Court of Justice 06-07-1971 ECLI:EU:C:1971:77

1. Infringement of Article 4 (c)

The applicant alleges that the loans in question constitute an aid or subsidy by a State to the iron and steel industry and are therefore prohibited under Article 4 (c) of the ECSC Treaty, according to which subsidies or aids in any form whatsoever granted to the undertakings subject to the Treaty are incompatible with the Treaty.

1. The applicant Government considers that the question whether the aid thus granted is peculiar to the ECSC sector, that is, it only concerns those undertakings producing coal and steel, must not be taken into account.

   The view that Article 4 only prohibits State aids which especially favour coal or steel undertakings is mistaken and the Commission puts forward no reason to support it. According to the case-law of the Court even a measure which is taken by a Member State in the exercise of the powers which are reserved to it and which involves the grant of a subsidy or an aid to the economy cannot be applied in the coal and steel sector unless such measure is authorised by the Commission (cf. Judgment of the Court of Justice of 23 February 1961, Case 30/59, Gezamenlijke Steenkolenmijnen v High Authority, Rec. 1960 p. 1; Judgment of the Court of Justice of 10 December 1969, Joined Cases 6 and 11/69, Commission of the European Communities v French Republic, [1969] ECR 523).

   The purpose or the second subparagraph of Article 67(2) is to confer on the Commission power to grant such an authorization, provided that the conditions laid down in the first subparagraph of Article 67(2) are satisfied. However, in the case of a violation of the express prohibition contained in Article 4(c) these provisions cannot serve to legitimize the measures of the Member States which provide aid to the coal and steel sector, when no serious disequilibrium of the conditions of competition has been provoked.

2. The applicant adds that at all events — even supposing that the prohibition contained in Article 4(c) only refers to the special aids granted to industries in the sector concerned by the ECSC Treaty — the loans in question fall within the scope of this provision.

   The loans granted by the FDES are selective, both as regards the economic sectors and the individual undertakings; the result of this selectivity is that the rates of interest accorded to the iron and steel industry were the lowest of all those accorded by the FDES.

   Even if it is accepted that the aims of the Plan in the various industrial sectors are the same, the conclusion must inevitably be drawn that the manner of its implementation is peculiar to the iron and steel sector. The infringement of Article 4(c) is therefore clear.

   The defendant replies as to (a) that the aids in question are granted within the context of the general exercise of the powers retained by the States which extends to all sectors of economic activity. Article 4 (c) only refers to the aids to the extent that they are granted to the coal and steel industry alone.

   1. The Commission bases its interpretation on the following arguments:

      • Only the special charges are prohibited by Article 4(c). Logically, subsidies can only be prohibited under the same conditions.

      • Article 67(3) draws a parallel between special benefits and special charges. The same parallel must be seen in Article 4(c).

      • The ECSC Treaty only achieves partial integration, as the powers of the Member States in the sphere of general economic and industrial policy remain intact. This implies that the Member States may continue to take general measures in order to encourage economic and industrial development, on condition that they do not give particular benefit to the coal and steel sector.

        The prohibition in Article 4(c) is intended to prevent the intervention in question from adversely affecting conditions of competition in this sector and not to prevent the Member States from taking general measures in their countries in order to encourage economic and industrial development.

   2. There has been no grant of any special benefit unless the powers retained by the Member States had been exercised in a discriminatory manner, that is, unless the rates of interest or of payment of the loans in question were different from those applying to comparable situations in comparable industries.

      On the other hand, the non-discriminatory exercise of the powers retained by the States in the spheres of economic, industrial, regional, fiscal or social policies cannot constitute one of the special measures referred to by Article 4(c) but must be considered in the light of the provisions of Article 67, which were specially designed in order to resolve the problems arising from partial integration.

   3. The suggested interpretation of Article 4(c) is in accordance with that given by the Court of Justice in the judgments of 23 February 1961 (Case 30/59, Gezamenlijke Steenkolenmijnen v High Authority, Rec., 1961, p. 43) and10 May 1960 (Joined Cases 27 to 29/58, Givors v High Authority (Rec, 1960, p. 526). It is not contradicted by the judgment of 10 December 1969 (Joined Cases 6 and 11/69, Commission v French Republic, [1969] ECR 523), in which the Court merely found that the criterion of the special measure does not appear in Article 67(2) of the ECSC Treaty.

   4. The question of the relationship between Article 4(c) and Article 67 cannot be separated from the general approach to national aids as these are described in both the ECSC and the EEC Treaties.

      The EEC Treaty is also based upon the principle that national aids are incompatible with the common market. A limited exception to this rule is possible in order to achieve certain of the objectives provided for in Articles 92 and 93 of the EEC Treaty. These objectives are all related to the exercise of the powers retained by the Member States. Although, in principle, where the ECSC Treaty governs all aspects of a question there is no reason to refer to the corresponding provisions of the EEC Treaty, it is nevertheless in the interests of the harmonious development of the Community to apply the two systems of aids in parallel in order to avoid distortions in competition. In view of the differences in these two systems such distortions are to be feared if the industries governed by the ECSC Treaty were, over a long period, put into an unfavourable position by the aids granted to all the other industries of the country in question. Without in any way denying the independence of each Treaty, the Commission considers that the best interpretation is that which shows the greatest respect for the functional unity of the Community.

      The defendant adds, as to (b), that as regards the special nature of the aids to the iron and steel industry, no evidence of this has been brought in this instance. A consideration of all the low-interest loans accorded by the FDES shows France to be following a systematic policy of modernizing and restructuring the whole of its economy. As soon as a sector of the economy merits the attention of the national authorities from the point of view of general economic and social development, it may receive credits. As no sector of activity is excluded a priori or in principle from the benefit of this system, no special aid exists within the meaning of Article 4(c).

      The fact that the general measure does not concern every industrial sector at the same time and to the same extent is of no importance. A general measure, within the meaning of Article 67, does not change its character if it is applied selectively on the basis of appropriate criteria. Neither on the basis of the wording of Article 67 nor of the spirit of the ECSC Treaty must it be concluded that such a measure ceases to be general following this kind of selective application.

      Therefore, in the light of the particular tasks which the iron and steel industry has to face, the required rate of interest of 4 % must be regarded as comparable to the rate required in other branches of industry within the context of the Vth Plan. The rate of interest is fixed, first, on the basis of the economic situation and, secondly, on the basis of any loans which may have ben made by the FDES within the context of earlier plans.

      The applicant replies, as to (a), that the defendant's interpretation of Article 4(c) is mistaken.

   1. The applicant's textual arguments based on the reference to special charges contained in Article 4(c) are not convincing: their special nature was essentially limited to those charges to which its full meaning applied, while in relation to these aids which are by their very nature, exceptional, this reference was superfluous.

      As regards the parallel contained in Article 67(3) between the special nature of the charges and that of the benefits, the applicant maintains on the basis of the judgment of the Court of Justice in Case 30/59 (Judgment of 23 February 1961, Case 30/59, Gezamenlijke Steenkolenmijnen v Commission, Rec. 1961, p. 1), that the meaning of the word “special benefits” used therein is different from that of the aids referred to in Article 4(c).

   2. It is correct to deduce from me tact that the ECSC only achieves partial integration that the Member States are free in the exercise of the powers they retain. The Commission's belief that these powers have remained intact is, however, mistaken. Although the measures adopted by the Member States in the exercise of the general powers which they have retained must always be assessed in the light of Article 67 of the Treaty, where they are capable of having appreciable repercussions on the condition of competition in the coal and steel industry, it is, on the other hand, on the basis of the principles of the common market itself and in particular Articles 2 to 5 of the Treaty rather than in the light of Article 67, that their validity must be assessed, not only when they have such repercussions but when they are clearly intended to change the conditions of competition and therefore concern directly the coal and steel producing undertakings, within the meaning given to this word by the case-law of the Court in his judgment in Givors (Joined Cases 27 to 29/58, Rec. 1960, o. 526).

      As regards the question of determining what it is which directly concerns the industries governed by the ECSC Treaty, the applicant observes that the criterion put forward by the Commission — the non-discriminatory exercise of the powers retained by the Member States — is of no value in the case of action to grant a direct subsidy or aid to industry which thus concerns it directly. The mistaken nature of the criterion of the non-discriminatory exercise of the powers retained, advocated by the Commission, is easily demonstrated when practical applications of this criterion are made.

      The Commission regards the French Vth Plan and the General Agreement attaching thereto as a non-discriminatory exercise of the powers retained which, for this reason, does not directly concern the steel industry.

      According to the said General Agreement the precise aim of the measures in dispute is to improve the conditions of competition in the French steel industry in relation to those in the foreign industries, which demonstrates their discriminatory nature.

   3. The harmonization which the Commission wishes to see between the ECSC Treaty and the EEC Treaty in matters of aid may not result in an infringement of the Treaty. Moreover, the defendant is disregarding the possibilities offered by the ECSC Treaty in Articles 37, 54, 56, 67 and 95 which enables a policy of subsidies to be followed in harmony with Articles 92 and 93 of the EEC Treaty, sunbject to review by the Communities. The High Authority has in fact taken advantage of this opportunity in preparing its decision on the Community scheme of intervention by the Member States in favour of the mining industry (Decision No 3/65, OJ 1965, p. 480).

      The harmonization in question is in fact on another level: when a measure granting aid falls outside the scope of Articles 4 and 67 of the ECSC Treaty it is conceivable, supposing that it is covered by the reserved powers, that it may be examined in the light of Article 92 of the EEC Treaty, so that the States may have the same power of granting aids in the EEC sector as in the ECSC sector.

      Furthermore, the applicant continues to maintain that even if Article 4(c) is interpreted in the sense suggested by the Commission the measures adopted by France are still subjected to the prohibition contained in this provision.

      The Vth Plan merely constitutes the general framework within which a series of aids are carried out which are not applicable to every branch of industry but only to those which have been allowed to benefit therefrom after a process of selection.

      Moreover, the aim and details of the measures differ according to the branch in question. As regards the iron and steel industry, one of the aims is the improvement of conditions of competition in the French iron and steel industry in relation to the iron and steel industries in other countries.

      Under the Vth Plan the grant of aids to other sectors for the achievement of their own objectives and according to procedures which are in accordance with their needs does not change the special nature of the aids granted to the iron and steel industry.

      Furthermore, it is irrelevant to compare the rates of interest at which loans are made to the French iron and steel industry with those made to the other industries: the question is not whether the steel industry receives more subsidies than another industry which also receives the benefit of loans, but rather whether it receives a subsidy which affects it directly. In case it may be useful, the applicant adds that the iron and steel industry to all intents and purposes enjoys special privileges.

In its rejoinder the defendant replies:

1. As regards the nature of the aids prohibited under Article 4(c), only those which benefit principally the coal and steel industries may be regarded as prohibited.

   1. As regards the charges the Court has accepted in Case 30/59 (Judgment of 23 February 1961, Gezamenlijke Steen-kolenmijnen, Rec. 1961, p. 55) that only independent charges—that is those which are not linked to the general economic policy of the States—are referred to in Article 4(c). It must be possible to accept this as regards the aids. If such aids form part of the general economic policy of the States cannot directly affect these industries (within the meaning of the case-law of the Court of Justice: Judgment of 10 May 1960, Joined Cases 27 to 29/58, Givors v High Authority (Rec. 1960, p. 526). In fact, the acceptance of the criterion based upon the special nature of the measure satisfies the general need not to limit the States area of action to the point where it is no longer possible for them to take initiatives intended to ensure economic expansion without creating special advantages or disadvantages for the coal and steel sector.

      The Netherlands Government, too, accepts that it is the Member States which are in the first place responsible for the balanced development of their national economies, and that this responsibility justifies State intervention which, by definition, is confined to the national sphere.

      This applies particularly to those sectors of the economy which are of social and regional importance, such as the coal and steel producing industries. In this instance, as regards iron and steel, the French Government was dealing with an industry requiring large investments in order to renew its equipment at a time when little capital was available. Faced with social problems raised by this state of affairs, France adopted general reorganization measures from which the French iron and steel industry could not be excluded.

   2. The action of the French Government cannot be described as discriminatory merely because it results in the French undertakings being treated differently from foreign undertakings. This is an inevitable consequence of the fact that the powers retained only extend to the national industries.

   3. The lnterpretation suggested by the Commission has the advantage of enabling the two Treaties to be coordinated. In fact, if all measures to aid the iron and steel industry were prohibited, the result might be that for regional and social reasons comparable measures must be taken on the basis of the EEC Treaty in favour of other industries in the same sector. Although the independence of the two Treaties must be respected, there are, however, from this point of view, certain aspects which cannot be neglected. The possibilities of interpretation must be applied in such a way that the Community does not come into conflict with itself, which would be the case if every measure to aid the coal steel sectors were regarded as a prohibited subsidy.

   4. It is thus unnecessary to consider to what extent the general action taken by the French Government has been given concrete form in the Plan and the General Agreement: the low-interest loans form part of a general measure and, therefore fall outside the scope of Article 4(c).

2. The Commission adds that, at all events the measures in dispute do not represent special aids and that the applicant only regards them as such by giving too restrictive an interpretation to the concept of ‘general exercise of the powers retained’.

   The fact that the measures which give concrete form to the general exercise of a retained power differ in terms of objective criteria in no way prevents such exercise being general in nature. The different credit terms from which the iron and steel industry has benefited are the result of a particular charge imposed on this industry and show no exceptional features in relation to the terms obtained by the other important sectors (cf Schedule I to the rejoinder).

2. Infringement of Article 67

The applicant alleges in the alternative that the loans in dispute must be considered—as the Commission accepts—as action by a State which is liable to have appreciable repercussions on conditions of competition in the coal and steel industry.

If, by substantially increasing differences in production costs otherwise than through changes in productivity, the action in question was liable to provoke a serious disequilibrium, the Commission would be bound under the third subparagraph of Article 67(2) to make a recommendation to the French Government.

However, it cannot be denied that the loans from the FDES provoke a serious disequilibrium in the conditions of competition: in fact, assuming a normal rate of interest to be 6.3/4 %, the loans by the FDES which amount to a total of 2 700 million francs represent a subsidy of 27,6 % of the new investments provided for in the ‘plan professionnel’ for the iron and steel industry. In these circumstances, the production costs are substantially altered and this alteration provokes the serious disequilibrium referred to by the Treaty.

The fact that the French iron and steel industry had incurred large debts and required some technological adjustment does not prevent the measure in question from provoking a serious disequilibrium in the conditions of competition.

Thus, the Commission could not have avoided the duty to make a recommendation to the French Government within the meaning of the third subparagraph of Article 67(2).

After recalling that it considers the application to be inadmissible on this point, the defendant maintains that it is at all events unfounded. It observes in this respect that the conditions laid down by Article 67(2) are not in fact satisfied:

• The effect or the loans was not to increase differences in production costs, but to reduce them. In fact, the production costs of the French iron and steel industry are among the highest in the Community. The loans therefore reduced the differences in cost.

  It is only possible to speak of an increase in the differences in production costs in relation to the iron and steel industry of one other Member State.

• Furthermore, the question whether a possible increase may be called substantial depends on the actual relief which the loans afforded to the undertakings in their new investments. In this instance, in the light of the fact that the financial burden of the investments represents a rather small part or the aggregate production costs, such relief could nont bring about a substantial increase in differences in production costs. Finally the obligation to re-structure undertaken by the undertakings in return for the loans also prevented these benefits from having substantial effects.

• The risk of serious disequilibrium is longer a threat as a result of the considerable debts owed by the French iron and steel industry and the fact that in other States the new investments are not always wholly the responsibility of the industries.

In case it should be considered relevant the defendant adds that Article 67(3) is also inapplicable in that the loans do not constitute a special benefit, but remain within the limits of the rates applied in the other sectors of the French economy which are considered to be a matter of priority.

Finally, the defendant observes that it calculates the amount of the aids to be 17 % of the new investment.

The applicant replies that in order to decide whether there is a reduction or an increase in the differences in production costs it is not, as the Commission considers, the total production costs which must be compared but rather those elements of such costs which are artificially affected by the action of the State. This interpretation is to be drawn from Article 67(3) which clearly cannot refer to differences between aggregate production costs, as it provides for a comparison to be made between undertakings of entirely different types.

If this interpretation were accepted it could not be disputed that the differences in the costs of financing have increased (as is clear from Schedule I to the reply setting out the figures for the rates of interest applied in the EEC from 1966 to 1970).

Moreover, even if the increase in costs had to be assessed by comparing the total production costs, it is shown—as the Commission has itself admitted—that the alleged reduction did not take place in relation to all the States. Thus it was in any case necessary to consider the position in the light of Article 67(2).

The Commission considers itself powerless to intervene under the third subparagraph of Article 67(2) as long as by means of the powers which they have retained, the Member States bring the production costs in their industries to the level of the lowest costs in the Community: such an attitude is contrary to the foundations of the common market.

As regards the substantial nature of the aid in dispute, the applicant puts forward calculations and assessments which show the costs of financing to have been reduced by more than 25 %. The Commission cannot deny the substantial nature of this aid by referring to alleged obligations binding upon the iron and steel industry (in this connexion the applicant refers to the Judgment of the Court of Justice of 23 February 1961, Case 30/59, Gezamenlijke Steenkolenmijnen v High Authority, Rec. 1961, d. 55).

Finally, the applicant maintains that the disequilibrium caused was serious: a slight reduction in costs is in itself likely to bring about a sizeable increase in the profit margins and the modernization allowed was also successful in reducing the costs to a large extent. The debts owed by the industry cannot be taken into consideration in assessing the disequilibrium caused, as to do so would be to violate the principle that the Community shall progressively bring about conditions which will of themselves ensure the most rational distribution of production at the highest possible level of productivity. The fact that in other States aids, whether overt or covert, are granted is not established by the defendant which demonstrates, moreover, by its tolerance of these aids the dangerous course on which it has embarked.

The defendant replies that the differences to be compared are those between the total production costs. This interpretation is in accordance with the ratio of Article 67 the purpose of which is to make possible a general reaction against the clear and considerable consequences of a general use of the powers retained. It is not contradicted by Article 67(3) which also presupposes a comparison of the effects on the total costs of certain special benefits or charges which by definition only concern certain elements in these costs. It also observes that in the light of the conditions which the Treaty attaches to intervention by a State, it had to take into consideration all the factors which exercise an influence on competition within the common market.

Moreover, the facts show that the result of the criticized intervention on the part of the French Government was not to provoke disequilibrium within the common market (as is shown in Schedule II to the rejoinder which analyses the French share in the production of the ECSCV

As regards me ‘size’ of me aid granted the Commission continues to put forward the figure of 17 % which takes into account the time factor in the value of the benefit awarded.