C-251/97

I — Introduction resulted in a massive reduction in employ­ ment in these sectors in the Community. France is not alone in seeing a decline in its combined workforce, in its case from about 600 000 at the beginning of the 1980s to 352 000 in 1995 and to 315 000 in 1997. 1. In this case, France seeks the annulment of Commission Decision No 97/811/EC of 9 April 1997 concerning aid granted by France to the textile, clothing, leather and footwear industries. 1 The case raises, in particular, the question whether financial assistance provided by public authorities to 3. In France, in the mid-1990s, a series of undertakings in certain sectors in return for general measures designed to combat commitments by those undertakings to the unemployment by relieving employers from authorities and to employee representatives certain social security contributions in regarding the maintenance of employment respect of low-paid workers 2culminated and the reorganisation of working time, in a degressive reduction iń employers' above and beyond the requirements of the contributions in respect of employees earn­ general law, constitutes State aid within the ing between 100 and 133% of the guaran­ meaning of Article 92(1) of the EC Treaty. teed minimum wage (hereinafter 'the SMIC'). 3On 26 March 1996, France noti- . fied the Commission of certain additional proposals specific to the textile, clothing, leather and footwear industries. These were enacted in Article 99 of Law No 96-314 of 12 April 1996 implementing various eco­ nomic and financial provisions (hereinafter I I— Legal and factual context 'Law No 314'), which permitted the State, on an experimental and temporary basis (until 31 December 1997), to grant to employers in the sectors in question addi­ 2. The textile, clothing, leather and foot­ tional reductions in social charges in wear industries are dominated, both in respect of low-paid employees in consid­ France and elsewhere in the Community, eration for their adoption of framework by small and medium-sized enterprises. Intense competition, both within the Com­ munity and from undertakings in third 2 — Quinquennial Law No 93-1313 of 20 December 1993 concerning work, employment and professional training, countries with low labour costs, has extended by Law No 95-882 of 4 August 1995 concerning urgent measures for employment and social security. 3 — Article 113 of the Law on Finances No 95-1346 of 30 December 1995. The SMIC is the salaire minimum interprofessionnel de croissance. The reduction applied * Original language: English. degressively to salaries between 100 and 120% of the 1 — OJ 1997 L 334, p. 25 (hereinafter 'the contested Decision'). SMIC before 1 October 1996.

agreements on the maintenance and devel- working week and on the hours actually opment of employment which would take worked, employers were required to grant account of negotiations among the social workers specified proportional amounts partners in those sectors on the reorganisa- either of time off or of additional pay, or tion and reduction of working time. The a combination of the two. 5 reductions were to take the form of a degressive alleviation of employers' social security contributions on salaries between 100 and 150% of the SMIC, in accordance with a scale to be established by ministerial decree. Employers with more than 50 employees were required to sign individual 5. Shortly afterwards, between 14 May agreements with the State, in addition to and 28 June 1996, the State concluded the framework agreement, specifying their framework agreements with the employers' commitments regarding employment and representative bodies of the sectors con- working time. Failure by a participating cerned. These framework agreements con- undertaking to comply with these commit- tained commitments by each sector in ments would result in the full application, respect of the maintenance of employment retroactively as well as prospectively, of the and the employment of young people. Each contributions normally due. framework agreement also referred expressly to the agreement on the reorga- nisation and reduction of working time reached by the social partners in the sector concerned as a measure designed to pro- mote the objectives of employment and competitiveness and set out the employ- ment maintenance and creation commit- ments of the employers in the sector, thereby fulfilling the requirements of Arti- 4. The adoption of Law No 314 enabled cle 99 of Law No 314. the French authorities successfully to exert pressure for the revival of hitherto dead- locked talks between the social partners in the affected sectors regarding the reorgani- sation and reduction of working time. Sectoral agreements on these issues were concluded between 7 May and 5 June 1996. These provided for an annual limit 6. Almost contemporaneously, the French on overtime work, which varied with the authorities adopted Decree No 96-572 of maximum number of hours of overtime a 27 June 1996 (hereinafter 'the Decree'), worker could engage in in any given week. 4 implementing Article 99 of Law No 314. Depending on the length of the maximum

The Decree established a degressive scale of employers in return for reductions in their reductions in employers' social security social security contributions, the Commis- contributions in the sectors concerned, the sion extended the scope of its inquiry by a maximum being FF 734 (in addition to the decision of 2 October 1996. 8There was an reductions provided for by the general law) extensive exchange of correspondence and in respect of a worker earning the SMIC in a number of bilateral meetings between the the sectors concerned. The cost of the Commission and the French authorities. In scheme was estimated at FF 2.1 billion, addition, the German, Netherlands, United although it ultimately cost between Kingdom and Austrian Governments, the FF 1.8 billion and FF 1.9 billion. The regional government of Flanders in Belgium authorities envisaged that 35 000 of the and nine industrial and trade associations anticipated 60 000 job losses over the submitted observations to the Commission subsequent two-year period would be avoi- which were hostile to the French scheme. ded and that 7 000 additional posts would be created for unemployed young people.

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OPINION OF MR FENNELLY — CASE C-251/97

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FRANCE V COMMISSION

the aid could be much higher than that III — Arguments of the parties claimed by France. Furthermore, France's calculations made no allowance for gains in productivity through more efficient use of productive plant. Experience in a different French State aid case, 10 and in Austria, suggested that such gains could easily offset the costs of reorganising working time. 12. By an application registered at the Court on 10 July 1997, France requests the Court to annul the contested Decision and to require the Commission to pay the costs of the proceedings. The Commission, in its defence, requests the Court to reject the application and to require France to pay the costs.

11 —Case 30/59 Steenkolenmijnen v High Authority [1961] 10 — State aid No 731/96 La Lainière de Roubaix. ECR 1, p. 19 (hereinafter 'Steenkolenmijnen').

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OPINION OF MR FENNELLY — CASE C-251/97

question would not distort competition, red to by the Commission were not cred­ because undertakings in other countries ible. Gains in competitiveness were purely where similar social security reductions potential and difficult to measure and were, were not offered by the State would not moreover, probably outweighed in the be obliged to make similar concessions to short term by costs associated with reorga­ their employees. nising working practices.

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FRANCE V COMMISSION

17. As a subsidiary ground for annulment confine myself in this Opinion to outlining of the contested Decision, France contends my reasons for taking that view. that the Decision should be annulled because France is required to recover from the participating undertakings the total amount of the sectoral reductions in social security contributions, without taking account of the costs arising from the corresponding commitments regarding employment and working time.

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OPINION OF MR FENNELLY — CASE C-251/97

b o r r o w i n g s . 2 0 Again, however, the service of general economic interest. 24 authorities must act in all such cases as Depending on the precise circumstances in would a private investor or economic which the authorities 'purchase' such ben­ agent of similar size. efits at market prices, it is possible to argue either that there is no aid element at all, or that there is aid which is, at least poten­ tially, compatible with the common mar­ ket. It is not necessary, for present pur­ poses, to identify where precisely the divid­ ing line lies. Suffice it to say that any argument that no aid is granted in such circumstances depends on the fact that the State or other public authority secures, in return for its direct or indirect payment to the providers, some valuable good external to the undertakings concerned. It is natural that public authorities are also concerned with the economic well-being of their territories and of undertakings established or operating therein, but any payment to certain undertakings designed simply to secure the interests of the latter — for 20. The position becomes more compli­ example, improved profitability, better cated where public authorities engage to employee relations, or their very survi­ pay undertakings to provide goods or val — without the provision of some dis­ services or more intangible benefits, in the tinct and commensurate good to the autho­ general public interest. Such benefits could rities must constitute aid within the mean­ include the adoption of good environmen­ ing of Article 92(1) of the Treaty. tal practices in a particularly sensitive sector, 21 the inclusion of a certain amount of public-interest content in broadcasts, 22 the guaranteeing of a specified level of service on an unprofitable transport route, 23 or the provision of some other

21. In the present case, France argues that State intervenes to enable employers to pay it provided for reductions in the social for a concession by employee representa- security contributions normally payable by tives regarding the reorganisation of work- employers in the sectors concerned in order ing time which they were unable to achieve to secure a benefit for the workers which without such payment (as is evidenced by would have no net effect on, or would the stalled negotiations between the social result in only a de minimis net improve- partners in the present case), then the ment in, the competitive position of the undertakings in question can be said to employers. Without affecting the overall have been favoured through the use of State cost structure of the employing undertak- resources. As we have seen, the use of State ings, the existing workers could work for resources, without objective economic jus- shorter periods without suffering propor- tification, to subsidise cheap raw materials tionate losses in pay or holidays, fewer of or credit for certain undertakings constitu- them would be made redundant, and a tes a grant of State aid. The situation certain number of unemployed young peo- should be no different where the State ple would be engaged — all public-interest intervenes to enable employers to make benefits which France would contend are external to the specific interests of the concessions to workers regarding more undertakings and payment for which by the flexible conditions for the supply of their authorities, through a bargain with the labour. 25 In such cases, 'the authorities are employers, falls, thus, outside the scope of taking over part of those firms' labour the Treaty provisions on State aids. costs, which are normal expenditure incur- red in their own interest and conferring a financial advantage that improves their competitive position'. 26

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23. In such circumstances, the claimed concerned, it 'relieve[d] them of an addi­ public-interest aspect of the workers' enjoy­ tion to their costs which the undertakings ment of the benefits outlined in para­ would otherwise have [had] to bear and ..., graph 21 above strikes me as being less although it [did] not reduce the present compelling. They enjoy, in effect, the costs, the miners' bonus reduce[d] costs subsidised price for their labour which the which they would inevitably [have] incur­­ State enables certain undertakings to pay. red]'. 3 0 The Court included in the defini­ Similar public-interest benefits, in terms of tion of aid 'interventions which, in various employment maintenance, are probably forms, mitigate the charges which are claimed in all cases where State operating normally included in the budget of an aid saves an undertaking from insolvency, undertaking', 3 1 and concluded that the even though the net result may simply be bonus constituted aid within the meaning the exportation of unemployment to other of Article 4(c) of the ECSC Treaty. Member States 2 7 and pressure for equiva­ lent subsidies there. 2 8

issue [could] not shield it from the applica- conclude, on the information available to it tion of Article 92'. 33 when it adopted its decision in that case, that the funds provided for Kimberly Clark's social plan, rather than merely permitting a gratuitous additional benefit for employees, had relieved Kimberly Clark of certain legal obligations vis-à-vis its employees. 38 As a result, the Court did not take a position on France's argument 26. Kimberly Clark 34 concerned the provi- regarding the subsidisation of voluntary sion of public funds to support part of the additional commitments by undertakings costs of a social plan, which undertakings to their workers or former workers. How- were obliged to draw up when laying off ever, in the course of its reasoning, the workers so as to contribute to the rede- Court reiterated the definition of aid as ployment of workers and to post-redun- encompassing 'advantages granted by pub- dancy training. The precise contents of such lic authorities which, in various forms, plans were not prescribed by law and might mitigate the charges which are normally go beyond the requirements of the generally included in the budget of an undertak- applicable rules. France argued that the ing'. 39 This definition makes no distinction mechanisms in question did not constitute between the voluntary or obligatory nature State aid 'since their implementation [did] of the charges at issue. not help undertakings to meet their legal obligations and [called] for additional efforts on their part over and above the cost to them of strictly complying with the requirements of the ordinary law'. 35 Undertakings could decline to avail of the financial support available and devise their own minimal social plan. The disputed mechanisms, on the other hand, were 'intended to enable undertakings to do more than the minimum necessary to discharge their legal obligations regarding social plans'. 36 It transpired, however, that the French Government had failed to respond to the Commission's specific request for information on what the costs 27. The applicability to the facts of the of a social plan would have been in the present case of the above-quoted rulings of circumstances of that case if it had been the Court on the definition of State aid is limited to the minimum prescribed by not, in my view, affected by the voluntary French legislation. 37 The Commission aspect of the employers' 'bargain' with the was, thus, in the Court's view, entitled to French State. In fact, this ensured that the aid need only be availed of by those

employers who perceived that they could conditions, whether it be to maintain derive a net benefit from the combination employment, to engage in restructuring, of reductions in contributions, reorganisa­ or simply to continue operations in the face tion of working time, maintenance of of otherwise imminent insolvency. This employment levels and concessions to does not take away from the entirely 40 workers. Indeed, given the risk, of which 'normal' budgetary character of expendi­ any well-advised company should have ture incurred by companies in such circum­ 41 been aware (and to which the Commis­ stances. sion asked the French Government to alert all participants in the scheme), that the aid would have to be repaid, it would have been unwise to accept the State's terms without the prospect of significant net gains. Furthermore, labour-related costs cannot be converted from a 'normal' bud­ getary charge into a 'special' one, outside the reach of Article 92 of the Treaty, by a series of agreements linked to a State regulatory regime, all of which agreements are designed to establish a link between the benefit and the obligation. As the Commis­ sion has pointed out, it is impossible to determine what concessions the employers would have agreed to in return for the reorganisation of working time if the State 28. I would conclude, therefore, to use the had not intervened. 42 More to the point, it terms already employed by the Commission is normally the purpose of aid to induce or in the contested Decision, that the sectoral enable undertakings to take steps which are reduction in employers' social security not otherwise open to them in competitive contributions at issue in the present case 'constitutes by its very nature and in its totality State aid'. It is not open to France to place the cost of the reductions in the balance with the cost of the employers' concessions to their workers in order to determine whether the State was engaging in contractual relations with the employers with a view to securing some distinct public benefit when it was, in reality, granting aid. Those concessions, if they were excessive in 40 — See the Opinion of Advocate General Jacobs in Kimberly Clark, loc. cit., paragraph 45, and that of Advocate relation to what the employers would General Darmon in Joined Cases C-72/91 and C-73/91 otherwise have been prepared to agree to, Sloman Neptun ν Bodo Ziesemer [1993] ECR I-887, paragraph 44. merely represent the inevitable distortion of 41 — See, for example, the Commission Communication of participating employers' operating costs 24 November 1983, OJ 1983 C 318, p. 3. resulting from their acceptance of State 42 — Even in a situation of extensive lay-offs, where an under­ taking might be thought to have greater bargaining power aid on the State's terms. Thus, for reasons over its workers, Advocate General Jacobs took the view that it could, none the less, derive certain advantages from set out at the beginning of this section, concluding an agreement providing for more than the legally prescribed minimal Denefits: see paragraph 62 of there is no need to address France's second his Opinion in Kimberly Clark, loc. cit. and third arguments.

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