C-130/83

J U D G M E N T OF T H E COURT 11 JULY 1984'

Commission of the European Communities v Italian Republic

(Aids granted in Sicily in the wine and fruit and vegetable sectors)

Case 130/83

Aid granted by States — Commission decision declaring aid incompatible with the Common Market — Obligation of the Member State concerned (EEC Treaty, Arts 92 and 93)

Where a formal decision has been the prescribed period, by taking the adopted by the Commission declaring measures necessary to ensure the formal aid granted by a State to be incompatible repeal of the provisions found by the with the Common Market, the Member Commission to be contrary to the State concerned is under an obligation to requirements of Article 92 of the EEC give effect to the decision within Treaty.

composed of: Lord Mackenzie Stuart, President, T. Koopmans and K. Bahlmann (Presidents of Chambers), P. Pescatore, A. O'Keeffe, G. Bosco and O. Due, Judges,

Advocate General : P. VerLoren van Themaat Registrar: H. A. Rühi, Principal Administrator

gives the following

JUDGMENT

Facts and Issues

The facts of the case, the course of On 8 April 1981 the Italian Government the procedure and the conclusions, notified to the Commission the final text submissions and arguments of the parties of the bill approved by the regional may be summarized as follows : assembly.

Article 2 of the Law provides, with a view to attaining the objectives referred Following a preliminary examination of to in Article 25 of Regional Law No Law No 16/81, the Commission came to 36/76, for an increase of LIT 5 000 the view that the subsidy of LIT 1 000 million in the 1981 operating fund of the per 100 kg provided for in Article 1 and Istituto Regionale di Credito alla the aid for grape collection provided for Cooperazione (Ircac) [Regional Board in Article 13 infringed the rules of the for Credit to Cooperatives]. common organization of the market in wine and accordingly could not be justified under Article 92 (3) of the Treaty and must therefore be regarded as incompatible with the Common The measures provided for in Article 25 Market. of Regional Law No 36/76 consist inter alia in the granting of medium-term loans at low rates of interest to second- tier and third-tier syndicates of wine cooperatives in order to finance the The Commission also considered that the distillation of wine, the processing of by- granting of loans at low rates of interest products of wine-making, the production provided for in Article 2 of Law N o and bottling of table wines and quality 16/81 infringed the rules of the common wines produced in specified regions organization of the market in wine; it (vqprd). Provision is also made for the also considered that the other aids for granting of operating loans. syndicates, with the exception of aid in the form of operating loans, amounted to operating subsidies which did not lead to lasting improvement and could not therefore qualify for exemption under Article 7 of Law No 16/81 provides, in Article 92 (3) of the Treaty. particular in application of Article 19 of Regional Law No 14/68 of 6 June 1968, for the granting, to groups of producers and cooperatives and associations In the Commission's opinion, Article 7 of thereof, of subsidies of up to 90% of Law No 16/81, if applied in conjunction expenditure on preserving, processing, with Community aid, in particular aid distributing and selling fruit and to associations of fruit and vegetable vegetables, including citrus fruit, in producers, infringes the provisions of respect of the 1980/1981 marketing year. Regulation (EEC) No 1035/72; even if

that measure does not infringe the (c) The measures laid down in Article 2 provisions of the common organization stemmed from the need to launch of the market in fruit and vegetables, it cooperatives and such measures did constitutes an operating subsidy for not directly concern wine distillation cooperatives and syndicates thereof operations, which remained subject which does not contribute to structural to Community rules. improvement in the sector concerned. The aid cannot therefore, in the Com- mission's view, qualify for exemption (d) The measure referred to in Article 7 under Article 92 (3) of the Treaty. was intended to wipe out debts arising from investment by newly created associations of producers By a letter of 31 July 1981, the with a view to achieving structural Commission initiated the procedure improvements in production. provided for in Article 93 (2) of the Treaty against the Government of the Italian Republic in respect of the measures in question, with the exception After inviting those concerned, including of the operating loans. the other Member States, to submit their comments, the Commission adopted The Italian Government submitted its Decision No 82/401 of 5 May 1982 observations in a telex message of 5 concerning aid granted in Sicily in the October 1981; further information was wine and fruit and vegetables sectors given to the Commission in a telex (Official Journal 1982, No L 173, p. 20); message from the Italian Permanent that decision was notified to the Italian Representation of 5 October 1981, at a Government by a letter from the meeting between the parties on 10 and Commission dated 10 June 1982. 11 December 1981 and in a telex message from the Italian Permanent Representation of 12 February 1982. In the decision, the Commission puts forward essentially the following con- siderations: The observations submitted by the Italian Government in response to the Com- mission's letter may be summarized as (a) The subsidy of LIT 1 000 per 100 follows: kg of grapes delivered to cooperatives under Article 1 of Law No 16/81, the (a) The subsidy of LIT 1 000 per 100 kg subsidy for collection of grapes at provided for in Article 1 of Law No cooperatives under Article 13 of the Law 16/81 was applicable in 1980 only and the medium-term loans at low rates and, in future, the region would of interest for distillation of wines, move towards structural measures processing of wine by-products and intended to prevent surplus pro- production and bottling of table wines duction. and quality wines produced in specified regions under Article 2 of the Law have (b) The aid provided for in Article 13 a direct impact on the price of wine and was intended to finance the op- the by-products of wine-making since eration of the Istituto Regionale di they reduce the cost of the basic Credito alla Cooperazione and was products and the costs of processing and not used for encouraging collection packing. Accordingly, such measures, of grapes at wine-making co- which constitute an addition to the operatives. subsidies provided for under the com-

Those loans, which are in addition to all the other measures provided for in Law (b) The subsidy for members of wine No 16/81 and other regional laws in the cooperatives provided for in Article 1 of wine sector, are likely to affect trade Law No 16/81 was applied in respect of within the Community and to distort a major share of Sicily's production of competition in that they give Sicilian grapes — about one million tonnes out wine-growers an advantage over wine- of 1.4 million tonnes in 1980; it is growers in other Member States who equivalent to about 5 to 8% of the value wish to export to Italy but do not receive of the grapes delivered to cooperatives any aid. and about 4 to 7% of the cost of wine produced by the latter. That subsidy, and also the aid for grape collection under Article 13 of the Law, constituted an (d) The same arguments also apply as artificial incentive to increasing or at any regards the aid granted under Article 7 rate maintaining at their present level the to associations of producers, co- production of grapes intended for wine- operatives and syndicates thereof making and thus increased the quantity engaged in the marketing of fruit and of wine produced in Sicily. Moreover, vegetables. such aid may well have induced members of cooperatives to dispose of their produce at prices below those which would have applied in the absence of (e) The grounds put forward by the such intervention by the public auth- Italian Government were not regarded as orities; the cooperatives were thus able acceptable by the Commission. to offer wine at lower prices. If that was indeed the case, the measure in question is likely to affect trade within the Community and distort competition, (i) The aid provided for in Article 1 of since it gives Sicilian wine cooperatives Law N o 16/81 does not cease to be an advantage over producers in other incompatible with the common Member States who wish to export to organization of the market in wine Italy but do not receive similar aid. by virtue of the fact that it was granted for one year only, namely 1980.

There will be no lasting change in the situation of Sicily or of the products (iv) With regard to Article 7, no concerned after the aid has ceased. mention has been made of any regional provision proving that the amount allocated under that article may have been used, or indeed has been used, to facilitate investment Such aid does not constitute an imr by newly created cooperatives. portant project of common European interest or a measure to remedy a serious disturbance in Italy's economy; ac- cordingly, Article 92 (3) (b) of the Treaty is not applicable. (f) The measures in question therefore fall within the terms of Article 92 (1) of the Treaty and are incompatible with the Common Market. The provisions contained in paragraph (3) of that article Moreover, such aid constitutes operating must be interpreted strictly when any aid for the farmers concerned; the national or regional measure is con- Commission has always opposed such sidered; in particular, an exemption may aid since it does not meet the be granted only if the Commission is requirements for exemption under Article able to establish that the aid is necessary 92 (3) (c) of the Treaty, being too for the purpose of achieving one of the ineffective to facilitate development as objectives laid down in those provisions. laid down in the said provision. To grant exemptions in the case of aid which does not meet those conditions would be tantamount to allowing an adverse effect on trade between Member States, a distortion of competition not In view of the situation on the markets in justified from the Community's point of wine and in fruit and vegetables even a view and, by the. same token, an small amount of aid will adversely affect unjustified advantage for certain trading conditions to an extent contrary Member States. to the common interest.

Accordingly, the Commission sees no since there are doubts as to the grounds for allowing any of the compatibility of the aid in question with exemptions under Article 92 (3) of the the common organization of the markets Treaty to apply to the measures in and with the competition rules. The question. Even if it' had been possible to provisions in question have, however, consider an exemption under Anicie 92 never been implemented and in fact (3), such an exemption would not have should be regarded as having lapsed, been possible in view of the infringement since the relevant appropriations were of the common organization of the markets in wine and in fruit and not incorporated in the 1982 budget.' vegetables constituted by Article 1 of Law No 16/81 (with regard to the subsidy of LIT 1 000), Articles 13 and 2 (with regard to the aid for distillation, processing and bottling) and by Article 7 (in the event of its being applied in (b) The loans at low rates of interest conjunction with Community aid). granted to cooperative associations (syndicates) in order to improve wine products do not constitute an aid additional to the Community aid for wine distillation and the processing of by-products of wine-making but merely Article 1 of the Commission decision a normal agricultural credit operation states that the aid under Articles 1, 2, 13 intended to make loans available to and 7 of Sicilian Regional Law No associations concerned with the treat- 16/81 must no longer be granted and ment, processing and marketing of the that the provisions in question must be product. The aid is not intended to amended so that the aid is abolished. reduce the costs of processing but to enable the associations to obtain funds to undertake and complete the processing. Without such a regional measure, the associations would be obliged to have Article 2 orders the Italian Republic to recourse to the ordinary capital market adopt the necessary measures to comply and would have to bear high and unac- with the decision within a period of one ceptable charges, the interest rate being month from notification thereof and to around 30%. The associations in question are of recent creation and are inform the Commission of the adoption intended to achieve concentration of of such measures without delay. supply and uniformity of production, objectives which are considered fundamental to the common agricultural policy. By a telex message sent to the Commission on 11 October 1982 the Government of the Italian Republic stated as follows:

to that body in advance on the basis of have substantially complied with the the quantity of grapes delivered to the Commission decision, should: Sicilian wine cooperatives during the previous wine year is of no importance (a) Dismiss the application; except for the fact that it provides a yardstick for calculating the advance (b) In the alternative, declare that the paid by the regional authorities at the action has become devoid of pur- beginning of the financial year. The aid pose. does not constitute a direct subsidy for the grapes delivered or, therefore, a The written procedure followed the direct production aid, the payment of normal course. which is prohibited by the Community rules for that sector. Moreover, the Upon hearing the report of the Judge- Commission has acknowledged that the Rapporteur and the views of the activities of thé Istituto regarding market Advocate General, the Court decided to surveys, technical assistance, scientific open the oral procedure without any research and promotion campaigns are preparatory inquiry. wholly legitimate. The Commission was invited to explain at the hearing the meaning of the I I — W r i t t e n p r o c e d u r e and con- reference, in the preamble to its decision, c l u s i o n s of t h e p a r t i e s to Article 24 of Regulation No 804/68 of the Council of 27 June 1968 on the common organization of the market in By an application lodged on 8 July 1983 milk and milk products; the Government the Commission brought an action of the Italian Republic was invited to before the Court under the second state at the hearing whether it had been subparagraph of Article 93 (2) of the possible to make progress towards full EEC Treaty against the Italian Republic implementation of the Commission for a declaration that it had failed to decision since the conclusion of the fulfil its obligations under the Treaty by written procedure. not complying with the decision of 5 May 1982.

The fact that, according to the Italian The Government of the Italian Republic Government, the aid has not been paid considers that it has substantially com- because of the absence of budget appro- plied with the Commission's decision. priations is irrelevant.

The fact that application of the (a) The subsidies and aid provided for provisions in question was limited to the in Articles 1 and 7 of Regional Law No 1980 wine harvest or to the 1980/81 16/81 have not been paid; the rules marketing year does not mean that the creating them have not been applied and Commission's decision can be regarded could not be applied in the future owing as having been implemented. The repeal to the absence of the relevant appro- of the legislative provisions creating aid priations. Since the rules are temporary, which is incompatible with the Common it is unnecessary to repeal them; Market would exclude any legal nevertheless, the Italian Government has possibility of payments being made; if invited the authorities in the Sicilian the provisions are not repealed, it.will region formally to repeal them in order still be possible to grant such aid at a to eliminate any grounds for litigation. later stage.

Cooperazione by LIT 5 000 million has Fiumara, presented oral argument at the not been criticized; all that has been sitting on 8 May 1984. criticized is the possibility that that sum In reply to the question put to it by the might bė used for the granting of Court, the Commission stated that the medium-term loans to associations for reference, in the preamble to its decision certain activities designed to improve the of 5 May 1982, to Article 24 of Regu­ quality of wine products, whilst the lation N o 804/68 of the Council was granting of operating credits to those justified by the fact that that provision associations by the same organization is enshrines the principle, which is equally authorized. In fact, the medium-term valid in sectors other than that of milk loans in question have not been granted, and milk products, whereby it is with the result that, on this point also, forbidden to grant aid whose amount is there has been no substantial failure to determined on the basis of the price of comply with the Commission's decision. the products for which it is granted. In any case, the measure in question was not implemented subsequently, being The Government of the Italian Republic valid only for the 1981 financial year. informed the Court that the provisions contested by the Commission had not yet, despite its approaches to the Sicilian IV — Oral procedure regional authorities, been formally repealed by the latter. The Commission, represented by Mr Marenco, and the Government of the The Advocate General delivered his Italian Republic, represented by Mr opinion at the sitting on 6 June 1984.

4 As regards Article 13 of Law N o 16/81, supplementing Article 7 of Regional Law No 47/80, on the granting of aid to the Istituto Regionale della Vite e del Vino [Regional Wine and Wine-growing Board], the Italian Government draws attention to a misunderstanding in the Commission's decision. According to the fifth and ninth recitals in the preamble to the decision, and the second paragraph of Article 1 thereof, the aid in question was intended to encourage "the collection of grapes at wine cooperatives". However, it is apparent from consideration of the above-mentioned legislation that the aid in question was granted to the Istituto Regionale in order to enable it to carry out the tasks entrusted to it, that is to say its general activities in favour of wine-growing, and the quantity of grapes collected is merely a yardstick for calculating the amount of the subsidy.

5 For its part, the Commission considers that, even if the aid was not in fact paid, the risk nevertheless remains that it may be paid subsequently and it is therefore desirable for the provisions of the regional legislation referred to in the decision to be formally repealed.

6 As regards the subsidies granted to the Istituto Regionale della Vite e del Vino, the Commission submits that the Italian Government's argument is intended to challenge the decision of 5 May 1982, which it did not contest within the prescribed period and which has therefore become final. Hence

JUDGMENT OF 11. 7. 1984 — CASE 130/83

the Commission considers that argument to be inadmissible in these proceedings.

COMMISSION v ITALY

On those grounds,

THE COURT

hereby rules:

1. By not complying within the prescribed period with Commission Decision 82/401/EEC of 5 May 1982 concerning aid granted in Sicily in the wine and fruit and vegetable sectors (Official Journal 1982, L 173, p. 20), the Italian Republic has failed to fulfil its obligations under the EEC Treaty.

2. The Italian Republic is ordered to pay the costs.