C-169/95

OPINION OF MR TESAURO — CASE C- 169/95

OPINION OF ADVOCATE GENERAL TESAURO delivered on 24 October 1996 *

1. By application brought under Article 173 Facts of the EC Treaty, the Kingdom of Spain requests the Court to annul Commission Decision 95/43 8/EC of 14 March 1995 con- cerning investment aid granted by Spain to the company Piezas y Rodajes SA, a steel foundry located in Teruel province (Aragon), Spain 1 (hereinafter 'the decision'). In the decision the Commission declared the aids in 2. The facts underlying this dispute date question unlawful and incompatible with the back to the beginning of the 1990s when the common market and ordered their recovery. Spanish authorities granted the aids in ques- tion to Piezas y Rodajes SA (hereinafter 'PYRSA') for an investment programme hav- ing a total value of PTA 2 788 300 000. Those aids, intended for the construction, in the province of Teruel, of a foundry to produce sprockets and GET parts (used in the con- struction of earth-moving and excavation equipment), consisted more particularly of:

In support of its application, the Spanish (a) a grant of PTA 975 905 000 from the Government pleads an infringement of Spanish Government; Article 92(3)(a) of the EC Treaty and a mani- fest error vitiating the appraisal of the facts on which the Commission based its decision to declare the aids incompatible, together with breach of the principle of proportional- ity and of the principle of the protection of (b) grants and other aid from various local the legitimate expectations of the recipients, authorities, in particular: in relation to the imposition of recovery together with interest for late payment decided by the Commission.

2 — OJ 1991 C 178, p. 4. In fact, the decision concerned solely the grants made by the local authorities since the grant of 3 — Case C-198/91 Cook ν Commission [1993] ECR I-2487. PTA 975 905 000 made by the Spanish Government was con­ 4 — In addition to PYRSA itself and the Committee of European sidered to form part of a general regional aid scheme already Foundry Associations which provided a table of data con­ notified to and approved by the Commission and, conse­ cerning steel foundry capacity in different European coun­ quently, the compatibility of that grant with the common tries, these are competitor undertakings of PYRSA estab­ market was not at issue. Cook had, moreover, been advised lished in Spain, France, Italy, Germany and the United of that finding by letter of 13 March 1991. Kingdom.

I-139

O P I N I O N OF MR TESAURO — CASE C-169/95

reasoning of the decision, the conclusion of — the aids in question which are incompat­ that evaluation may be summarized as fol­ ible with the common market for the rea­ lows: sons given above cannot benefit from the exception provided for in Article 92(3)(a) of the Treaty since they contribute to exacerbating the situation of overcapacity in the sector; consequently, although they are aids granted to an undertaking located in a region where the standard of living is abnormally low and there is seri­ ous underemployment, 5 the criteria for — contrary to the position which the Com­ the application of that exception, as laid mission had adopted previously, the ref­ down in the Court's recent case-law, are erence sector for the evaluation of the not met; 6 effects of the contested aids is not the sub-sector for sprockets and GET parts but the steel foundry sector as a whole;

5 — The province of Teruel is in fact amongst the regions which may be considered for the application of Article 92(3)(a) which are expressly mentioned in a Commission communi­ — even in the absence of precise infor­ cation on this point (OJ 1988 C 212, p. 2, in particular Point mation in that connection, on the basis I(4) and Annex I). 6 — The decision refers to the judgment in Joined Cases of the table of data from the Committee C-278/92, C-279/92 and C-280/92 Stain ν Commission of European Foundry Associations [1994] ECR I-4103 in order to assert that in that judgment the Court held that 'an ad hoc decision may be regarded as (CAEF), it may be presumed that already regional aid compatible with Article 92(3)(a) if it does con­ tribute to the long-term development of the region without in 1988 (the year in which the Spanish adversely affecting the common interest and competitive Government approved the aids and conditions in the Community.' In fact this quotation is inac­ curate, inasmuch as it reflects the Commission's orientation started to pay them) the sector was char­ (paragraph 50). On this specific point the Court does not take a view until further on, when it recalls its settled case- acterized by levels of overcapacity law that, for the purposes of Article 92(3) of the Treaty, the equivalent to, if not higher than, those of Commission enjoys 'a wide discretion, the exercise of which involves assessments of an economic and social nature which the following years; must be made within a Community context' (paragraph 51).

I-140

7. I may say straight away that I do not agree with the interpretation of the provision in question proposed by the Spanish Gov­ In other words, according to the Spanish ernment. In my opinion, the fact that Article Government, for the purposes of Article 92(3)(a) does not expressly require the Com­ 92(3)(a) of the Treaty, the requirements of mission to evaluate the effect of the aid on the protection of the common interest, trading conditions and does not make com­ which must none the less be taken into con­ patibility of the aid subject thereto, does not sideration, do not necessarily prevail when it allow the inference to be drawn that, in is a question of evaluating the compatibility authorizing aid, the Commission may with the common market of aids which, as in exempt itself from weighing adequately the the present case, may significantly contribute Community interest. O n the contrary I con­ to the development of an underdeveloped sider that even the permissibility of regional region. That interpretation, it says, is cor­ roborated by subparagraph (c) of the same article; that provision, which concerns both 7 — Article 92(3) of the Treaty is worded as follows: 'The follow­ sectoral aids and regional aid (without, ing may be considered to be compatible with the common market: (a) aid to promote the economic development of moreover, stipulating that they must be areas where the standard of living is abnormally low or where there is serious underemployment; (...) (e) aia to facili­ underdeveloped areas), makes those aids sub­ tate the development of certain economic activities or of cer­ ject to the express condition that they do not tain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common adversely affect trading conditions 'to an interest.'

To accept the contrary view of the matter, as we are urged to do by the Spanish Govern­ ment, would be tantamount to stating that aid having the characteristics set out in Article 92(3)(a) of the Treaty would be com­ patible with the common market irrespective of any evaluation of its sectoral impact or of its effects on trading conditions, which, quite evidently, is contrary to the logic underpin­ ning the judgment in Cook ν Commission, in Indeed it is clear that aid for regional pur­ which the Court annulled the Commission poses intended to finance productive invest­ decision 'not to raise objections' to the aids ments in sectors characterized by structural (although for regional purposes) granted to overcapacity merely exacerbate the imbal­ PYRSA, precisely because 'it was not clear ances suffered by the markets in question, by from the figures and statistics available ... bringing fresh pressures to bear on price lev­ whether or not there was overcapacity in the els and/or by transferring the sectoral econ­ sprockets and GET parts sub-sector', 'a omic difficulties, and the associated employ­ complex analysis of the sub-sector in ques­ ment problems, to other regions of the tion' was therefore necessary and to that end, Community and to the undertakings located therefore, it should have initiated the pro­ there which are not in receipt of analogous cedure under Article 93(2) of the Treaty. 8 aid. Consequently, such aids in no way appear to be consistent with the purpose of the regional aid scheme, which is to resolve effectively and on a permanent basis the development problems of the regions con­ cerned, 1 0 and must therefore be declared incompatible with the common market. 8. In other words, as I already stated in my Opinion in the Cook ν Commission case, I consider it essential that, even when applying 9 — Opinion delivered on 31 March 1993 in the Cook ν Com­ the derogation provided for in Article mission case, cited above, paragraph 53. That requirement, 92(3)(a) of the Treaty, the Commission does which was already expressly stipulated by the Commission in the First Report on Competition Policy (point 142), was not confine its attention only to the regional reaffirmed in the communication on the method for apply­ ing Article 92(3)(a) and (c) to regional aid (cited above at implications of a particular public measure, footnote 5) where the Commission stated that, in order to come within the exception provided for in Article 92(3)(a) of the Treaty, the aid may not lead at Community level to excessive sectoral capacity such that the sectoral problem created at Community level becomes more serious than the 8 — Judgment in Cook ν Commission (cited at footnote 3), para­ initial regional problem. graphs 37 and 38. 10 — Opinion cited above, paragraph 53.

As regards the present case, I consider there­ fore that the Commission was entitled, on noting that the aids at issue could have con­ tributed to worsening the situation in a sec­ tor already characterized by a high level of overcapacity, not to apply the derogation provided for in Article 92(3) (a) of the Treaty. 11. In truth, these arguments appear to me to be unfounded as well. In the first place, as is clear from the decision itself, the Commis­ 11 — This reasoning seems to me, moreover, to be entirely con­ sion had regard not only to the data and sistent not only with the viewpoints expressed on several occasions by the Commission (for example in the above- information obtained from interested third mentioned communication of 1988) but also with the pos­ ition adopted by Advocate General Jacobs in his Opinion parties but also to information provided by in the Spain ν Commission case (cited above at footnote 6; paragraphs 43 to 45), which the Spanish Government none PYRSA itself, and by CAEF, which is a the less relied on in support of its arguments. body sufficiently representative of the sector.

I-143

OPINION OF MR TESAURO — CASE C-169/95

Furthermore, it should be remembered — between 1990 and 1992. 12 Besides, some of and this seems to me to be the decisive fact those grants, irrespective of the date on — that the Commission also based itself on which they were approved, by their very the results of a study commissioned from an nature, were intended to be long-term, for independent expert, specifically in order to example the loan guarantee in the amount of obtain objective information and assessments PTA 490 millions for a period of eleven on certain questions of a technical nature. I years. consider therefore that the impartiality of the reconstruction of the facts by the Commis- sion cannot be open to doubt.

I-144

SPAIN ν COMMISSION

In view of that fact, the obligation to recover Again as regards legitimate expectations in the aids at issue would in the present case be the lawfulness of illegal aids, the Court has contrary to the principle of proportionality drawn an important distinction between the and the principle of the protection of legiti­ situation of the undertaking in receipt of the mate expectations, which both form part of aid and that of the Member State which has the Community legal order. paid it. O n the one hand, it held that 'a recipient of illegally granted aid is not pre­ cluded from relying on exceptional circum­ stances on the basis of which it had legiti­ mately assumed the aid to be lawful and thus declining to refund that aid'. 15 O n the other hand, it has consistently prohibited a Mem­ ber State which has granted aid in contraven­ 14. As is well known, the Court has on sev­ tion of the applicable rules of procedure eral occasions had the opportunity of ruling from relying 'on the legitimate expectations on the obligation imposed on beneficiary of recipients in order to justify failure to undertakings to reimburse unlawful aids in comply with the obligation to take the steps order to restore the status quo ante. In par­ necessary to implement a Commission ticular, it has held that recovery of such aids decision instructing it to recover the aid'. 1 6 cannot in principle be regarded as dispropor­ tionate in relation to the objectives pursued by the Treaty provisions on State aids. 1 3

I-145

OPINION OF MR TESAURO — CASE C-169/95

Decision N N 12/91 in which the Commis- 17. In fact, the Spanish Government is rely- sion essentially approved the aids at issue, ing expressly (and solely) on the legitimate and considers that in the present case there expectation of the undertaking in receipt of are exceptional circumstances, within the the aids in the legality thereof, in order to meaning of the case-law already cited, to give oppose their recovery. In other words, the rise in the case of the beneficiary undertak- applicant Government is contesting the obli- ing to a legitimate expectation in the legality gation imposed on it by the decision to of the aids at issue, whose protection must recover the aids at issue, by invoking a legal ultimately imply a bar on their recovery. situation which is not its own, but that of another, the beneficiary undertaking, which is not a party to these proceedings, even as an intervener; it is doing that at best in the absence of any specific provision of law con- ferring on it any such rights of subrogation.

16. I acknowledge that the argument of the Spanish Government would in principle merit a certain attention. In fact, it is not possible in my view to rule out ab initio that, in view of the circumstances of the case, the beneficiary undertaking did in fact reason- That fact militates, in my view decisively, in ably count on the legality of aids which, favour of rejection of the plea relied on by though granted illegally, were subsequently the Spanish Government. (though erroneously) approved by the Com- mission which adopted a formal decision in that connection. 17

The fourth plea Clearly this plea would only become rel­ evant if the Court were to uphold, at least in part, the third plea and if it were therefore 19. In light of the conclusions which I have necessary to make a fresh calculation of the reached on the previous pleas, in particular amounts in question.

Conclusion

20. I n light of the foregoing considerations I therefore p r o p o s e that the C o u r t should:

(1) dismiss t h e application;

(2) o r d e r t h e applicant G o v e r n m e n t t o p a y t h e costs.

18 — Commission ν Germany, cited above. 19 — In practice, by an action under Article 173 of the Treaty, but brought by the undertaking itself before the Court of First Instance or, if appropriate, before the national court against the claim for recovery made by the State in imple­ mentation of the Commission decision. I would recall in that connection that the judgment in RSV v Commission (cited above at footnote 17) was precisely on an action for annulment brought (at the time before the Court) by the undertaking pleading legitimate expectation.