C-126/01

OPINION OF MR JACOBS — CASE C-126/01

O P I N I O N OF ADVOCATE GENERAL JACOBS delivered o n 30 April 2002 1

Introduction 3. Those questions arise in proceedings in which a meat retailing supermarket requests a refund of the meat purchase tax arguing that the arrangement estab- lished by the law in issue constitutes State aid which could not be introduced without being notified in advance to the Commis- 1. The present case, referred by the Cour sion pursuant to Article 88(3) EC. administrative d'appel (Administrative Court of Appeal) Lyon, concerns a French law establishing a public service for the collection and disposal of animal carcasses and dangerous slaughterhouse waste, which is (i) compulsory and provided free of charge for the main beneficiaries, namely farmers and slaughter-houses, (ii) operated by private carcass disposal undertakings which are remunerated for their services by the State under contracts awarded after public procurement procedures, and (iii) financed through a meat purchase tax imposed mainly on meat retailing super- markets, but not on small meat retailers.

4. Among the important issues raised in this case is one recently considered by the 2. The issues are essentially whether the Court in Ferring 2and currently before the law contains State aid in favour of farmers Court in Altmark Trans, 3namely whether, and slaughterhouses which receive a service and under what conditions, financial com- free of charge, of carcass disposal under- pensation granted by a Member State to an takings selected and paid by the State for undertaking providing a public service the operation of the service in question, should be regarded as State aid. and/or of those small meat retailers who do not have to pay the meat purchase tax. 2 — Case C-53/00, judgment of 22 November 2001, [2001] ECR I-9067. 3 — Case C-280/00, judgment of 24 July 2003, [2003] 1 — Original language: English. ECR I-7747.

6. Animal material not intended for human 8. For that purpose a distinction must be consumption can be used in various ways. drawn between animal material which The vast majority of such material is used should be excluded from the feed chain by the rendering industry for the produc- and other such material which may con- tion of animal feed (i.e. feed of animal tinue to be used for the production of origin for farmed animals including meat animal feed. Second, new ways must be and bone meal and rendered fats). The devised to dispose of those materials which remainder is used for example for the are excluded from the feed chain, because production of petfood and technical prod- material which previously was used as raw material for further processing is now regarded as dangerous waste which must 4 — The following introductory remarks are based on infor- be disposed of safely. Third, it must be mation contained in Commission Proposal for a Regulation decided who has to bear the costs engen- of the European Parliament and of the Council laying down the health rules concerning animal by-products not intended dered by the disposal of that new type of for human consumption, COM(2000) 574 final, OJ 2001 waste. C 96 E, p. 40.

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10. Under a law of 31 December 1975 carcass disposal undertakings were obliged to collect and dispose of all animal car- 12. Against that background the French casses and slaughterhouse waste in a given legislature adopted Law No 96-1139 of geographical area. As a compensation they 26 December 1996 on the collection and were granted a monopoly for the provision disposal of animal carcasses and slaughter- of their services for that geographical area. house waste and modifying the Rural Their activity was normally profitable Code 5('Law No 96-1139') and the two because they could transform all the raw implementing Decrees «No 96-1229 of material — including material now con- 27 December 1996 6and No 97-1005 of sidered as dangerous — into secondary 30 October 1997. 7 The Law and the products and in particular into animal feed. Decrees in question insert a number of Therefore the collection of animal material was in principle performed free of charge. However, where the undertakings in ques- 5 — JORF 19184 of 27 December 1996. 6 — JORF 19697 of 31 December 1996. tion could not perform their collection and 7 — JORF 15908 of 1 November 1997.

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new provisions into the Rural Code, 8insert — slaughterhouses, without weight limi­ one new provision into the General Tax tation, in respect of carcasses of ani­ Code 9 and contain one free-standing provi­ mals which died before slaughter and sion. 1 0 of meat and offal seized at the slaughter­ house found unfit for human or animal consumption.

16. It follows from those rules and the travaux préparatoires of Law No 96-1139 that the obligatory public carcass disposal service is intended to cover approximately — owners and holders of carcasses of that 10% of animal material not intended dead animals or batches of dead ani­ for human consumption which is con- mals weighing more than 40 kilo­ 11 grams; 12 — It follows from the travaux préparatoires of the law and the terminology used in Council Directive 90/667/EEC of 27 November 1990 laying down the veterinary rules for the disposal and processing of animal waste, for its placing 8 — See paragraphs 13 to 18. on the market and for theprevention of pathogens in 9 — See paragraphs 15 to 23. feedstuffs of animal or fish origin and amending Directive 10 — See paragraph 24. 90/425/EEC (OJ 1990 L 363, p. 51) that the concept of animal waste covers essentially all animal material not 11 — That weight restriction appears to be designed to exempt intended for direct human consumption. owners of dead pets from the obligatory use of that service.

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sidered to be dangerous (carcasses and The financing of the public carcass disposal other condemned material). By contrast service the disposal and further processing of the remaining 90% (in particular parts of slaughtered animals fit, but not intended for human consumption) are left to the slaughterhouses and the establishments concerned and thus to the free market. 19. In order to guarantee the financing of the public carcass disposal service Law No 96-1139 inserted Article 302 bis ZD into the General Tax Code (Code General des Impôts).

GEMO

23. The tax is to be determined, collected The main proceedings and the order for and checked according to the same pro- reference cedures and subject to the same penalties, safeguards and privileges as value added tax. 26. GEMO SA ('GEMO') manages a medium-sized supermarket with a butchery counter at Venarey Les Launes (Côte d'Or).

24. Article 1 B of Law No 96-1139 estab- lishes the link between the tax regulated in 27. By judgment of 25 May 2000 the the General Tax Code and the public Tribunal administratif de Dijon (Adminis- carcass disposal service regulated in the trative Court, Dijon) granted GEMO a Rural Code. Under that provision the sums refund of the tax on meat purchases which generated by the tax are paid into a fund it had paid between 1 January 1997 and operated by the Centre national pour 31 August 1998 in the amount of l'aménagement des structures des exploi- FRF 106 178 (about EUR 16 200). That tations agricoles. The fund's objective is to court considered that the arrangement finance the collection and disposal of established by Law No 96-1139, first, animal carcasses and animal material constituted State aid within the meaning seized in slaughterhouses found unfit for of Article 87 EC which could not be human or animal consumption. introduced without being notified in advance to the Commission under Article 88(3) EC, and second, was incom- patible with the prohibition of discrimina- tory taxation under Article 90 EC.

thus supports the marketing of French- 31. The referring court recalls that the produced meat to other Member States at a validity of acts of national authorities is lower price. That State aid should not have adversely affected by the breach of the been introduced without notification. Sec- o b l i g a t i o n i m p o s e d on t h e m by ond, the tax has an equivalent effect to a Article 88(3) EC not to put into effect any customs duty because meat products plans to alter or grant aid which they have imported from other Member States not notified to the Commission. 17 It con- (whose production costs include that of siders that the arrangement established by carcass disposal) have to bear the economic Law No 96-1139 cannot be regarded as burden of the tax on meat purchases whilst State aid in favour of carcass disposal the apparent economic burden on meat undertakings since the remuneration paid produced in France is cancelled out by the to those undertakings by the State repre- advantage of the public carcass disposal sents the price of the services which they service provided free of charge. Third, the perform. The public carcass disposal ser- general nature of its scope of application vice provides farmers and slaughterhouses and its proportionate rate give the tax in however with the free collection and issue the character of a turnover tax whose destruction of waste which they produce. introduction is contrary to Community It might thus be regarded as relieving an value added tax rules. economic sector of a burden which it would normally have to bear. Moreover the plan to introduce the tax on meat purchases was not notified to the Commis- sion.

European Community (now Article 87 on the argument that an exemption from EC).' that contribution enjoyed by other oper- ators constitutes (unnotified) State aid in order to avoid the payment or to obtain the repayment of that contribution. In EKW and Idéal Tourisme the Court therefore found it unnecessary to assess whether the 33. Written observations were submitted measure constituted State aid since that by GEMO, the French Government and the question was 'wholly irrelevant' to the Commission. At the hearing all those who main proceedings. 21 According to the had submitted written observations and the French Government, it follows from that United Kingdom Government were repre- case-law that even if the scheme set up by sented. Law No 96-1139 were to be classified as State aid, the referring court could at most order the recovery of that aid, but not grant to GEMO a refund of the tax. In its view, the question as to the classification of the measure as State aid is thus irrelevant for 34. GEMO states that the compatibility of the main proceedings. the tax in issue with the Community State aid rules and with the prohibition of discriminatory taxation pursuant to Article 90 EC has been challenged in several other proceedings in France.

36. Despite its apparent attractiveness I am not convinced by that line of argument.

Admissibility

the financing side of a broader State aid may sometimes even be required by Com- scheme in favour of French farmers and munity law to ensure the effectiveness of slaughterhouses and in favour of carcass the prohibition in the last sentence of disposal undertakings. In numerous cases Article 88(3) EC. concerning the compatibility with Commu- nity law of parafiscal charges levied by a Member State which were brought by applicants unwilling to pay those charges the Court has not hesitated to reply to questions regarding the classification of the 40. According to the first sentence of measures as State aid. 22 Article 88(3) EC 'the Commission shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid'. According to the last sentence thereof 'the Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision'.

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same question as in Lorenz- Here the Court 44. Under the principle of procedural was more explicit and held that 'the last autonomy it is then in my view for the sentence of Article [88(3) EC] is to be national legal order to determine precisely interpreted as imposing on authorities of which national measures are affected by Member States an obligation whose that invalidity and what consequences that infringement will affect the validity of invalidity has for example for the refund of measures giving effect to aid...'. 25 The charges collected on the basis of the Court held also that 'national courts must measures concerned. The only limitations offer to individuals in a position to rely on on that autonomy are the principle of such breach the certain prospect that all the equivalence and the principle of effective- necessary inferences will be drawn, in ness. accordance with their national law, as regards the validity of measures giving effect to the aid, the recovery of financial support granted in disregard of that provi- sion and possible interim measures.' 26

45. It seems to me that a national court which wishes under its national law to order the refund of charges collected on the basis of a law adopted in violation of Article 88(3) EC does not violate any of those principles but furthers the effective- ness of Community law.

43. It follows from that case-law that one of several consequences of the violation of the last sentence of Article 88(3) EC is the 46. As regards, second, the assertion that invalidity of the measures giving effect to the reply to the question referred is mani- the aid and that the sanction of invalidity is festly irrelevant for the main proceedings, it as important as for example the sanction of must be recalled that it is solely for the the recovery of the aid. referring court to determine both the need for a preliminary ruling and the relevance of the questions which it submits to the 25 — Operative part of the judgment. Court. Only where it is obvious that the 26 — Paragraph 12 of the judgment. That was confirmed in Case requested interpretation of Community law C-39/94 SFEI, cited in note 17, paragraph 40 of the judgment. bears no relation to the actual facts of the

47. My analysis seems confirmed by the 50. As an important preliminary point, judgment in Ferring 28 which was delivered which must be borne in mind throughout after EKW, Idéal Tourisme and Banks. In the consideration of the present case, it Ferring the French Government had con- must be stressed that the issue in the tested the admissibility of the reference on present case is not whether Law the basis of exactly the same arguments as No 96-1139 is compatible with the State in the present case. In his Opinion Advo- aid rules of the Treaty. The assessment of cate General Tizzano rejected those argu- the compatibility of aid measures with the ments for reasons similar to those set out common market falls within the exclusive above. 29 In its judgment the Court did not competence of the Commission, subject to even mention the French Government's review by the Community Courts. Even if objection and may therefore be taken to Law No 96-1139 constitutes State aid, it have endorsed the Advocate General's line may still be authorisable. In that connec- of argument. tion it will be noted that the Commission recently authorised BSE-related aid meas- ures in Belgium and Germany, which con- cerned inter alia the costs of BSE tests and of the disposal of risk material. 30

48. Accordingly, the reference is admiss- ible. 51. At issue in the present case is therefore only the scope of application of the regime 27 — See, inter alia, Case C-415/93 Bosman [1995] ECR I-4921, paragraph 59 of the judgment. 28 — Cited in note 2. 30 — See the Commission press release of 13 February 2002, 29 — Paragraphs 20 to 24 of the Opinion. IP/02/246.

52. Second, the scope of the question referred must be clarified. The French Government maintains that the referring court wishes only to know whether the law in issue contains State aid in favour of farmers and slaughterhouses. The Commis- sion discusses by contrast whether there is State aid in favour of farmers and slaught- erhouses (who receive a service free of charge), of carcass disposal undertakings (who receive payments for their services), 54. Third, the written and oral observa- of small meat retailers (who are exonerated tions have concentrated on the three ques- from the payment of the meat purchase tions whether the law in issue grants tax), of meat wholesale undertakings (who economic advantages within the meaning are equally exempted from the burden of of Article 87(1) EC in favour of certain the tax) and/or of hotels and other clients undertakings or the production of certain of meat wholesale undertakings (who bene- goods which distort competition and affect fit indirectly from the exemption of meat trade between Member States. All those wholesale undertakings). submitting observations accept by contrast that the advantages in question are 'granted by a Member State or through State resources'. It is indeed settled case-law that where the funds used for a measure are financed through compulsory contributions (e.g. parafiscal charges) and then dis- tributed according to State legislation they 53. The referring court admittedly states must be regarded as State resources even if that, in its view, the scheme in issue cannot they are collected and administered by be regarded as State aid in favour of carcass institutions distinct from the public auth- disposal undertakings. It has none the less orities. 31 decided to ask the question whether the meat purchase tax in issue forms part of a wider arrangement which may be regarded 31 — See for example Case 173/73 Italy v Commission [1974] as aid without indicating who might in its ECR 709, paragraph 35 of the judgment.

56. GEMO and the Commission argue in essence, first, that the provision free of charge of that waste disposal service — Economic advantage within the meaning relieves farmers and slaughterhouses of of Article 87(1) EC charges which according to the polluter- pays principle they would normally have to bear. The service thus constitutes an econ- omic advantage falling under Article 87(1) EC. Second, since the service in question is designed to benefit mainly French farmers and slaughterhouses it favours 'certain 58. It will be recalled that the French undertakings or the production of certain measure in issue obliges the carcass dis- goods' within the meaning of Article 87(1) posal undertakings entrusted with the EC. Third, it affects trade between Member operation of the public carcass disposal State and distorts competition since it service to provide their collection and favours French meat exports and disadvan- disposal services free of charge and to tages meat imports from other Member receive their remuneration exclusively from States. the State.

57. The French Government replies in 59. Article 87(1) EC applies expressly to essence that the provision free of charge aid 'in any form whatsoever'. According to of the waste disposal service in question settled case-law the concept of aid thus does not constitute an advantage within the encompasses not only positive benefits, meaning of the State aid rules because it such as subsidies, but also interventions pursues a public health objective and which, in various forms, mitigate the because the service has always been pro- charges which are normally included in vided free of charge. It is thus erroneous to the budget of an undertaking and which, assume that the costs of the disposal of without therefore being subsidies in the

62. It is well established case-law that State aid may be granted indirectly via private 35 — Case 6/64 Costa [1964] ECR 585, at page 596. The same follows implicitly from Article 87(2)(a) EC which concerns aid granted to individual consumers but intended in reality to further the consumption of certain products. 32 — See, for example, SFEI and Others, cited in note 17, 36 —See Case C-379/98 PreussenElektra [2001] ECR I-2099, paragraph 58 of the judgment and my Opinion of paragraph 58 of the judgment. 13 December 2001 in Case C-482/99 France v Commis- 33 — Joined Cases 67/85, 68/85 and 70/85 Van der Kooy and sion, paragraphs 53 et seq. with further references. Others v Commission [1988] ECR 219, paragraph 28 of the judgment; see also Case C-56/93 Belgium v Commis- 37 —Case C-156/98 Germany v Commission [2000] ECR sion [1996] ECR I-723, paragraph 10. I-6857. 34 — SFEI and Others, cited in note 17, paragraph 62 of the 38 — Paragraph 22 of the judgment. judgment. 39 — Paragraphs 26 to 28 of the judgment.

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64. Third, the provision free of charge of a causes the pollution. The costs associated collection and disposal service for danger- with the protection of the environment ous animal waste relieves French farmers should be included in a firm's production and slaughterhouses of an economic costs (internalisation of costs). The prin- burden which would normally, in accord- ciple can be put into practice through a ance with the polluter-pays principle, have variety of State measures such as the to be borne by those undertakings. taxation of pollution or liability rules.

66. The polluter-pays principle has its ori- gin in economic theory and was conceived to deal with a market failure: pollution is perhaps the most important example of what economists call a negative externality, that is a loss (normally to society) which is 68. In its State aid practice the Commission not priced. In the absence of State inter- uses the polluter-pays principle for two vention a producer of chemical products causing air pollution does not pay for that pollution. He can therefore ignore the costs 40 — Declaration of the Council of the European Communities to society in deciding how much to produce and of the representatives of Governments of the Member States meeting in the Council of 22 November 1973 on the and at what price to sell his products. programme of action of the European Communities on the Pursuant to the polluter-pays principle the environment, OJ 1973 C 112, p. 1. 41 — L. Kramer, 'Das Verursacherprinzip im Gemeinschafts- costs of measures to deal with pollution recht: zur Auslegung von Artikel 130 r EWG-Vertrag', should be borne not by society through Europäische Grundrechte-Zeitschrift 1989, p. 353. 42 — Case C-293/97 Standley and Others [1999] ECR I-2603, general taxation but by the polluter who paragraphs 51 and 52 of the judgment.

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distinct purposes, namely (a) to determine 71. The role of the polluter-pays principle whether a measure constitutes State as a basic policy prescription for the aid within the meaning of Article 87(1) analysis of the compatibility of environ- EC and (b) to decide whether a given aid mental aid under Article 87(3) EC is some- may be declared compatible with the times contested. 45 In my view, there can Treaty under Article 87(3) EC. however be no serious objection to its use as an analytical tool to allocate responsi- bilities for costs in order to establish whether a given measure constitutes State aid within the meaning of Article 87(1) EC.

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73. The French Government's first counter- 75. The French Government's third and argument that the measure in issue pursues final objection that the collection and a public health objective cannot be disposal service has always been provided accepted. It is well established case-law free of charge and that its costs are there- that the notion of State aid is an objective fore not normally borne by farmers and concept. Article 87(1) EC does not dis- slaughterhouses can also not be accepted. tinguish between measures of State inter- vention by reference to their causes or aims but defines them in relation to their effects. The causes or aims of a measure are not to be taken into account for its classification as aid but only for the assessment of its compatibility under Article 87(2) and (3) EC. In the present case there might in fact 76. It must first be recalled that under the be valid reasons for a State to provide a French rules previously in force the service public carcass disposal service free of was provided free of charge only where the charge, for example to prevent farmers disposal undertakings could perform their from burying dangerous animal material on collection and disposal service 'under econ- the farm. Those reasons do not however omically satisfactory conditions'. Where affect the classification of the measure as this was not the case the law allowed the State aid. State to fix tariffs to be paid by the beneficiaries as a remuneration for the services in question. 4 7

81. It will be recalled that Law No 96-1139 indicates as the beneficiaries of the obliga- 78. Accordingly, the provision free of tory public carcass disposal service (a) charge of the public carcass disposal service owners and holders of carcasses of dead constitutes an economic advantage capable animals or batches of dead animals weigh- of constituting State aid to the undertakings ing more than 40 kilograms and (b) receiving that service. slaughterhouses.

disposal of animal material. A further 85. In that connection I cannot accept the indication that the law was in fact designed French Government's argument that essentially to benefit farmers and slaughter- between 1996 and 2000 there was practi- houses is the insertion of its provisions into cally no other country with a comparable the Rural Code. policy of eliminating dangerous animal material so that trade between Member States could not be affected because in other Member States comparable waste disposal costs did not arise. The French Government itself admits that such a policy existed in the United Kingdom. That means 83. I am therefore satisfied that the meas- that French meat exports at least to that ure essentially favours two specific cat- Member State benefited during that period egories of undertakings, namely French from a clear competitive advantage. In any slaughterhouses and farmers, and thus event the French Government has not 'certain undertakings' within the meaning submitted any evidence that farmers and of Article 87(1) EC. slaughterhouses in other Member States did not have to pay for the disposal of danger- ous animal material which they produced.

— Distortion of competition and effect on trade between Member States

90. I will therefore deal less exhaustively than might otherwise be necessary with the correct analysis of State funding of services of general interest, an issue which has already been discussed by Advocate Gen- eral Tizzano in his Opinion in Ferring 52 and by Advocate General Léger in his Opinion in Altmark Trans. 53 I will also 89. However, if the Court accepts that Law not consider whether Article 86(2) EC has No 96-1139 contains State aid in favour of direct effect in the context of the appli- farmers and slaughterhouses, the referring cation of the State aid rules and to what court will not need a ruling on the second extent it affects the procedural obligations issue: the measure in any event constitutes of the Member States under Article 88(3) State aid. Moreover, in the pending case EC 5 4 since under the solution which I will propose below those important questions do not need to be resolved in the present 50 — See the Presidency Conclusions of the European Council Meeting in Laeken of 14 and 15 December 2001, case. paragraph 26; Conclusions of the Internal Market, Con- sumer Affairs and Tourism Council meeting of 26 November 2001 on services of general interest; Com- mission Report to the Laeken European Council on Services of General Interest of 17 October 2001, 51 — Case C-280/00, cited in note 3; the issue might also arise in COM(2001) 598; Communication from the Commission Joined Cases C-34/01 to C-38/01 Enirisorse. on the application of the State aid rules to public service 52 — Opinion of 8 May 2001 in Case C-53/00, cited in note 2. broadcasting, OJ 2001 C 320, p. 5; see also the two general Commission Communications on Services of 53 — Opinion of 19 March 2002. General Interest of 1996 and 2000 in OJ 1996 C 281, 54 — See on those points the Opinion of Advocate General p. 3 and OJ 2001 C 17, p. 4. Tizzano in Ferring, cited in note 2, paragraphs 76 et seq.

'Undertakings entrusted with the operation of services of general economic interest... shall be subject to the rules contained in this Treaty, in particular to the rules on competition, insofar as the application of such rules does not obstruct the perform- ance, in law or in fact, of the particular tasks assigned to them. The development of 95. I will refer to the second approach as trade must not be affected to such an extent 'the compensation approach', the term as would be contrary to the interests of the 'compensation' being intended to cover an Community.' appropriate remuneration for the services provided or the costs of providing those services. Under that approach State funding of services of general interest amounts to State aid w i t h i n the meaning of Article 87(1) EC only if and to the extent that the economic advantage which it 92. State funding of services of general provides exceeds such an appropriate interest may take various forms, such as remuneration or such additional costs. for example the payment of a remuneration for those services under a public service contract, the payment of annual subsidies, a preferential fiscal treatment or lower social contributions.

93. Under Article 87(1) and 86(2) EC there 96. At least at first sight it seems that the are basically two possible ways to analyse Community Courts' case-law on the correct State funding of services of general interest. approach is inconsistent. 56

56 — Below at paragraphs 125 to 128 I will try to explain the 55 — Paragraph 49. rationale underlying that case-law.

99. In Banco Exterior de España the Court held that a Spanish tax exemption for 101. In SIC63 the Court of First Instance public banks constituted existing State aid stated very clearly that 'the fact that a and that as long as the Commission had not found the aid to be incompatible with the 59 — Case C-387/92 [1994] ECR I-877, paragraph 21 of the judgment. 60 —Case T-106/95 FFSA and Others v Commission [1997] 57 — Case 240/83 [1985] ECR 531, paragraph 16 to 21 of the ECR II-229. judgment. 61 — Paragraph 172 of the judgment. 58 — The Opinion of Advocate General Lenz in Case C-21/88 Du Pont de Nemours Italiana [1990] ECR I-889 is also 62 —Case C-174/97 P [1998] ECR I-1303: see in particular based on the compensation approach: see paragraph 58 of paragraph 31 of the order. the Opinion. 63 — Case T-46/97 [2000] ECR II-2125.

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financial advantage is granted to an under- fined strictly to offsetting an objective taking by the public authorities in order to disadvantage imposed by the State on the offset the cost of public service obligations recipient there is no such economic advan- which that undertaking is claimed to have tage and there is also no distortion of assumed has no bearing on the classifi- competition. 66 cation of that measure as aid within the meaning of Article [87(1) EC], although that aspect may be taken into account when considering whether the aid in ques- tion is compatible with the common mar- ket under Article [86(2) EC].' 64

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particular tasks assigned to them and was oligopolistic market structure in France and therefore not covered by Article 86(2) EC. because of the opportunities for fraud the carcass disposal undertakings receive funds which substantially exceed the costs of the collection and disposal services provided.

105. In his Opinion in Altmark Trans 68 Advocate General Léger criticised the com- pensation approach followed in Ferring. In his view, first, that approach confuses two distinct legal questions, namely the classifi- 108. The French Government welcomes cation of a measure as aid and the justifi- the judgment in Ferring and maintains that cation of that measure. Second, the com- the carcass disposal undertakings in issue pensation approach deprives Article 86(2) do not receive an economic advantage EC and the requirements which it imposes within the meaning of Article 87(1) EC of any useful role in the analysis of State but a compensation for the costs of their funding of services of general interest. service. The compensation approach Third, the compensation approach shelters should be relied on at least where as in State funding of services of general interest the present case the compensation is deter- from the necessary control by the Commis- mined following an open, transparent and sion. non-discriminatory procedure for the award of a public service contract. If there is no overcompensation there is by defini- tion no distortion of competition. It is for the national court to determine whether there is overcompensation. 106. Initially the Commission in its prac- tice adopted the compensation approach. After the judgments in FFSA and SIC however it followed the State aid approach. 69

— Analysis under the first sentence of Article 88(3) EC, must be notified in advance to the Com- mission. Moreover, it seems to follow from Banco Exterior de España 71 and France v Commission 72 that the derogation in 110. The choice between the State aid Article 86(2) EC is subject to the same approach and the compensation approach procedural regime as the derogations in is not merely a theoretical matter: it has Article 87(2) and (3) EC. That means that important practical consequences. 70 under the last sentence of Article 88(3) EC new aid cannot be implemented until the Commission has declared it compatible with Article 86(2) EC and that measures which infringe that stand-still obligation constitute illegal aid. It also means that 111. It is true that under both approaches national courts must 'offer to individuals the most important substantive question is the certain prospect that all the appropriate essentially whether the State funding conclusions will be drawn' from the exceeds what is necessary to provide for infringement of the last sentence of an appropriate remuneration for or to Article 88(3) EC, 'as regards the validity offset the extra costs caused by the general of the measures giving effect to the aid, the interest obligations. However, the two recovery of financial support granted in approaches have — at least under the disregard of that provision and possible case-law as it stands — very different interim measures'. 73 procedural implications.

116. The main arguments against a gener- alised application of the compensation (ii) Where the State or emanations of the approach are the following: State purchase goods (e.g. computers) or services (e.g. room cleaning services) on the markets, there will be State aid only if and only to the extent that the remuneration paid exceeds what is appropriate. There are again no obvious reasons why the analysis should be different where the State purchases services which are to be provided to the collectivity (e.g. waste disposal services). (i) The lex specialis of Article 86(2) EC and the conditions which it imposes would be deprived of any role in the control of State aid. Where State financing does not exceed what is necessary to offset the extra costs of (iii) Under the case-law on the procedural the services provided, there would be i m p l i c a t i o n s of the State aid no State aid within the meaning of approach 74 the notification require- Article 87(1) EC and thus no need to ment and in particular the standstill examine the compatibility of the meas- requirement in Article 88(3) EC might ure with Article 86(2) EC. In so far as seriously disrupt the provision of ser- the financing exceeds what is necessary vices of general interest through private the measure could not be justified under Article 86(2) EC because it would infringe the principle of propor- 74 — See above paragraph 113. tionality. There would thus be no cases

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OPINION OF MR JACOBS — CASE C-126/01

in which the Commission or a national risky for Member States not to notify court would be able to control certain potentially harmful unilateral State financing measures and would thus create an incentive to conceal those measures from scrutiny by the Commission.

ii) A generalised application of the com- (iv) In the field of transport pursuant to pensation approach would make it less Article 73 EC 'aids shall be compatible with this Treaty... if they represent reimbursement for the discharge of 75 — It is clear that that control is in principle a marginal certain obligations inherent in the con- control. None the less in Case C-18/88 GB-INNO-BM [1991] ECR I-5941, paragraph 22 of the judgment, the cept of a public service'; the authors of Court did not accept that the production and sale of the Treaty thus regarded State financ- telephones constituted a service of general interest; see as regards dockwork Case C-179/90 Merci convenzionali ing of services of general interest in porto di Genova [1991] ECR I-5889, paragraph 27, and as regards the transfers by banks of funds from one Member principle as State aid which could State to another Case 172/80 Züchner [1981] ECR 2021, paragraph 7. however be justified. 76 — Case 127/73 BRT v SABAM and NV Fonior [1974] ECR 313, paragraph 20 of the judgment; Case 66/86 Ahmed Sneed Flugreisen [1989] ECR 803, paragraph 55. 77 — In the already mentioned Case E-4/97 Norwegian Bankers' 78 — See, for example, Case C-475/99 Ambulanz Glöckner, Association v EFTA Surveillance Authority, cited in note judgment of 25 October 2001. 64, the EFTA Court annulled on that basis a decision of 79 — See, for example, Case C-157/94 Commission v Nether- the EFTA Surveillance authority. lands [1997] ECR I-5699.

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GEMO

117. Since neither the compensation nor est in question and the remuneration which the State aid approach provides for an ideal they will receive in return. Cases falling solution in all cases, I consider it necessary into that category should in my view be to seek a solution which applies one analysed according to the compensation approach to one category of cases and the approach. other approach to another category.

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OPINION OF MR JACOBS — CASE C-126/01

122. Under that case-law, bilateral tain undertakings must be viewed as refer- arrangements or more complex trans- ring merely to the causes and aims of the actions involving mutual rights and obli- measure. Whilst many instances of that gations are to be analysed as a whole. second type of funding measure may be Where for example the State purchases justified under Article 86(2) EC, I consider goods or services from an undertaking, that they should not fall outside the scope there will be aid only if and to the extent of the State aid rules. that the price paid exceeds the market price. 80 Where the State lends money to an undertaking there will be aid only if and to the extent that it does not ask for an appropriate return as would a private investor. 81 The same global analysis must 124. A second advantage of the proposed in my view prevail where the link between distinction is that it gives appropriate State funding and the clearly defined gen- weight to the importance now attached to eral interest obligations imposed is so direct services of general interest, as recognised in and manifest that financing and obligation Article 16 EC and in Article 36 of the EU must be regarded as a single measure. Charter of Fundamental Rights, while avoiding the risk of circumvention of the State aid rules. It thus strikes a balance between those potentially conflicting pol- icies; it also avoids the objections which may be made to the exclusive use of one or other of the compensation approach on the one hand or the State aid approach on the other hand.

viewed the indemnities in question as one factory than others which might be pro- side of a bilateral bargain measure and posed. First, it would be disproportionate, therefore refused to classify them as State in order for the compensation approach to aid. apply, always to require a formal public service contract between the State and the service-provider concerned, since a Member State may in my view legitimately wish to organise the provision of public 127. By contrast in Banco Exterior de services on the basis not of contracts, but España the Court classified the tax exemp- for example of legislation. Second, the tion for public banks as (existing) State aid Court relies on similar criteria in other and thus as a unilateral measure without fields of Community law: in the field of taking into account the aims of the meas- value added tax, for example, the Court ure. requires a direct link between the supply provided and the consideration received. 8 3 Third, in order to dispel any doubts in a particular case Member States will have an incentive to grant compensation for the provision of general interest services on the 128. Ferring was perhaps a borderline case basis of unequivocal and transparent since the tax advantage was granted in a arrangements, and perhaps even on the separate law and only after the general basis of public service contracts awarded interest obligations had been imposed. On after open, transparent and non-discrimi- the other hand, it followed from the natory public procurement procedures. travaux préparatoires of the law and the circumstances of its adoption, and in par- ticular the judgment of the Conseil con- stitutionnel, that there was a strong nexus between the tax advantage granted and the obligations imposed, which were moreover clearly defined. 82 That might explain why 130. As regards the application of the the Court referred to ADBHU and ana- proposed distinction to resolve the present lysed the advantage in question and the case it will be recalled that for the purpose obligations imposed as 'two sides of the of the operation of the public carcass same coin'. disposal service the French State awards, in accordance with general public procure- ment rules, public service contracts of a maximum duration of five years to special- ised carcass disposal undertakings. It is obvious that there is a direct and manifest 129. It is of course clear that the proposed link between the remuneration which those distinction between the two categories of undertakings receive and the clearly cases based on a 'direct and manifest link' defined obligations which they have to and 'clearly defined general interest obliga- fulfil under the public service contracts in tions' might not always be easy to draw. question. The payments made by the State Those criteria seem however more satis-

134. It will be recalled that the meat p u r c h a s e tax i n t r o d u c e d by Law 131. Much attention has focused in this No 96-1139 is in principle payable by any case on the fact that the market for the person who makes retail sales of meat. It is provision of those services in France is very levied on a retailer's meat purchases and concentrated and that there are substantial based on the value of those purchases. opportunities for fraud in the waste dis- Undertakings with an annual turnover posal sector. Undertakings may therefore below FRF 2.5 million are however receive funds which substantially exceed exempted from payment of the tax. The the remuneration they would receive on a tax is also not payable where the amount of normally functioning market for the col- meat purchases per month is lower than lection and disposal services provided. It is FRF 20 000 exclusive of value added tax. for the referring court to determine whether that is the case.

135. GEMO and the Commission maintain essentially that the exemption in question grants meat retail undertakings with a turnover below the FRF 2.5 million thresh- old an economic advantage capable of 132. Accordingly the payments made by constituting State aid. Moreover that the French State to carcass disposal under- advantage is granted to 'certain undertak- takings for the operation of the public ings' within the meaning of Article 87(1) carcass disposal service will constitute State EC without there being any objective aid within the meaning of Article 87(1) EC justification for the exemption on the basis only if and to the extent that they exceed an of the nature or general scheme of the appropriate remuneration for providing French tax system. that service.

139. At least at first sight it appears more- 137. I would point out, first, that the over that the exemption in issue is selective classification of a tax exemption for small or specific in that it favours 'certain under- undertakings as State aid necessarily raises takings' within the meaning of Article 87(1) complex and sensitive questions. More- EC, namely those meat retailers with a over, if the Court accepts that Law turnover below a determined threshold and No 96-1139 contains State aid in favour thus only undertakings of a specified size. of farmers and slaughterhouses, the refer- ring court will not need a ruling on that issue. 85 Finally, both the written observa- tions and the oral submissions of the parties have focused more on the other two issues. I will therefore state my views only briefly 140. The fact that undertakings are treated and on the basis of a preliminary assess- differently does not, however, automati- ment. cally imply the existence of a selectively granted economic advantage for the pur- poses of Article 87(1) EC. There is no such advantage where the difference in treat- ment is justified by reasons relating to the nature or general scheme 87 or, in another formulation, the logic 88 of the system. 138. It is well established case-law that tax exemptions are in principle capable of constituting State aid within the meaning of Article 87(1) EC. In Banco Exterior de España the Court held for example: 141. In the present case, nothing indicates that the exemption in issue pursues objec- tives inherent in the tax system, i.e. objec- tives related to the proper functioning and the effectiveness of that tax system. The rationale of the exemption does not seem to 'A measure by which the public authorities be for example to relieve smaller meat retail grant to certain undertakings a tax exemp- undertakings of burdensome accounting tion which, although not involving a requirements (an objective which could be transfer of State resources, places the persons to whom the tax exemption applies in a more favourable financial situation 86 — Case C-387/92, cited in note 59, paragraph 14 of the judgment; see also Case C-6/97 Italy v Commission [1999] than other taxpayers constitutes State aid ECR I-2981. 87 — Case C-75/97 Belgium v Commission [1999] ECR I-3671, paragraph 33 of the judgment. 88 — Case C-53/00 Ferring, cited in note 2, paragraph 17 of the 85 — See above paragraph 89. judgment.

142. On the contrary there are indications that the exemption might pursue objectives external to the tax system such as aims of a social nature or the interests of urban 'When State financial aid strengthens the planning: it will be noted that the turnover position of an undertaking compared with threshold in issue is not based on the other undertakings competing in intra- turnover generated by meat retailing but Community trade the latter must be on the turnover generated by the undertak- regarded as affected by that aid.' 90 ing as a whole. The effect is that an undertaking engaged exclusively in meat retailing (e.g. a local butcher) with a turn- over of FRF 2.4 million will be exempted from tax, whereas an undertaking engaged also in other economic activities (e.g. a supermarket) will be subject to the tax even where its meat retailing activities taken in isolation generate a much smaller turnover. 145. The problem here is that it is not clear whether there is any significant intra-Com- munity competition in the meat retailing sector. In economic sectors with little competition in intra-Community trade such as car repairs, taxi services, or sectors with prohibitive transport costs, aid of a 143. Since the issue was not fully debated relatively small amount granted to small before this Court it should be left to the undertakings operating on essentially local referring court to determine whether the markets might not affect trade between exemption is justified by reasons relating to Member States. 91 In my view it should the nature or general scheme of the tax again be left to the national court to decide system in issue. In a case such as the present whether on the basis of those consider- one it will be for the State concerned to ations the exemption in issue affects trade show that the exemption in issue fulfils that between Member States. condition. 89 90 —Case 730/79 Philip Morris v Commission [1980] ECR 2671, paragraph 11 of the judgment. 89 — See the Opinion of Advocate General Ruiz-Jarabo 91 — See my recent Opinion in Cases C-113/00 and C-114/00 Colomer in Italy v Commission, cited in note 86, at Spain v Commission, delivered on 24 January 2002, at paragraph 27. paragraph 25.

— in favour of farmers and slaughterhouses, in that the public collection and disposal service for dangerous animal waste is provided to them free of charge;

— in favour of carcass disposal undertakings only if and to the extent that the payments made by the French State to carcass disposal undertakings for the operation of the public carcass disposal service exceed an appropriate remuneration for providing that service; and

— in favour of small meat retailers in that they are exempted from the meat purchase tax, unless it can be shown that that exemption is justified by reasons relating to the nature or the general scheme of the tax and provided that the exemption affects trade between Member States in the meat retailing sector.

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