C-47/69

Commission of the European Communities, represented by its Legal Adviser Joseph Griesmar, with an address for service in Luxembourg at the offices of Émile Reuter, Legal Adviser to the Commission, 4 boulevard Royal,

defendant,

Application for the annulment of the Commission's decision of 18 July 1969 concerning the French system of aids to the textile industry,

THE COURT

composed of: R. Lecourt, President, R. Monaco (Rapporteur) and P. Pescatore, Presidents of Chambers, A. M. Donner, A. Trabucchi, W. Strauß and J. Mertens de Wilmars, Judges,

Advocate-General: K. Roemer

I — Facts and procedure French Government not to apply this system of aid as from 1 April 1970 unless it 1. Both home-manufactured and imported altered it beforehand 'so that products textile products sold in France are liable in imported from Member States no longer accordance with Decree No 65/1163 of 24 attract the quasi-fiscal charge or ... any December 1965 to a quasi-fiscal charge the other exceptional taxation of textile prod­ rate of which was fixed at 0.20% by order ucts'. (arrêté) of the same date. On 26 September 1969 the French Govern­ Of the revenue from this charge, 5/7 goes to ment lodged the present application against the Union des Industries Textiles (Union of this decision. Textile Industries) (UIT) to renew the industrial and commercial structures of the 2. After hearing the report of the Judge- textile undertakings, and 2/7 to the Institut Rapporteur and the views of the Advocate- Textile de France (French Textile Institute) General, the Court decided to open the oral (ITF) to refund in part its expenditure on procedure without any preparatory inquiry. collective research. The parties presented oral argument at the The Commission was informed by the hearing on 10 March 1970. French Government that this system was The Advocate-General delivered his opinion being introduced and acknowledged that, in at the hearing on 21 April 1970. the light of the objective of the aids con­ sidered, the measures which had been adopted might support the development of II — Conclusions of the parties the textile industry. However, as it con­ sidered that these aids did not appear to be able to benefit from the exception laid down The applicant claims that the Court should: in Article 92 (3) (c) of the EEC Treaty, it began the review procedure laid down in — annul the decision of the Commission of Article 93 (2) of the Treaty. the European Communities of 18 July Accordingly, it called upon the French 1969 and order the defendant to bear the Government to suspend the application of costs. the measures in question until it had taken a final decision and to submit its comments within six weeks. The defendant contends that the Court should : The French Government submitted its com­ ments in a letter of 12 July 1967. As the Commission had not made a decision (a) dismiss the application brought by the Government of the French Republic; in the meantime, the French Government decided by Decree No 68/383 of 27 April (b) order the applicant to bear the costs. 1968 to maintain the system of aid and increased the rate of the quasi-fiscal charge to 0.35 % by an order of the same day. By a decision of 18 July 1968, the Commis­ III — Submissions and arguments of sion declared that aids financed by the the parties revenue from this charge were not com­ patible with the common market under Article 92 of the Treaty 'because of the way The submissions and arguments of the par­ in which they are financed', and ordered the ties may be summarized as follows :

1 — Principal submissions However, having regard to the wording of the Treaty this assessment could and can The French Government points out that in only be made by means of the provisions its decision of 18 July 1969 the Commission, which relate to one of these components, acting in accordance with Article 93 of the that is, either by means of the provisions Treaty, did not criticize the French system relating to the charge or those relating to the of aid to the textile industry but only the aid (cf. the case-law of the Court in its judg method by which it was financed, namely the ments in Cases 24/68 and 2 and 3/69).

and 93 during which it maintains that it formity with Article 92 (3) of the Treaty. was never acknowledged that a charge This provision confers on the Commission could be considered to be an aid or an quite a wide discretionary power, in partic integral part of an aid ; ular as regards the question whether, in the case of aids intended to facilitate the devel — the interpretation of the concept of aid given by the Court in Case 30/59. opment of certain activities, trading con ditions are altered 'to an extent contrary to Secondly, it maintains that since in this case the common interest' (Article 92 (3) (c)). what is concerned is a charge levied on Therefore in taking the contested decision, products of domestic manufacture and the Commission only carried out its task imported products alike and not having an by using this discretionary power and fol effect equivalent to customs duties, the only lowing the principle that, when applying provisions the application of which could be Articles 92 and 93, it must also have regard considered, namely Articles 12 and 95 of the to Articles 2 and 3 and ensure that a system Treaty, are not applicable either. is set up which guarantees normal com It asserts that in these circumstances it must petition in the Common Market. be acknowledged that the charge in question In applying other provisions such as, for complies with the Treaty. example, Article 85 (3) (a) or as regards the

conditions. acknowledged to be compatible with the Because of this, the effects of this combined Treaty, and the alteration which was action had to be and must be assessed in requested did not concern this aid but the relation to the Treaty. method whereby it was financed.

Although these two concepts are to some extent connected to each other, the con Moreover the French Government maintains nexion is however insufficient for them to be that the contested decision is based on a considered indissociable and for Article 93 false evaluation of the facts since neither of the Treaty to be interpreted as enabling the aid in question nor the method by which the Commission to take a decision either to it is financed, namely the quasi-fiscal abolish or alter the charge. charge, adversely affect trade 'to an extent In fact, the Commission attempted by its contrary to the common interest'. decision of 18 July 1969 to obtain the altera As regards the aid, tion of a charge which complied with the Treaty by using a 'device'; this explains, — it does not exclusively serve French moreover, why it merely 'tried to obtain it' interests since research organizations in an indirect way by threatening to abolish from other Member States are informed the aid instead of 'deciding' that the tax of the work in progress at the ITF and the should be altered. research work the ITF carries out on a The defendant answers in the rejoinder that contractual basis for private under the distinction or indeed the contrast which takings is open to all undertakings in the the applicant makes between the aid and the Common Market on the same financial quasi-fiscal charge is artificial. In fact there conditions as for French undertakings; is a close interdependence between these two components since the effects of the aid are — the result of promoting the rehabilitation of a sector of the economy which is inevitably influenced by the method where by it is financed, so that they must be suffering from excess production capa examined together. city in all Member States is to strengthen the market position and profit-earning

tested measure. Moreover, the French Conseil d'État con passed on to the consumer; this is much firmed that the Commission's action was easier because it applies to all textile correct when, in a judgment of 16 October products sold on the French market with 1968, it gave precedence to actual equality of no distinction as to nature or origin; treatment over nominal equality of treat — an increase in price of 0.35 % cannot ment. produce 'substantial' effects on the Far from using Community rules as a volume of sales of textile products in 'device', the Commission assessed the France by appreciably reducing sales; problem 'in the light of the relevant pro visions. — in any case, it is for the Commission to Far from amounting merely to a 'hopeful prove its declaration that the charge in attempt' the contested decision consists of question is incompatible with the Treaty ; two distinct obligations, expressed as alter the French Government, for its part, natives. states that textile imports have con The complaint which was raised—in so far siderably increased since 1967.

In comparison with this system, the one position of French industry and this which the Commission advocates has precludes its effect from being 'exactly several disadvantages, in particular that: the same for industries in other Member States'; — the burden of financing the aid, instead of being indirectly carried by the con — 'placing the resources and works of the sumer, would be borne only by French ITF at the disposal of all undertakings undertakings who would thus be exposed without distinction' does not necessarily to discrimination, in contravention of the bring about an actual and equal bene

criminatory. In fact the abolition of distortion of com — in the Commission's opinion, it would be petition which favours a national industry better in this respect to investigate cannot create a discriminatory situation to whether the charge is calculated to affect the detriment of that industry. profit margins or producers' sales Aid granted to an industry must be financed volume since increasing the price to the by the national economy of the State con consumer because of the tax could cerned either by a charge on the general reduce the sales possibilities of foreign budget or by a quasi-fiscal charge levied on producers; the branch in question if it is not to increase unilaterally effects which are already dis — the low rate of the charge is of no signific criminatory in themselves, and it cannot ance for the determination of this dispute directly or indirectly make competing which basically raises a problem of foreign industry contribute even a reduced principle as to the nature of the charge, amount. and not a quantitative problem because The defendant raises the following objec

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fields, and there is nothing to show that question depend on the extent of the injuri­ these imports would not have been ous effects which it might produce is greater if they had not been caught by the tantamount to introducing into rules of charge. Community law an element of legal un­ In any case, to make the application of the certainty which is detrimental to all con­ Treaty to a system of aid such as the one in cerned.

Grounds of judgment

1 By an application made on 26 September 1969, the Government of the French Republic requested the annulment of the decision of the Commission of 18 July 1968, which in the first place ordered the abolition of the aid given in France to the. textile industry and, alternatively, gave its approval to the said aid subject to amendments being made to the quasi-fiscal charge designed to finance it.

The first submission

2 The French Government maintains, first, that the contested decision has no legal foundation and amounts to a misuse of powers since Article 93 (2) of the Treaty, which empowers the Commission only to take a decision that aid which is recog­ nized as incompatible with the common market must be abolished or altered, cannot serve as the basis for a decision which is concerned with procuring the alteration of the basis of assessment of a charge intended to finance that aid.

7 In order to determine whether an aid 'affects trade between Member States', 'distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods' and 'adversely affects trading conditions to an extent contrary to the common interest', it is necessary to consider all the legal and factual circumstances surrounding that aid, in particular whether there is an imbalance between the charges imposed on the undertakings or producers con­ cerned on the one hand and the benefits derived from the aid in question on the other.

8 Consequently the aid cannot be considered separately from the effects of its method of financing.

9 The Commission therefore had power to decide whether the French Republic should abolish or alter the disputed system of aid as a whole.

The second submission

10 The French Government claims that Articles 12 and 95 are alone applicable in this case and can afford no grounds for objecting to the charge in question, since it was levied both on national and imported products and did not have any effects equivalent to a customs duty.

11 This argument amounts to asserting that when an aid is financed by internal taxation, this method of financing can only be examined in relation to its compati­ bility with Article 95 and that the requirements of Articles 92 and 93 must be disregarded.

17 In its appraisal the Commission must therefore take into account all those factors which directly or indirectly characterize the measure in question, that is, not only aid, properly so-called, for selected national activities, but also the indirect aid which may be constituted both by the method of financing and by the close connexion which makes the amount of aid dependent upon the revenue from the charge.

is If such a system whereby an aid is serviced by a charge designed for that purpose, were to become general, it would have the effect of opening a loophole in Article 92 of the Treaty and of reducing the Commission's opportunities of keeping the position under constant review.

19 In fact it leads to a system of permanent aids, the amount of which is unforeseeable and which would be difficult to review.

20 By automatically increasing the amount of national aid in proportion to the increase in the revenue from the charge and more especially the revenue from the charge levied on competing foreign products, the method of financing in question has a protective effect which goes beyond aid properly so-called.

JUDGMENT OF 25. 6. 1970 — CASE 47/69

21 In particular, the more Community undertakings succeed in increasing sales in a Member State by marketing efforts and by price-cutting, the more they have to contribute under the system of the servicing charge to an aid which is essentially intended for those of their own competitors who have not made such efforts.

27 The applicant has failed in its submissions.

28 It must therefore be ordered to pay the costs.

On those grounds,

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

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Upon hearing the parties; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Economic Community, in particular Articles 2, 3, 7, 12, 85, 92, 93, 95 and 173; Having regard to the Protocol on the Statute of the Court of Justice of the European Economic Community; Having regard to the Rules of Procedure of the Court of Justice of the European Communities;

Donner Trabucchi Strauß Mertens de Wilmars

A. Van Houtte R. Lecourt

Registrar President

OPINION OF MR ADVOCATE-GENERAL ROEMER DELIVERED ON 21 APRIL 19701

Mr President, established in France to overcome the dif­ Members of the Court, ficulties which face the industry in many countries and in other Member States as This case, in which the oral procedure took well, the French Government introduced a place on 10 March 1970, concerns the inter­ system of aid which came into force on 1 pretation of the provisions of the EEC January 1966. This system serves to Treaty relating to aid. The following are the promote research in the textiles sector and is facts which gave rise to the case: supposed to facilitate the renewal of its In its effort to help the textile industry industrial and commercial structure. The

1 — Translated from the German.