In Case 84/82
Federal Republic of Germany, represented by Martin Seidel, Ministerialrat in the Bundesministerium für Wirtschaft [Federal Ministry of Economic Affairs], assisted by Professor Gerhard Fels, acting as Agents, with an address for service in Luxembourg at the Embassy of the Federal Republic of Germany,
Commission of the European Communities, represented by Marie-José Jonczy and Götz zur Hausen, members of its Legal Department, acting as Agents, with an address for service in Luxembourg at the office of Oreste Montako, a member of the Legal Department of the Commission, Jean Monnet Building,
APPLICATION for (i) the annulment of the authorization, limited to a period of one year, given by the Commission allegedly in breach of Article 92 (1) and (3) (c) and the second sentence of Article 93 (3) of the EEC Treaty to the Government of the Kingdom of Belgium, allowing it to implement the five-year plan for restructuring the Belgian textile and clothing industry, and (ii) a declaration that the Commission, in breach of the second sentence of Article 93 (3) and Article 93 (2) of the Treaty, has wrongfully failed to act,
THE COURT
composed of: J. Mertens de Wilmars, President, T. Koopmans, K. Bahlmann and Y. Galmot (Presidents of Chambers), P. Pescatore, Lord Mackenzie Stuart, A. O'Keeffe, G. Bosco, O. Due, U. Everling and C. Kakouris, Judges,
Advocate General: Sir Gordon Slynn
Registrar: P. Heim
gives the following
The facts of the case, the course of the procedure, the conclusions, submissions and arguments of the parties may be summarized as follows:
The textile and clothing industry has for some time been in particular difficulty owing to various factors such as the partial failure to modernize the structure of the Community industry, the massive increase — from 21% to 44% between 1973 and 1980 — of imports from non-member countries (State-trading countries and South-East Asian countries), the rapid change in the use of raw materials, the use of outward processing arrangements by certain Community undertakings, the difficulty of certain branches of the industry in remaining competitive after a period of restricted development.
Those difficulties were moreover aggravated by the recession which affected the Community economy as a whole.
That combination of problems led to very keen competition between the textile and clothing industries of the Member States, both on the Community market and on other markets. It also brought about increasing unemployment, which apparently cannot be overcome in the short term.
In view of the importance of the textile and clothing industry in the Community as a whole and the difficult situation facing it, the Commission has been induced to take a number of measures intended to facilitate the process of modernization and to make the social cost bearable.
To that end, the Commission has:
The Community framework was established to coordinate and guide the measures taken by the Member States, since the Commission had observed that in order to remedy the crisis in the textile industry the Member States tended to grant aid hastily and under the pressure of the economic and social situation for the exclusive purpose of maintaining employment and ensuring the survival of undertakings.
In the Commission's opinion, the multiplication of national intervention measures (lists of sectorial aid to the textile and clothing industry as at March 1981 are to be found in Annex 7 to the application) varying in amount and adopted in a _aphazard fashion is likely to affect trade and competition in a way contrary to the common interest if no provision is made for the selective and precise restructuring without which no effective revival of the sector affected by the crisis is possible; such measures would neutralize one another, nullifying the efforts of the Government and the expected results.
The Community framework defines a number of criteria on the basis of which national aid must be granted and which the Commission uses in assessing proposals for aid notified to it. The guidelines laid down by the Commission specify, first, that national proposals for aid must be conceived as measures to accompany a process for restructuring the specific sectors in difficulty and must avoid leading to structural overcapacity in areas where there is already overcapacity or persistent stagnation of the market and, secondly, that Member States must take account of the national and Community situation in the sector affected by the crisis.
The Commission emphasizes that notification of the Community framework to the Member States cannot take the place of the decisions which it must take in exercise of the powers conferred on it by the Treaty.
By Royal Decree of
On
When however the Belgian Government stated that it was ready to make the alterations required by the Commission and to notify a new restructuring plan by October 1979 the Commission informed the Belgian Government by a letter dated
Nevertheless by a decision dated
On
By a letter dated
Much correspondence took place over a year between Belgium and the Commission and between the Commission and representatives of the other Member States.
The majority of the Member States criticized the plan and their views were purportedly taken into account by the Commission and the Belgian Government.
Nevertheless, on many occasions, and lastly on
By letters dated
The Belgian Government's decision to grant aid to the textile and clothing industry follows a finding that the number of jobs lost between 1973 and 1980 is estimated at
The Government of the Federal Republic of Germany lodged an application to the Court on
Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided, pursuant to Article 21 of the Statute of the Court of Justice and Article 45 of the Rules of Procedure, to make preparatory inquiries.
By a letter dated
The Commission did so on
The
In the event of the Court's dismissing the claim in paragraph 1 as inadmissible or not making the declaration that the authorization contained in the letter of
The
The Commission considers that the declaration of
Even if it is assumed, however, that the declaration of the German Minister may be interpreted as calling upon the Commission to act within the meaning of Article 175 of the Treaty, the Commission considers that it defined its position within two months and informed the applicant thereof in a letter dated
In the Commission's view, it is clear from its letter of
In the Commission's opinion, an action for failure to act is admissible only if the Community institution called upon to act is completely silent or reacts in a way which does not show what view it takes of the invitation to act. The Commission emphasizes that in the judgment of
The Commission considers that it is not possible to accept the applicant's argument to the effect that the action for failure to act must be admissible on the ground that an action for annulment would not necessarily lead to a finding by the Court of Justice that the Belgian plan for restructuring the textile industry is incompatible with the common market, since the contested decision may be declared void on the ground of failure to initiate the review procedure referred to in Article 93 (3) and that in that event the legal protection to which it is entitled would not be ensured.
The Commission considers that the conditions of admissibility laid down by the Treaty for a particular type of action cannot be avoided on the ground that strict observance thereof would prevent the result sought by the action.
In the view of the
The German Government considers that it called upon the defendant to act to that effect at the meeting on
It firmly rejects the argument that the letter of
In that respect, it claims that in its letter of
If nevertheless the Court were to see in the communication of
It considers that the principle laid down in the
The bringing of an action for failure to act is justified because there is no equivalent in Community law to the German
In support of this submission the applicant puts forward the following arguments:
According to the
The Commission's uncertainty is shown by the fact that it considered it necessary to organize on
In a letter to the German Minister for Foreign Affairs dated
The
In the view of the
According to the
That interpretation of Article 93 of the Treaty is confirmed by the special features of each of the two stages of the review procedure.
It is clear from the aforesaid judgments of
The German Government observes in that respect that Article 92 of the Treaty mentions various kinds of aid whose compatibility with the common market it ought to be possible to check without embarking on the main stage of the review. That is so of the types of aid referred to in Article 92 (2), which, when they satisfy the conditions therein specified, are treated as
When, on the other hand, at the preliminary stage of examination it is a question of considering, as in the present case, whether a plan to grant aid notified to the Commission satisfies the conditions laid down in Article 93 (2) of the Treaty and corresponds to one of the types of aid mentioned therein, which,
Only after it has been able to form that opinion is the Commission bound, in the event of doubts about the plan's compatibility with the common market, to initiate the formal procedure provided for in Article 93 (2) of the Treaty.
The
In the Commission's view, it is clear from the words used by the Court that according to Article 93 (2) of the Treaty the Commission may at the end of the preliminary examination decide that aid is compatible with the Treaty and inform the Member State concerned to tint effect.
Only if it considers that the plan is not compatible with the common market must it, without delay, initiate the procedure provided for in Article 93 (2).
The
Even where an aid plan is implemented following a statement of no objection at the end of the preliminary examination it may be re-examined by the Commission as part of the permanent review of aid described in Article 93 (1) of the Treaty.
The compatibility of aid can therefore be definitively established by the Commission only at the end of the main review procedure.
Because of the limited legal effect of the preliminary stage of examination the Court held in the judgments of
In the
In the first place, the Treaty makes no distinction in that respect and, secondly, any system of aid remains subject to the permanent review carried out under Article 93 (1) and (2).
That interpretation of the provisions of the-Treaty is confirmed'by the judgment of
The
The
The
Contrary to the defendant's contention, that view does not mean that the Commission must automatically initiate the main review procedure whenever die types of aid referred to in the aforesaid provision are involved; that is necessary only if at the end of a cursory examination of the plan in question there are doubts about its compatibility with the common market.
Although the German Government does not deny that the Commission alone is responsible for determining whether a plan to grant aid is compatible with the common market, it cannot accept the Commission's argument to the effect that the invitation to the parties concerned to submit their comments pursuant to the first sentence of Article 93 (2) translates not so much their fundamental right to be heard as the Commission's right to obtain information and that the Commission is free to decide the proper time and method for consulting the Member States or the social, economic and trade circles involved.
The Commission has no power to waive the procedural rules on the subject of aid. The right of the Member States and the circles concerned to be heard is a matter of public policy. That right, which in no way impinges upon the Commission's decision-making powers, rests on the
The defendant cannot contend that by proposing the meeting of experts held on
The
It is clear from the wording of Article 93 (2) that the application of the procedural rules depends to some extent on the view which the Commission takes as to the compatibility of the aid with the common market.
According to the judgment of
It is clear from the terms of the Treaty that the Commission, subject to the powers of the Council under the third subparagraph of Article 93 (2), is the sole body responsible for determining whether aid is compatible with the common market. That responsibility has often been confirmed by the Court. In the judgments of
Although the Commission pointed out in its letter of
In the present case the consultations with the other Member States and the relevant economic circles did not necessarily have the consequences expected by the applicant. The result which the Commission reached would therefore have been the same even if it had initiated the procedure under Article 93 (2) of the Treaty.
From the foregoing it is apparent that the question whether the Commission should or should not have initiated the main review procedure provided for in Article 93 (2) of the Treaty in relation to the Belgian plan for restructuring the textile industry ultimately depends solely on whether the plan may be considered compatible with the common market.
Before examining the substantive conditions on which the compatibility of State aid with the common market depends, the German Government emphasizes the importance of the judicial review which the Court is called upon to effect in an area where the Commission has a wide discretion.
The
According to the 10th Report on Competition Policy (1980, p. 120), the number of Commission decisions prohibiting implementation of aid planned by Member States is proportionately decreasing in relation to the number of plans notified and the proportion of plans definitively examined under the preliminary procedure is relatively large.
Review by the Court seems all the more necessary in the present case since the Commission has never before approved the implementation of a plan for aid to a particular sector on a scale comparable to the Belgian plan for restructuring the textile industry.
The fact that the Member States may not have recourse to the measures allowed them under GATT (in particular, the levying of compensatory duties on subsidized imports) argues in favour of the Court's having jurisdiction to review the Commission's exercise of its powers in relation to State aids.
Member States are not allowed by the Treaty to adopt such measures precisely because of the existence of the special procedure for reviewing national policies on State aids; that procedure is intended to prevent the transfer from one Member State to another of the economic problems which national policies seek to remedy.
Since the Court has recognized that it has jurisdiction to verify whether the terms of the Treaty have been observed when applications come before it challenging the Commission's refusal to authorize the implementation of plans for aid notified to it, then
The prohibition of aid is a fundamental feature of the common market comparable to the prohibition on agreements restricting competition and trade within the Community or the prohibition on the retention or re-introduction of customs duties and quantitative restrictions in trade between Member States.
It would be contrary to Article 164 of the Treaty, whereby in the last resort it is the Court, rather than the Commission or the Council, which must ensure
Thus the Court of Justice must have jurisdiction to verify observance of the substantive conditions under which the Commission may, pursuant to Article 92 (3) (a) to (c) of the Treaty, declare that State aid is compatible with the common market. In the judgment of
Finally, the German Government observes that, although in areas where the Commission has a wide discretion exercised in accordance with economic and social criteria the Court's judisdiction is necessarily restricted, the Court nevertheless reviews the existence of the facts and the legal inferences drawn from them. In that respect it cites the following judgments: Joined Cases
The
In that regard there is no ground for distinguishing between the prohibition and authorization of aid. Its decisions should therefore be declared void only if it has exceeded or misused its discretion.
The
In the view of the
The criteria governing the compatibility of this kind of aid with the common market, as laid down by the Community context and corresponding to a large extent to the general
The object of the measure contemplated must in no case be to ensure the survival of undertakings nor the effect be to delay their structural re-organization.
The aid in question must be granted solely
The aid must be confined to undertakings which are competitive on a long-term basis.
It must be gradually reduced and subject to a time-limit.
Since its aim is to encourage individual effort the aid must be so arranged that the economic risk is not borne mainly by the State but also by the undertakings benefiting from the aid.
The
The aid contemplated must benefit viable undertakings or such as will become competitive within a certain period. In the Commission's view observance of that single criterion excludes the possibility of aid solely to ensure survival.
The temporary and decreasing nature of aid must be ensured.
The amount of aid must be restricted to what is strictly necessary.
The grant of aid must be accompanied by a financial effort from the undertaking benefiting therefrom.
The aid must be transparent so that its effects may be monitored accurately.
As regards the textile sector, which throughout the world has considerable surplus production capacity, a sixth criterion should be added: the aid must not lead to an increase in capacity.
In the view of the German Government, the Belgian plan for restructuring the textile industry is intended more to maintain the structure of the textile and clothing industry than to ensure in due course its competitiveness.
It is apparent from the declaration of the Belgian delegation at the meeting of
The main defect of the plan is the fact that it makes no attempt to abolish surplus capacity or to create jobs in sectors of the economy outside the textile and clothing industry.
Finally, the applicant emphasizes that according to the report drawn up by the McKinsey company, Brussels, at the request of the Belgian Government, on the basis of which the five-year plan for restructuring was based, stabilization of the number of people occupied in the Belgian textile and clothing industry at
The second condition is not satisfied in the present case for the following reasons:
First, the difficulties which the Belgian textile and clothing industry faces are not appreciably greater than those faced in the same industry in the other Member States, especially the Federal Republic of Germany.
That is supported by the following comparative figures :
As regards employment, between 1973 and 1980 and between 1979 and 1981 employment in the Belgian textile and clothing industry declined by 40 % and 7% respectively, whereas for the German textile and clothing industry the figures were 31% and 11% respectively.
As regards external trade in textile and clothing products, Belgium had a surplus amounting on average:
From 1978 to 1980, to DM
For the first three quarters of 1981, to DM
Between 1975 and 1979 investments were assessed per workers as DM
Secondly, the Commission recognized in its notice of no objection of
Those sectors are carpets, plush velvets, bouclé, chenille fabrics, teny towelling and similar fabrics. The Commission did not exclude those sectors from the aid programme, whereas obviously those sectors did not need aid. The Commission itself found that Belgium had a surplus in this area in trade with other Member State.
The Belgien restructuring plan does not satisfy the requirements designed to ensure that only competitive undertakings are helped.
Although based on the principle of
Moreover, in its statement of no objection the Commission reserved the right to prohibit application of the plan to undertakings employing more than 50 peoble. That reservation in particular cases has no effect for the following three reasons:
It is apparent from the documents of the Institut National de Statistique (Publication Mensuelle, Statistiques Industrielles 4/81 and 9/81) that the proportion of undertakings with more than 50 employees in the textile and clothing industry in general, and in the aforementioned highly competitive sectors in particular, is limited.
The products of the
Implementation of the Belgian plan is the responsibility of two bodies created for that purpose, namely the
Observance of the condition that aid should gradually decrease over a period of time is essential if priority is to be given to helping undertakings which are competitive. The progressive reduction in financial aid, which is calculated to ensure smooth re-organization of the production of undertakings with the aim of restoring their competitiveness, encourages the stronger undertakings because of the competition in which they have to engage while undergoing reorganization.
As regards aid for particular sectors, the requirement that the aid should decrease over a period of time applies both to the plan as a whole and to the grants in individual cases and to the means employed. The Belgian plan for restructuring, as submitted to the Commission, contains no guidelines in that respect.
The Commission has not attempted to ensure that the aid should gradually diminish because it has confined itself to authorizing the implementation of the plan for a year without making any extension thereof subject to a gradual reduction to zero of the measures provided thereby.
The restriction of aid to a particular ratio in relation to the beneficiaries' own contribution is intended to ensure that State aids encourage individual effort. If the State's share is too high there is a risk that the measure will become one of maintenance and that further subsidies will have to be granted and political grounds come into play.
In its role of monitoring aid the Commission has previously ensured that State aids do not exceed a particular level. Thus, as regards environmental aids, the Commission has regarded 15 % as the maximum level permissible. Only in view of the urgent need to convert to ecologically sounder production procedures has the Commission allowed, by way of exception, aids at a higher level, namely 45% for investments in 1975-76 and 30% for the investments in 1977-78. As regards regional aids the level of aid approved has not exceeded 20 %.
As regards aid for particular sectors the level allowed by the Commission has never previously reached that of the Belgian restructuring plan. The applicant refers for example to a Netherlands plan to grant aid to a cigarette manufacturer: on that occasion the Commission declared aid of a level of 4% to be inadmissible.
The funds made available to the Belgian textile and clothing industry for the first year for which the Claes Plan applied are estimated at BFR
The proportion of State funds, which in the present case amounts to 70% and is sometimes described as the level of aid, does not however represent the so-called
On the basis of the method of calculation adopted by the defendant the State funds made available to those concerned in the first year of the five-year plan amounted to DM
The so-called standard method of assessment used by the Commission, according to which the net grant equivalent to the State's participation in the capital of the undertaking is set at nought, is not appropriate in the case of the textile and clothing industry since it takes no account of the fact — recorded in a letter of
Notwithstanding the financial difficulties of the Belgian undertaking, their 30% contribution to the financing of the restructuring programme is too low. Only if the undertakings concerned contributed the greater share to the financing of the investments would it be possible to ensure that the State subsidies retained their character of an aid to self-help.
Before discussing these various issues the Commission gives its opinion on the German Government's claims in relation to one of those requirements, namely the
The Commission docs not share the German Government's view that all Member States are affected in the same way by the crisis in the textile sector. In support it makes the following observations:
From the figures which the German Government itself has put forward it is apparent that the loss of jobs between 1973 and 1980 in Belgium (40%) is considerably higher than in the Community as a whole (27%) and also considerably higher than in the Federal Republic of Germany (31%).
It is apparent from the McKinsey Report that the textile and clothing industry is responsible for a larger share of the value added by the manufacturing industry in Belgium than in the other Member States, with the exception of Italy.
In the opinion from the Kieler Institut für Weltwirtschaft produced by the applicant it is stated that the textile and clothing industry in Belgium
Secondly, the Commission observes that even if it is shown that the German and Belgian textile and clothing industries are experiencing the same difficulties, it cannot therefore be inferred that the authorization to implement the Belgian restructuring plan is incompatible with the common interest within the meaning of Article 92 (3) (c) of the EEC Treaty.
The Commission's discretion must be exercised
The Commission examines not only whether the plan put forward may adversely affect trade between Member States but also whether it is in accord with the aims and measures of industrial policy as defined at a Community level.
The Belgian restructuring plan accords precisely with the guidelines which the Commission laid down in its notice to the Council on the present situation and future prospects of the textile and clothing industry in the Community (COM(81) 388 Final of
Thirdly, the Commission counters the view expressed in the opinion of Kieler Institut für Weltwirtschaft, according to which the Belgian textile and clothing industry has
The Commission makes three observations in this regard:
The experts relied solely on the criterion of the revealed comparative advantage. The revealed comparative advantage, which simply looks at net exports of a particular branch in relation to the net exports of the whole economy, can give no precise picture of the situation of an industrial sector, for it may seem particularly competitive only because it has been able to get a stronger foothold abroad than competitors at home.
A comparison on the basis of the revealed comparative advantage is possible only if the economic structures of the various countries and the importance of the industrial sector in question are very similar; there can be no question of that in the present case.
The contention that the Belgian textile industry has a genuine advantage over competitors in Germany is incorrect, for the exports from Belgium into the Federal Republic of Germany are mainly accounted for by competitive products, such as carpets, for which aid may be given only subject to the strict conditions laid down by the Commission.
Moreover, a comparison of the exports and imports of products of the industrial sector in question for the whole Community shows that the Belgian industry has no competitive advantage at a Community level.
The aids granted on the basis of the Belgian plan are genuine aids for restructuring and not aids for maintaining undertakings that are not viable in the long run. Although the maintenance of jobs after the considerable reduction therein following restructuring may be described as one of the aims of the plan, that in no way means that it is intended to help undertakings that are not viable.
The aids in question are granted selectively and only on application. For that purpose the Belgian Government, as required by the Commission, has defined a number of criteria for examining the viability of the applicant undertaking. On the basis of those criteria each undertaking is required to apply forecast techniques and to provide economic data which are in accordance with modern management methods and reduce the risk of erroneous decisions.
A condition for the granting of aid is moreover the production of a restructuring programme by and for the applicant undertaking. Although the programmes are checked by the bodies mentioned by the applicant, there is no reason to believe that those bodies have not the capacity or will to restrict the granting of aid to restructuring programmes.
The Commission observes that its acceptance of a global plan for restructuring the sector in question without reserving the right to consider the granting of aid to each particular undertaking is due to the fact that a comprehensive examination of each application is administratively not possible. That is why prior notification of an application for aid has been required only in respect of the various sectors said to be highly competitive and in respect of large undertakings.
In that respect the Commission makes two observations:
Although it is true that the majority of Belgian textile undertakings employ less than 50 people the majority of people employed in the sector in question work in large undertakings.
Further, the fact a large undertaking has diversified production does not in any way release it from the obligation of prior notification.
Moreover, the Commission emphasizes that, with the object of ensuring that the Belgian plan retains its character as aid for restructuring, it imposed an additional requirement to the effect that an undertaking receiving aid for the specific sector may not be granted any other State aid as an alternative or an addition. The refusal of any other aid is of considerable importance from the point of view of intra-Community competition.
The Commission has taken into account the requirement of restricting the duration of the aid by approving for only one year a plan originally contemplated for five years. In its final decision it in no way committed itself to any extension of the plan beyond 1982 but reserved its right to decide subsequently on any application for an extension.
The Commission considers that in a programme of such short duration the question of the gradual reduction of aid is not of great importance.
The defendant observes in that respect that the form of aid adopted, namely a 7% interest subsidy on loans bor_owed at market rates necessarily implies a certain gradual reduction in so far as the unrepaid principal decreases gradually.
The German Government is not right in claiming that the Commission has never approved an aid programme for a particular sector on such a large scale as the five-year plan for restructuring the Belgian textile and clothing industry. The Commission refers for example to aid granted by the Federal Republic of Germany for a programme for restructuring an iron and steel undertaking in the Saarland.
In assessing the. amount of aid the German Government assumes that the net grant equivalent must be calculated according to the methods worked out for the steel sector. That special method of calculation was however worked out in conjunction with experts from the Member States with the express stipulation that it should be applied only to the sphere for which it was conceived; it cannot be applied to the textile sector since if it were applied to firms which are basically viable it would lead to a considerable over-valuation of the amount of aid.
In assessing the amount of aid in the textile sector the Commission applies the standard formula, namely the net grant equivalent with which it also calculates the level of aid for regions and sectors. That method allows the calculation of all aid as a net figure, that is after deduction of tax. The main part of aid granted in that manner consists of grants towards interest on loans.
On the basis of a maximum capital contribution of 30% towards the investment costs and a grant towards interest of 7% for a maximum period of five years there is a net grant equivalent of 4.2% of the total investment.
In that connection the Commission makes some observations concerning the possibility provided for in the restructuring plan, of State participation in the capital of the undertaking. The Commission shares the German Government's view that it depends on the particular economic circumstances whether such participation constitutes aid or is the nature of aid. In resolving that question the Commission looks at the position of the undertaking as a whole. If the undertaking is in difficulty or already insolvent the Commission considers that the State's contribution is in fact in the nature of aid. State participation in a viable undertaking cannot, on the other hand, be regarded as aid.
The Commission considers that the aid granted under the Belgian restructuring plan is truly in the nature of aid and is intended to support the undertakings' own efforts.
The fact that the Commission accepted a rate of 30% whereas the first Belgian proposals provided in general for a maximum contribution of 25% by the undertakings in receipt of aid cannot be regarded as a wrongful exercise of discretion by the Commission. That rate is moreover appreciably higher than the rate generally adopted in the Community textile and clothing industry; it is in line with the normal practice in the financing of investment projects.
Moreover, it is apparent from reactions hitherto from a large part of the Belgian textile and clothing industry that only a small number of undertakings are prepared to accept State participation in their capital. The absence or the reduced level of State participation increases the undertaking's own contribution. Accordingly, the risk of possible supplementary payments diminishes.
To ensure the transparency of the scheme of aid contemplated for the Belgian industry the Commission approved the application of the plan on condition, first, that no other State aid of whatsoever kind should be granted to the sector concerned and, secondly, that the Belgian Government should regularly and comprehensively report on the application of the aid programme. Thus, monthly particulars of Belgian trade in the textile and clothing sector in accordance with the Nimexe Nomenclature must be supplied, as must a quarter_y report subdivided according to nine main branches on the application and effects of the plan and an account in the form of a table showing a breakdown of figures on all applications on which there has been a decision. The Belgian Government has so far complied with those obligations.
In the Commission's view, the exclusive nature of aid granted under the restructuring plan and the monitoring carried out
The Commission's decision of
The fact that according to the McKinsey Report, cited by the German Government, the restructuring plan aims to increase the Belgian industry's share of Community production cannot be treated as an increase in capacity.
In the view of the
First, the Belgian textile and clothing industry exports a considerable part of its production to other countries and mainly to countries in the Community. In 1980 exports amounted to
The textile and clothing industries of the other Member States, especially the Netherlands, France and Germany, compete with the Belgian industry on the markets of the Community and on the markets of non-member countries.
Without the financial help from the plan in issue, the amount and extent of which are considerable, the Belgian textile and clothing industry would not be able to maintain its sales strength at home, in the other Member States or in non-member countries and in no event would it be able to increase that strength.
The reason for the distorting effect is that the Belgian industry receives financial aid intended simply to maintain undertakings. Even if it is assumed that the restructuring plan induces those concerned to seek new sub-markets and to manufacture products of better quality, its effect would be to displace from the market competitors from other Member States who do not receive similar subsidies and who finance alterations in their production from their own resources and at their own risk.
The fact that the Commission has initially approved the plan for only one year in no way reduces its negative effects, for the Commission thereby contributes' to greater insecurity among the competing undertakings, who, in view of the risk that an extension of the plan may be approved, are deterred from making investments from their own resources for necessary structural changes.
The Belgian textile and clothing industry thereby receives an artificial and unjustified competitive advantage. The alleged special significance of that industry in Belgium cannot justify unloading economic problems, and unemployment in particular, on to other Member States. Only 3.7% of all employed persons in Belgium or 10.5% of persons employed in industry were engaged in the textile and clothing industry in 1979 (Eurostat — Employment and Unemployment, 1973-79).
It is incompatible with the common interest that because of its size and repercussions the Belgian restructuring plan obliges the other Member States either to accept the disadvantages attached thereto or to grant subsidies. In view of the size of the aid granted by Belgium there is a risk that other Member States may seek to neutralize its effect by similar measures. France and the Netherlands have announced the adoption of restructuring plans.
The support measures adopted by the German textile industry cannot be compared with the aid granted by the Belgian Government. In fact it is regional aid from which the German textile and clothing industry benefits, not specific aid for that branch of activity.
The German industry is not able to face subsidized competition from the Belgian industry. In view of the increase in the number of insolvencies in the past two years (Federal Statistical Office — November 1981) Germany too will soon be forced to support its industry. In view of the number of persons occupied in the German industry, almost five times more than in the Belgian industry, the effort of the German public authorities will have to be considerable. It would however be contrary to the Treaty and would endanger the common market itself if the Member States were to vie with one another in offering aid in an endeavour to secure a share of the common market which does not result from free competition.
The German Government refers in addition to the conclusions in the opinion of the Kieler Institut für Weltwirtschaft, which form an integral part of its case. It is clear from that opinion that in essence the Belgian plan pursues a strategy of maintenance and random scattering of funds which is incompatible with the common market.
The
The German Gonvernmcnt's claim to the contrary cannot in any event be supported by the scale of the bilateral trade between Belgium and Germany since the Commission decisions on State aids must be adopted on the basis of intra-Community trade as a whole.
The German textile and clothing industry also receives considerable aid. It is apparent from documents which the German Government forwarded to the Commission in connection with an inquiry conducted by the Commission that in 1977 42.6% of all investments in the textile and clothing industry were supported by State aid granted in various forms. In 1978 the proportion increased to 47.6%. Moreover, the Länder also intervene in favour of this industrial sector in order to save cerain undertakings in difficulty. The position is not fundamentally different in the other Member States.
The Commission considers that by restricting the extent of aid allowed it limited the adverse effects upon trade which necessarily arise from any system of aid. It excluded from the aid scheme the production of synthetic fribres and insisted on a special procedure for men's outerwear, women's stockings and tights, worsted products — sectors in which there are problems of competition and over-capacity throughout the Community — and for carpets, woven-pile fabrics and chenille fabrics, in which the Belgian industry is particularly competitive. Under that special procedure proposals for aid to undertakings employing more than 50 people require the Commission's prior approval.
In conclusion, the Commission makes the following two observations :
According to inspections carried out so far the individual programmes supported by the Claes Plan and authorized by the Commission improve the range of products of the undertaking concerned and must therefore be regarded as active measures for placing the undertakings on a sounder footing, as recommended by the Kieler Institut für Weltwirtschaft in its report on the Belgian Government's programme of aid to the textile and clothing industry.
As for the complaint of unloading economic problems on to the other Member States, the Commission observes that the loss of jobs which, according to the applicant, may be caused in the German textile industry by application of the Belgian plan has been estimated in the aforementioned expert's report by means of the model calculations described on pages 69 to 84 of the report. According to that report the plan represents a strategy of sprinkling aid and maintenance. Obviously, as the expert's report (p.21) concedes, “there is no empirical evidence of the real consequences of the Claes plan. Accordingly, the results of the model calculations are, at least in part, only of a speculative nature.
In the view of the
The
The Commission states that the Belgian restructuring plan was worked out on the basis of a report made by McKinsey & Co. which makes a thorough and objective analysis of the situation and of the development of the Belgian textile and clothing industry. It is apparent from the report that the only strategy capable of re-establishing the competitivity of the Belgian industry on an international basis lies in a comprehensive restructuring thereof. The McKinsey Report above all contemplates the adaptation of production to trends in the international markets, the modernization of machinery, implementation of new techniques and technology, diversification in branches threatened by competition from non-member countries and an intensification of efforts in relation to innovation.
In the Commission's opinion, the aid granted under the plan is genuine aid for restructuring and is not in the nature of subsidies designed to ensure the maintenance of non-viable undertakings. In that respect the Commission says:
First, pursuant to its decision of
Further, according to particulars given at the time of notification of the restructuring plan, the Belgian Government contemplated in any event and in spite of the intended aid the closure of a considerable number of undertakings and the elimination of more than
The Commission observes that even if a branch of the textile and clothing industry of a Member State is regarded as relatively competitive at the Community level that does not mean that each of the undertakings in that branch has a strong position at the international level.
The structure in the textile and clothing industry of the Member States differs so much from one undertaking to another that a description of the sector based on average values necessarily implies gross generalizations.
To take account of those circumstances and the real situation of each undertaking in the branches considered the Commission decided to subject certain branches to an obligation to give prior notice (bouclé and chenille fabrics, including terry towelling, woven-pile fabrics and carpets).
The Commission considers that that decision made it possible, on the one hand, to take into consideration the particular risk of distorting competition by granting aid in those branches and, on the other hand, to avoid general discrimination against the undertakings in quesiton, as might have resulted from an absolute prohibition of aid to the said branches.
The Commission states that of the 12 proposals for aid notified in 1982 it approved only four. In another four cases its decision was only partially positive and approved only aid which represented genuine investment in rcstructuring. In the remaining four cases it formally refused approval.
The Commission states that in a letter dated
On
On
The conditions imposed for 1983 are more restrictive than those for 1982, especially as regards :
The total budget;
The terms of financing;
The choice of sectors.
The Commission has moreover approved transitional rules relating to the aid programme expiring on
In view of the fact that certain applications from undertakings which had to work out a restructuring plan did not reach the Belgian authorities until the end of 1982, it was not always possible, for administrative reasons, to rule on such applications before the end of the year. The Commission therefore accepted that applications for aid duly submitted before the end of the year might be subject until
The Commission has a complete list of the applications in question. The aid which might be granted to the undertakings concerned was restricted to BFR
The Commission cites figures from the Statistical Office in Luxembourg to the effect that Belgian exports of products of the textile and clothing industry to other Member States increased in 1982 by 5.8% over the previous year. In the same period imports into Belgium from the other Member States increased by 5.7%.
The Belgian balance of trade in textile products with the other Member States thus improved only very slightly in 1982.
The Commission states that
The Commission states that in accordance with its decision of
Participation is effected by a contribution of capital from the
In view of the fact that the ratio between the capital participation of the State (45% at most of the total investment of the undertaking) and loans (30% at most) is 60 to 40 in the total budget in the aid programme, it follows that the budget fixed for participation in the capital of undertakings is a maximum of 60% of BFR
Long-term borrowings by two bodies — the ITCB and the STCB — from private and public banks at market rates;
Annual grant by the State;
Income arising from payments for specific services supplied to undertakings in the textile and clothing industry (in the field of research, technology and sales promotion) ;
Sundry other income.
The Commission refers to pages 28 and 29 of its defence and says that in the present case it has used the so-called net grant equivalent method to calculate the level of State aid.
That standard formula is used by the Commission in agreement with all the Member States, especially in assessing regional and sectorial aid schemes.
Since the loans are limited to a maximum of 30% of the total investment and enjoy a 7% reduction in interest for a maximum period of five years, the net grant equivalent amounts to 4.2% of the total investment.
Since the total of such loans, including the interest rebate, must not exceed the sum of BFR
The Commission states that the level of aid, expressed in the budgetary means provided for that purpose, must normally be assessed in relation to certain reference values such as the objective of the programme, the scale of the investments or other entrepreneurial measures, the terms on which aid is granted, the number of jobs directly or indirectly benefiting from the aid and so forth.
Subject to that reservation, the aid for the textile and clothing industry amounts to
The items making up the programme are shown in documents before the Court, in particular the following :
Notification of the Belgian plan of
Extensive correspondence between the Commission and the Government following the notification of
Notification of the new plan of.
Supplement to that notification made by the letter from the Belgian authorities of
The contested decision of
Letter of
The Commission concludes its observations by stating that subsequently the Belgian Government presumably sent a definitive version of the plan in the form of administrative provisions addressed to the two bodies responsible for implementing and monitoring the plan.
The Government of the Federal Republic of Germany, represented by Dr Martin Seidel and Professor G. Fels, acting as Agents, and the Commission of the European Communities, represented by Mr Götz zur Hausen and Mrs Marie-Josée Jonczy, acting as Agents, presented oral argument at the sitting on
The Advocate General delivered his opinion at the sitting on
On those grounds,
THE COURT
hereby:
Mertens de Wilmars
Koopmans
Bahlmann
Galmot
Pescatore
Mackenzie Stuart
O'Keeffe
Bosco
Due
Everling
Kakouris
Delivered in open court in Luxembourg on
For the Registrar
H. A. Rühi
Principal Administrator
J. Mertens de Wilmars
President