C-103/83

JUDGMENT OF THE COURT (FIRST CHAMBER) 11 OCTOBER 1984 '

Union Sidérurgique du Nord et de l'Est de la France (Usinor) v Commission of the European Communities

(Steel — P r o d u c t i o n quotas)

Case 103/83

ECSC — Production — Steel production quota system — Undertakings referred to — Group of concentrated undertakings — Concept — Reference to Article 66 of the Treaty — Whether permissible — Entity to which quotas to be allocated — Undertaking which directs group's production activities (ECSC Treaty, Arts. 58, 66 and 80; General Decision No 1696/82, Art. 2 (4))

COMMISSION OF THE EUROPEAN COMMUNITIES, represented by Frank Benyon, a member of its Legal Department, acting as Agent, with an address for service in Luxembourg at the office of Oreste Montàlto, Jean Monnet Building, Kirchberg, défendant,

APPLICATION for a declaration that the Commission's refusal to increase the applicant's quota in respect of products in Category V and Category Id for the second quarter of 1983 is void,

T H E C O U R T (First Chamber)

composed of: Lord Mackenzie Stuart, President, G. Bosco (President of Chamber) and T. Koopmans, Judge,

Advocate General : Sir Gordon Slynn Registrar: H. A. Rühi, Principal Administrator

gives the following

allocated to its group of undertakings for 950/83 and by allocating to the the second quarter of 1983. applicant, pursuant to that general decision, quotas which are insufficient By Decision N o 950/83/ECSC of for it to meet the demand, which 20 April 1983 (Official Journal L 104, has considerably increased owing to p. 19), the Commission amended the profound changes which have oc- rates of abatement for the second quarter curred in the market. of 1983. Consequently, the Commission informed the applicant of the new production and delivery quotas for the The Commission contends that the Court second quarter of 1983. should: Dismiss as unfounded the application for The applicant brought an action against a declaration that the decision is void; that decision by an application received at the Court Registry on 3 June 1983. Order the applicant to pay the costs. The written procedure followed the normal course. Upon hearing the report of the Judge Rapporteur and the views Ill — Submissions and argu- of the Advocate General, the Court m e n t s of t h e p a r t i e s decided to assign the case to the First Chamber without any preparatory in- A — Products in Category V quiry. The products in Category V in question are reinforcing bars produced by a subsidiary of the applicant, Alpa. II — C o n c l u s i o n s of t h e p a r t i e s According to the applicant, the Commission wrongly notified Usinor of The applicant claims that the Com- quotas intended for Alpa, which mission decision of 27 April 1983 should constitutes a distinct legal person within be declared void : the meaning of Article 80 of the ECSC Treaty and an independent economic 1. Inasmuch as it notifies Usinor of unit within the Usinor group. That quotas for the products in Category V separate company within the Usinor whereas such notification should have group is the only undertaking in the been addressed to another under- group which manufactures reinforcing taking; bars. By a letter of 23 February 1983, Alpa asked the Commission to be 2. Inasmuch as, even if the Commission allowed to benefit from the adjustment considered that the notification provided for in Article 14 of Decision should have been addressed to the No 1696/82 for the first quarter of 1983. applicant, it should have treated the No reply was received to that letter. Alpa company Alpa as a separate under- made the same request for the second taking for the purposes of Article 80 quarter of 1983 in a letter dated 26 May of the ECSC Treaty and should have 1983. adjusted its quotas for the products in Category V pursuant to the provisions Article 14 of Decision No 1696/82, in of the third indent of Article 14 of the form in which it was in force in Decision N o 1696/82/ECSC; and 1983, provides for the possibility of an 3. Inasmuch as the Commission has adjustment of quotas in the case of failed to fulfil its obligations by fixing Category V if: at too low a level the positive rates of Total production of the products listed abatement applied to products in in Article 1 did not exceed 700 000 Category Id in general Decision No tonnes in 1981;

The abatement rate for Category V exceeded 40%. The same is true as regards Community law, in which the concept of an under- taking is defined by Article 80 of the Alpa, which produces only reinforcing ECSC Treaty. Thé applicant relies on bars, meets the conditions laid down the definition of an undertaking and of by the aforementioned Article 14. The the difference between an undertaking applicant, on the other hand, cannot take and the group to which it belongs, laid advantage of that possibility of obtaining down by the Court in its judgments of an adjustment because its total pro- 22 March 1961 (Joined Cases 42 and duction in 1981 of the products referred 52/59 SNUPATv High Authority [1961] to in Article 1 of the decision is greater ECR 53) and of 13 July 1962 Qoined than the limit of 700 000 tonnes. Cases 17 and 20/61 Klòckner and Hoesch v High Authority [1962] ECR 325). The Court decided that the concept of an undertaking for the purpose of the Article 14 is intended to help small Treaty may be identified with that of a undertakings and undertakings special- natural or legal person. ALPA should izing in products in Categories IV, V therefore be regarded as an independent and VI, to cope with the exceptional undertaking on account of the total difficulties they are likely to face because absence of economic or technical links of the high rates of abatament laid down with the Usinor group. for those products. The rates of abatement for products in Category V reached 43.% _and_ 50% during, the second quarter of 1983. Alpa, the only The applicant contests the legality of company in the Usinor group established Article 2 (4) of Decision No 1696/82 in the Paris region and the only company according to which a group of under- in the group manufacturing reinforcing takings which are concentrated within bars, was obliged to lay off staff for at the meaning of Article 66 of the ECSC least four weeks during the first two Treaty are to be regarded as a single quarters of 1983. Those employees undertaking. The Commission cannot cannot be transferred to another under- apply the definition of a group of under- taking in the group and the undertaking takings, laid down by the Treaty in the has since been operating at a loss. context of the rules governing mergers and concentrations, to situations other than those referred to in Article 66 and Alpa meets all the conditions laid down thereby ignore the provisions of the in Article 14. Apart from its specialized Treaty and the case-law of the Court. In production, Alpa is a legal person. It has that connection, the Court emphasized,

A concentration of undertakings is Since the undertakings retain their legal identified by the fact that one or more personality, they have, according to the undertakings are under the control of applicant, rights and obligations under another undertaking. Control implies the Community law, including the right to possibility of influencing the decisions of seek an adjustment of the references for another undertaking in industrial and Category V (reinforcing bars) under the commercial matters. It is necessary, in third indent of Article 14 of Decision No order to ensure that the system of quotas 1696/82. The refusal to regard Alpa as is effective, that the person who is in a an undertaking within the meaning of position to determine the undertaking's Article 80 amounts to discrimination as production operations be the one who is between Alpa, the subsidiary of Usinor, subject to the system. and the other single-product under- takings, which are entitled to an ad- justment. Laying down production quotas for each individual undertaking would call in question the rights of the undertaking The Commission considers that it is not which has obtained control of the contested that Alpa is concentrated with concentrated undertakings and would the Usinor group within the meaning thus breach the principle laid down in of Article 66 of the Treaty. The Article 66 of the ECSC Treaty that Commission accepts that Alpa is an concentrations of undertakings are undertaking within the meaning of lawful. In fact, fixing a single production Article 80 of the Treaty. quota for the whole of the group makes the system much more flexible. The production effected during the reference period is added up for all the under- The question is whether or not the takings which compose the group. The provision in Article 2 (4) that "for the group may however share out the purposes of this decision, any group of production quotas so fixed as it sees fit concentrated undertakings . . . shall be between the various undertakings. The regarded as a single undertaking . . .", is group thus has a considerable advantage unlawful. compared to an individual undertaking which can only modify or increase, by exchange or by purchase, the quotas The Commission points out that the which have been allocated to it. Decision Treaty gives the Commission wide No 1696/82 thus takes account of an discretionary powers in regard to the essential objective which the estab- establishment of a system of production lishment of a concentration between quotas. The Commission must exercise undertakings was designed to meet,

In its reply, the applicant emphasizes that The Commission points out that in spite it contests the third paragraph of Article of the fact that Alpa contributed about 14 to the extent to which it discriminates 55% of the reference production taken between undertakings according to their into account in connection with the first size, which, it contends, is contrary to system of quotas, whilst the other under- Article 4 (d), a fundamental provision of takings in the Usinor group contributed the Treaty. The extension of the 4 5 % , Alpa contributed 9 3 % of the definition of a group of undertakings, production under the system established laid down by the Treaty in the context of by Decision No 1696/82, and the Usinor the rules on mergers and concentrations group's annual report for 1982 refers to to situations other than those referred to the complete transfer of the manufacture in Article 66 leads to arbitrary results of reinforcing bars within the group to and discriminates against certain under- Alpa. The Usinor group was thus able to takings without any real economic justi- take advantage of the considerable fication other than the desire to unify the flexibility of the system by concentrating system of allocating quotas. the production of reinforcing bars on that subsidiary. Moreover, it cannot be said that Alpa has experienced exceptional difficulties when the annual The Commission attempts to demon- report shows that in 1982 that subsidiary strate that the criterion applied by Article obtained good results, which were better 2 (4) of Decision No 1696/82 is than those of earlier years. The quotas in objective, in the sense that a group of respect of Category V for the second undertakings has greater flexibility in quarter of 1983, 141 129 tonnes, give a sharing out the quotas allocated as

The parent company, Usinor, has progressively ceased production of re- inforcing bars at the· seven production According to the Court's case-law, the centres distributed among its former Commission must apply Article 58 of the plants and has concentrated the group's ECSC Treaty in a way which has no activities in Category V on Alpa. Since effect on competition, and without none of the applicant's other subsidiaries according a privileged position to certain produce reinforcing bars, it does not undertakings compared to others which have any room for manoeuvre to transfer are in a similar position on the mar- either quotas in respect of Category V or ket. Modernization and restructuring Alpa's staff. Contrary to what the measures should not penalize the under- Commission appears to believe, Alpa takings which have effected them but is totally independent of the parent should rather be to their advantage. The company as regards obtaining supplies of rules providing for exceptions to the scrap, and selling is carried on by Alpa in general system of quotas should be complete independence, the effect of drawn up in the light of the general which is that the company is in the same objectives of the Treaty. situation, in economic terms, as an undertaking which has not been inte- grated. The applicant draws attention to the fact that Alpa produces only one The Court of Justice has accepted the product and that its plant will not enable system of quotas calculated in the light it to produce anything other than of reference production because it reinforcing bars. considered that it did not alter the structure of the market. "It enables total production to be reduced without altering the positions of the undertakings on the market as between each other" The effect of the system established by (judgment of 3. 3. 1982, Case 14/81 the Commission is that two undertakings Alpha Steel v Commission [1982] ECR working under similar conditions are 749; judgment of 16. 2. 1982, Joined treated differently. The fact that Cases 39, 43, 85 and 88/81 Halyvourgiki adjustments are granted to small, v Commission [1982] ECR 593). independent undertakings, and that this possibility is denied to integrated under- takings, operating under the same conditions as an independent under- Even though the Court considered that taking, inevitably entails structural Article 14 of Decision No 2794/80, changes in the sector in question. With which provided for an individual the help of adjustments to their quotas, exception allowing the Commission, at

The Commission contends that, in its The applicant emphasizes that an reply, Usinor introduced an entirely new adjustment of the share allocated to submission by claiming that the third certain undertakings entails a corre- indent of Article 14 was unlawful sponding reduction of the share allocated because it excluded undertakings whose to othersr That distortion of production production was above à certain level. Oh may be clearly seen in a table annexed to page 23 of the reply, it claimed that the the reply as well as in the published individual decision should be declared market forecasts and in the allocation of void because it was based on the third quotas. As a result of the adjustments indent of Article 14 of Decision No made by the Commission, Usinor's share 1696/82, the lawfulness of which was of the total quota was reduced from contested. Since, according to Article 42 2.54% of the provisional quota to 2.40% (2) of the Rules of Procedure of the of the definitive quota for the second Court, no fresh issue may be raised in quarter of 1983. Usinor's share of the the course of proceedings, the Com- total quota in Category V has declined mission asks the Court to reject the new continuously, quarter after quarter, as a submission as inadmissible. result of the allocation of supplementary quotas to competing, non-integrated undertakings, as may be seen from the table in Annex 7. Usinor's share went The Commission considers, moreover, from 2.8% for the fourth quarter of that the contested decision was not taken

USINOR v COMMISSION

The very terms of Article 58 allow the Com- mission to ensure a fair distribution of The Commission also points out that the the burdens which must be borne if those system of quotas is not designed to enterprises which are most seriously ensure a profitable level of utilization affected are to be maintained in of the installations of undertakings existence. A system of adjusting quotas, concerned (judgment of 11. 5. 1983, limited to certain undertakings, is an Case 244/81, Klöckner- Werke v Com- appropriate means to that end. The mission [1983] ECR 1451, in particular, Court of Justice has accepted that certain paragraph 27). modifications of market structures are in no way contrary to Article 58 of the Treaty in so far as it has accepted the In the alternative, if the Court regards legality of provisions providing for the submission alleging the illegality of adjustments in reference production (see the third indent of Article 14 of Decision the Krupp case [1981] ECR 2489, and No 1696/82 as admissible, the Com- Alpha Sree/[1982] ECR 749). mission considers that it is without foun-

That process the decisions regarding possible ad- does not allow them to manufacture any justments would depend purely on the other steel product. legal form of the undertaking in question. If Alpa were a separate company, but part of a group, it would receive individual quotas and would be The Commission contends that the the subject of separate decisions of reduction in the rates of abatement, adjustment. If a unit similar to ALPA applied to small and . medium-sized were no more than a distinct factory single-product undertakings by Decision belonging to a single legal unit, it would No 533/82, was not discriminatory and not be allocated separate quotas. was proportionate to the objective of giving all undertakings a chance to survive.

JUDGMENT OF 11. 10. 1984 — CASE 103/83

Commission Decision No 950/83/ECSC The product's resistance to corrosion of 20 April 1983 (Official Journal L 104, explains why it is being increasingly used p. 19) fixing the amended rates of in the motor industry. abatement for the second quarter of 1983, is insufficient.

According to the applicant, there has been a shift in demand from products in Category lb, cold-rolled sheet, to The Commission indicates that it took a hot-dip galvanized sheet covered by decision on 8 June 1983 (Decision No Category Id, such as monogal. 1619/83/ECSC, Official Journal L 159,

USINOR v COMMISSION

the earliest, on Monday 20 June, that is orize a partial transfer to Category Id to say, 10 days before the end of the of the production quotas in respect of second quater of 1983, and at a time Category lb and/or Ic and of the part of at which the applicant had already these quotas which may be delivered in produced at least 90% of its production the common market to the extent that quotas for that quarter and when this does not interfere with the working shortage of time made it totally im- of the system."

The Commission should have provided for a tonne by tonne transfer of reference quantities from lb The applicant considers that the or Ic or both to Id and not a transfer of possibility of transferring quotas from quotas. Only a transfer of reference Categories lb or Ic or both permitted by production makes it possible to take Article 17a of Decision No 1696/82 is account fairly of the market structures not of such a nature as to cure the because the adjustment of the volume of illegality either of Decision No 950/83, production to demand is carried out by or of the individual decision notified to it means of the abatement rates.

The applicant gives an example, sup- abatement rates resulting are therefore ported by figures, of the effects of the determined in an entirely objective present system and compares it with the fashion. When a motor manufacturer figures which would result from the decides to use a hot-dip galvanized sheet system which it proposes. rather than an ordinary one, he does not use more steel. The Commission's decision must be regarded as perfectly logical in the sense that it allows a tonne The Commission denies that Decision No by tonne transfer from one category to 1619/83 was adopted at a late stage. the other. Before acting, it had to ascertain whether there was a general problem justifying an adjustment on the basis of Article 18(1) of the Article 18 (1) of the decision. The transfer of reference production Usinor's complaints in November 1982 proposed by Usinor from Category lb were not sufficient for that purpose. (abatement rate 30%) to Category Id (positive rate plus 40%) would entail a doubling of the resulting quota (140 tonnes instead of 70 tonnes). Usinor is Study of the market in question was very not seeking to overcome the problem by difficult because the products covered by shifting consumption from one category Category Id are very diverse. That to another but is rather seeking a category includes sheet with organic considerable increase in its quotas by coating for removable partitions, and artificial means. prepainted sheet for office furniture and household appliances. The consumers and : markets for which those products The Commission also contests the are intended are also very different. Very proposition that the rates of abatement few statistics giving satisfactory infor- were too strict or that the Commission mation were available. Moreover, the should have acted earlier since the Commission contacted Usinor by production of all the undertakings in the telephone as soon as it had taken its Community in respect of Category Id for decision. the first and second quarters of 1983 was less than the overall quotas by 59 734 tonnes (or 9.05%) and 99 370 tonnes (or According to the Commission, there is a 13.34%) respectively. close link between products in Category lb and those in Category Id. The product, though more refined, is basically the same, namely, sheet steel. It is not clear why a motor manufacturer IV — Oral p r o c e d u r e should require two sheets of Category Id steel for the body of the car instead of one sheet of Category lb steel. At the sitting on 23 February 1984, oral argument was presented by L. Funck- Brentano, for Usinor, and F. Benyon, for Usinor's theoretical example is com- the Commission. pletely artificial. The Commission proposes to take a real example. The estimate of total consumption is determined on the basis of discussions The Advocate General delivered his with all the interested parties and the opinion at the sitting on 5 April 1984.

4 According to Article 2 (4) of Decision N o 1696/82/ECSC of 30 June 1982 (Official Journal L 191, p. 1), "any group of concentrated undertakings within the meaning of Article 66 of the Treaty shall be regarded as a single undertaking" for the purposes of that decision. By letter of 27 April 1983 which is at the origin of these proceedings, the Commission, considering that Article 2 (4) of Decision N o 1696/82 applied to the Usinor group as such, allocated an aggregate quota to the latter without breaking it down between the various subsidiaries of the group.

s The applicant considers on the other hand that any decision allocating quotas in regard to products in Category V should be directly addressed to

JUDGMENT OF 11. 10. 1984 — CASE 103/83

its subsidiary Alpa and contends in that regard that the Commission's decision is based on two unlawful provisions, namely, Article ¿ (*) of Decision No 1696/82 which wrongly permits assimilation of a subsidiary to the group of which it is a part and Article 14 of the same decision which, by allowing only the group itself, in the case of concentrated undertakings, the chance to have its quotas adjusted, constitutes discrimination as between undertakings forming part of such a group and those which are independent.

6 The applicant is thus primarily contesting the legality of Article 2 (4) of Decision N o 1696/82 on the ground that the Commission is neither entitled to operate on the basis of the definition of a group of undertakings laid down in the Treaty in the context of the rules on mergers and concentrations in situations other than those referred to in Article 66 of the ECSC Ireaty nor thus to ignore the definition of an undertaking laid down in Article 80 oí the ECSC Treaty. The applicant points out that the concept of an under- taking within the meaning of the Treaty is to be identified with that o t a natural or legal person Gudgment of 22. 3. 1961, Joined Cases 42 and 49/59 SNUPATv High Authority [1961] ECR 53).

io It is not disputed in that regard that the Usinor group, whose production is more than 700 000 tonnes, cannot have the benefit of an adjustment of its reference production for products in Category V. On the other hand, its subsidiary, Alpa, considered that it met all the conditions laid down by Article 14 and therefore applied, by registered letter of 26 May 1983, to be allowed to benefit from that provision. However, the Commission rejected that application on the ground that Alpa was a concentrated undertaking within the Usinor group, which was the sole addressee of the quotas and which was consequently the only person entitled to apply to have the provisions of Decision No 1696/82 applied to it.

n According to the applicant, the defendant thus created unlawful discrimi- nation between concentrated undertakings and independent undertakings by not taking account of Alpa's specific situation on the sole ground that it was a subsidiary of Usinor.

1 2 That second part of the first submission must also be rejected. This application is not concerned with the decision taken by the Commission on the application made by Alpa on 26 May 1983 but solely with the Commission's decision of 27 April 1983 allocating quotas to the Usinor group. It should also be pointed out that when the decision was taken, no application for an adjustment of quota had been made either by the applicant

JUDGMENT OF 11. 10. 1984 — CASE 103/83

or by Alpa. The Commission cannot therefore be criticized for not having made an adjustment at that time. As regards Alpa's situation, the Court refers to the considerations set out in its judgment of the same date in Case 151/83 (Alpav Commission [1984] ECR 3519).

H That submission must be rejected. In so far as the increase in demand for products in Category Id w a s c h e result, of a reduction in_the. demand for those in Category Id, was the result of a reduction in the demand for those in Category lb, the Commission was entitled to consider that it was not appropriate merely to adjust the quotas laid down for products in Category Id, without providing for a simultaneous reduction in the quotas laid down for products in Category lb. However, such machinery could· be established only by a special decision of the Commission, taken after a thorough study of actual market trends and after consultation with industry, it should be pointed out in that connection that the Commission, by Decision No 1619/83 of 8 June 1983 (Official Journal L 159, p. 56), inserted a new article (Article 17a) in Decision N o 1696/82, allowing it to grant a partial transfer to Category Id of production and delivery quotas for Category lb or Ic where an undertaking shows that this is necessary and in so far as such a transfer does not interfere with the working of the system. Even though that decision was adopted roughly a year and a half after the industry had drawn

USINOR v COMMISSION

the attention of the Commission to the early difficulties encountered in regard to products in Category Id, the intervening period cannot be regarded as excessive, regard being had to all the factor known to the Court.

Costs

is Under the terms of Article 69 (2) of the Rules of Procedure the unsuccessful party is to be ordered to pay the costs. Since the applicant has failed in its submissions, it must be ordered to pay the costs.

Delivered in open court in Luxembourg on 11 October 1984.

For the Registrar

D. Louterman G. Bosco Administrator President of the First Chamber