C-113/00

SPAIN v COMMISSION

OPINION OF ADVOCATE GENERAL JACOBS delivered on 24 January 2002 1

1. In these two cases Spain seeks the Case C-113/00 annulment of two Commission decisions which concern in Case C-113/00 an aid scheme in favour of horticultural products intended for industrial processing in Extre- madura 2and in Case C-114/00 an aid scheme to finance operating capital in the agricultural sector in Extremadura. 3 Background

3. Decree 84/1993 of the Junta de Extre- madura (Government of Extremadura) 4 establishes a system of aid for horticultural products intended for industrial processing. It provides that the products eligible for aid, the amount of the aid and the maxi- mum quantity eligible for aid are to be laid down for each marketing year by an Order.

7. The Commission — which had not received a notification — requested by letter of 8 February 1999 confirmation of the existence of the Order and of its entry 6. The Order determines essentially: into force. Following an exchange of cor- respondence with the Spanish authorities 6 and comments from the European Union of the Potato Processing Industries, on 22 De- cember 1999 the Commission adopted the contested decision.

— the horticultural products for which aid can be paid (e.g. peppers for the production of ground pepper, 'indus- trial gherkins', cabbages for dehy- dration, potatoes for freezing); 8. In the contested decision the Commis- sion finds that:

— the amount of aid per kilogram of products supplied for processing (ESP — the Order fulfils the criteria laid down 5/kg for peppers for the production of in Article 87(1) EC and thus consti- ground red pepper — designation of tutes State aid; origin Pimentón de la Vera and for industrial gherkins, ESP 1.5/kg for all 6 — The Commission's decision to open the procedure provided other products); for in Article 88(2) EC is published in OJ 1999 C 233, p. 37.

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— the derogations provided for in — as regards Article 87(3)(a) and (c) EC Article 87(2) EC clearly do not apply; the aid could thus adversely affect trading conditions to an extent contrary to the common interest and is therefore ineligible for any of the d e r o g a t i o n s p r o v i d e d for in Article 87(3) of the Treaty. — as regards the aid for potatoes (a product listed in Annex I to the Treaty but not covered by a common organi- sation of the market) the Commission can by virtue of Article 36 EC and 9. The Commission concludes that the aid Council Regulation No 26 as has not been notified, that its granting was amended7 only recommend that the illegal, that the aid (with the exception of Spanish Government abolish the aid; that for potatoes) is incompatible with the common market and that it must be recovered from the beneficiaries.

and 87(1) EC since it does not contain a — refers to data on vegetables in general sufficient statement of reasons why the and not on vegetables intended for measure affects trade between Member industrial processing or on the particu- States. In its view that is essentially because lar vegetables which are covered by the in fact the measure has no effects on Order; intra-Community trade. The arguments of the Spanish Government may be summa- rised as follows.

— refers to data concerning Spain as a whole and not Extremadura; and

12. Only paragraph 21 of the contested decision contains statements on the alleged effects on trade between Member States. In that paragraph the Commission merely states however that Spain produces 115 — does not relate its data to the maxi- million tonnes of vegetables and that there mum total quantities eligible for aid is a significant volume of trade in veg- under the Order. etables between Spain and the rest of the Community. By way of example the Com- mission refers to the year 1998 in which Spain is said to have imported 3 million tonnes of vegetables from the other Member States and exported 29 million tonnes of vegetables to them. 14. The Commission's reference to the quantities of vegetables imported to and exported from Spain is also incoherent and therefore misplaced.

13. Those statements are insufficient because they do not reflect the reality of the specific market concerned. The Com- 15. Moreover, the present case is not one in mission which the very circumstances in which the aid is granted are sufficient to show that the aid is capable of affecting trade. 8 That is apparent, first of all, from the small total amount of aid and the fact that is was divided among a large number of growers who each receive an insignificant amount — refers to the total production of veg- etables in Spain without mentioning 8 — See Case 248/84 Germany v Commission [1987] ECR 4013, the year of reference; paragraph 18 of the judgment.

16. Finally, a detailed analysis of the Court's case-law 10 confirms that the Com- mission's reasoning on this point is insuf- 19. Second, it follows from paragraph 21 ficient. of the contested decision mentioned above that the volume of Spanish production of vegetables is significant, that a quarter of 9 — The Spanish Government refers to the Community guide- that production is exported to the rest of lines on State aid for rescuing and restructuring firms in difficulty, OJ 1994 C 368, p. 12. the Community and that only a relatively 10 — The Spanish Government refers to and discusses in detail Case 323/82 Inter/mils v Commission [1984] ECR 3809, small quantity of vegetables from other paragraphs 38 and 39 of the judgment; Joined Cases Member States is imported. The effects of a 296/82 and 318/82 Netherlands and Leeuwarder Papier- warenfabnek v Commission [1985] ECU 809, paragraphs given aid on intra-Community trade are 22 to 24; Case 57/86 Greece v Commission [1988] ECR 2855, paragraphs 14 to 16; Case 310/85 Dcufil v Com- particularly manifest where the volume of mission [1987] UCR 901, paragraphs 9 to 14; Case exports from the Member State granting C-301/87 france v Commission [1990] ECR I-307, para- graphs 32, 35, 43 and 44; Case C-169/95 Spam v Commission [ 1997] ECR I-135, paragraphs 37 and 38; CaseT-214/95 Vlaams Gewest v Commission [1998] ECR 11-717, paragraphs 63 to 66; Case 102/87 Commission v 11 — Council Regulation (EC) No 2200/96 of 28 October 1996, France 11988] UCR 4067, paragraphs 17 to 2 1 . OJ 1996 L 297, p. 1.

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22. The Spanish Government's first plea 21.Finally, the Commission should be contains in effect two distinct arguments, allowed to establish the effect on trade in namely the substantive argument that trade relatively general terms and should not be between Member States is not affected and required to provide a more detailed econ- the formal argument that the contested omic analysis of the effects of the measure decision does not contain a sufficient on intra-Community trade. The Commis- statement of reasons on that point. sion usually possesses only certain general statistics but no detailed data about for example the production of vegetables in a particular region or the total production of specific vegetables in a given Member State or still less the quantities of specific prod- ucts from a particular region intended for a specific use or consumption. If a more 23. As to the substantive argument it is clear from the Court's case-law that the

12 — The Commission refers to the fourth paragraph of the Commission notice on the de minimis rule for State aid, 13 — Case T-214/95, cited in note 10, paragraph 67 of the 0J 1996 C 68, p. 9. judgment.

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requirement of an effect on trade between liable to affect trade between Member Member States is easily satisfied. 14 For States. 18 Conversely it is conceivable that example, the relatively small amount of aid in economic sectors with little competition or the relatively small size of the undertak- in intra-Community trade (e.g. car repairs, ing which receives it does not as such taxis, restaurants or sectors with pro- exclude the possibility that intra-Commu- hibitive transport costs) aid of a relatively nity trade might be affected. 1 5The Court small amount granted to small undertak- has also refused to establish a threshold ings operating on essentially local markets below which intra-Community trade is not might not affect trade between Member affected. 16 States.

18 — Sec Case 259/85 France v Commission [1987] ECR 4393, 14 — Sec my Opinion in Joined Cases C-278/92 to C-280/92 paragraph 24 of the judgment (textile and clothing sector); Spain v Commission [1994] ECR I-4103, paragraph 33. Case C-303/88 Italy v Commission [1991] ECR I-1433, paragraph 27 (textile and clothing sector); Case C-305/89 15 — Case C-142/87 Belgium v Commission [1990] ECR I-959, Italy v Commission [1991] ECR I-1603, paragraph 26 paragraph 43 of the judgment, and Spam v Commission, (motor vehicle sector); Joined Cases C-278/92 to C-280/92 cited in note 14, paragraphs 40 to 42. Spam v Commission, cited in note 14, paragraph 41 16 — Belgium v Commission, cited in note 15, paragraph 43 of (textile and footwear sector). the judgment. 19 — See the background to Case C-265/95 Commission v 17 — C a s e 730/79 Philip Morris v Commission [1980] ECR France [ 1997] ECR I-6959, which concerned imports from 2671, paragraph 11 of the judgment. Spain into France.

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creates a comprehensive reference frame- direct consequence of such aid is the work encouraging fair trading and market improvement of production and marketing t r a n s p a r e n c y in i n t r a - C o m m u n i t y opportunities. It thus encourages both the exchanges. 20 production of the vegetables in question and a certain type of processing.

29. Furthermore, the Spanish Government cannot validly argue that the measure does not encourage the production of vegetables 32. As to the Spanish Government's formal but only a certain type of processing. By argument it is settled case-law that in cases granting a certain amount of aid per where the circumstances are sufficient to quantity of product supplied for process- show that the aid is capable of affecting ing, the aid reduces growers' production intra-Community trade the Commission costs in respect of the products supplied. A must at least set out those circumstances in the statement of reasons for its decision. 23 20 — See recital 3 of the preamble of Council Regulation (EC) No 2200/96, cited in note 11. 21 — Commission notice on the de minimis rule for State aid, cited in note 12; see now Article 1(a) of Commission 22 — See Greece v Commission, cited in note 10, paragraph 15 Regulation (EC) No 69/2001 of 12 January 2001 on the of the judgment. application of Articles 87 and 88 of the EC Treaty to de 23 — See, for example, Germany v Commission, cited in note 8, minimis aid, OJ 2001 L 10, p. 30. paragraph 18 of the judgment.

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35. Second, it is true that at first sight the 37. Moreover, since in the present case the reasoning in paragraph 21 of the contested effect on trade between Member States is decision on the effects of the measure on clear (in view of the intense intra-Commu- trade between Member States seems to be nity competition in the sector concerned scant.

26 — See for example Case 234/84 Belgium v Commission [1986) ECR 2263, paragraph 22 of the judgment; Joined 24 — Report from the Commission to the Council on the state of Cases Spain v Commission, cited in note 14, paragraphs 36 implementation or Regulation (EC) No 2200/96 on the to 39; see however also Joined Cases C-329/93, C-62/95 common organisation or the market in fruit and vegetables and C-63/95 Germany and Others v Commission |1996) of 24 January 2001, COM(2001) 36 final, p. 6. ECR I-5151, paragraphs 50 to 53; for further references 25 — See for criteria when an issue mav be raised by the Court of and a thorough discussion see J.-P. Keppenne, Guide des its own motion mv Opinion in Case C-210/98 P Salzitter aides d'État en droit communautaire, Bruylant, Brussels, 12000] ECR I-5843, paragraphs 140 to 143. 1999, paragraphs 159 to 169.

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OPINION OF MR JACOBS — CASES C-113/00 AND C-114/00

and of the existence of a common organi- — Arguments of the parties sation of the market) the Commission was not required to carry out and present a more detailed economic analysis of figures concerning trade in the vegetables in issue or concerning specifically the region of Extremadura. 27

39. Article 87(3) EC enumerates several categories of aid which may be considered to be compatible with the common market. Article 87(3)(a) refers to 'aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious unemployment'. Article 87(3)(c) refers to 'aid to facilitate the development of certain economic activ- 41. Second, the Commission wrongly clas- ities or of certain economic areas, where sifies the measure as operating aid for the such aid does not adversely affect trading agricultural sector and not as regional aid conditions to an extent contrary to the falling under Article 87(3)(a). Decree common interest'. 84/93, on which the measure is based, is however expressly designed to adapt production to the requirements of the market, to promote diversification of 27 — Vlaamse Gewest v Commission, cited in note 10, para- graph 67 of the judgment. production and to encourage the develop-

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SPAIN v COMMISSION

ment of products with important beneficial in the present case — there is a common social consequences. The aid manifestly has organisation of the market under which a social objective in that it aims to create growers already receive financial assist- stable contractual relations between ance. Finally, it follows from the Court's growers and processors, to guarantee con- case-law that even mere incitement to sell stant supply to processors and to encourage all products to processors established in processors to set up in the region of Extremadura or Spain are a restriction of production. exports prohibited by Article 29 EC.

regards the derogations provided for in Article 87(3)(c), on the other hand, is wider Article 87(3)(a) and (c)... the aid could in scope inasmuch as it permits the deve- adversely affect trading conditions to an lopment of certain areas in a Member State extent contrary to the common interest'. 30 which are less favoured in relation to the national average without being restricted by the economic conditions laid down in Article 87(3)(a), provided such aid 'does not adversely affect trading conditions to an extent contrary to the common interest'. Conversely, the absence of that condition in the derogation under Article 87(3)(a) implies greater latitude in granting aid to 47. At first sight the decision seems thus to undertakings in regions which do meet the be based on two distinct (albeit not criteria laid down in that derogation. 32 mutually exclusive) findings. The Commis- sion's extensive analysis of the aid's adverse effect on trading conditions 31 suggests however that it is in fact the second finding which supports the Commission's con- clusion that it is not eligible for any of the derogations provided for in Article 87(3). What must therefore be determined is whether it was lawful for the Commission to find that both Article 87(3)(a) and (c) do not apply because the measure adversely affects trade to an extent contrary to the common interest.

52. In the present case the aid depends on the quantities produced and supplied under 50. In the contested decision the Commis- contracts to processors. Such aid linked to sion invokes three reasons for concluding supply contracts is by its very nature that the aid adversely affects trading con- operating aid since it directly and immedi- ditions to an extent contrary to the com- ately reduces the production costs per unit mon market: the aid in question is oper- and thus the current expenses of growers. 36 ating aid, it has been granted despite the existence of a common organisation of the market and it contains a requirement which constitutes an infringement of Article 29 of the Treaty. 35

53. As to the Spanish Government's argu- ment that the aid has the structural objec- tives of adapting production to the require- ments of the market, of promoting diver- 51. As regards, first, the nature of the aid, sification, of encouraging the development it follows from the case-law that operating of products with important beneficial social aid, that is to say aid intended to relieve an consequences and of creating stable con- undertaking of the expenses which it would tractual relations between growers and itself normally have had to bear in its processors, it will be noted first that the day-to-day management or its usual activ- Spanish Government has failed to demon- ities, does not in principle fall within the strate that the operating aid in issue is in scope of Article 87(3)(a) or (c). That is fact capable of contributing to the achie-

54. In the agricultural sector however the Guidelines on National Regional Aid do not in any event apply. 38 The categories of operating aid in that sector which are, exceptionally, compatible with the com- mon market are governed by special rules 39 56. As regards finally Article 29 EC, the and none of those rules permits aid of the contested decision does not state — as the type in issue in the present proceedings. Spanish Government wrongly assumes ·— that growers are obliged to sell their production to processors. The decision states only that 'in order to receive the aid, growers are obliged to sell their production to processors in the region'. It is in my view clear from that formula and from the decision as a whole that the decision does not refer to a legal obligation but merely to a precondition for receiving State aid. Moreover it is well established case-law 55. As regards, second, the existence of a that a national measure encouraging the common organisation of the market, the purchase of domestic products must be contested decision refers correctly to the regarded as a measure having an effect Court's consistent case-law that the com- equivalent to a quantitative restriction on mon organisations of the market must be imports. 42 Conversely, financial incentives considered comprehensive and exhaustive systems which preclude the Member States 40 — Case 177/78 Pigs and Bacon Commission v McCarren 11979] ECR 2161, paragraph 14 of the judgment; see also, for example, Case C-35/88 Commission v Greece [1990] 37 — See in this respect points 4.15 to 4.17 of the Guidelines, ECR 1-3125, paragraphs 29 and 30. OJ 1998 C 74, p. 9. 41—Case 169/82 Commission v Italy [1984] ECR 1603, 38 — See point 2 of the Guidelines. paragraph 33 of the judgment. 39 — See now the Community Guidelines for State aid in the 42 — Case 249/81 Commission v Ireland [1982] ECR 4005, agricultural sector, OJ 2000 C 28, p. 2. paragraphs 27 to 29 of the judgment.

61. The aid takes the form of an interest- rate rebate for loans lasting less than one Background year. The rebate in question ranges from 0.5 to 5 percentage points depending on the beneficiary.

59. The contested decision in Case 43 — Dūrio Oficial de Extremadura No 45, 15 April 1993, C-114/00 concerns Decree 35/1993 of p. 1027.

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62. In the case of farmers the interest-rate tura y Comercio de la Junta de Extremad- rebate is up to five percentage points for ura 44 lays down for the 1997/98 marketing farmers practising farming as their main year the following products: dried figs and occupation and up to four percentage fig paste, peppers for the production of points for other farmers; where there is ground red pepper, Iberian swine, olives for Community or State part-financing, the the production of olive oil and tomatoes for beneficiary must pay a minimum interest dehydration other than powdered tom- rate of 6% (4% for farmers practising atoes. The interest-rate rebate provided farming as their main occupation). for is five percentage points and the maxi- mum duration one year.

63. In the case of cooperatives and other associations, the rebate is up to one per- 66. Ceilings are placed on the aid: for centage point for the purchase of inputs farmers these are maximum amounts per (with an additional 0.5 percentage point for hectare, product and animal, for cooper- the purchase of certified plants and seeds atives the average value of inputs purchased and a further 0.5 percentage point for the in the last three years plus 10% and for purchase of straight fertilisers) and up to processing undertakings the value of the five percentage points in the case of loans loan. to provide operating capital for seasonal payments to members.

— the aid was not granted as regional aid 69. In that decision the Commission finds but as operating aid for the agricultural that: sector;

— as regards the aid for agricultural products listed in Annex I to the Treaty — in assessing the measure, a distinction but not covered by a common organi- must be made between the period sation of the market (potatoes other before and that following 30 June than for starch, horsemeat, honey, 1998 because on that date the appli- coffee, vinous alcohol, spirit vinegar cation of the Commission 'Communi- and cork) the Commission can by cation on State aids: subsidised short- virtue of Article 36 EC and Council term loans in agriculture' 46 resumed; Regulation No 26 as amended only recommend that the Spanish Govern- ment abolish the aid;

— the aid granted to farmers, agricultural cooperatives and other associations — as regards agricultural products listed before 30 June 1998 meets the then in Annex I to the Treaty and covered applicable criteria for that type of aid by a common organisation of the and is therefore eligible for derogation market the measure in issue fulfils the under Article 87(3) EC; criteria laid down in Article 87(1) EC and thus constitutes State aid; 46 — OJ 1996 C 44, p. 2; in footnote 6 of the contested decision the Commission explains that by letter dated 4 July 1997 the Commission informed the Member States of its 45 — The Commission's decision to open the procedure pro- decision to suspend application of that Communication vided for in Article 88(2) EC is published in OJ 1999 and, by letter dated 19 December 1997 informed them C 225, p. 6. that it would reapply it from 30 June 1998.

The first plea alleging that the Commission committed a manifest error of assessment in so far as part of the aid has never been paid — consequently with the exception of the aid granted before 30 June 1998 to farmers, agricultural cooperatives and associations the aid scheme in question must be considered to be operating aid incompatible with the common market 72. The Spanish Government submits that and is ineligible for any of the deroga- the contested decision is void in so far as it tions provided for in Article 87(3) EC. declares aid granted after 30 June 1998 incompatible with the common market and requires its recovery. That is because the Government of Extremadura suspended the aid for the marketing year 1998/99 with the result that after 30 June 1998 no aid was granted or paid. The Commission cannot claim that it did not know about 70. The Commission concludes that the aid that suspension since it had to assume that has not been notified, that its granting was the Spanish Government would comply

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with its obligation under the Treaty to 74. The Spanish Government's first plea suspend the payment of the aid after the must therefore be rejected. procedure provided for in Article 88(2) EC was opened.

The second plea alleging a lack of effect on intra-Community trade and an infringe- ment of the obligation to state reasons

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the cumulative effect even of small amounts The third and fourth plea alleging an of aid granted to a large number of small infringement of Article 87(3) (a) and (c) operators is such that there is liable to be an and of the obligation to state reasons effect on trade between Member States within the meaning of Article 87(1) EC.

80. The Spanish Government and the Com- mission again exchange much the same arguments as in Case C-113/00. To the extent that the contested decisions and the 78. As to the obligation to state reasons, arguments invoked are identical I can refer the contested decision refers to the exist- to the assessment made above. In that ence of common organisations of the connection I would only stress that accord- market, 48 points out that there is a sig- ing to the Court's case-law52 the Spanish nificant volume of trade in agricultural 49 Government cannot validly claim that in products between Spain and the rest of the relation to a region falling under Community, gives figures about the volume Article 87(3)(a) EC the Commission cannot of that trade, 50 and explains that the take into account the aid's adverse effects measures in issue have a direct and immedi- on trading conditions. ate effect on the production costs of under- takings producing and processing agricul- tural products in Spain which give the Spanish beneficiaries of the aid an econ- omic advantage over those undertakings which do not have access to comparable aid in other Member States. 51 All the circumstances which show that trade between Member States is affected are 81. The three arguments which the Spanish therefore referred to in the decision. Government submits only in the present case (and not in Case C-113/00) are as follows.

83. The Commission replies that the Com­ munication in question has been replaced by the 'Guidelines on National Regional Aid' published on 10 March 1998, 54 that 86. But even under the Communication of those Guidelines are the rules applicable 1988 operating aid could be authorised ratione temporis since they were the law in only if certain conditions were satisfied, force when the contested decision was one of those conditions being that the aid adopted on 22 December 1999 5 5 and that must not give rise to a sectoral overcapacity aid granted in the agricultural sector is at the Community level such that the outside the scope of the Guidelines in resulting Community sectoral problem is question. 56 more serious than the original regional problem; in this context the Communi­ cation of 1988 requires a sectoral approach and in particular that the Community rules applicable to the agricultural sector and certain industrial undertakings involved in the transformation of agricultural products are observed. 84. I consider — and the Spanish Govern­ ment does not seem seriously to contest this point — that any aid granted after 30 June 1998 had to be assessed according to the system established by the new Guidelines of 10 March 1998 which entered into force before the aid was granted and exclude aid in the agricultural sector from their scope of application.

87. In any event it must be borne in mind 53 — See point I 6 of that Communication, OJ 1988 C 212, p. 2. that the Commission declares the aid 54 — Cited in note 36. granted to processors before 30 June 1998 55 — Tile Commission refers to Case T-158/96 Acciaierie tit Balzano [1999] F.CR II-3927, paragraph 65 of the judg­ incompatible not because it is operating ment and Case T-132/96 Pretstatīt Sachsen and Others v aid, but mainly because it constitutes a Commission [1999] ECR II-3663, paragraphs 192 and 203 et seq. restriction on the free movement of goods 56 — See point 2 of the Guidelines, cited in note 36. in that processors using raw materials from

90. The Spanish Government argues, third, that any aid granted after 30 June 1998 fulfils the requirements set out in the Commission Communication on subsidised short-term loans in agriculture 59 and should therefore be considered compatible with the common market. In its view, the aid is granted on a non-discriminatory basis 89. It is true that the scheme in issue does since every year an Order selects the sectors not prohibit the importation of raw benefiting from the aid according to objec- materials for processing in Extremadura. tive criteria. The aid is also limited to what It is however clear from the case-law that is strictly necessary and the amount of the even measures which merely encourage the subsidised loans does not exceed the cash purchase of domestic products must be flow requirements arising from the fact that regarded as measures having an effect equivalent to a quantitative restriction on 58 — See for example Case 103/84 Commission v Italy [1986] ECR 1759, paragraph 24 of the judgment. 59 — See the letter to the Member States published in OJ 1996 57 — See paragraph 42 of the contested decision. C 44, p. 2.

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production costs are incurred before however correspond to the only permissible income from sales is received, since bene- criterion under the Communication, ficiaries of the aid must pay a minimum namely that only sectors in which the interest rate and ceilings are placed on the problems of obtaining short-term loans aid. are less significant can exceptionally be excluded from a general scheme covering in principle all operators in agriculture.

93. In the present case the scheme in issue provides for an annual selection of the sectors benefiting from the aid. The sectors selected are those in which producers and processing undertaking have signed contracts approved by the authorities. Such 95. The Spanish Government's third and a criterion is perhaps objective. It does not fourth pleas must therefore also be rejected.

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Conclusion

96. Accordingly the Court should in my opinion in both Case C-113/00 and Case C-114/00:

(1) dismiss the application;