C-400/92

* Original language: French. 4. That provision is at the centre of this case. 1 — OJ 1990 L 3S0, p. 27. 2 — Now Article 92(3)(c) of the EC Treaty. 3 — Emphasis added. 4 — Article 4(2). 5 — Emphasis added.

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OPINION OF MR DARMON — CASE C-400/92

5. In relation to a contract concluded 8. After a further exchange of correspon­ between a consortium of shipyards in Bre­ dence, the Commission decided, by letter 1 men, Wismar, Kiel and Warnemünde, and the of 22 November 1991, 1to initiate the exam­ Chinese undertaking COSCO (China Ocean ination procedure provided for in Article Shipping Company) for the construction of 93(2) of the EEC Treaty in order to verify three container ships of 3 765 TEU (twenty- the genuineness of the 'development aid' foot equivalent units) and a fourth of aspect of the project and assess its general 2 700 TEU, the German authorities envisage compatibility with the common market. That 12 granting a development aid loan in respect of letter was set out in Notice 92/C22/07. In the first three ships. it the Commission states that it is 'still not convinced of the genuine development aid character of the aid project under consider­ ation in particular due to the lack of trans­ parency of the pricing aspect'.

6. The conditions for the grant of the loan were notified to the OECD on 20 September 6 1991.

9. The German Government sent its reply 13 on 26 February 1992.

11. In Decision 92/569/EEC of 13 July 15 1992, adopted pursuant to the first sub­ paragraph of Article 93(2) ('the Decision'), the Commission stated that it had estab­ lished that 'no development aid is involved in the COSCO contract for the construction of a 2 700 TEU container ship ... and that the export credit terms applied are compatible 14. The Commission adds that such aid with the common market' (Article 1), and involves the risk of serious distortion of that the 'proposed aid for the contract to competition to an extent contrary to the build three further container vessels for the common interest. State-owned Chinese shipping company COSCO , at the Bremer Vulkan yard, Bre­ men, and the Mathias Thesen yard, Wismar, cannot be regarded as genuine development aid within the meaning of Article 4(7) of Council Directive 90/684/EEC on aid to shipbuilding and is therefore incompatible with the common market' (Article 2). 15. By application received at the Court Registry on 26 November 1992, the Federal Republic of Germany seeks the annulment of that Decision and, in the alternative, the annulment of Articles 2 and 3, on the follow­ ing grounds:

12. As regards the first point, the Commis­ sion considers that the construction of the 2 700 TEU vessel is not the subject of devel­ opment aid and is financed under the normal conditions laid down by the OECD . — the envisaged aid is development aid within the meaning of the Article 4(7) of the seventh directive. It conforms with 14 — Annex 10 to the application. 15 — Concerning proposed aid by Germany to the Chinese ship­ ping company Cosco for the construction of container ves­ sels (OJ 1992 L 367. p. 29). 16 — Case 730/79 Pbthp itomi v Commiiswn [1980] ECR 2671.

— the principle of equal treatment;

19. Having decided to consider the whole of — the principle of the protection of legiti­ the aid project, the Commission was also mate expectations; required to state its position regarding the purchase of the 2 700 TEU container vessel. Moreover, by stating that the latter did not involve development aid and that the credit terms were compatible with the common market, the Decision does not adversely 18 — the applicant's right to a fair hearing. affect the applicant Member State.

17 — SG(89)D/311 applying the previous Council Directive 18 — It might, on the other hand, affect the interests of the com­ 87/167/EEC of 26 January 1987, the wording of which was petitors of the shipyards to which the contract was the same (OJ 1987 L 69, p. 5) (Annex 11 to the application). awarded.

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GERMANY v COMMISSION

20. The application is therefore inadmissible 'The following may be considered to be in that respect. compatible with the common market:

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OPINION OF MR DARMON — CASE C-400/92

enth directive which superseded it, was 27. As we know, when assessing the com­ adopted on the basis of Article 92(3)(d), that patibility of aid in a given case, the Commis­ sion enjoys — subject to review by the 24 Court — vested powers. The Council, for its part, has powers which are available only in exceptional circumstances, by virtue of the 25 third subparagraph of Article 93(2).

'... the Council, in accordance with the ratio legis of Article 92(3 and on the basis of a finding of the incompatibility of the aid for shipbuilding, took account of a number of requirements of an economic and social nature which prompted it to use the power 28. Under Article 92(3)(d), the division of granted to it by the Treaty nevertheless to powers between the Council and the Com­ consider such aid to be compatible with the mission is thus clear. Whereas the Council common market, provided that it satisfies the may extend the range of aid which may be conditions for a derogation laid down in the 22 declared compatible, by fixing an abstract directive'. and general framework ('categories of aid'), only the Commission undertakes a specific examination to determine whether or not aid falling within the category defined by the Council is compatible with the Treaty. The Council does not therefore substitute itself for the Commission in making a specific 25. That reasoning can be transposed to the assessment of the compatibility of aid in a seventh directive, which differs from its pre­ given case. Moreover, when it relies on the decessor only in minor respects (the two third subparagraph of Article 93(2), it gives a directives have, essentially, the same Article decision at the request of a Member State 4). This brings the matter therefore within '... and does so unanimously, whereas, in order exceptional arrangements, which necessarily to extend the range of aid under Article presuppose that the aid in question is at the 92(3)(d), it acts by a qualified majority. outset incompatible with the common mar­ 23 ket'.

31. With respect to those categories of aid, the Court recognizes that the Commission's discretion is rather wide: thus, 'the use of the words "abnormally" and "serious" in the exemption contained in Article 92(3(a) 33. Be that as it may, what is the extent of shows that it concerns only areas where the the Commission's discretion when the economic situation is extremely unfavour­ Council determines, on the basis of Article able in relation to the Community as a 92(3)(d), the 'categories of aid' which may be whole. The exemption in Article 92(3)(c), on considered to be compatible? the other hand, is wider in scope inasmuch as it permits the development of certain areas without being restricted by the economic conditions laid down in Article 92(3)(a), pro­ vided such aid "does not adversely affect trading conditions to an extent contrary to 27 34. The Court has already implicitly taken the common interest"'. the view in its judgment in Belgium v Com- 29 mission, cited above, that that discretion extended to those categories of aid. It stated:

32. Certain authors have even maintained that the Commission enjoys considerable '... Article 92(3)(d) allows the Council, acting scope for intervention in that field, precisely by a qualified majority on a proposal from in order to compensate for the legislative the Commission, to extend the range of aid lacuna resulting from the lack of Council which may be regarded as compatible with the common market, in addition to the cate-

26 — Judgment in Philip Moms, cited above, paragraph 24, emphasis added. See also the judgment in Case C-303/88 Italy v Commission [1991] 1-1433, paragraph 34. 28 — C. Blumann, 'Regime des aides d'Etat: jurisprudence The Court's case-law is consistent in that respect. récente de la Cour dc Justice', Revue (du Marché commun, 27 — Judgment in Case 284/84 Germany v Commission [1987] 1992, p. 721. ECU 4013, paragraph 19. 29 — Footnote 20.

41. By a document entitled 'Revision of the definitions and administrative procedures concerning the understanding on export

38. Distortions of competition affect this sector in the world market and the Commu­ 32 — Third recital in the preamble to Council Directive 69/262/EEC of 28 July 1969 on aid to shipbuilding nity shipbuilding industry could not protect intended to correct distortions of Community on the inter­ itself against outside competition '... by tariff national market [Journal offiael 1969 L 206, p . 25). 33 — See the sixth recital in the preamble to Council Directive measures or other measures of commercial 78/338/EEC of 4 April 1978 on aid to shipbuilding (OJ 1978 L 98, p . 19) and the fifth recital in the preamble to Council Directive 75/432/EEC of 10 July 1975 on aid to shipbuilding (OJ 1975 L 192, p . 27). 34 — Annex 12 to the application. 30 — Paragraph 26, emphasis added. 35 — For this reason the aid granted by the Federal Republic of 31 — Emphasis added. See also Article 4(1). Germany was notified to the OECD .

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GERMANY v COMMISSION

credits for ships' (C/WP6(84)3) of 18 Janu­ transaction of which meets the following ary 1984, 6Working Party No 6 of the tests: Council on shipbuilding laid down the con­ ditions for the implementation of the above- mentioned paragraph 6.

(a) It is administered with the promotion of the economic development and welfare of developing countries as its main objective;

46. The Commission does not deny that necessary for the company receiving it. those conditions have been observed in the Moreover, the granting of unjustified aid car­ present case. ries the 'risk of creating a serious distortion of competition to an extent contrary to the 41 common interest'.

47. The second subparagraph of Article 4(7) requires it, before checking that the aid ful­ fils the conditions laid down by the OECD , to verify 'the particular "development" con­ tent'.

51. The Federal Republic of Germany con­ tends, on the contrary, that the 'verification of the development component' involves no more than establishing that the minimum 48. What does that verification involve? Is rate of the grant element (25%) prescribed 42 the mere fact that the aid can be classified as by the OECD is observed. Moreover, the 'public development aid' within the meaning criteria of the necessity of the aid, laid down of the OECD Understanding sufficient in in Philip Morris in entirely different circum­ that regard? stances, was not referred to in the Commis­ sion's letters of 3 January 1989 and 22 November 1991 and is inapplicable in the present case.

49. In its Decision, the Commission main­ tains that, quite apart from its examination of the OECD criteria laid down in the first subparagraph of Article 4(7), it must 'estab­ lish whether the aid granted ... constitutes 4 development aid'. 0

52. The wording of the second subparagraph of Article 4(7) gives valuable guidance. Whilst the Commission must ensure that the aid is within the scope of the OECD Under­ 50. It observes that COSCO is a flourishing standing, it must also verify its particular company — it ranks fifth in the world 'development' component. It is therefore amongst container operators — and has the clear that whilst compatibility with the financial capacity to undertake any renewal OECD criteria is a necessary condition for of its fleet for itself. COSCO intends buying compatibility with the common market, ful­ the 2 700 TEU container without aid. The filment of that condition is not sufficient. If aid is therefore incompatible since it is not

56. The Commission found such an infringement in the procedure which gave rise to Decision 91/306/EEC of 12 Decem­ 53. In interpreting that concept, one consid­ ber 1990 concerning two aid projects of the eration appears decisive: the contrast between German Government in favour of a shipyard the conditions laid down in general by the 45 in financial difficulties, in which it seventh directive for the grant of production observed: aid — and in particular the fixing of a ceil- ing 43 — and those specifically prescribed for the grant of development aid linked with the construction and conversion of vessels, which fix A floor. Because of the development aim pursued, the aid under Article 4(7) is not subject to the same constraints as aid under Article 4(1) to (6). 'The aim of Article 4(7) of [Directive 87/167/EEC] is to allow aid to reduce the prices of ships to certain developing countries in specific circumstances, and not to grant rescue aid to yards in the Commu­ nity'. 46 54. The seventh directive allows develop­ ment aid to be linked to the construction of merchant vessels in the Community.

57. This shows the importance of the task 55. Aid under Article 4(7) of the directive entrusted by the Council to the Commis- which did not pursue a genuine development objective might disguise indirect aid to Com­

44 — Contested decision, IV, second paragraph, subparagraph 1. 45 — OJ 1991 L 158, p. 71. 43 — Article 4(1). See 2 above. 46 — Ibid., II, fourth paragraph.

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OPINION OF MR DARMON — CASE C-400/92

sion: to inquire whether the aid is develop­ 60. The check undertaken by the Commis­ ment aid or, in reality, indirect aid to the sion was of the latter kind, following which Community shipyards concerned. That is it concluded that 'COSCO is not a company also the point which the Commission raised which needs development aid in order to 47 50 in its Notice 92/C22/07. contribute to China's development'.

50 — Contested decision, VI, third paragraph, subparagraph 2 — emphasis added. 47 — Cited above, note 12; see in particular p. 5. 51 _ Judgment of 24 March 1993 in Case C-313/90 CIRFS and 48 — Contested decision, II. Others v Commission [1993] ECRI-1125,paragraph 44. See 49 — And in particular, could the project not be financed by also paragraph 130 of the Opinion of Advocate General recourse to the market (cash flow)? Lenz.

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GERMANY v COMMISSION

66. By thus examining the matter of propor­ 'there is no reason for derogating from the tionality, the Commission established that prohibition of State aids if a particular the aid project did not fall within the scope investment... may also take place irrespective 56 of that benefit'.

52 — That word docs not appear in the German, English or Greek versions. 53 ·— Emphasis added. 55 — Cited above, note 16. 54 — Contested decision, VI. 56 — At p. 2701.

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OPINION OF MR DARMON — CASE C-400/92

69. In its judgment in that case, the Court 72. Mention should also be made of the considered that the Commission was right to decision on the investment subsidy granted take the view that an aid granted on the basis to Deufil for the production of polyamide of Article 92(3) should be necessary in order yarns, in which the Commission refused to 57 to be declared compatible. apply Article 92(3). The Court approved it, observing that:

'The Commission in no way exceeded the limits of its discretion by considering that the granting of aid for an investment which 70. The legality of such a requirement is increases production capacity in a sector in upheld — albeit by implication in some which there is already considerable overpro­ instances — in the case-law of the Court. duction is contrary to the common interest and that aid of that sort is not of such a nature as to promote the economic develop­ 60 ment of the area at issue'.

'... aid will only be declared compatible where it contributes to the attainment of one of the development objectives referred to in 76. There is another reason for which the Article 92(3) and where it is proved that, need for aid must be examined. The directive without the intervention of the public does not merely refer to Article 92(3). It is authorities, the free interplay of market also based on Article 113 of the Treaty. forces would not alone be capable of attain­ ing the objectives in question. On the other hand, the Community authority will not authorize aid which is neither necessary nor proportionate to the attainment of those 63 objectives.'

77. As was pointed out by the Commission, the commercial policy of the Community, which includes the conditions applicable to 65 75. The concept of necessity is inherent in aid for exports to non-member countries, that of aid. Thus, prior to considering the falls exclusively within the powers of the issue of proportionality under Article 92(3), Community. Accordingly, a Member State where it is necessary to classify State aid for must not be able to frustrate that policy by public undertakings, the Court has, in sev­ means of generous State aid outside the strict

62 — Paragraph 36. 64 — For example, in Italy v Commission, cited above, note 61, 63 — G. M. Roberti, 'Le contrôle de la Commission des Com­ paragraph 23. munautés européennes sur les aides nationales', AJDA, 20 65 — Opinion of 11 November 1975 (1/75, [1975] ECR 1355, at June 1993, p. 397, at 407 — emphasis added. 1362.

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OPINION OF MR DARMON — CASE C-400/92

81. It follows, in my opinion, that in such circumstances the Commission is fully enti­ tled to appraise the concept of development aid, as provided for in Article 4(7) of the 'any unilateral action on the part of Member directive, and that it will not exceed its pow­ States would lead to disparities in the condi­ ers by examining whether the aid is neces­ tions for the grant of export credits, calcu­ sary. lated to distort competition between under­ takings of the various Member States in external markets. Such distortion can be eliminated only by means of a strict unifor­ mity of credit conditions granted to under­ takings in the Community, whatever their 66 nationality.' 82. When finding that the aid granted was not needed by the recipient undertaking and that it did not therefore pursue the develop­ ment aid objective set by the Council, the Commission possessed sufficient information to say that the aid did not fall within the scope of Article 4(7) of the seventh directive and could not therefore qualify for the dero­ 79. It is therefore for the Commission, as gation allowed by the provision. guardian of the Treaty, to ensure that the Member States remain within the limits of the derogation and apply Article 4(7) only in those cases where they grant genuine devel­ opment aid. By granting aid that is not nec­ essary, a Member State would circumvent the Community rules and exercise a sort of par­ 83. If we apply here the principle laid down allel power, which is precluded by Article in the Court's judgment in Belgium v Com- 113.

89. By definition, the directive takes account of such a risk, it being inherent in any devel­ opment aid, which can always have a 'rebound' effect to the detriment of Commu­ 85. Let us consider these two points. nity operators. For that reason, it does not require that vessels bought with the benefit of development aid should be used on routes where there is no competition with Commu­ nity shipping companies. Even if the aid were development aid actually needed by COSCO , a risk of that kind would have 86. It is clear that once it is established that existed. the planned aid for the three container ships for COSCO cannot be regarded as genuine development aid within the meaning of Arti­ cle 4(7), the distortion of competition which it necessarily produces in the common mar­ ket for the benefit of the shipyards con­ cerned can no longer be justified. It is symp­ tomatic, in that connection, that the initial 90. However, I do not see in that finding by complaint made against the COSCO project the Commission any reason for the annul­ emanated from a Community shipyard. ment of its Decision. It may go beyond what was required, but it does not detract from the principal grounds of the Decision: the 68 — Cited above, note 20, paragraphs 32 and 33. absence of genuine development aid.

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OPINION OF MR DARMON — CASE C-400/92

The error of assessment concerned, I have just said that that finding was superfluous. Let me say, for the sake of completeness, with regard to the shipyards concerned, that the Commission pointed out, without any evidence to the contrary having been produced, that they were able to obtain 'a price ... at the upper end of the pre­ vailing market prices for this type of ship'. 91. According to the applicant, the Commis­ sion's Decision is vitiated by an error of assessment in that, contradictorily, it refers to a risk of serious distortion of competition between the Member States, both in the shipbuilding sector and in the sea freight sec­ tor, but nevertheless states that it is not in a position to show that the price charged The principles of equal treatment, protec- reflects aid to the shipyards (VI, third para­ tion of legitimate expectations and the right 69 to a fair hearing graph, 1st subparagraph).

96. It is apparent both from the documents Breach of the principle of equal treatment annexed to the application and from the oral procedure that the matter of the necessity for the aid was an underlying element or was referred to (1) in the letter of 22 November 71 1991 which gave rise to the notice, (2) in discussions preceding the contested Decision 99. The Court's case-law is consistent: between representatives of the Commission 72 and of the German Government, and (3) as early as the letter of 3 January 1989, in which the Commission emphasized the importance of verifying the particular 'development' component of the planned aid. '... the general principle of equality, of which he prohibition of discrimination on grounds of nationality is a mere specific enunciation, is one of the fundamental principles of Com­ munity law. This principle requires that sim­ ilar situations shall not be treated differently unless differentiation is objectively justi­ 73 fied.' 97. Germany's allegation as to breach of the principles of equal treatment, protection of legitimate expectations and the right to a fair hearing is closely linked with the absence of any requirement of necessity in the measures taken by the Commission before adopting the Decision. 100. According to the Federal Republic of Germany, the application of a criterion not included in Article 4(7) of the seventh direc­ tive or in the letter of 3 January 1989 is con­ trary to the principle of equal treatment and 7 is unlawful. 4

106. Whilst that 'principle requires the Member State in question to be placed in a position in which it may effectively make known its views on the observations submit­ ted by interested third parties under Article 93(2) of the Treaty and on which the Com­ 103. To invoke this principle successfully, 76 mission proposes to base its decision', it the Federal Republic of Germany would also requires that the Commission include in have had to demonstrate a change in Com­ its decision only those matters on which the munity practice which had affected it Member State concerned has been able to adversely. give its views.

104. As we have seen, there was no such 107. It has not been shown that the German change. There is thus no evidence of any Government was not able to explain the breach of this principle. need for the aid — quite the contrary.

Breach of the right to a fair hearing

108. This allegation, like the two before it, has thus not been substantiated.

75 — Judgment in Case C-301/87 France v Commission [1990] ECR I-307, paragraph 29. See the case-law cited. See also the judgment in Case 40/85 Belgium v Commission [1986] 105. It has been consistently held that ECR 2321, paragraph 28. 'observance of the right to be heard is, in all 76 — Ibid., paragraph 30.

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