energy Problems of 21 April of view. 1964 and Decision No 3/65 of the High

ditions. Treaty, other means of granting the The defendant replies that all the appli necessary aid are open to the High Author cant's arguments concerning the absence of ity. reasons for the contested decision arise Far from being a special provision it con from its mistaken view of the significance of cerns precisely the application of special that decision, with the result that to refute support tariffs in accordance with the this view also involves refuting the present Treaty. submission. As regards the 'other means' which, apart from those laid down by the provision in C — Misuse of powers question, should or could have been ap plied, the applicant must not forget that: The applicant maintains that by approving — Article 67 of the Treaty confers certain the support tariffs in dispute the High powers on the High Authority when a Authority allowed itself to become involved Member State, acting within the limits in the exigencies of the regional policy of of its own powers, takes measures which one Member State, although according to are liable to have appreciable repercus the case-law of the Court in the above- sions on conditions of competition in

the coal or the steel industry, and that The defendant considers, on the other hand, this article does not concern the State that it strictly observed the Treaty in measures referred to by the other pro authorizing the rates and conditions in visions of the Treaty; dispute. It considered the industrial struc — the Protocol of 21 April 1964 and ture of the Saarland, in which the produc Decision No 3/65 of 17 February 1965 tion of coal and steel plays a predominant cannot be invoked in this instance, in role, only in order to avoid serious diffi particular as they refer only to the coal culties of a social nature and in the context sector and in no way relate to the of Article 56 of the Treaty. problems of the iron and steel sector. Furthermore, although the development of The applicant replies that the generic nature lines of communication takes place gradu of the authorizations in dispute which were ally, economic conditions are subject to granted in favour of tariffs which concern sudden changes. all the ECSC undertakings of the Saarland In this instance, the undertakings of the clearly shows that the High Authority is Saarland were threatened, for this reason, attempting to implement a regional policy. with serious difficulties, and the situation The change which took place in the con was aggravated further by the undiversified ditions of competition to the detriment of industrial structure of the Saarland and by certain undertakings of the Saarland the decline, and even recession, in the out resulted from measures taken by three put of coal and steel throughout the governments in an area which is not Community. governed by the Treaty but which remains As the Deutsche Bundesbahn applied the within the jurisdiction of each national special internal rates and conditions in the government. interest of one or more coal- or steel- The reference by the High Authority to the producing undertakings', the High Author judgment given in Joined Cases 27, 28 and ity was under an obligation to intervene, by 29/58 is not therefore justified, since in that virtue of this article, in order to examine case the rates and conditions in question whether such rates and conditions were in had been introduced as an independent accordance with the Treaty. subsidy in factual circumstances which had It is impossible to see how the High Author undergone no change, whilst in this in ity could, or even should, have applied the

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Grounds of judgment

In support of its application the applicant maintains that, by means of the contested decision, the disputed authorizations were granted without satisfying the conditions which appear, in particular, in Articles 4(b) and 70 of the Treaty and to which the application of special internal rates and conditions is subject. It alleges that these conditions, which have previously been defined by the Court of Justice, prevent the authorization of the special rates and conditions referred to in the fourth paragraph of Article 70 of the Treaty, except where necessary to enable the undertakings in whose favour they operate to overcome exceptional and temporary difficulties resulting from unforeseeable circumstances which are likely to result in a situation in which the composition of the production costs no longer corresponds to the natural conditions in which these undertakings are placed. In this respect the applicant maintains, first, that the change which has taken place in the conditions of competition of the undertakings of the Saarland following the canalization of the Moselle, the Main and the Neckar is of a permanent rather than a temporary nature.

Secondly, the applicant maintains that, as the improvement in lines of communica­ tions carried out by public works authorities is one of the constant preoccupations of the public authorities in all the Member States, it cannot be regarded as an unforeseeable circumstance. It further maintains that the natural conditions in

JUDGMENT OF 8. 2. 1968 — CASE 28/66

Moreover, the unforeseeable nature of the circumstances justifying the grant of special rates and conditions must be assessed in the light of the facts of each case and according to a reasonable assessment of the situation. For the purposes of such an assessement a distinction must be made in the transport sector between the normal work of development of the infrastructure and other work, generally of greater importance, the execution of which brings about a change in the existing economic situation. In this instance the canalization of the Moselle, the Main and the Neckar cannot be regarded simply as the normal work of development of the infrastructure incumbent upon each Member State.

The applicant complains in addition that, in order to justify the measures of support in dispute, the High Authority based its decision on the changes in the infrastructure of inland waterways. It maintains that the purpose and effect of these measures is not to provide against external circumstances which change the natural conditions and, in this way, cause the composition of production costs no longer to correspond to those conditions, but, on the contrary, to correct the effects on competition of differences in the natural conditions in which the undertakings operate.

The concept set out in the second paragraph of Article 2 of the Treaty concerning conditions which will of themselves ensure the most rational distribution of pro­ duction cannot be regarded as a fixed concept, but covers facts which are them­ selves contingent and variable, in particular with regard to time. For this reason, the execution of public works, which involves a change in the infrastructure of a region in which undertakings are established certainly constitutes, at the beginning, a sudden change in the existing environment, even though the new situation is destined after a certain time to become part of the conditions in which these under­ takings will henceforth be called upon to carry out their activities. These complaints must therefore be rejected.

of the Treaty set out in Articles 2 and 3 cannot always be pursued simultaneously in their totality, the Community must continually reconcile these objectives when considered individually and, when conflict arises, must grant such priority to certain general objectives as appear necessary, having regard to the economic facts or circumstances in the light of which it adopts its decisions. If the difficulties from which certain undertakings suffer are likely to lead to widespread unemployment which will frustrate the pursuit of these general objectives of a social nature, the Community must introduce measures which will ensure observance of these objec­ tives in particular. Recourse to the fourth paragraph of Article 70 of the Treaty, in order to enable the undertakings concerned to adjust themselves as soon as possible to the new conditions of competition rather than to grant them a permanent subsidy which would be contrary to the general objectives of the Treaty, may constitute an appropriate measure with which to meet difficulties of this type. For this reason this complaint cannot be accepted.

The applicant further maintains that the contested decision infringes the fourth paragraph of Article 70 of the Treaty, in that, contrary to the provision referring to special rates and conditions in the interest 'of one or more coal- or steel-producing undertakings', it authorized the rates and conditions in dispute without considering individually the basic operating conditions of each of the undertakings of the Saarland referred to. In particular, the applicant maintains that the contested decision supplies insufficient information concerning the direct and indirect effects of the abovementioned canalizations on the steel-works established in the Saarland

It may be seen from the statement of reasons for the contested decision, taken as a whole, that the change in the conditions of competition which resulted from these cananlizations worsened a situation which was already causing concern, but to the extent to which it may be regarded as temporary, it was this worsening situation alone which the High Authority intended to remedy by means of the contested decision. The fundamental reason for this decision is therefore to remedy these difficulties of readjustment. Even though, in the intention of the government which introduced them, the rates and conditions in dispute may form part of a regional policy, neither the statement of reasons for the contested decision nor the aim of the authorizations in dispute shows that the High Authority arrived at its decision for reasons foreign to the principles of the Treaty. The present complaint cannot there­ fore be accepted.

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Community, that the application of measures of support such as those introduced in this instance is an altogether exceptional procedure. This procedure is empha­ sized by the fourth paragraph of Article 70 which confers on the High Authority the power to make its agreement temporary or conditional. These measures may, therefore, only be applied to the extent to which they make it possible to re-establish within the appropriate time-limits conditions which will of themselves ensure the distribution of production at the highest possible level of productivity. As no time- limit is attached to the authorization given by the High Authority, it is incapable of effectively stimulating the undertakings in whose favour it is given to adjust them­ selves to the new conditions of competition or of preventing them from regarding the measures as a permanent aid intended to offset the difficulties which they face.

In this instance the contested decision is based only on difficulties of an economic nature, affecting all the ECSC undertakings established in the Saarland.

On those grounds,

Upon reading the pleadings; Upon hearing the report of the Judge-Rapporteur;

JUDGMENT OF 8. 2. 1968 — CASE 28/66

Upon hearing the parties; Upon hearing the opinion of the Advocate-General; Having regard to Articles 2 to 5, the first paragraph of Article 15, Articles 33, 67 and the fourth paragraph of Article 70 of the Treaty establishing the European Coal and Steel Community; Having regard to the Protocol on the Statute of the Court of Justice of the European Coal and Steel Commumty; Having regard to the Rules of Procedure of the Court of Justice of the European Communities;

THE COURT

hereby:

Registrar President

OPINION OF MR ADVOCATE-GENERAL GAND DELIVERED ON 12 DECEMBER 1967 1

Mr President, interpretation of the fourth paragraph of Members of the Court, Article 70 of the Treaty of Paris concerning 'special internal rates and conditions', with The application by the Government of the which you have already dealt in 1960 in Kingdom of the Netherlands on which you relation to the decisions of the High Author­ have to give judgment concerns Decision ity taken within the context of paragraph 10 No 14/66 of the High Authority of 20 July of the Convention on the Transitional 1966 which, subject to certain conditions, Provisions. authorizes the Deutsche Bundesbahn to Let me recall the terms and the content of apply special rates and conditions to the the contested decision. carriage of coal and steel to or from certain The rates and conditions in dispute, as in­ stations in the Saarland. It will give you the dicated first of all in the recitals of the opportunity to state your position on the preamble to this decision, were introduced

1 — Translated from the French.