C-84/82

GERMANY / COMMISSION

In Case 84/82

FEDERAL REPUBLIC OF GERMANY, represented by Martin Seidel, Ministerialrat in the Bundesministerium für Wirtschaft [Federal Ministry of Economic Affairs], assisted by Professor Gerhard Fels, acting as Agents, with an address for service in Luxembourg at the Embassy of the Federal Republic of Germany,

applicant, v

COMMISSION OF THE EUROPEAN COMMUNITIES, represented by Marie-José Jonczy and Götz zur Hausen, members of its Legal Department, acting as Agents, with an address for service in Luxembourg at the office of Oreste Montako, a member of the Legal Department of the Commission, Jean Monnet Building,

defendant,

JUDGMENT

CONTENTS

I — Facts and procedure 1456 A — Background to the case: Crisis and Community context of aid to the textile and clothing industry 1456

B — Origin and course of the proceedings 1457 1. From the adoption of the Belgian plan for restructuring the textile and clothing industry to the authorization of that plan 1457 Firststage: 1977-80: the aid programme of 1977 1457 Second stage: the aid programme of 1980 and its examination by the Commission 1458 2. The object of the restructuring plan 1458

3. Procedure 1458

II — Conclusions of the parties 1459

A — Necessity of review by the Court; the scope of that review 1466 Observations of the applicant 1466 Observations of the defendant 1468

B — The compatibility of the Belgian restructuring plan with the common market 1468 1. Fulfilment of the conditions under which aid may be regarded as compatible with the common market under Article 92 (3) (c) of the Treaty 1469 (a) The appropriate criteria 1469 Observations of the applicant 1469 Observations of the defendant 1469 (b) Observance of the criteria 1470 Observations of the applicant 1470 (i) The effect of the aid would be to preserve the status quo 1470 (ii) Necessity of the restructuring plan 1470 (iii) The undertakings affected by the plan 1471 (iv) Progressive reduction 1471 (v) Limitation of the amount of aid 1472 Observations of the defendant 1473 (i) Reply to the applicant's comments on the "necessity" of the Belgian plan 1473 (ii) Undertakings affected by the plan 1475 (iii) Limited duration and progressive reduction 1475 (iv) Restriction of the level of aid to the absolute necessary 1476 (v) The beneficiaries' own contribution 1476 (iv) Transparency 1477 (vii) Avoidance of an increase in capacity 1477 2. Adverse effect on trading conditions to an extent contrary to the common interest 1477 Observations of the applicant 1477 Observations of the defendant 1479

II — The claim for a declaration that the Commission wrongfully failed to act . . 1480

IV — Answers by the Commission to questions put by the Court 1480

V — Oral procedure 1485

JUDGMENT OF 20. 3. 1984 — CASE 84/82

To that end, the Commission has: A — Background to the case: Crisis and Community context of aid to the textile and clothing industry (i) concluded agreements with non- member countries within the frame­ work of the multifibre arrangements (Fourteenth General Report on the The textile and clothing industry has for Activities of the European Com­ some time been in particular difficulty munities, 1981 No 566 et seq.), and owing to various factors such as the partial failure to modernize the structure of the Community industry, the massive (ii) defined, in 1971, a Community increase — from 21 % to 44 % between framework of aid granted by 1973 and 1980 — of imports from Member States, which, after being non-member countries (State-trading discussed in broad outline with the countries and South-East Asian coun­ national experts and brought up to tries), the rapid change in the use of raw date in 1977, was brought to the materials, the use of outward processing knowledge of the Member States. arrangements by certain Community undertakings, the difficulty of certain branches of the industry in remaining competitive after a period of restricted The Community framework was estab­ development. lished to coordinate and guide the measures taken by the Member States, since the Commission had observed that in order to remedy the crisis in the Those difficulties were moreover ag­ textile industry the Member States gravated by the recession which affected tended to grant aid hastily and under the the Community economy as a whole. pressure of the economic and social situation for the exclusive purpose of maintaining employment and ensuring That combination of problems led to the survival of undertakings. very keen competition between the textile and clothing industries of the Member States, both on the Community market and on other markets. It also In the Commission's opinion, the mul­ brought about increasing unemployment, tiplication of national intervention which apparently cannot be overcome in measures (lists of sectorial aid to the the short term. textile and clothing industry as at March

The Community framework defines a number of criteria on the basis of which On 5 April 1977 the Commission national aid must be granted and which informed the Belgian Minister for the Commission uses in assessing Foreign Affairs that in view of the fact proposals for aid notified to it. The that the obligation to give prior notice, guidelines laid down by the Commission as provided for in Article 93 (3) of the specify, first, that national proposals for Treaty, had not been observed it had aid must be conceived as measures to decided to initiate the procedure for accompany a process for restructuring reviewing the compatibility of the plan the specific sectors in difficulty and must with the common market pursuant to avoid leading to structural overcapacity Article 93 (2) of the Treaty. in areas where there is already over­ capacity or persistent stagnation of the market and, secondly, that Member When however the Belgian Government States must take account of the national stated that it was ready to make the and Community situation in the sector alterations required by the Commission affected by the crisis. and to notify a new restructuring plan by October 1979 the Commission informed the Belgian Government by a letter dated 6 March 1979 that it had decided to terminate the procedure initiated.

Nevertheless by a decision dated 17 April 1980, notified to the Belgian Govern­ ment on 22 April 1980, the Commission The Commission emphasizes that reopened the procedure provided fot- notification of the Community frame­ in Article 93 (2) of the Treaty and work to the Member States cannot take requested the Belgian Government to the place of the decisions which it must abolish the programme of aid established take in exercise of the powers conferred by Royal Decree of 20 December 1977 on it by the Treaty. by 31 July 1980 at the latest or to submit

By letters dated 7 January 1982 the Second stage: the aid programme of Commission informed all the Member 1980 and its examination by the States of its decision of 18 November Commission 1981 not to oppose the implementation for one year of the Belgian plan for restructuring its textile and clothing On 28 July 1980 the Belgian Minister for industry. Economic Affairs, Mr Claes, sent a new restructuring plan to the Commission, which described in outline the pro­ gramme of aid contemplated. The new 2. The object of the restructuring plan system of aid was treated as notified within the meaning of Article 93 (3) of the Treaty. The 'Belgian Government's decision to grant aid to the textile and clothing industry follows a finding that the By a letter dated 15 September 1980 number of jobs lost between 1973 and the Commission requested the Belgian 1980 is estimated at 70 000 and that a Government to supply further infor­ policy of laissez-faire would lead to an mation in order to enable it to consider additional loss of 50 000 jobs between whether the plan was compatible with 1980 and 1985, thus to the total disap­ the common market. pearance of that industry in Belgium. The decline observed and expected in Belgium is puroptedly greater than in the other Member States. The Belgian Much correspondence took place over Government therefore drew up the re­ a year between Belgium and the Com­ structuring plan with the aim of dealing mission and between the Commission with the emergency without distorting and representatives of the other Member the laws of the market. In the view of the States. Belgian Government, all the sectors affected by the crisis would continue, even after the implementation of that The majority of the Member States plan, to see their share of European criticized the plan and their views were production decrease from 6.4% in purportedly taken into account by the 1978-79 to 6 . 1 % in 1984. Branches of Commission and the Belgian Govern­ the industry which remain competitive ment. are to some extent excluded from aid, as are undertakings which are not viable.

Ill — Submissions and argu­ 1. Declare void the authorization, ments of the parties limited to a period of one year, contained in the letter of 18 No­ vember 1981 addressed to the Govern­ Admissibility ment of the Kingdom of Belgium by the Commission of the European Communities, allowing the Kingdom The Commission has no objection to the of Belgium to implement the five-year admissibility of the claim for annulment plan for restructurering the Belgian of the letter sent on 18 November 1981 textile and clothing industry, sub­ to the Belgian Government in so far as mitted to the Comission on 28 July the letter constitutes a binding measure 1980, on the ground that it infringes for the purposes of the first paragraph of the second sentence of Article 93 (3) Article 173 of the Treaty and a "final and Article 92 (1) and (3) (c) of the decision" within the meaning of the third EEC Treaty; sentence of Article 93 (3) of the Treaty. In the event of the Court's dismissing However, it considers that the claim for the claim in paragraph 1 as inad­ a declaration that it wrongfully failed to missible or not making the declaration act is inadmissible since the conditions that the authorization contained in laid down in that respect in Article in the letter of 18 November 1981 is Article 175 of the Treaty are not satisfied void as an infringement of Article 92 in the present case. It is clear from (1) and (3) (c) of the EEC Treaty: the wording of the second paragraph of Article 175 that such an action is admissible only if the institution 2. Declare, pursuant to Article 175 of concerned has not defined its position the Treaty, that by failing to initiate after first being called upon to act.

The Commission considers that the In the Commission's opinion, an action declaration of 4 December 1981, in for failure to act is admissible only if the which the German Federal Minister, Community institution called upon to act Otto Graf Lambsdorff, stated to Frans is completely silent or reacts in a way Andriessen, a member of the Com which does not show what view it takes mission, that the Government of the of the invitation to act. The Commission Federal Republic of Germany "would emphasizes that in the judgment of not acquiesce in the Commission's 13 July 1971 in Case 8/71 (Komponisten- approval of the Belgian Government's verband Y Commission [1971] ECR 705) aid plan" and that it would reserve the the Court stated in paragraph 2 that the possibility of bringing the matter be provisions of.

take a negative decision. The Commission considers that it is not possible to accept the applicant's argument to the effect that the action for failure to act must be admissible on the Even if it is assumed, however, that the ground that an action for annulment declaration of the German Minister may would not necessarily lead to a finding be interpreted as calling upon the by the Court of Justice that the Belgian Commission to act within the meaning plan for restructuring the textile industry of Article 175 of the Treaty, the

plan". The fact that the letter refers to the result sought by the action. the Commission's letter of 18 November 1981 to the Belgian Minister for Economic Affairs does not alter its character as a definition of the In the view of the German Government, Commission's position. an action for failure to act is admissible

The bringing of an action for failure to The German Government considers that act is justified because there is no it called upon the defendant to act to equivalent in Community law to the that effect at the meeting on 4 December German Anfechtung!- und Verpflicbtungs- 1981. k/age which would enable the Court to order the defendant to adopt the It firmly rejects the argument that the measure claimed by the applicant. Article letter of 7 January 1982 constitutes "a 176 of the Treaty whereby "the definition of the Commission's position" institution whose act has been declared within the meaning of Article 175 of the void ... shall be required to take the Treaty and that therefore the action for necessary measures to comply with the failure to act is inadmissible. judgment of the Court of Justice" does not provide any comparable remedy. In that respect, it claims that in its letter of 7 January 1982 the Commission merely stated that it had informed the Substance Belgian Government on 18 November 1981 that it had no objection and did not I — The claim for annulment define its position in response to the invitation to act made on 4 December 1981. (1) The first submission: infringement of the rules governing the procedure for reviewing State aids If nevertheless the Court were to see in the communication of 7 January 1982 a negative definition of position and In support of this submission the consequently declare the action for applicant puts forward the following failure to act inadmissible, the German arguments: Government considers that the legal protection to which it is entitled would A — Failure by the Commission to not be ensured. fulfil its obligation under Article 93 (3) of the EEC Treaty to It considers that the principle laid down initiate the procedure provided in the Komponistenverband judgment, for in Article 93 (2) and referred to by the defendant, to the effect that the adoption of a measure According to the Government of the different from that desired or considered Federal Republic of Germany, it follows necessary excludes the possibility of an from the provisions of Article 93 (3) of action for failure to act, cannot be the Treaty and previous judgments of the applied to the present case. Since the Court (in particular Case 120/73, Lorens measure adopted may be declared void v Germany [1973]ECR 1471; Case 121/73, on the basis of the action brought under Markmann v Germany, [1973] ECR Article 173 of the Treaty on the ground 1495; Case 122/73, Nordsee v Germany. of infringement of procedural rules, the [1973] ECR 1511; and Case 141/73, applicant has a legitimate interest in Lobrey v Germany, [1973] ECR 1527)

The Commission's uncertainty is shown by the fact that it considered it necessary to organize on 17 September 1981 a B — Disregard by the Commission of multilateral meeting between the national the specific features of the two experts and the representatives of the stages of the review procedure Governments of the Member States. It is confirmed by the terms of the statement of no objection to the Belgian plan for In the view of the German Government, restructuring the textile industry, the confusion between the preliminary implementation of which was authorized stage and the main stage of the review only for a period of one year and subject procedure is shown by the terms of to observance, which the Belgian the statement of 18 November 1981, in Government was asked to confirm, of which the Commission said that it had the conditions set out in the letter carried out a very thorough examination challenged by the present action. By of the Belgian plan for restructuring the making its acquiescence subject to textile industry. The Commission thereby conditions when the doubts which gave infringed the Treaty in two ways: on the rise to them ought to have led to the one hand, it disregarded the object of initiation of the main review procedure, the preliminary stage of the review and the Commission infringed the terms of robbed the main stage of its true the Treaty. function and, on the other hand, it disre­ garded the fact that decisions taken at the end of the preliminary stage have only limited legal effect. In a letter to the German Minister for Foreign Affairs dated 5 January 1977 the Commission moreover recognized that "if consideration of the substance of a (a) Object of the preliminary case gives rise to certain doubts whether examination the aid plan is compatible with the Treaty, the Commission is legally bound to initiate the procedure laid down in According to the German Government, it Article 93 (2)". is apparent from the wording, structure and scope of Article 93 of the Treaty that the preliminary stage of the review is confined to cursory consideration of The Commission states that contrary to whether the aid plan notified to the what the applicant says the meeting of Commission is compatible with the 17 September 1981 was not organized common market and that ultimate on account of the doubts which the assessment of the plan is reserved to the Commission still had regarding the final stage of the review.

(b) Limited legal effect of decisions When, on the other hand, at the pre­ adopted by the Commission at liminary stage of examination it is a the end of the preliminary question of considering, as in the present examination case, whether a plan to grant aid notified to the Commission satisfies the con­ ditions laid down in Article 93 (2) of the The German Government submits that Treaty and corresponds to one of the at the end of the preliminary stage of types of aid mentioned therein, which, examination the Member State con­ "may be considered to be compatible cerned may implement the aid plan but with the common market", the Com­ that does not mean that it is compatible mission's powers are confined to a with the common market. cursory examination as to whether the substantive conditions for aid which may be authorized are prima facie satisfied Even where an aid plan is implemented and whether a preliminary assessment of following a statement of no objection at the resulting benefits and disadvantages the end of the preliminary examination it suggests that the aid should be approved. may be re-examined by the Commission as part of the permanent review of aid described in Article 93 (1) of the Treaty. Only after it has been able to form that opinion is the Commission bound, in the event of doubts about the plan's The compatibility of aid can therefore compatibility with the common market, be definitively established by the Com­ to initiate the formal procedure provided mission only at the end of the main for in Article 93 (2) of the Treaty. review procedure.

The Commission argues that according to the aforesaid judgments it must have In the Commission's view, the effect of a sufficient time to consider aid notified decision finding that aid is compatible to it but must act with the requisite with the common market is always the . expedition in order to. take account of same, .regardless of the stage -of the the interest of the Member States in procedure at which the decision is taken.' having the matter speedily settled; that means that in the preliminary exam­ ination it must do precisely that which the applicant objects to : it must carefully consider the various aspects of the aids In the first place, the Treaty makes no notified to it in order not to prolong the distinction in that respect and, secondly, suspensory effect of Article 93 (3) more any system of aid remains subject to the than is necessary for considering whether permanent review carried out under the aids are compatible with the common Article 93 (1) and (2). market.

D — Disregard by the Commission That interpretation of the provisions of of its obligation to consult the the-Treaty is confirmed'by the judgment other Member States and the of 22 March 1977 in Case 78/76 economic and social sectors of (Steinike und Weinlig v Germany [1977] the Community ECR 595), which states "in judging . . . whether State aid is compatible with the common market complex economic factors subject to rapid change must be The German Government argues that it taken into account and assessed." Thus a is particularly important to initiate the system of aid originally regarded as formal review procedure when the compatible with the common market proper exercise by the Commission of its may at any time be reviewed by the discretion in relation to the aids referred Commission. to in Article 92 (3) (b) and (c) makes it

Although the German Government does The Commission rejects the applicant's not deny that the Commission alone is argument to the effect that the notice to responsible for determining whether a the parties concerned, as referred to plan to grant aid is compatible with the in Article 93 (2), must be treated as common market, it cannot accept the entailing their obligatory and formal Commission's argument to the effect that involvment in the examination of the the invitation to the parties concerned to aid's compatibility with the common submit their comments pursuant to the market; such an argument would lead first sentence of Article 93 (2) translates to the automatic initiation of the main not so much their fundamental right to review procedure in respect of every aid be heard as the Commission's right to which might qualify for exemption under obtain information and that the Article 92 (3). Commission is free to decide the proper time and method for consulting the Member States or the social, economic and trade circles involved. It is clear from the wording of Article 93 (2) that the application of the procedural rules depends to some extent on the view which the Commission takes as to the The Commission has no power to waive compatibility of the aid with the the procedural rules on the subject of common market. aid. The right of the Member States and the circles concerned to be heard is a matter of public policy. That right, which in no way impinges upon the According to the judgment of 12 July Commission's decision-making powers, 1973 in Case 70/72 (Commission v rests on the "recognition that only á Gei-many [1973] ECR 813), the notice to

It is clear from the terms of the Treaty From the foregoing it is apparent that that the Commission, subject to the the question whether the Commission powers of the Council under the third should or should not have initiated the subparagraph of Article 93 (2), is the main review procedure provided for in sole body responsible for determining Article 93 (2) of the Treaty in relation to whether aid is compatible with the the Belgian plan for restructuring the common market. That responsibility has textile industry ultimately depends solely often been confirmed by the Court. In on whether the plan may be considered the judgments of 22 March 1977 in Case compatible with the common market. 74/76 (lannelli v Meroni [1977] ECR 557) and in Case 78/76 (Steinike und Weinlig, cited above) the Court held that "the intention of the Treaty in providing through Article 93 for aid to be kept under constant review and supervised by (2) The second submission: the Com- the Commission, is that the finding that mission, in stating that it had no an aid may be incompatible with the objection, authorized the implemen- common market is to be determined, tation of a system of aid incom- subject to review by the Court, by means patible with the common market of an appropriate procedure which it is the Commission's responsibility to set in motion". Before examining the substantive con­ ditions on which the compatibility of State aid with the common market depends, the German Government Although the Commission pointed out in emphasizes the importance of the judicial its letter of 5 January 1977 to the review which the Court is called upon to German Minister for Foreign Affairs that effect in an area where the Commission the Commission was responsible for has a wide discretion. determining the time and form of contacts with third parties, the notice to those concerned to submit their com­ ments is not within the Commission's discretion since any decision to prohibit the implementation of the plan notified A — Necessity of review by _ the to the Commission can be taken only Court; the scope of that review after the parties have been heard. The German Government observes that the circumstances make effective review of State aid necessary; it also arises as a In the present case the consultations with result of recognized rules of inter­ the other Member States and the rel­ national law and in particular the basic evant economic circles did not necess­ principles of the common market.

The fact that the Member States may not have recourse to the measures allowed them under GATT (in particular, the The prohibition of aid is a fundamental levying of compensatory duties on feature of the common market com­ subsidized imports) argues in favour of parable to the prohibition on agreements the Court's having jurisdiction to review restricting competition and trade within the Commission's exercise of its powers in relation to State aids. the Community or the prohibition on the retention or re-introduction of customs duties and quantitative restrictions in trade between Member States.

Member States are not allowed by the Treaty to adopt such measures precisely because of the existence of the special It would be contrary to Article 164 of procedure for reviewing national policies the Treaty, whereby in the last resort it is on State aids; that procedure is intended the Court, rather than the Commission to prevent the transfer from one Member or the Council, which must ensure "that State to another of the economic in the interpretation and application of problems which national policies seek to this Treaty the law is observed", to remedy. accept that in an area relating to

JUDGMENT OF 20. 3. 1984 — CASE 84/82

competition and intra-Community trade 563; and Case 26/76, Metro v Community law, instead of having its Commission, [1977] ECR 1875. application and proper development ensured, may be left to the hazard of political forces.

The German Government considers that Finally, the German Government in order to determine whether the aid observes that, although in areas where was likely "to facilitate the development the Commission has a wide discretion of certain economic activities" and to exercised in accordance with economic judge the "common interest" within the and social criteria the Court's ju- meaning of Article 92 (3) (c) of the disdiction is necessarily restricted, the Treaty the Commission had to ensure Court nevertheless reviews the existence that the conditions which aid must satisfy of the facts and the legal inferences in order to be regarded as compatible drawn from them. In that respect it cites with the common market were in fact the following judgments: Joined Cases satisfied and that the plan in question did 56 and 58/64, Consten and Grundig v not adversely affect trading conditions Commission, [1966] ECR 299; Case in a manner contrary to the common 71/74, Frubov Commission, [1975] ECR interest.

GERMANY / COMMISSION

1. Fulfilment of the conditions The aid must be confined to under­ under which aid may be regarded takings which are competitive on a long- as compatible with the common term basis. market under article 92 (3) (c) of the Treaty It must be gradually reduced and subject to a time-limit. (a)The appropriate criteria

The aid in question must be granted As regards the textile sector, which solely " in so far as necessary", that is to throughout the world has considerable say on the basis of a balance between the surplus production capacity, a sixth purpose of the aid and regard for the criterion should be added: the aid must fundamentals of the common market. not lead to an increase in capacity.

JUDGMENT OF 20. 3. 1984 — CASE 84/82

(b) Observance of the criteria First, the difficulties which the Belgian textile and clothing industry faces are not appreciably greater than those faced 1. In the view of the German in the same industry in the other Government, the Commission was wrong Member States, especially the Federal to consider that the Belgian plan satisfied Republic of Germany. the above conditions.

(i) The effect of the aid would be That is supported by the following to preserve the status quo comparative figures :

In the view of the German Government, the Belgian plan for restructuring the As regards employment, between 1973 textile industry is intended more to and 1980 and between 1979 and 1981 maintain the structure of the textile and employment in the Belgian textile and clothing industry than to ensure in due clothing industry declined by 40 % and course its competitiveness. 7 % respectively, whereas for the German textile and clothing industry the figures It is apparent from the declaration of the were 31 % and 11 % respectively. Belgian delegation at the meeting of 17 September 1981 that, although the plan is founded on the abolition of some As regards external trade in textile and 24 000 jobs, its main aim is to maintain clothing products, Belgium had a surplus 100 000 other jobs threatened by the amounting on average: crisis.

Implementation of the Belgian plan is the responsibility of two bodies created for (iii) The undertakings affected by that purpose, namely the "Institut du the plan Textile et de la Confection de Belgique" and the Société Nationale pour la Re­ structuration de l'Industrie et de la Confection et du Textile". In the absence The Belgien restructuring plan does not of a strict proviso concerning approval satisfy the requirements designed to in individual cases there seems no ensure that only competitive under­ guarantee that those two bodies will in takings are helped. practice observe the principle that aid should be granted mainly to competitive undertakings. The retrospective moni­ toring which the Commission proposes Although based on the principle of "back to perform seems inadequate. the winner" since it provides that only viable undertakings may receive aid, the plan contains no guidelines for im­ plementation and no criterion allowing (iv) Progressive reduction the competitive potential of undertakings to be assessed. Observance of the condition that aid should gradually decrease over a period of time is essential if priority is to be Moreover, in its statement of no given to helping undertakings which are objection the Commission reserved the competitive. The progressive reduction in right to prohibit application of the plan financial aid, which is calculated to to undertakings employing more than 50 ensure smooth re-organization of the peoble. That reservation in particular production of undertakings with the cases has no effect for the following aim of restoring their competitiveness, three reasons: encourages the stronger undertakings because of the competition in which they have to engage while undergoing re­ organization. It is apparent from the documents of the Institut National de Statistique (Publi­ cation Mensuelle, Statistiques Indus­ As regards aid for particular sectors, the trielles 4/81 and 9/81) that the pro­ requirement that the aid should decrease portion of undertakings with more than over a period of time applies both to the 50 employees in the textile and clothing plan as a whole and to the grants in industry in general, and in the afore­ individual cases and to the means mentioned highly competitive sectors in employed. The Belgian plan for re­ particular, is limited. structuring, as submitted to the Com-

The proportion of State funds, which in the present case amounts to 70 % and is In its role of monitoring aid the sometimes described as the level of aid, Commission has previously ensured that does not however represent the so-called State aids do not exceed a particular "net grant equivalent", that is to say, the level. Thus, as regards environmental amount of financial assistance provided aids, the Commission has regarded 15 % as a non-repayable investment premium. as the maximum level permissible. Only To calculate the net grant equivalent it is in view of the urgent need to convert to therefore necessary to ascertain to what ecologically sounder production pro­ extent the funds made available by the cedures has the Commission allowed, by Belgian Government to the undertakings way of exception, aids at a higher level, represent actual aid for restructuring the namely 45 % for investments in 1975-76 textile industry and not merely main­ and 30 % for the investments in 1977-78. tenance funds.

GERMANY / COMMISSION

On the basis of the method of calcu­ retained their character of an aid to self- lation adopted by the defendant the State help. funds made available to those concerned in the first year of the five-year plan amounted to DM 308 000 000. That is 54 % of the investment costs con­ 2. The Commission contends, on the templated for the five years. For the other hand, that, in view of all the years 1975 to 1979 the total investments conditions and requirements stipulated in of the Belgian textile and clothing its decision of 18 November 1981 and industry amounted on average to BFR accepted by the Belgian Government, the 3 900 000 000, that is DM 253 000 000. plan for restructuring the textile industry meets in every respect the minimum requirements mentioned by the applicant.

JUDGMENT OF 20. 3. 1984 — CASE 84/82

In the opinion from the Kieler Institut Institut für Weltwirtschaft, according to für Weltwirtschaft produced by the which the Belgian textile and clothing applicant it is stated that the textile and industry has "a good position in inter­ clothing industry in Belgium "represents national competition". a much larger part of the industrial sector than in most other countries". The Commission makes three obser­ vations in this regard:

GERMANY / COMMISSION

(ii) Undertakings affected by the an application for aid has been required plan only in respect of the various sectors said to be highly competitive and in respect of large undertakings. The aids granted on the basis of the Belgian plan are genuine aids for re­ structuring and not aids for maintaining In that respect the Commission makes undertakings that are not viable in the two observations: long run. Although the maintenance of jobs after the considerable reduction therein following restructuring may be Although it is true that the majority of described as one of the aims of the plan, Belgian textile undertakings employ less that in no way means that it is intended than 50 people the majority of people to help undertakings that are not viable. employed in the sector in question work in large undertakings.

JUDGMENT OF 20. 3. 1984 — CASE 84/82

GERMANY / COMMISSION

discretion by the Commission. That rate structuring plan and the monitoring is moreover appreciably higher than the carried out ex post facto fully satisfy the rate generally adopted in the Community requirement of transparency. textile and clothing industry; it is in line with the normal practice in the financing of investment projects. (vii) Avoidance of an increase in capacity

Moreover, it is apparent from reactions hitherto from a large part of the Belgian The Commission's decision of 18 No­ textile and clothing industry that only vember 1981 states clearly that the a small number of undertakings are Belgian restructuring plan must not lead prepared to accept State participation in to an increase in production capacity. their capital. The absence or the reduced level of State participation increases the undertaking's own contribution. Ac­ cordingly, the risk of possible sup­ The fact that according to the McKinsey plementary payments diminishes. Report, cited by the German Govern­ ment, the restructuring plan aims to increase the Belgian industry's share of Community production cannot be (vi) Transparency treated as an increase in capacity.

JUDGMENT OF 20. 3. 1984 — CASE 84/82

that is 82 % of the total exports, went to year in no way reduces its negative other Member States. Belgian textile and effects, for the Commission thereby clothing products represents 8.2% and contributes' to greater insecurity among 3.5% respectively of total German the competing undertakings, who, in imports in that field. view of the risk that an extension of the plan may be approved, are deterred from making investments from their own resources for necessary structural changes. The textile and clothing industries of the other Member States, especially the Netherlands, France and Germany, compete with the Belgian industry on the markets of the Community and on the The Belgian textile and clothing industry markets of non-member countries. thereby receives an artificial and unjustified competitive advantage. The alleged special significance of that industry in Belgium cannot justify unloading economic problems, and unemployment in particular, on to other Without the financial help from the plan Member States. Only 3.7% of all in issue, the amount and extent of which employed persons in Belgium or 10.5% are considerable, the Belgian textile and of persons employed in industry were clothing industry would not be able to engaged in the textile and clothing maintain its sales strength at home, in industry in 1979 (Eurostat — Em­ the other Member States or in non- ployment and Unemployment, 1973-79). member countries and in no event would it be able to increase that strength.

clothing industry benefits, not specific The German Gonvernmcnt's claim to the aid for that branch of activity. contrary cannot in any event be supported by the scale of the bilateral trade between Belgium and Germany since the Commission decisions on State aids must be adopted on the basis of intra-Community trade as a whole. The German industry is not able to face subsidized competition from the Belgian industry. In view of the increase in the number of insolvencies in the past two years (Federal Statistical Office — November 1981) Germany too will soon The German textile and clothing be forced to support its industry. In view industry also receives considerable aid. of the number of persons occupied in the It is apparent from documents which German industry, almost five times more the German Government forwarded to than in the Belgian industry, the effort of the Commission in connection with an the German public authorities will have inquiry conducted by the Commission to be considerable. It would however be that in 1977 42.6% of all investments in contrary to the Treaty and would the textile and clothing industry were endanger the common market itself if the supported by State aid granted in various Member States were to vie with one forms. In 1978 the proportion increased another in offering aid in an endeavour to 47.6%. Moreover, the Länder also to secure a share of the common market intervene in favour of this industrial which does not result from free sector in order to save cerain under­ competition. takings in difficulty. The position is not fundamentally different in the other Member States.

In conclusion, the Commission makes and did not prohibit implementation of the following two observations : the Belgian restructuring plan constitutes a failure by the Commission in so far as it had no discretion in that respect. According to inspections carried out so far the individual programmes supported by the Claes Plan and authorized by The Commission states that, in so far as the Commission improve the range of the claim for a declaration of nullity and products of the undertaking concerned the claim for a declaration that it has and must therefore be regarded as active failed to fulfil its obligations are based measures for placing the undertakings on on the same arguments, it has seen fit a sounder footing, as recommended by to set out its views on the validity of the Kieler Institut für Weltwirtschaft in the two claims without making any its report on the Belgian Government's distinction between them. programme of aid to the textile and clothing industry.

GERMANY / COMMISSION

Question 2: Why have certain highly The Commission states that of the 12 competitive branches of the textile and proposals for aid notified in 1982 it clothing industry (carpets, woven-pile approved only four. In another four fabrics and chenille fabrics and terry cases its decision was only partially towelling) not been excluded from aid positive and approved only aid which granted under the plan? represented genuine investment in rc-

JUDGMENT OF 20. 3. 1984 — CASE 84/82

structuring. In the remaining four cases it rebate of 7 % may be granted for formally refused approval. five years.

(v) When the loan comes from the Question 3: Has the authorization, orig­ capital marked the aid consists inally restricted to one year, to solely in the interest rebate. A State implement the Belgian plan for re­ guarantee may in such cases be structuring been extended? granted to cover as much as 50 % of the funds obtained from the capital The Commission states that in a letter market. dated 10 March 1982 the Belgian Government informed it of a plan intended to supplement the scheme The conditions imposed for 1983 are approved for 1982 and to be proposed to more restrictive than those for 1982, the undertakings as an alternative. especially as regards :

On 18 May 1982 the Commission The total budget; decided to initiate the procedure laid down in Article 92 (2) of the Treaty with The terms of financing; regard to the alternative aid scheme (Official Journal 1982, C 166, p. 2). The choice of sectors.

On 9 February 1983 the Commission decided to authorize the implementation The Commission has moreover approved of the new plan subject to observance of transitional rules relating to the aid the following conditions, which the programme expiring on 31 December Belgian Government agreed to accept: 1982.

Question 4: Has the volume of exports Participation is effected by a contri­ of Belgian products to the other Member bution of capital from the Société States appreciably increased since the Nationale pour la Restructuration du implementation of the plan? Textile et de la Confection en Belgique, a subsidiary of the Société Nationale d'Investissement, a State financing The Commission cites figures from the agency. It represents normal company Statistical Office in Luxembourg to the capital and gives rise to the same return effect that Belgian exports of products of as private capital. the textile and clothing industry to other Member States increased in 1982 by 5.8% over the previous year. In the same In view of the fact that the ratio between period imports into Belgium from the the capital participation of the State other Member States increased by 5.7%. (45% at most of the total investment of the undertaking) and loans (30% at most) is 60 to 40 in the total budget in The Belgian balance of trade in textile the aid programme, it follows that the products with the other Member States budget fixed for participation in the thus improved only very slightly in 1982. capital of undertakings is a maximum of 60% of BFR 6 800 000 000, namely BFR 4 080 000 000. The necessary capital is Question 5: What is the proportion raised as follows: of State aid, restricted to BFR 6 800 000 000 in relation to the whole investment costs originally programmed Long-term borrowings by two bodies — over five years? the ITCB and the STCB — from private and public banks at market rates;

Since the loans are limited to a maximum In answer to the request by the Court to of 30 % of the total investment and enjoy forward the complete text of the re- a 7% reduction in interest for a structuring plan to which the contested maximum period of five years, the net decision of 18 November 1981 relates, in grant equivalent amounts to 4.2% of the the amended version resulting from the total investment. negotiations with the Belgian Govern­ ment, the Commission states that there is Since the total of such loans, including no single,- complete text-of the.definitive , ; the interest rebate, must not exceed the version of thé restructuring plan: · sum of BFR 2 720 000 000 (the total budget of 6 800 000 000 less the State holdings of 4 080 000 000) the interest The items making up the programme are rebate represents BFR 177 900 000. shown in documents before the Court, in particular the following :

Decision

. By an application lodged on 9 March 1982 the Government of the Federal Republic of Germany claimed that the Court should:

(i) Pursuant to the first paragraph of Article 173 of the EEC Treaty, declare the authorization, limited to a period of one year, given on 18 No­ vember 1981 by the Commission to the Government of the Kingdom of Belgium to implement the plan for restructuring the Belgian textile and clothing industry submitted to the Commission on 28 July 1980 to be void on the ground that it infringes the second sentence of Article 93 (3) and Article 92 (1) and (3) (c) of the Treaty;

(¡i) In the alternative, declare, pursuant to Article 175 of the Treaty, that the Commission has infringed Article 92 (1) and (3) and the second sentence of Article 93 (3) of the Treaty by failing to initiate the main review procedure referred to in Article 93 (2) and by failing to adopt a formal decision declaring the Belgian plan incompatible with the common market.

2 By letters dated 22 July and 11 August 1980 the Belgian Government notified the Commission of the general outline of a plan for restructuring the Belgian textile and clothing industry. The Commission treated that plan as

JUDGMENT OF 20. 3. 1984 — CASE 84/82

Infringement of the procedural rules

6 In the view of the German Government, the Commission was bound to initiate the procedure for the review of aid referred to in Article 93 (2) of the Treaty and could not, as it did, confine itself to the preliminary stage of review provided for in Article 93 (3).

GERMANY / COMMISSION

7 In support of that submission the German Government contends that the various steps in the preliminary examination conducted by the Commission and the terms of its declaration of 18 November 1981 show that it enter­ tained doubts about the compatibility of the scheme in question with the common market. In disregarding the obligation laid down in such a case by the second sentence of Article 93 (3) of the Treaty to initiate the procedure referred to in Article 93 (2) the Commission confused the object and nature of the two stages of the procedure for reviewing aid, excessively extended the period for the investigation which it could undertake in the preliminary stage and failed to fulfil its obligation under Article 93 (2) to consult the other Member States and the economic and social sectors concerned.

s The Commission argues as follows: According to Article 93 (3), it is necessaiy to initiate the main stage of the procedure only if at the end of the preliminary examination the plan notified is considered incompatible with the common market. However, the period within which it is required to carry out that examination begins to run only from the time when it is in a position to form a view on the plan notified, that is to say after it has obtained necessary supplementary information and established appropriate contacts with the Member State concerned capable, perhaps, of leading to the preparation of an amended aid scheme. However, the aforesaid period begins to run from notification of the plan if the Commission maintains silence.

11 Thus in judgments of 11 December 1973 (Case 120/73, Lorenz v Germany, [1973] ECR 1471; Case 121/73, Markmann v Germany, [1973] ECR 1495; Case 122/73, Nordsee v Germany, [1973] ECR 1511; and Case 141/73 Lohrey v Germany, [1973] ECR 1527) the Court recognized that the pre­ liminary stage of the procedure for reviewing aids under Article 93 (3) is intended merely to allow the Commission to form a prima facie opinion on the partial or complete conformity with the Treaty of the aid schemes notified to it. The purpose of that provision, which seeks to prevent the implementation of aid contrary to the Treaty, requires that the prohibition laid down in that respect by the last sentence of Article 93 (3) should be effective during the whole of the preliminary stage. Therefore the Commission must act with due expedition in order to take account of the interest of the Member States in obtaining clarification in cases in which there may be an urgent need to take action; otherwise, after the expiry of an appropriate period, which the Court set at two months, the Member State concerned may implement the measures in question after giving the Commission prior notice thereof.

i2 According to those same judgments, the Commission must inform the Member State concerned if, after the preliminary examination, it comes to the conclusion that the system of aid notified is compatible with the Treaty. If, after notification of a positive decision by the Commission, the aid in question is implemented it becomes as an "existing aid" and as such is subject to the constant review provided for in Article 93.(1). If, on the other hand, the Commission considers that the aid is not compatible with the common market it must without delay initiate the procedure provided for in Article 93 (2), which involves the obligation to give the parties concerned notice to submit their comments.

.5 In the second place, it must be pointed out that by reason of those very negotiations 16 months elapsed between notification of the plan and the favourable decision of the Commission; that well exceeds the period normally required for a preliminary examination under Article 93 (3).

.6 Finally, it must be observed that although the Commission ultimately agreed to recognize the amended Belgian plan as compatible with the common market, subject to compliance with the conditions laid down, it did not consider that all the difficulties raised by the case had been resolved. In the contested decision of 18 November 1981 the Commission stated that despite the important amendments made to the original plan it "remains very concerned about the effects which application of the plan may have on competition within the Community" and therefore restricted the duration of its application to a single year.

JUDGMENT OF 20. 3. 1984 — CASE 84/82

i7 The various factors referred to above lead to the conclusion that the Commission encountered serious difficulties in considering whether the plan for restructuring the Belgian textile and clothing industry notified to it on 28 July and 11 August 1980 was compatible with the Treaty. The Commission was therefore under an obligation to initiate the consultation procedure provided for in Article 93 (2) before taking its decision.

is Although it is true that the Commission kept the other Member States informed through multilateral meetings of the negotiations with the Belgian Government, it is clear from the argument before the Court that those consultations did not offer those concerned or the Commission itself the same guarantees and advantages which the formal consultations provided for in Article 93 (2) offer.

that it expected the Belgian plan for restructuring to be declared incompatible with the common market; it also contends that the letter of 7 January 1982 with which the Commission forwarded to the other Member States a copy of the letter sent on 18 November 1981 to the Belgian Government cannot be regarded as a definition of its position within the meaning of Article 175 of the Treaty.

23 The second paragraph of Article 175 provides that an action for failure to act shall be admissible only if the institution concerned has first been called upon to act . Although it is apparent from the documents before the Court that the German Government expressed the opinion that the Belgian plan was incompatible with the common market, it did not expressly call upon the Commission to act. The first condition required by Article 175 is therefore not satisfied.

24 Accordingly the alternative claim for a declaration that the Commission wrongfully failed to act is inadmissible and must be dismissed.

Costs

25 Pursuant to Article 69 (2) of the Rules of Procedure, the unsuccessful party 3 is to be ordered to pay the costs.

26 Since the defendant has been unsuccessful it must be ordered to pay the

3. Orders the Commission to pay the costs.

Mertens de Wilmars Koopmans Bahlmann

Galmot Pescatore Mackenzie Stuart O'Keeffe

Bosco Due Everling Kakouris

Delivered in open court in Luxembourg on 20 March 1984.

For the Registrar J. Mertens de Wilmars H. A. Rühi President Principal Administrator