C-301/87

OPINION OF MR JACOBS —CASE C-301/87

O P I N I O N OF M R A D V O C A T E GENERAL JACOBS delivered on 4 O c t o b e r 1989 *

My Lords, total employment in the industry, were lost between 1975 and 1985.

* Original language: English.

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6. By a further telex of 12 July 1984, the Commission asked for a list of all measures taken by IDI for the benefit of Boussac 8. The Commission requested further infor- since December 1981, the date on which, mation on 14 March 1985 and, receiving no

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The decision 10. On 8 December 1986, the then Prime Minister of France, Mr Chirac, wrote to the President of the Commission, Mr Delors, suggesting that there were still misunderstandings and divergencies between the two sides as to the exact amount and the 12. The Commission was not persuaded, purpose of the aid provided and suggesting and on 15 July 1987 it adopted the that a further examination would lead to a contested decision, finding that the

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14. By application lodged at the Court on 4 October 1987, the French Republic seeks annulment of that decision. It relies on four sets of submissions: first, it raises a series of procedural issues; secondly, it submits that the decision was in breach of Article 190 of 13. Reflecting those findings, Article 1 of the Treaty in that in various respects it was the Commission's decision is drawn up in based on insufficient reasoning; thirdly, it the following terms: contends that the decision was in various

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event, the obligation to notify proposed aids concerned may implement the proposed aid, is of such manifest importance for the func- after giving the Commission prior notice. tioning of the common market that, in the If the Commission considers, after its absence of any Council regulations on the preliminary examination, that the aid is not matter, it is plain that the obligation must be compatible with the common market, then it rigorously observed both as to content and must initiate the procedure provided for in as to form, and that it is essential, in Article 93(2) without delay. Here the particular, that the notification should make French Government contends that the it clear beyond doubt that its purpose is to Commission was informed of the measures enable the Commission to submit its on 22 March 1984 but did not initiate the comments under Article 93(3) and if procedure under Article 93(2) until necessary to initiate the procedure provided 3 December 1984. However, the letter of for in Article 93(2) before the proposed aid 22 March 1984 related, as already is implemented. I consider also that, as is mentioned, to measures which are not in submitted by the United Kingdom, issue in these proceedings, and the compliance with the guidance given by the subsequent information was provided after Commission's letter of 2 October 1981, on the financial assistance in question had the information required by the Commission already been granted. Consequently, it is to enable it to carry out its tasks under not open to the French Government to rely Article 93(3), is a matter to be taken into on the principles laid down by the Court in account in determining whether a Member relation to proposals to grant aid which are State has complied with its obligations duly notified in advance. under the Treaty, having regard also to Article 5 of the Treaty.

suggested above, it was not until 21 July The right to a fair hearing 1986 that the full amount of the aid given became clear. Mr Sutherland's letter of 4 December 1986 in reply to the French Minister for Industry makes it clear that he, as Commissioner responsible for compe- tition, was proposing to recommend a negative decision to the Commission at its meeting of 17 December 1986. It is apparent from the facts set out above that further delay was the result of pressure from the French authorities themselves and it is not open to the French Government in my 23. The French Government submits that view to criticize that delay. Moreover, even the 'rights of the defence' were not when the French Minister for Industry and respected by the Commission in that it did then the Prime Minister urged the need for not disclose the comments received, under further discussion and clarification, the the Article 93(2) procedure, from interested President of the Commission made it clear third parties. It appears that the Commission in his letter of 20 January 1987 to the received comments from four Member French Prime Minister that, as far as the States, six federations and one individual Commission was concerned, that discussion undertaking. It is well established that the would be limited to establishing the exact right to be heard is a fundamental principle amounts of the aid given and the method of of Community law and in Case 259/85 recovering it, rather than to establishing France v Commission [1987] ECR 4393, the whether or not the aid was illegal. Court held, following its previous decisions Following the two further memoranda from in Cases 234/84 and 40/85 Kingdom of the French interlocutor (which themselves Belgium v Commission [1986] ECR 2263 required some prompting from the and 2321, that that principle requires that Commission), the Commission finally took the Member State in question must be its decision on 15 July 1987. enabled effectively to make known its views on the observations which interested third parties have submitted under Article 93(2) and upon which the Commission proposes to base its decision. The Court further held that, in so far as the Member State has not been afforded the opportunity to comment on those observations, the Commission may not use them in its decision against that

In my view, it is for the

Commission to find solutions to any such Effects of failure to notify difficulties, since the Commission must scru- pulously observe the correct procedure under Article 93(2), including respect for the rights of the Member State concerned, 25. The final procedural issue raised by the just as Member States must scrupulously French Government concerns the effects of comply with their obligations under Article a failure to notify a proposed aid. The issue 93(3). is that of the scope of the Commission's powers in a case where a Member State fails to fulfil its obligation to notify a proposed aid under Article 93(3) of the Treaty.

In a fair hearing to result in annulment it must the reasoning given for its decision (point be established that, had it not been for that III), the Commission stated as follows: irregularity, the outcome of the procedure might have been different. In the present case the Commission offered, at a late stage in the proceedings, to produce the obser- vations in question and did in fact produce 'Therefore, all this aid had to be notified to them in response to a request from the the Commission as provided for by

The affected the outcome of the procedure. Such situation produced by this failure to fulfil a contention might in any event have been obligations is particularly serious since the difficult to sustain, given the very close aid has already been paid to the recipient. and lengthy consultations between the Furthermore, as confirmed by the French Commission and the French authorities Government, FF 290 million had been throughout the later stages of the granted even after the Commission had proceedings. I therefore do not consider initiated the formal examination and that the Commission's decision should be procedure under Article 93(2) on 21 No- annulled on this ground. vember 1984. Hence, all the aid is regarded

as being illegal under Community law. In 27. The French Government denies that the this respect it has to be recalled that, in view measures in question can be regarded as of the imperative character of the rules of unlawful by reason of a procedural procedure as laid down in Article 93(3) infringement. It argues that the which also are of importance as regards Commission's reasoning is illogical: while public order (in the French text "compte stating that an examination of the merits is tenu du caractère impératif et d'ordre public unnecessary because of the per se illegality des règles de procédure fixées par of the aid, the Commission has in fact l'article 93 paragraphe 3"), the direct effect carried out such an examination. It is of which the Court of Justice has moreover contrary to the principles of recognized in its ruling of 19 June 1973 in equality of treatment and the protection of Case 77/72, the illegality of the aids at legitimate expectations for the Commission issue here cannot be remedied a posteriori. to raise the issue of per se illegality in The illegal character of all aid at issue here relation to a breach of procedural rules results from the failure to respect the rules which occurred some four or five years of procedure as laid down in Article 93(3). previously. The French Government argues At the same time, this aid is incompatible that it follows from the scheme of Article with the common market under Article 92 92(2) and (3) and from the case-law of the of the EEC Treaty. Court that the Commission is obliged to carry out an examination of the merits before finding that an aid is illegal. It adds in its reply that failure to carry out such an examination could result in perfectly acceptable aids being struck down on purely formal grounds. Moreover, in cases of aid incompatible with the common market the Commission making use of a possibility given it by the Court of Justice in its judgment of 12 July 1973 in Case 70/72 confirmed in the 28. It will be observed that the French judgment of 24 February 1987 in Government's version of the Commission's Case 310/85, can require Member States to reasoning does not precisely tally with the recover aid granted illegally from reci- actual reasoning used in the decision: in pients.' particular, it appears from the final paragraph of the extract from the decision given above that the Commission relies not on the breach of Article 93(3) as providing a basis of recovery, but rather on the aid's alleged incompatibility with the common market. 26. In its application, the French Government characterizes the Commission's reasoning as follows. The non-observance of the procedural rules laid down by Article 93(3) of the Treaty makes the 29. None the less, the reasoning of the measures in question unlawful per se, and Commission as it emerges from its pleadings definitively, so that those measures can no in this case does come very close to the longer be rendered lawful. The illegality for version given by the French Government. In procedural defects therefore makes pointless its defence the Commission argues that the any examination on the substance and in breach of formal requirements is quite itself justifies a sanction of recovery. distinct from the substance and constitutes

an autonomous ground of illegality, a form Court to resolve the issue in this case, on of per se illegality which, as it stated also in the ground that the payments are of such a the reasoning of its decision, cannot be magnitude and character that the Court can remedied a posteriori. Here the Commission readily determine whether they were liable appears to take the view that in such a case to affect trade between Member States; and it, and consequently the Court, cannot can also determine whether the Commission consider the compatibility of the aid. had before it information to warrant its Indeed, the Commission states that it conclusion that the payments amounted to attaches importance to the Court's drawing aid incompatible with the common market. all the consequences from the breach of procedural rules and not proceeding to consider the merits. Such an approach (which the Commission concedes is a new one) would result, it considers, in important savings of work and time in regard to the procedure for the investigation of aids under Article 93(2). It would also 31. Attractive though it is, I am unable to discourage Member States from avoiding accept the United Kingdom's contention their obligation to notify and would 'help to that it is unnecessary for the Court to resolve problems in connection with the resolve the issue raised by the French recovery of aids'. Republic. The decision of the Commission which is challenged in this case was based primarily, in the terms of Article 1, on the violation of the provisions of Article 93(3) of the Treaty. If the French Government is correct in its contentions on that issue, then the Commission's decision must be annulled in that respect at least. Moreover, given the importance which the issue of per se 30. The United Kingdom in its intervention illegality and its implications assumed in the contests the Commission's view that a argument before the Court, and in failure to respect the rules of procedure particular at the hearing, I must in any provided for under Article 93(3) would event express a view. make the aids unlawful per se. It argues that the Court's case-law concerning the direct effect of the last sentence of Article 93(3) is perfectly compatible with the view that a Member State's failure to notify an aid does not exonerate the Commission from the duty to establish that the aid is prohibited by Article 92. Moreover, the view that an 32. Before doing so, I would recall that, aid is illegal purely by reason of a failure to while Article 93 does not on face value notify is inconsistent with the language and empower the Commission to initiate the objective of Article 93 and could result in Anicie 93(2) procedure where an aid 1 as the condemnation of a Member State not been notified, the Court held 'n whenever it failed to notify, irrespective of Case 173/73 Italy v Commission [1974] the nature of the alleged aid and even where ECR 709 that the Commission does have the failure to notify was the result of an that power. The Court also held that the innocent omission. The United Kingdom Commission is not required in such a case also submits that it is unnecessary for the to follow the Article 93(2) procedure in all

34. Plainly, Article 93(2) does not explicitly confer any such power: by its terms, it 'unacceptable because it would have the enables the Commission to condemn an aid effect of depriving the provisions of on the ground of incompatibility with the Article 93(3) of their binding force and common market, not on the ground of even that of encouraging their non- breach of Article 93(3). The issue must, observance'. however, as the Court indicated in Case 173/73 Italy, be considered in the light of the scheme and purpose of Article 93, and in particular of para- The Court added (at paragraph 16): graphs 2 and 3. Article 93(2) establishes a procedure of prior examination by the Commission of proposed aids with a view to 'Moreover, the spirit and general scheme of preventing the introduction of aids which Anicie 93 imply that the Commission, when are incompatible with the common market. it establishes that an aid has been granted or To that end, Article 93(3) requires Member altered in disregard of paragraph (3), must States to notify plans for new aids to the be able, in particular when it considers that Commission and not to implement those this aid is not compatible with the common plans unless and until the Commission has market having regard to Article 92, to given its approval. It would be inconsistent decide that the State concerned must abolish with that scheme and purpose if a Member or alter it, without being bound to fix a State could ignore the requirements of period of time for this purpose and with the Article 93(3) without fear of sanction. possibility of referring the matter to the Court if the State in question does not comply with the required speed.

It follows, in my view, that in the event of 36. The argument to the effect that the an infringement of the prohibition, whether obligations imposed on Member States by because a new aid is implemented without Anicie 93(3) are only procedural, and that having been notified, or because a notified no substantive prohibition can be derived aid is implemented prior to clearance by from them, must also be rejected. As a the Commission, the national courts, on preliminary point, it may be mentioned that application by any interested party, are the prohibition under Article 92(1) required to give effect to the prohibition. In expressly applies to all aid of the type there giving effect to that prohibition, it is clear, specified, 'save as otherwise provided in this in my view, that the national courts are not Treaty'. It could even be contended that aid limited to procedural measures, consisting which has been implemented in breach of of a provisional block on further implemen- Anicie 93(3) has not been granted 'as tation. On the contrary, they are required to provided in the Treaty' and is therefore decide that any measures already taken in prohibited by Article 92(1) as incompatible defiance of the last sentence of Article 93 with the common market on that ground are unlawful, and to provide for all appro- alone. priate available remedies, including the repayment of assistance already paid. Only in that way can they satisfy the requirement of providing an effective remedy, a requirement which is inherent in the notion of a directly enforceable right. 37. But there are broader considerations which support the conclusion that a failure by a Member State to comply with its obli- gations under Article 93(3) may have substantive consequences. That is indeed 38. If it is open to national courts to find implicit, in my view, in the previous that an aid implemented without notifi- case-law of the Coun on the direct effect of cation is illegal on the ground of failure to the last sentence of Article 93(3), which, notify, then it must, in my view, also be although not directly relevant in the present open to the Commission, which has the case, is rightly relied upon by the principal responsibility for the control of Commission, even if the Commission has State aids, to decide that such an aid is not explained its significance. As the Court illegal solely on that ground.

39. But the essential consideration in deter- 53/77 R Commission v United Kingdom and mining the scope of the Commission's United Kingdom v Commission [1977] ECR powers is, in my view, to be found in the 921 and Case 61/77 R Commission principle of effectiveness (effet utile). That v Ireland [1977] ECR 1411. Moreover, in principle requires a broad interpretation of Case 70/72 Commission v Federal Republic those powers, in view of the essential of Germany [1973] ECR 813, paragraph 20, importance of the provisions of Article 93 the Court stated that Article 93(3) 'involves for ensuring the proper functioning of the the power of the Commission to take common market, a significance which has immediate interim measures, where been repeatedly emphasized by the Court necessary'. It is relevant to add that the (see, for example, Joined Cases 91 and Court has adopted a similar approach in 127/83 Heineken Brouwerijen BV v relation to proceedings of the Commission Inspecteur der Vennootschapsbelasting [1984] for the enforcement of Articles 85 and 86 ECR 3435, paragraph 20). At the hearing, of the Treaty — articles which are the Commission's agent stressed the diffi- contained in the same chapter of the Treaty, culties created by the repeated failure of entitled 'Rules on Competition', as are certain Member States to comply with their Articles 92 to 94 on aids granted by States obligations under Article 93(3) of the (see, for example, Case 792/79 R Camera Treaty. It is self-evident that the Care Ltd v Commission [1980] ECR 119). Commission is hindered from exercising in such cases the powers which the Treaty confers upon it under Article 93(2). From the very fact that Member States are required by the Treaty not to implement proposed aid until it has been cleared by the Commission, it can in my view properly be inferred that where a Member State acts 41. Although in the present case the illegally, the Commission must be regarded Commission has combined in one decision as vested with the broadest powers. its findings on illegality for breach of Article 93(3) and for incompatibility with the common market, it is in my view open to the Commission to take an interim decision once it finds a breach of Article 93(3), with the possibility sub- sequently of examining the substantive issues of the compatibility of the aid with 40. It will be recalled that the Court relied the common market. on considerations of effectiveness in Case 173/73 Italy when ruling that the Commission need not fix a time-limit when using the Article 93(2) procedure in relation to a non-notified, implemented aid. An extensive interpretation of the Treaty, considered necessary to make the Treaty 42. For these reasons, the Commission is in provisions effective, has also been adopted my view entitled to take a decision under in the context of the enforcement provisions Article 93(2) finding that an aid on State aids, where the Court has accepted implemented without notification is on that that the Commission can obtain an interim ground unlawful. I am not persuaded by the order against a Member State in argument of the French and United proceedings brought under Article 93 or Kingdom Governments that this approach Article 169: see Cases 31/77 R and could result in the condemnation of aids

which are not in fact incompatible with the 44. A further question is whether, having common market: the way to avoid this found that an aid is illegal for breach of the potential problem is precisely the notifi- Article 93(3) notification requirements, the cation procedure foreseen in Article 93(3). Commission is empowered or required to go In any event, as mentioned above, the on to examine the merits of the aid. I consider, contrary to the position which the substantive illegality of an aid for breach of the Article 93(3) requirements can already Commission has taken in argument in this be relied upon before national courts, case, that the Commission may go on to regardless of whether the aid in question examine the compatibility of a non-notified could on a proper construction be regarded aid. In the absence of any implementing as compatible with the common market. legislation adopted pursuant to Anicie 94, the Commission must be regarded as having both a wide range of powers and the maximum flexibility in exercising them.

In my view, the Treaty neither requires the Commission to go on to examine the compatibility of an aid in every case — and this is the one point on which I venture to disagree with the Opinion of Advocate General Tesauro in 43. On the question whether a finding of Case 142/87 Belgium—nor does it prevent illegality for breach of Article 93(3) alone it from doing so where appropriate. In could provide a basis for recovery, it does deciding whether to consider the compati- not appear necessary for the Court to bility with the common market of aid which decide that point in this case. This is has not been notified, the Commission is because the Commission has not relied on entitled to take account of such factors as that ground as a basis for recovery in the the nature of the failure to notify, the contested decision; as pointed out above, nature of the aid and any consequences although the Commission's pleadings are which may already have followed from the not unambiguous on this issue, its decision failure to notify, such as whether the aid has bases the requirement of recovery not on been repaid. As Advocate General Tesauro the per se illegality of the aid, but on the points out in Case 142/87 Belgium incompatibility of the aid with the common (paragraph 12), it may sometimes be

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saying that, where the Commission does 'in the period between 1982 and the end of choose to examine the compatibility of the 1984, that is when the aid was granted, aid, its decision on that issue will be subject textile exports to other Member States to review by this Court, even if the increased by 32%'. The French Government Commission has also found that the aid is also refers to the Commission's statement illegal for breach of Article 93(3). that about 40% of the products of the French textile industry is exported and says that the figure is only 16% for Boussac which moreover has less than 0.5% of the 45. To sum up: the Commission has in this European market. In my view, these points case based its decision that the aids were are concerned not so much with the illegal both on breach of Article 93(3) and adequacy of the Commission's reasoning, as on the incompatibility of the aids with the with its assessment of the impact of the aid common market: I consider that it was on trade and competition, an issue which is entitled to base that decision on both considered below (at paragraphs 57 to 63). factors. The Commission has based its order for recovery on the latter ground, as it was plainly entitled to do. Although the Commission's reasoning and arguments are in some respects open to criticism, it The Commission's alleged failure to show why succeeds in my view on the essential points. liquidation of the undertaking was preferable I would therefore reject the final submission to restructuring raised by the French Republic on the procedural issues in this case.

in the form of a capital holding in an under- Whether the assistance constituted aid taking had adversely affected competition to an extent contrary to the common interest in circumstances where the contested Commission decision had acknowledged 52. In the first place, the French that a restructuring operation had taken Government contends that the sums place and where the Commission had provided were not aids within the meaning moreover failed to explain why the aid in of Article 92 of the Treaty. The French question could not be seen as part of that Government points out that the relevant test restructuring operation. In the present case, was laid down in Case 234/84 Kingdom of the Commission has set out fully, at parts V Belgium v Commission [1986] ECR 2263, to VIII of its decision, its reasons for where the Court held: finding that there was no genuine restruc- turing of Boussac. In my view, there is therefore no parallel to be drawn with the Intermitís case, and this submission must be 'In the case of an undertaking whose capital dismissed. is held by the public authorities, the test is, in particular, whether in similar circum- stances a private shareholder, having regard to the foreseeability of obtaining a return and leaving aside all social, regional-policy Other alleged defects of reasoning and sectoral considerations, would have subscribed the capital in question . . .

also points out that a restructuring the French Government, it must be programme was adopted and regularly conceded that the point is not specifically revised and updated. In addition, the French dealt with in the Commission's decision and Government argues that substantial contri- was not fully answered in its defence. At the butions were made by the private sector and hearing, there was some debate as to that this was ignored by the Commission. whether the contributions in question were Indeed, it asserts in its application, on the indeed provided by the private sector in basis of the figures set out in the mem- view of the alleged links between the French orandum of 21 May 1987 from the public authorities and the banks.

54. The French Government is of course been able to raise all the capital needed for correct in pointing out that the relevant test its survival on the open market, and that the is laid down in Case 234/84. However, I contributions from public funds must think that it should also be borne in mind therefore be regarded as aids. that in that case the Court, after the passage cited above, went on to find that the Commission was right to consider that the undertaking at issue would very probably have been unable to raise the necessary sums on the private capital markets, inter alia because that undertaking had for several years been making substantial losses and because its products had to be sold on a 56. As to the contribution made by the market in which there was excess capacity. private investor which took over the Similar considerations of course apply in the company, on the French Government's own present case. admission this was not provided until the end of 1985, that is to say, after the entirety of the assistance from public funds which formed the subject of the Commission's

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Effects on trade and on competition market— only 0.3%. It also argues that the Commission was wrong in its decision to state that Boussac exports increased by 32% between 1982 and 1984: this ignores the fact that the inflated figure for 1984 was due to a short-term increase in the demand 57. The French Government next argues for linen. The French Government argues that the aid to Boussac did not fall within that the Commission should instead have Article 92(1) because it did not distort or taken into consideration the period 1982-86 threaten to distort competition or affect during which, it states, the value of Boussac trade between Member States. exports to other EEC Member States declined in real terms by 33%. The French Government also produces figures which, it argues, show that during that period the French domestic market for a number of 58. As regards the effect on competition, textile products of the type produced by the French Government argues that the Boussac was increasingly penetrated by alternative to the provision of assistance to exports from other EEC Member States. Boussac would have been even more disruptive of competition: if the company had been allowed to go to the wall, its assets would have been purchased at prices well below market value by competing undertakings thus helping to perpetuate the 61. The Commission assesses Boussac's problem of excess capacity. It also argues share of the Community market at 0.38% that the Commission has not shown that and points out that in a highly fragmented Boussac engaged in anti-competitive market, where even the largest producer has conduct. only 0.8%, this share is not insubstantial. It also points out that Boussac's share is considerably larger in certain sub-markets.

63. In the present case, it is not disputed extent contrary to the common that Boussac is an important Community interest... producer, the third largest in France and the fifth in the Community. It is also not disputed that Boussac engages in interna- tional trade, exporting some 16% of its (d) . . . ' products to other Member States. It is furthermore not in doubt that the amounts of aid given to Boussac were very substantial, and would have enabled it to 65. In the contested decision, the reduce its costs at a time when all Commission found that the aid did not meet Community textile producers were experi- the criteria for derogation under Article encing difficulties. In these circumstances, it 92(3)(a) or (c). As regards Article 92(3)(a), appears to me that the Commission could the Commission considered that the level of properly decide that the aid affected trade unemployment in the regions affected by the between Member States and distorted or aid was not sufficiently serious; in any threatened to distort competition. I would event, it argued, the aid was made to a therefore dismiss the submission relating to particular enterprise, irrespective of its Article 92(1). geographical location, and could not therefore be regarded as a regional aid. The French Government submits that, on the contrary, the aid was provided in regions Whether the aid was compatible with the where the level of unemployment is common market under Article 92(3) considerably higher than the national or Community average.

64. Article 92(3) provides: 66. The Commission is clearly correct on this issue. In Case 248/84. Germany 'The following may be considered to be v Commission [1987] ECR 4013, the Court compatible with the common market: ruled at paragraph 19 that:

were indeed somewhat higher than the which did not meet the criteria for the Community average of 11.5%, it cannot be approval of rescue aids laid down by the said that they point to an 'extremely unfa- Commission in its letter to Member States vourable' situation in relation to the of 24 January 1979. This was because the Community as a whole. aid was not designed to provide a short-term lifeline to an ailing but poten- tially competitive undertaking pending the urgent adoption of restructuring measures, but was instead provided over a long period with a view to maintaining Boussac artifi- cially in existence without any requirement as to fundamental restructuring. In addition, 67. As regards Article 92(3)(c), the the Commission found that the aid failed to Commission argued in its decision that the satisfy the negative condition laid down in French aids were subject to the Commission Article 92(3)(c) in that it did adversely guidelines on aids to the Community textile affect trading conditions to an extent industry laid down in 1971 and 1977, and to contrary to the common interest. In this the special criteria for aid to the French context, the Commission argued that the textile industry laid down in 1983 as a artificial maintenance in existence of condition of the Commission's withdrawal Boussac in a Community market charac- of its objections to French aid in the form of terized by overcapacity and fierce compe- a reduction of social security costs. In the tition must have weakened the competitive Commission's view, the aid to Boussac position of other textile producers which failed to meet the criteria either of the have had to carry out the necessary reor- Community or of the special French regime, ganization of their activities without the in particular because it did not involve a benefit of State aid. genuine restructuring of the undertaking. The concept of restructuring was more fully defined by the Commission in its defence as the fundamental reorganization of an undertaking with a view to maintaining or restoring its competitiveness and involving fundamental changes to the labour force, the means and the process of production, production capacity and other aspects of the undertaking's activities. Although the 69. The French Government, while not Commission accepted that there had been a challenging the Commission's guidelines, reorganization of Boussac, involving in argues that they do not have the force of particular a substantial reduction in the law; and the Commission should not apply work-force, it took the view that the the guidelines in a rigid, mechanical fashion, changes did not go beyond a simple but should carry out an individual exam- modernization or rationalization of the ination of the merits of the aid. In any company's activities. event, the aid to Boussac did satisfy the criteria of the guidelines and the Commission therefore committed a manifest error in failing to apply the derogation. In particular, the aid involved a genuine restructuring of the undertaking, as shown by the substantial reductions in manpower, 68. In the Commission's view, the aid to in production capacity and in production Boussac was a rescue measure, but one lines. The French Government adds that the

72. In addition, as the Commission stated in its decision, the grant of substantial sums of 71. Both the drawing up of guidelines for aid to Boussac would have enabled the the grant of aid to particular sectors of company to reduce its costs, thereby streng- industry, and the assessment of individual thening its position as against its compe- aids in the light of such guidelines must be titors in the Community. Since Boussac was seen as involving an exercise of discretion a major textile producer, exporting a with which the Court will not interfere significant proportion of its production to unless the exercise is tainted by a manifest other Member States, and since the error or exceeds the limits of the discretion. Community market at the relevant time was The central issue between the parties in the characterized by excess capacity and intense context of Article 92(3)(c) is whether the competition, the Commission in my view aid to Boussac involved a genuine restruc- clearly did not exceed the limits of its turing of the company. That issue is quin- discretion in finding that the aid to Boussac

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IV — The principle of proportionality

Costs

74. Finally, France contends that the decision is in breach of the general principle of proportionality. It says that the decision does not take account of the costs of restructuring. Moreover the decision is not 76. Since the French Republic has failed in commensurate with the objectives of ration- its submissions, it must be ordered to pay alization of the textile sector, since if the costs of the Commission. As for the Boussac's recovery had not been secured, it costs of the United Kingdom as intervener, would have been put into liquidation, with it is well established that a successful serious consequences not only for the intervener is entitled to its costs if it speci- creditors, but also in social and regional fically seeks an order to that effect. The terms, and for the textile market in general. United Kingdom has submitted that the The course followed by the French auth- Court should order the applicant to bear the orities led to excess capacity being closed costs. That submission can reasonably be down rather than being bought out at well interpreted as requesting the Court to order below market price, thus contributing to the applicant to bear the costs of the overcapacity. intervener.

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Conclusion