C-156/77

JUGDMENT OF 12. 10. 1978 —CASE 156/77

In Case 156/77

Commission of the European Communities, represented by its Legal Adviser, George L. Close, acting as Agent, assisted by Charles Lux, a member of the Legal Department, with an address for service in Luxem­ bourg at the offices of its Legal Adviser, Mario Cervino, Jean Monnet Building, Kirchberg, applicant, v

Kingdom of Belgium, represented by the Minister for Foreign Affairs, with Roben Hoebaer, Director at the Ministry for Foreign Affairs, Foreign Trade and Development Co-operation, acting as Agent, and Messrs W. van Gerven and P. Derom, Advocates at the Brussels Bar, acting as Advisers, with an address for service in Luxembourg at the Belgian Embassy, 4 Rue des Girondins, Residence Champagne, defendant,

APPLICATION for a declaration that, by not complying with the Commission Decision of 4 May 1976 on aid from the Belgian Government to the Société Nationale des Chemins de Fer Belges (SNCB) for through international railway tariffs for coal and steel within the period laid down by the Commission, the Kingdom of Belgium has failed to fulfil an obligation under the Treaty,

THE COURT

The facts and arguments of the parties country of origin or destination of put forward during the written products; procedure may be summarized as — the establishment of through inter­ follows: national tariffs incorporating a degressive factor taking account of total distance for carriage within the I — Facts and written procedure Community, without prejudice to the apportionment of the receipts 1. In application of Article 70 of the among the carriers concerned. Treaty establishing the European Coal and Steel Community and of the second 2. Moreover, by means of the Council paragraph of Article 10 and the second Decision of 13 May 1965 on the har­ subparagraph of the third paragraph of monization of certain provisions Article 10 of the Convention on the affecting competition in transport by Transitional Provisions annexed to the rail, road and inland waterway (Official Treaty (hereinafter referred to as "the Journal, English Special Edition 1965 to Convention"), the representatives of the 1966, p. 67), amended by the Council governments of the Member States of Decision of 27 January 1970 (Official the ECSC, meeting in Council, signed Journal, English Special Edition 1970 on 21 March 1955 an Agreement on the (I), p. 64), the European Economic Establishment of Through International Community began action to eliminate Railway Tariffs (hereinafter referred to disparities liable to distort competition as "the 1955 Agreement", Official in the transport sector. Journal, English Special Edition 1952 to 1958, p. 25), subsequently supplemented In implementation of that decision the and amended by the Agreements of 16 Council adopted the following measures: March 1956 (Official Journal, English Special Edition 1952 to 1958, p. 40) and — Regulation (EEC) No 1191/69 of 23 March 1959 (Official Journal, the Council of 26 June 1969 on English Special Edition 1959 to 1962, action by Member Sutes concerning P 25). the obligations inherent in the The objectives pursued by the said concept of a public service in agreement are inter alia those laid down transpon by rail, road and inland in the second paragraph of Article 70 of waterway (Official Journal, English the Treaty and more particularly in the Special Edition 1969 (I), p. 276); second paragraph of Article 10 and the — Regulation (EEC) No 1192/69 of second subparagraph of the third the Council of 26 June 1969 on paragraph of Article 10 of the above­ common rules for the normalization mentioned Convention, in other words: of the accounts of railway under­ — the elimination, in traffic between takings (Official Journal, English Member Sutes, of discrimination in Special Edition 1969 (1), p. 283); rates and conditions of carriage of — Regulation (EEC) No 1107/70 of every kind which is based on the the Council of 4 June 1970 on the

granting of aids for transport by rail, Tor the purposes of this regulation, road and inland waterway (Official 'tariff obligations' means any obligation Journal, English Special Edition imposed upon transpon undertakings to 1970 (II), p. 360) amended by Regu­ apply, in particular for certain cat­ lation (EEC) No 1473/75 of 20 egories of passenger, for certain cat­ May 1975 (Official Journal 1975, egories of goods, or on certain routes, No L 152, p. 1); rates fixed or approved by any public — Decision No 75/327/EEC of 20 authority which are contrary to the May 1975 on the improvement of commercial interests of the undertaking the situation of railway undertakings and which result from the imposition of, and the harmonization of rules or refusal to modify, special tariff governing financial relations provisions. between such undertakings and The provisions of the foregoing sub­ States (Official Journal 1975, No L paragraph shall not apply to obligations 152, p. 3). arising from general measures of price policy applying to the economy as a The object of those measures is the whole or to measures taken with respect improvement of the situation of railways to transpon rates and conditions in and the long-term achievement of general with a view to the organization financial balance for them. For that of the transpon market or of pan purpose Article 13 of the Decision of 20 thereof." May 1975 distinguishes between: Article 2 (1) and Article 2 (2) provide as — deficit subsidies provided for by that follows: same provision, — compensation granted under Regu­ "1. Public service obligations means lation No 1191/69 and Regulation obligations which the transpon No 1192/69, undertaking in question, if it were — financial assistance referred to in considering its own commercial interests, would not assume or Article 5 (1) of the same decision, would not assume to the same and extent or under the same — aid granted in respect of categories conditions. of aid provided for by Article 3 of 2. Public service obligations within the Regulation (EEC) No 1107/70 and Article 9 (2) of the said decision. meaning of paragraph 1 consist of the obligation to operate, the 3. Since 1971 the Belgian Government obligation to carry and tariff has granted to the Société Nationale des obligations." Chemins de Fer Belges (hereinafter referred to as "the SNCB") aid 4. Subsequently, because of the intended to compensate for the charges objections raised by the services of the resulting from the application to ECSC Commission, the Belgian Government products of the through international altered the legal basis of the aid in railway tariffs laid down in accordance question by justifying the latter on the with the 1955 Agreement. The grant of basis of Article 3 (2) of Regulauon No that aid was initially justified by Article 1107/70 of the Council, which provides 2 (5) of Regulation No 1191/69 of the as follows: Council as compensation for "tariff "Without prejudice to the provisions of obligations" within the meaning of that Council Regulation (EEC) No 1192/69 provision. ... and of Council Regulation (EEC) Article 2 (5) of Regulation No 1191/69 No 1191/69 .... Member States shall provides as follows neither take co-ordination measures nor

— tariff obligations not falling "The aid granted by the Belgian Sute to the Société Nationale des Chemins within the definition given in Article 2 (5) of Regulation (EEC) de Fer Belges (SNCB) for through inter­ No 1191/69; national railway tariffs for coal and steel on the basis of Article 3 (2) of — or ... Council Regulation (EEC) No 1107/70 3. ..." of 4 June 1970 on the granting of aids for transpon by rail, road and inland By letter of 24 June 1974 the waterway, as amended by Regulation Commission observed as follows: (EEC) No 1473/75 of 20 May 1975 is not compatible with the Common "Just as it is impossible to consider the Market to the extent that it should be application of through international granted under Article 4 of the said regu­ railway tariffs for the carnage of ECSC lation. products as a tariff obligation within the The Kingdom of Belgium shall take the meaning of Article 2 (5) of Regulation necessary action, as soon as possible (EEC) No 1191/69, it is impossible to and at the most within three months, consider as compatible with the either to terminate the aid in question Common Market, pursuant to Article 3 or to modify its legal base in order that (2) of Regulation (EEC) No 1107/70, aid whose objective is to cover the same this aid may be granted under the provisions of Article 4 of Regulation charges " (EEC) No 1107/70."

On 8 October 1975 it adopted a Moreover, the last recital of the definitive view-point on this matter, preamble to that decision provides as follows: declaring that the aid in question came within Articles 92 and 93 of the EEC "... these considerations do not prevent Treaty and that it could not be justified the Belgian Government from granting either under Article 92 (2) and (3) of the aid in question under Article 4 of the Treaty or on the basis of Article 3 Regulation (EEC) No 1107/70; ... this of Regulation No 1107/70. formal distinction is an important one

of principle as regards action for the Nationale des Chemins de Fer progressive improvement of the Belges (SNCB) for through inter­ situation of the railways undertaken as national railway tariffs for coal part of the common transport policy". and steel within the period pres­ Article 4 of Regulation No 1107/70 cribed by the Commission, the provides as follows: Kingdom of Belgium has failed to fulfil an obligation under the "Until the entry into force of Treaty; Community rules adopted pursuant to Article 8 of the Council Decision of 13 (b) Order the Kingdom of Belgium to bear the costs." May 1965 and without prejudice to the provisions of Regulation (EEC) No The defendant contends that the Court 1191/69 and of Regulation (EEC) No should: 1192/69, the provisions of Article 3 shall not apply to payments by States "Declare that the Commission's and public authorities to railway under­ application is unfounded and order the takings made by reason of any failure to Commission to bear the costs." achieve harmonization, as laid down in the said Article 8, of the rules governing the financial relations between railway III — Submissions and argu­ undertakings and States, the purpose of ments of the parties such harmonization being to make those undenakings financially auton­ (A) The Commission claims principally omous." that the purpose of this application is a The Commission, finding that the declaration that the Kingdom of Belgian Government had not adopted Belgium has failed to fulfil its the measures necessary to comply with obligations under the first subparagraph that decision within the prescribed of Article 93 (2) of the EEC Treaty and period, lodged the present application not the review of the legality of the under the second subparagraph of decision of 4 May 1976. Article 93 (2) of the EEC Treaty. It maintains that the Belgian Government, in not complying with that 6. After hearing the repon of the decision within the prescribed period, Judge-Rapporteur and the views of the has failed to fulfil an obligation under Advocate General, the Court decided to the Treaty and that the matter has now open the oral procedure, having been referred to the Court of Justice requested the panics to supply cenain under the second subparagraph of detailed information and to produce Article 93 (2). Thus the submissions put certain documents concerning the facts forward during the present procedure relating to the grant of the aid in by the defendant should be limited to question. those which come within that procedure (for example a submission that there is no decision, that the decision does not II — Conclusions of the parties prescribe a period for compliance with the decision or that the Member State The applicant claims that the Court has in fan complied with the decision) should : and which do not include the examin­

of Justice in accordance with the Member States should reaa within the procedure laid down in Article 173 of period laid down in Anide 173 of the the Treaty which gives the Member Treaty if they wish to contest the States the opportunity of having the validity of those decisions and that the legality of a decision adopted by the Commission should be able to have at Commission reviewed by the Court its disposal a reliable procedure to have within a period of two months from the those same decisions applied. notification of the measure to the The Commission then observes with

An aid which may, under proceedings before the Court of Justice Anide 77 of the Treaty, benefit from a established by the Treaty and would derogation from the general prohibition infringe the principle of legal certainty laid down in Article 92 is therefore which Article 173 of the Treaty is subject to the procedure referred to in intended precisely to guarantee. Anide 93 if it appears that the particular conditions of its grant are not It is necessary to observe in this respect that Article 92 (1) of the Treaty, as in accordance with the provisions laying applied by a Commission decision down that derogation. declaring that an aid is not compatible With regard to the substance of the case with the common market, is a provision the Commission claims in particular as which is "directly applicable" within the follows : national legal systems of the Member

It is sufficient Nor, moreover, may the Belgian for the Commission to establish that the Government any longer call in question aid in question is "liable" to distort or the legality of that decision by means of Article 184 of the Treaty, the to threaten to distort competition and to affect trade between Member Sutes. application of which is expressly limited to proceedings involving "a regulation" In this case these two conditions are of the Council or of the Commission fulfilled (see the fifth recital of the and not as in the present case a preamble to the decision).

JUGDMENT OF 12. 10. 1978 — CASE 156/77

This gations laid down in the Treaty. increase does not, however, imply that — The Belgian Government under all domestic tariffs must be increased by the same amount. The other two cat estimates the substantial difference between "compensation for public egories — special tariffs and special service obligations" under Article 3 (2) agreements — enable the necessary adjustments to be made in each case of Regulation No 1107/70 and a "deficit subsidy" coming under Article 4 and give the whole system the flexibility which is essential in order to facilitate of that regulation. rapid adaptation of rates to the variable In the first case, it is fair that the situation on the transpon market. railway undertaking should receive The abolition of the aid in question compensation for the commercial dis should therefore logically lead to an advantage which it suffers because of a increase in the ECSC tariffs or the total tariff obligation.

nature. Article 13 of the decision of 20 May 1975. — It is, moreover, incorrect to claim that the Kingdom of Belgium cannot — Even if the SNCB was, so far as the make up "the disadvantages suffered transpon in question is concerned, internationally" by increasing its an undertaking entrusted with the domestic tariffs or the revenue of the operation of services of general interen SNCB would decrease and thereby and thus came within Article 90 (2) of increase the total deficit of that under the EEC Treaty, it does not nevertheless taking because of the constraints follow that it is exempt from Anide 92 imposed by demand and supply and the of the Treaty.

It is аlsо subject to the provisions in the affecting the compilation of ECSC Treaty relating to the common transport transpon rates, creating a framework policy and to the measures adopted by for the operation of the carriage of coal the Council regulating the grant of aid and steel and applying in an identical to such undertakings. The application of manner to all important railway under those measures, which were laid down takings in the common market. These on the basis of the need to develop a rules differ, therefore, from the common transpon policy for railway unilateral measures adopted by Member undertakings, cannot be considered as States which alone may be considered forming an obstacle to the as public service obligations within the accomplishment in law or in fact of the meaning of the two above-mentioned special task entrusted to those under regulations and of the Council Decision takings and as justifying, therefore, the of 13 May 1965. grant of the aid in question. (B) The defendant replies first of all — Moreover, the obligations imposed that although the provisions of the on the SNCB by the 1955 Agreement Treaty are based on the principle of are not per se public service tariff legal certainty, they are also concerned obligations within the meaning of Regu to reconcile that principle with that of lations Nos 1191/69 and 1107/70. natural justice according to which any It follows from Anide 2 (5) of Regu person faced with a situation in which lation No 1191/69 that "tariff his rights are at issue should be able to obligations" within the meaning of that defend those rights and to appeal regulation are solely those which arise against any decision imposed on him. from direct intervention by the public For this reason the principle of legal authorities so as to control the level of certainty, after the expiry of the period tariffs and which do not amount to for the lodging of an application for intervention by the public authorities annulment, is far from absolute.

(5) of Regulation (EEC) No 1191/69". must be considered null and void, it is which are imposed on transport under also possible to put forward the plea of takings "by the Sute or public auth illegality in spite of the fact that the orities" Although the concept of tariff period for lodging a direct anion has obligations is not defined in Regulation No 1107/70 it must, however, be expired. understood, in the light of the definition Finally, it is necessary to recall a third laid down in Regulation No 1191/69, exception, in other words that the as applying solely to the obligations Court may, by means of Article 177 of which result from intervention by the the Treaty, be called upon to give a public authorities and which have a ruling as to the validity of a di re ct influence on the level of tariffs Commission decision even after the This is not the case with regard to expiry of the above-mentioned period. obligations created by the 1955 Moreover, it is particularly important to

JUGDMENT OF 12. 10. 1978 — CASE 156/77

Treaty. By virtue of this common for a preliminary ruling or as the result characteristic, the procedures resulting of a subsequent but analogous in one or other of those measures Commission decision. should therefore grant the same The defendant, without putting forward guarantees of defence to the Member a genuine defence but in order better to Sute concerned whether proceedings determine the problems of the substance have been instituted against that Sute of the case, observes that the under Article 169 or under Article 93 of Commission lodged its application

A of Regulation No 1107/70 does not "decision" within the meaning of come within the scope of Anide 92. Anide 93, on the other hand, That anide in fan provides that the aid constitutes the rule of law whose described therein is incompatible "save infringement is invoked by the as otherwise provided in this Treaty". Commission. In this case the One of those derogations is precisely Commission is using the discretion laid down in Anide 77 of the Treaty given it by Anide 93 to sute what it which declares that aids are compatible considers to be an infringement against with the Treaty "if they meet the needs Anide 92. of co-ordination of transpon or if they A di ren action under Article 173 of the represent reimbursement for the Treaty is indeed possible but the action, discharge of certain obligations inherent compared to the guarantees of defence in the concept of a public service". given within the context of Article 169, Proceeding to the discussion of the is only secondary protection because of substance of the case, the defendant the fan that the decision taken on the claims that in order to justify a basis of Article 93 is constitutive Thus procedure on the basis of Anide 93 of the possibility of a direct action cannot the EEC Treaty it is necessary to prevent the Court, where an action is establish that the aid in question is brought before it, from being under a incompatible with the common market duty to examine the whole problem by within the meaning of Article 92 of the analogy with the procedure under Treaty or more exactly that: Article 169. — it affects trade between Member

(a) So far as the first of those reduce by means of special tariffs and conditions is concerned it is necessary special agreements the unfavourable to note that in contrast to the provisions effects on competition which result from of Anide 85 (1) of the Treaty a mere the burden of the through international possibility of affecting trade is tariffs. Besides, it is unjustifiable to insufficient: trade must be dearly and make users of the national network bear actually affected by the aid in question. the loss in revenue caused by inter This implies that the burden of proof national obligations which do not take which the Commission must discharge into account the actual cost of inter in this respect is heavier than that national transpon by increasing the required by the above-mentioned Article national charges out of proportion to

There too the can keep its rates lower than they Commission has however been guilty of should be. The international tariffs are a failure to act. Moreover, since the calculated on the basis of two national subsidy in question in the very opinion factors, the national terminal charge of the Commission may be granted on and the national distance charge. the basis of Anide 4 of Regulation No However, the level of those two factors 1107/70, there can be no question in cannot be established on the basis of the this case that the aid "distons or international tariff but on the basis of threatens to distort competition by the supply and demand on the national favouring certain undertakings or the and international market, of the production of certain goods".

In these circum tariffs. stances, to increase the national rate would have the effect, in view of the — Besides, even supposing that the aid existing situation as regards granted is incompatible with the competition, of reducing the volume of common market within the meaning of transpon by rail so greatly that it would Anide 92 (1) of the EEC Treaty, it is inevitably result in a decrease in the necessary to apply Article 90 (2) of the SNCB's revenue. It is moreover Treaty since the SNCB is precisely an impossible from the practical and oper undertaking entrusted with the ational point of view to attempt to operation of services of general

economic interest. It follows from this domestic tariffs whose level cannot be bitter provision that the SNCB is subject freely fixed at the will of the SNCB. to any provisions of the Treaty, The rules imposed by the Agreement including Articles 85 to 94, only to the are far from being "general". They extent to which their application does concern only the users of the railways not form an obstacle to the performance and not users of other means of in law or in fact of the particular task transport, are addressed specifically

There is no reason — In order to define the "tariff why an obligation arising from the obligations" to which Article 3 (2) of ECSC Treaty cannot constitute a tariff Regulation No 1107/70 refers, it is obligation where it satisfies all the necessary to refer to the general characteristics of such an obligation. definition of "public service" obligation Besides, Article 3 (2) of Regulation No given in Article 2 (1) of Regulation No 1107/70 makes no distinction between 1191/69 which, in the express words of public service obligations imposed on Article 2 (2) also includes tariff the Member States by virtue of their obligations. It follows from this general own legislative power and public service definition that the concept of tariff obligations imposed on the Member obligation in the broad sense of the States as the result of a Community word to which Anide 3 (2) refers, in measure. Moreover, the tariff obligation contrast to that of tariff obligation in imposed on the SNCB does not arise the strict sense of the word, used in di rectly or indirectly from such a Article 2 (5) of Regulation No 1191/69, measure since the 1955 Agreement is applies to any obligation concerning not, in fact, a measure adopted by the tariffs which "if it were considering its Council but an agreement governed by own commercial interests, [the transpon public international law which is, it is undertaking] would not assume or true, provided for in Article 10 of the would not assume to the same extent or Convention but was freely negotiated under the same conditions".

The

2 In Article 1 of its decision of 4 May 1976 (Official Journal 1976, No L 229, p. 24), the Commission declared that the financial aid granted by the Kingdom of Belgium to the SNCB under Article 3 (2) of Regulation (EEC) No 1107/70 of the Council of 4 June 1970 on the granting of aids for transport by rail, road and inland waterway, as amended by Regulation (EEC) No 1473/75 of 20 May 1975 (Official Journal 1975, No L 152, p. 1) is not compatible with the Common Market to the extent that is should be granted under Article 4 of the said regulation.

3 It also decided that the Kingdom of Belgium should take the necessary action, as soon as possible and at the most within three months, either to terminate the aid in question or to modify its legal base in order that that

JUGDMENT OF 12. 10. 1978 — CASE156/77

aid might be granted under the provisions of Article 4 of Regulation No 1107/70.

4 As the Kingdom of Belgium did not comply with that decision, the Commission lodged this application before the Court of Justice pursuant to the second subparagraph of Article 93 (2) of the Treaty.

Admissibility

COMMISSION v BELGIUM

of the Treaty concerning aid granted by the States and from the controls and procedures laid down therein.

11 To this effect, Article 3 (1) of Regulation No 1107/70, which was not amended by the above-mentioned Regulation No 1473/75, enumerates the cases and conditions in which an aid granted under Article 77 of the Treaty may be justified pursuant to that provision and Article 2 thereof specifies that "Articles 92 to 94 of the Treaty shall apply to aids granted for transport by rail, road and inland waterway".

12/13 Since the Commission's action in this case was motivated by the finding that the aid in question comes within the prohibition laid down in Article 92 of the Treaty the application lodged as a result of that action therefore has its legal basis in the second subparagraph of Article 93 (2) of the Treaty. The objection of inadmissibility raised by the Kingdom of Belgium is therefore unfounded.

The substance of the case

14 The Kingdom of Belgium claims essentially that the initiation of a procedure on the basis of Article 93 of the Treaty against the aid in question is all the more unjustified in the present case, since the Commission has not established that this aid fulfils the conditions of incompatibility laid down in Article 92 (1).

19 Such a decision is, under the fourth paragraph of Article 189 of the Treaty, "binding in its entirety upon those to whom it is addressed".

20 In so far as the Member Sute to whom it is addressed considers that it is unable to comply with that decision because it is legally unfounded it may contest the legality thereof by having recourse to the legal remedies available to it under Article 173 of the Treaty on the conditions laid down by that provision.

21 In view of the fact that the periods within which applications must be lodged are intended to safeguard legal certainty by preventing Community measures which involve legal effects from being called in question indefinitely, it is impossible for a Member Sute which has allowed the stria time-limit laid down in the third paragraph of Article 173 to expire without contesting by the means available under that article the legality of the Commission decision addressed to it to be able to call in question that decision by means of Article 184 of the Treaty when an application is lodged by the Commission on the basis of the second subparagraph of Article 93 (2) of the Treaty.

22 First, the objection provided for in Article 184 of the Treaty is limited under that provision to proceedings "in which a regulation of the Council or of the Commission is in issue" and can in no case be invoked by a Member Sute to whom an individual decision has been addressed.

23 Secondly, it follows from the wording of the second subparagraph of Article 93 (2) of the Treaty, in particular from the words "in derogation from the provisions of Articles 169 and 170", that the purpose of the application referred to therein may only be a declaration that the Member Sute concerned has failed to comply with a Commission decision compelling it to

26 In the present case the Kingdom of Belgium does not contest that it has not complied with the Commission Decision of 4 May 1976.

27 The Kingdom of Belgium has therefore failed to fulfil its obligation under Article 93 in conjunction with Article 189 of the Treaty.

28 The present application is therefore well founded.

Costs

29 Under Article 69 (2) of the Rules of Procedure the unsuccessful party shall be ordered to pay the costs.

30 The defendant has failed in its submissions.

Kutscher Mertens de Wilmars Mackenzie Stuart Donner Pescatore

Sørensen O'Keeffe Bosco Touffait

Delivered in open court in Luxembourg on 12 October 1978.

A. Van Houtte H. Kutscher

Registrar President

OPINION OF MR ADVOCATE GENERAL MAYRAS DELIVERED ON 21 SEPTEMBER 1978 <apnote>1</apnote>