JUDGMENT OF THE COURT OF FIRST INSTANCE (First Chamber,Extended Composition)

9 September 1999 (1)

(ECSC Treaty — State aid — Operating aid — Authorisation ex post facto of aidalready paid — Improvement of viability of recipient undertakings for thepurpose of Article 3 of Decision No 3632/93/ECSC)

In Case T-110/98,

RJB Mining plc, a company incorporated under English law, with its registeredoffice at Harworth, United Kingdom, represented by Mark Brealey, Barrister, ofthe Bar of England and Wales, and Jonathan Lawrence, Solicitor, with an addressfor service in Luxembourg at the Chambers of Arendt and Medernach, 8-10 RueMathias Hardt,

applicant,

v

Commission of the European Communities, represented by Paul F. Nemitz andNicholas Khan, of its Legal Service, acting as Agents, with an address for servicein Luxembourg at the office of Carlos Gómez de la Cruz, of its Legal Service,Wagner Centre, Kirchberg,

defendant,

supported by

Federal Republic of Germany, represented by Claus-Dieter Quassowski,Regierungsdirektor, of the Federal Ministry of Finance, acting as Agent, andMichael Schütte, Rechtsanwalt, Berlin, Federal Ministry of Finance, Bonn,

Kingdom of Spain, represented by Rosario Silva de Lapuerta, Abogado del Estado,of the Community Legal Affairs Department, acting as Agent, with an address forservice in Luxembourg at the Spanish Embassy, 4-6 Boulevard Emmanuel Servais,

and

RAG Aktiengesellschaft, a company incorporated under German law, establishedin Essen, Germany, represented by Sven B. Völcker, Rechtsanwalt, Berlin, with anaddress for service in Luxembourg at the Chambers of Marc Loesch, 11 RueGoethe,

interveners,

APPLICATION for annulment of Commission Decision 98/687/ECSC of 10 June1998 on German aid to the coal industry for 1997 (OJ 1998 L 324, p. 30),

THE COURT OF FIRST INSTANCE

OF THE EUROPEAN COMMUNITIES (First Chamber, ExtendedComposition),

composed of: B. Vesterdorf, President, C.W. Bellamy, J. Pirrung, A.W.H. Meij andM. Vilaras, Judges,

Registrar: A. Mair, Administrator,

having regard to the written procedure and further to the hearing on 15 December1998

gives the following

Judgment

Legal background

Legislation

1.

    The Treaty establishing the European Coal and Steel Community prohibits, inprinciple, State aid granted to coal-mining undertakings. Article 4 thereof provides,therefore, that the following are incompatible with the common market for coaland steel and are accordingly to be prohibited 'within the Community, as providedin this Treaty: ... (c) subsidies or aids granted by States ... in any form whatsoever...‘.

2.

    The first paragraph of Article 95 of the ECSC Treaty states:

'In all cases not provided for in this Treaty where it becomes apparent that adecision ... of the Commission is necessary to attain, within the common market incoal and steel and in accordance with Article 5, one of the objectives of theCommunity set out in Articles 2, 3 and 4, the decision may be taken ... with theunanimous assent of the Council and after the Consultative Committee has beenconsulted.‘

3.

    Pursuant to that provision the High Authority and then the Commission have, since1965, adopted legislation allowing the grant of aid to the coal sector. The lastmeasure in that series of legislation is Commission Decision No 3632/93/ECSC of28 December 1993 establishing Community rules for State aid to the coal industry(OJ 1993 L 329, p. 12, hereinafter 'the Code of 1993‘ or 'the Code‘). The Councilunanimously assented to that code on the basis of, and after discussion of, acommunication of 27 January 1993 from the Commission, entitled 'Request forCouncil assent and consultation of the ECSC Committee, pursuant to Article 95 ofthe ECSC Treaty concerning a draft Commission Decision establishing Communityrules for State aid to the coal industry‘ (hereinafter 'the communication of 27January 1993‘).

4.

    Under Article 1(1) of the Code, '[a]ll aid to the coal industry ... granted byMember States ... may be considered Community aid and hence compatible withthe proper functioning of the common market only if it complies with Articles 2 to9‘.

5.

    Article 2(1) of the Code, which, like Article 1(1), is contained in Section I entitled'Framework and general objectives‘, provides that '[a]id granted to the coalindustry may be considered compatible with the proper functioning of the commonmarket provided it helps to achieve at least one of the following objectives:

—    to make, in the light of coal prices on international markets, furtherprogress towards economic viability with the aim of achieving degression ofaids,

—    to solve the social and regional problems created by total or partialreductions in the activity of production units,

—    to help the coal industry adjust to environmental protection standards‘.

6.

    Under Article 3(1) of the Code, 'operating aid‘ to cover the difference betweenproduction costs and the selling price resulting from the situation on the worldmarket may be considered compatible with the common market on certainconditions. The aid notified per tonne must not, in particular, exceed for eachundertaking or production unit the difference between production costs andforeseeable revenue in the following coal production year.

7.

    The first subparagraph of Article 3(2) of the Code provides that Member Stateswhich intend to grant operating aid for the 1994 to 2002 coal production years tocoal undertakings are required to submit to the Commission in advance 'amodernisation, rationalisation and restructuring plan design[ed] to improve theeconomic viability of the undertakings concerned by reducing production costs‘.

8.

    According to the second subparagraph of Article 3(2) of the Code, that plan mustprovide for appropriate measures and also efforts to generate 'a trend towards areduction in production costs at 1992 prices, during the period 1994 to 2002‘.

9.

    Article 4 of the Code concerns 'Aid for the reduction of activity‘, namely aid tocover the production costs of undertakings or production units 'which will beunable to attain the conditions laid down by Article 3(2)‘. Such aid may beauthorised provided that it is the subject of a closure plan.

10.

    Article 5 of the Code deals with aid to cover exceptional costs.

11.

    Section III of the Code, entitled 'Notification, appraisal and authorisationprocedures‘, contains Articles 8 and 9. Article 8 provides as follows:

'1. Member States which intend to grant operating aid as referred to in Article 3(2)or aid for the reduction of activity as referred to in Article 4 for the 1994 to 2002coal production years shall submit to the Commission, by 31 March 1994 at thelatest, a modernisation, rationalisation and restructuring plan for the industry inaccordance with Article 3(2) and/or an activity-reduction plan in accordance withArticle 4.

2. The Commission shall consider whether the plan or plans are in conformity withthe general objectives set by Article 2(1) and with the specific objectives andcriteria set by Articles 3 and 4.

3. Within three months of notification of the plans, the Commission shall give itsopinion on whether they are in conformity with the general and specific objectives,without prejudging the ability of the measures planned to attain these objectives....‘

12.

    Article 9 of the Code provides:

'1. By 30 September each year (or three months before the measures enter intoforce) at the latest, Member States shall send notification of all the financialsupport which they intend to grant to the coal industry in the following year,specifying the nature of the support with reference to the general objectives andcriteria set out in Article 2 and the various forms of aid provided for in Articles 3to 7 and its relationship to the plans submitted to the Commission in accordancewith Article 8.

2. By 30 September each year at the latest, Member States shall send notificationof the amount of aid actually paid in the preceding coal production year and shalldeclare any corrections made to the amounts originally notified.

3. When notifying aid as referred to in Articles 3 and 4 and making the annualstatement of aid actually paid, Member States shall supply all the informationnecessary for verification of the criteria set out in the relevant articles.

4. Member States may not put into effect planned aid until it has been approvedby the Commission on the basis, in particular, of the general criteria and objectiveslaid down in Article 2 and of the specific criteria established by Articles 3 to 7. Ifthe Commission has taken no decision within three months of receipt of notificationof the measures planned, the measures may be implemented 15 working days aftertransmission to the Commission of notice of intent to implement them. Any requestmade by the Commission for further information shall cause that three-monthperiod to run afresh from the date on which the Commission receives theinformation.

5. In the event of refusal, any payment made in anticipation of authorisation fromthe Commission shall be repaid in full by the undertaking that received it and shallinvariably be considered an unfair advantage in the form of an unjustified cashadvance and, as such, shall be liable to charges at the market rate payable by therecipient.

6. In its assessment of the measures notified, the Commission shall check whetherthe measures proposed are in conformity with the plans submitted in accordancewith Article 8 and with the objectives set out in Article 2. It may request MemberStates to explain any deviation from the plans originally submitted and to proposethe necessary corrective measures.

...‘

13.

    According to Article 12 thereof, the Code is to expire on 23 July 2002.

Individual decisions approving aid to the German coal industry for 1994, 1995 and1996

14.

    By letter of 28 December 1993, the Federal Republic of Germany notified to theCommission planned financial aid which it intended to grant, under Article 5 of theCode, to its coal industry for 1994. As a result, the Commission adopted, on 1 June1994, Decision 94/573/ECSC authorising the granting of aid by Germany to the coalindustry in 1994 (OJ 1994 L 220, p. 10).

15.

    Also by letter of 28 December 1993, the Federal Republic of Germany notifiedother aid, under Article 3 of the Code, for 1994. In addition, by letter of 29 April1994, it submitted to the Commission a modernisation, rationalisation andrestructuring plan for the German coal industry. By Decision 94/1070/ECSC of 13December 1994 on German aid to the coal industry for 1994 (OJ 1994 L 385,p. 18), the Commission approved the financial measures notified. That decision alsoincludes an assessment, in the light of Articles 2, 3 and 4 of the Code, of themodernisation, rationalisation and restructuring plan submitted. It finds that planto be compatible, in principle, with the objectives and criteria defined in thosearticles.

16.

    By letter of 25 January 1995, the German Government notified aid planned, underArticles 3 and 5 of the Code, for 1995. The Commission approved it by Decision95/464/ECSC of 4 April 1995 on German aid to the coal industry for 1995 (OJ 1995L 267, p. 42).

17.

    By letter of 4 April 1995, the German Government again notified an additionalfinancial measure, under Article 3 of the Code, for 1994, which was approved byCommission Decision 95/499/ECSC of 19 July 1995 authorising additional aid byGermany to the coal industry for 1994 (OJ 1995 L 287, p. 53).

18.

    By letter of 5 October 1995, the German Government finally notified the aid itintended to grant, under Articles 3 and 5 of the Code, to the German coal industryfor 1995 and 1996. That aid was authorised by Commission Decision 96/560/ECSCof 30 April 1996 on German aid to the coal industry for 1995 and 1996 (OJ 1996L 244, p. 15).

19.

    The applicant did not bring an action to contest any of the abovementioneddecisions.

The contested individual decision

20.

    By letter of 30 September 1996, the Federal Republic of Germany notified to theCommission, in accordance with Article 9(1) of the Code, financial aid which itintended to grant to the coal industry for 1997. That aid included operating aid, aidfor the reduction of activity and aid to cover exceptional costs within the meaningof Articles 3, 4 and 5 of the Code. At the Commission's request, the FederalRepublic of Germany supplied additional information in that regard by letters of15 October 1996, 5 June and 22 October 1997, and 27 January and 4 March 1998.

21.

    By Commission Decision 98/687/ECSC of 10 June 1998 on German aid to the coalindustry for 1997 (OJ 1998 L 324, p. 30, 'the contested decision‘), that aid in theamount of DEM 10.4 thousand million was authorised. In that decision, theCommission states, in particular, that it has checked, in accordance with Article9(6) of the Code, whether the aid proposed was in conformity with the Germanplan which had been approved by Decision No 94/1070.

22.

    It is common ground that the aid covered by the contested decision was paidbefore it was authorised.

Background to the dispute and procedure

23.

    The applicant is a privately-owned mining company established in the UnitedKingdom of Great Britain and Northern Ireland, which took over the principalmining operations of British Coal. As the appearance of substitute energy sourcesand the increase in imports of coal from outside the Community have caused alarge reduction in demand for coal in the United Kingdom — the applicant's'traditional‘ market — since 1990, the applicant has attempted to find a market forsome of its surplus production, in particular in Germany.

24.

    As the Commission made clear in its Mid-Term Report (COM(1998)288 final) of8 May 1998, which was submitted to the Council pursuant to Article 10(2) of theCode and which dealt with experience in applying the Code ('the Mid-TermReport‘), coal production in the Community fell, over the years from 1992 to 1996,from 184 million tonnes (1992) to 128 million tonnes (1996). In the UnitedKingdom, production fell from 84 million tonnes in 1992 to 50 million tonnes in1996, while production in Germany fell from 72 to 53 million tonnes during thesame period (p. 5 of the Report).

25.

    By application lodged at the Registry of the Court of First Instance on 20 July1998, the applicant brought the present action against the contested decision.

26.

    By application lodged on the same day, the applicant brought a further action forannulment of three Commission decisions authorising the granting by the Kingdomof Spain of aid to the coal industry in respect of 1994 to 1996, 1997 and 1998. Thataction was registered under number T-111/98.

27.

    By separate documents, also lodged on 20 July 1998, the applicant requested thegrant of interim measures in both cases (T-110/98 R and T-111/98 R).

28.

    By separate documents, lodged on 18 September 1998, the applicant applied forthe adoption of certain measures of inquiry and of organisation of procedure in thetwo main actions. In particular, it requested that Article 55 of the Rules ofProcedure be applied and that the cases be given priority on the ground that they

concerned the very foundations of the ECSC State aid scheme in the coal sectorand that the judgments to be given would also be relevant to future aid in thatsector.

29.

    In its observations submitted on 15 October 1998, the Commission partiallyendorsed that point of view as to the appropriate procedure and proposed that theCourt should treat certain questions of law raised by the actions as a matter ofpriority and give interlocutory judgments restricted to those questions.

30.

    Following those observations, the applicant stated, in faxes of 20 October 1998, thatthe measures of inquiry and of organisation of procedure which it had requestedand the proceedings for interim relief would cease to be relevant if the Court werewilling to give interlocutory judgments on the questions of pure law, which were thesame in Cases T-110/98 and T-111/98, namely:

—    whether the Commission is authorised by the Code to give ex post factoapproval to aid which has already been paid without its prior approval; and

—    whether the Commission has power under Article 3 of the Code toauthorise the grant of operating aid provided only that the aid enables therecipient undertakings to reduce their production costs and achievedegression of aid, without their having any reasonable chance of achievingeconomic viability within the foreseeable future.

31.

    While awaiting agreement as to the procedure to be followed, the applicant, by faxof 22 October 1998, withdrew its applications for interim measures in CasesT-110/98 R and T-111/98 R.

32.

    Upon hearing the Report of the Judge-Rapporteur, the Court of First Instance(First Chamber, Extended Composition) accepted that the subject-matter of theproceedings should be restricted and the proceedings expedited, as requested byboth parties. It decided to organise an informal meeting with the parties in orderto discuss the future course of the proceedings.

33.

    At that meeting on 27 October 1998, the applicant stated that it would not lodgea reply in Case T-110/98 and the parties agreed, for the purpose of the presentproceedings, to restrict their subject-matter to the two pleas in law referred to inparagraph 30 above, as expounded in the application and in the defence. As aresult, the President informed the parties that they would have all the more timeat the hearing to expand their arguments. Furthermore, pursuant to Article 77(c)of the Rules of Procedure, the parties submitted a joint request for a stay ofproceedings in Case T-111/98, which is broadly similar to the present case.

34.

    By decision of 28 October 1998, the President fixed 15 December 1998 as the datefor the hearing of oral argument in Case T-110/98.

35.

    By order of the President of 28 October 1998, proceedings in Case T-111/98 werestayed pending delivery of the judgment in Case T-110/98.

36.

    By orders of 28 October and 25 November 1998, the President granted the FederalRepublic of Germany, the Kingdom of Spain and RAG Aktiengesellschaft leave tointervene in Case T-110/98 in support of the form of order sought by theCommission.

37.

    On 16 and 24 November and on 9 December 1998 respectively, the Kingdom ofSpain, the Federal Republic of Germany and RAG Aktiengesellschaft lodged theirstatements in intervention.

38.

    At the hearing on 15 December 1998 the parties presented oral argument andanswered the oral questions put by the Court of First Instance.

39.

    On that occasion, the Commission — which, in its defence to the application, hadraised an objection of partial inadmissibility against the plea alleging infringementof Article 3 of the Code — stated that, in the context of the present proceedingsrestricted to questions of law, it was no longer contending that the unchallengeablenature of Decision 94/1070 precluded a challenge to the operational aid at issuewhich was part of the German multiannual plan for 1994 to 2002 and which hadtherefore been authorised once and for all by that decision.

Forms of order sought by the parties

40.

    The applicant claims that the Court should:

—    annul the contested decision;

—    order the Commission to pay the costs.

41.

    The Commission contends that the Court should:

—    dismiss the application;

—    order the applicant to pay the costs.

42.

    The interveners submit that the Court should:

—    answer the questions of law raised as follows: first, the Commission has thepower under the Code of 1993 to authorise State aid even if that aid hasalready been paid before the decision of authorisation is adopted and,second, Article 3 of the Code does not require any statement relating to theviability of the undertaking concerned;

—    as a result, dismiss the application.

Law

43.

    The Court finds, first of all, that the applicant has not challenged, in the presentproceedings, either the legality of the Code of 1993 or the accuracy of thehistorical, economic and legal assessments made by the Commission in itscommunication of 27 January 1993 (see paragraph 3 above). As a result, the twopleas raised by the applicant will be considered in particular in the context of theapplicable provisions of that code, taking account of that communication.

The plea alleging that the Commission lacked competence to authorise ex post factoaid already paid

— Arguments of the parties

44.

    The applicant submits that, since the aid to which the contested decision relateswas granted by the Federal Republic of Germany to the recipient undertakingsbefore the date on which it was authorised, the Code of 1993 did not allow theCommission to approve it ex post facto.

45.

    In that regard, it states that, under Article 1(1) of the Code, aid granted to the coalindustry may be considered Community aid and hence compatible with the properfunctioning of the common market 'only if it complies with Articles 2 to 9‘. Thatclear provision, it submits, makes the authorisation of State aid subject tomandatory compliance with, inter alia, Article 9 of the Code.

46.

    The applicant states that Article 9(1) of the Code lays down a general requirementof prior approval and provides for only one exception: that referred to in Article9(4) which, however, is not applicable in this case.

47.

    The applicant submits that the inclusion in the Code of the special procedure underArticle 9(4) means that it can be inferred, a contrario, that in other cases theCommission has no power to approve aid that has already been granted. If theCommission had the power to approve aid that had already been granted, thewhole prior notification procedure would be rendered worthless and the efficacyof the scheme of preventive control established in Articles 8 and 9 of the Codewould be considerably weakened.

48.

    The applicant states that, as a derogation from Article 4(c) of the ECSC Treaty —which prohibits all State aid —, the Code, and in particular the phrase 'only if itcomplies with Articles 2 to 9‘ in Article 1(1) thereof, must be construedrestrictively.

49.

    Furthermore, the wording of Article 1(1) of the Code, in so far as it imposescompliance with Article 9 as a precondition of any authorisation, has changed ascompared with the text of the previous code on aid to the coal industry, namelyCommission Decision No 2064/86/ECSC of 30 June 1986 establishing Communityrules for State aid to the coal industry (OJ 1986 L 177, p. 1, 'the Code of 1986‘).Article 1 of the Code of 1986 required only compliance with 'the general objectivesand criteria set out in Articles 2 to 8‘, without referring to Articles 9 and 10relating to the notification, appraisal and authorisation procedures.

50.

    The applicant concludes accordingly that the procedural scheme set up by the Codeof 1993 was considerably strengthened as compared with that under the Code of1986. The preamble to the Code of 1993 confirms that tendency to make theconditions for authorisation more rigorous, as is clear from the last paragraph ofpoint IV in the preamble, according to which 'it is essential that no paymentshould be made, in whole or in part, before the Commission has given explicitauthorisation‘.

51.

    As to Article 9(5) of the Code, the applicant submits that that provision isapplicable only in the context of the procedure under Article 9(4). As a result —and in the light of the last paragraph of the preamble to the Code —, paragraph 5cannot be interpreted as conferring on Member States the right to pay aid beforeit is authorised.

52.

    The applicant accepts that in the sphere of the EC Treaty the Court of Justice hasheld that a failure to notify did not make aid unlawful per se, in the sense thatfailure to notify did not relieve the Commission from examining whether the aidwas in fact compatible with the common market (Case C-301/87 France vCommission [1990] ECR I-307; hereinafter 'Boussac‘). The applicant states,however, that the Court of Justice reached that conclusion by analysing the powersand responsibilities of the Commission and the Member States (Boussac, paragraph12). It is therefore essential to have regard to the powers and the responsibilitieswhich the ECSC Treaty and the Code of 1993 allocate to the Member States andthe Commission. In that context, the applicant submits that several factorsdistinguish the State aid scheme in the EC Treaty from that established by theECSC Treaty.

53.

    First, the Court of Justice has held that the general prohibition in Article 92(1) ofthe EC Treaty (now, after amendment, Article 87(1) EC) is neither absolute norunconditional, since Article 92(3) confers on the Commission a wide discretion toexempt aid from it. On the other hand, under the fundamental rule in Article 4(c)of the ECSC Treaty, the grant of State aid is prohibited without qualification orcondition. Unlike the EC Treaty, the ECSC Treaty therefore provides that thegrant of State aid is per se unlawful.

54.

    Second, unlike Article 92 of the EC Treaty and Article 93 of the EC Treaty (nowArticle 88 EC), which provide a basis for analysing State aid, the Code of 1993must be interpreted subject to Article 4(c) of the ECSC Treaty, that is restrictively,as a derogation from that article. Furthermore, having been adopted under Article95 of the ECSC Treaty, the Code constitutes a limited and secondary legal basis forexemption of aid. The legal basis for exemption of aid is therefore priorauthorisation.

55.

    Third, the Court of Justice pointed out that the Council had not yet adopted anyregulation under Article 94 of the EC Treaty (now Article 89 EC) for theapplication of Articles 92 and 93 of the EC Treaty (Boussac, paragraph 14).However, in this case, the Code of 1993 establishes fixed and detailed conditionsfor exemption, such as should be found in a regulation for the application of thosearticles. On that point, the scheme laid down under the ECSC Treaty is thereforedifferent from that under the EC Treaty. In particular, the specific andcomprehensive nature of Article 9 of the Code precludes any automatic applicationof the solution adopted in Boussac. According to the applicant, those rules in theCode would become redundant in their entirety if the Commission were able torely, in the sphere of the ECSC Treaty, on that decision.

56.

    The applicant observes, lastly, that the Court of Justice has held that the finalsentence of Article 93(3) of the EC Treaty constitutes the means of safeguardingthe machinery for review laid down by that article, which is essential for ensuringthe proper functioning of the common market (Boussac, paragraph 17). It contendsthat this line of reasoning applies, a fortiori, to the much stricter sphere of theECSC Treaty.

57.

    In support of its argument, the applicant relies on several decisions of the Courtof Justice and the Court of First Instance.

58.

    First, it relies on the judgment of the Court of First Instance in Case T-150/95 UKSteel Association v Commission [1997] ECR II-1433, paragraphs 95 and 101, inwhich a Commission decision authorising State aid, pursuant to CommissionDecision No 3855/91/ECSC of 27 November 1991 establishing Community rules foraid to the steel industry (OJ 1991 L 362, p. 57, hereinafter 'the Fifth Steel Code‘),was annulled on the ground that one of the substantive preconditions for thecompatibility of that aid with the orderly functioning of the common market inrespect of the environment had not been satisfied.

59.

    Second, it refers to the judgment of the Court of First Instance in Case T-129/96Preussag Stahl v Commission [1998] ECR II-609, also concerning the Fifth SteelCode and in particular Article 1(1) and (3) thereof, according to which all aidprovided for by that code 'may be deemed Community aid and thereforecompatible with the orderly functioning of the common market only if it satisfiesthe provisions of Articles 2 to 5‘, it being made clear that that aid 'may be grantedonly after the procedures laid down in Article 6 have been followed‘, '[t]he

deadline for payments of [regional investment] aid falling under Article 5 [being]31 December 1994‘. The Court of First Instance held that, after the deadline of 31December 1994, the Commission was no longer competent to approve the aid, onthe ground that it was clear from the general scheme of the procedural provisionsof the Fifth Steel Code that the Commission was to have a period of at least sixmonths within which to give a decision on the planned aid notified to it and thatthe aid could be implemented only after it had been given prior approval.According to the applicant, the lesson to be drawn from that judgment for thepresent case is that prior approval must be regarded as a procedural conditionwhich must be strictly observed.

60.

    Third, the applicant states that strict compliance with procedural conditions is alsonecessary in the sphere of block exemptions under Article 85(3) of the EC Treaty(now Article 81(3) EC), which, the applicant argues, can be compared to theprocedural conditions forming the subject-matter of the present case. Thus theCourt of Justice, in its judgment in Case C-234/89 Delimitis [1991] ECR I-935,paragraphs 39 and 46, and Advocate General Van Gerven in his Opinion in thatcase (p. I-955) emphasised the need for a strict interpretation of the conditions forsuch an exemption. The applicant submits that the same reasoning precludes thepossibility of disregarding the words, in Article 1(1) of the Code 'only if it complieswith Articles 2 to 9‘. In that context, the applicant also refers to the judgment ofthe Court of Justice in Case 30/78 Distillers Company v Commission [1980] ECR2229.

61.

    Finally, the applicant refers to the order in Case C-399/95 R Germany vCommission [1996] ECR I-2441, again concerning the Fifth Steel Code, in whichthe President of the Court of Justice emphasised the particular sensitivity of thesteel sector, the importance of the Member States' obligation to notify to theCommission their planned aid and the obligation to make all grants of aid subjectto a prior decision of the Commission (paragraphs 53 to 55 of the order).

62.

    The Commission and the parties intervening in its support contend, on the contrary,that payment of aid does not prevent its later authorisation under the Code of1993. The express wording of Article 9(5) of the Code acknowledges the possibilitythat aid can be paid before it is authorised and determines the effect of such apayment by providing that the amount of the aid must be repaid only 'in the eventof refusal‘.

63.

    They conclude that, in the event of an advance payment, the Commission is notonly entitled, but is also under a duty, to examine the compatibility of the aid withthe common market. That situation, which is subject to the ECSC Treaty, does notdiffer from that governed by the EC Treaty.

64.

    As regards the implications of Boussac, the Commission states that until thatjudgment was delivered it had considered that lack of notification gave rise, of

itself, to recovery of aid without any further examination. However, Boussac showsthat advance payment does not prevent authorisation of aid. If the Commission hadwished to ensure that the position it had advocated in that case would prevailunder the Code of 1993, it would have been necessary for it to have inserted in ita provision to that effect and for it to have given itself power to declare aidincompatible with the common market simply on the ground that it had not beennotified. However, it merely provided, under Article 9(5), that advance paymentshould lead to repayment of aid, with interest, in the event of refusal.

— Findings of the Court

65.

    It should be stated at the outset that no provision of the Code prohibits theCommission from examining the compatibility of planned aid with the commonmarket, solely because the Member State which notified that planned aid hasalready paid it without waiting for prior authorisation.

66.

    It should next be borne in mind that, under Article 1(1) of the Code, aid 'may beconsidered Community aid and hence compatible with the proper functioning ofthe common market only if it complies with Articles 2 to 9‘. The purpose of thatprovision is, by a global reference, to define as 'Community aid‘ those financialmeasures planned by Member States which comply 'with Articles 2 to 9‘ of theCode.

67.

    It is clear from a reading of Articles 2 to 9 of the Code that many of the provisionsthey contain do indeed concern the very attributes of the financial measuresconcerned. Thus, according to Article 2(1), those measures must be capable ofhelping to achieve certain objectives. Similarly, Articles 3 to 7 list several categoriesof aid which are, by definition, considered compatible with the common market.

68.

    However, Articles 2 to 9 also include some provisions of a procedural nature. Thus,the obligation for Member States to notify, each year, the global amount of aidactually paid during the preceding coal production year (Article 9(2)) has no impacton the question whether an individual financial plan exhibits features of a naturesuch as to characterise it as Community aid. That finding is also true of theprovisions which oblige the Commission to undertake certain specific reviews or togive opinions (the third subparagraph of Article 3(2), Article 8(2) and the firstsentence of Article 8(3)).

69.

    It follows that the reference in Article 1(1) to Articles 2 to 9 of the Code concernstwo kinds of provisions, namely substantive provisions, on the one hand, andprocedural provisions, on the other. While provisions of the first kind, in so far asthey relate to the attributes of aid, may determine once and for all its compatibilitywith the common market, the impact of those of the second kind on the assessmentof aid depends, for each provision, on its function within the scheme of the Code.

70.

    In that respect, the aim of the provisions of Article 9 of the Code in aggregate isnot to determine the attributes of aid, but to regulate the procedural arrangementsfor its notification, appraisal, authorisation and implementation.

71.

    It is, admittedly, incontrovertible that Article 1(1) of the Code of 1986 referred, forthe definition of Community aid, only to the substantive provisions (Articles 2 to8), while providing elsewhere that that aid was to be implemented in compliancewith the procedural provisions (Articles 9 and 10). However, the mere replacementin the Code of 1993 of those two separate references by one global reference tosubstantive and procedural provisions combined cannot have the effect ofconverting procedural provisions into substantive provisions. In view of theforegoing, what is concerned here is merely a change in general presentation ascompared with the previous code.

72.

    That analysis is borne out by the origin of the Code of 1993. The communicationof 27 January 1993 (see paragraph 3 above), on the basis of which that code wasapproved by the Council, contains nothing to suggest that the legislature's intentionwas to raise procedural provisions to the level of substantive provisions with theresult that the substantive assessment of Community aid would thereafter bedependent on compliance with the formal requirements with respect to such aid.

73.

    On the contrary, according to that communication, the new code was not only toensure the continuity of the Community's coal policy, but also to prepare forincorporation of the coal industry in the EC Treaty (p. 2). It may be concludedfrom that statement that it was not planned to abandon the distinction betweensubstantive and procedural provisions, as incorporated in the Code of 1986 and inthe system established by Articles 92 and 93 of the EC Treaty. Accordingly, it islogical that the actual wording of the Code of 1993, apart from the global referenceanalysed above, should preserve such a distinction.

74.

    As regards the legal effects of a breach of the procedural principle of priorauthorisation, Article 9(5) of the Code provides that, '[i]n the event of refusal, anypayment made in anticipation of authorisation from the Commission shall be repaidin full‘. That provision, in so far as it makes the repayment of aid paid inanticipation expressly subject to the condition that the Commission must haverefused authorisation, necessarily implies that the Commission has the power togrant authorisation.

75.

    Moreover, the applicant's argument that Article 9(5) covers only cases governedby Article 9(4) runs counter to the wording of paragraph 5, which is expresslyapplicable to 'any payment‘. It is also at variance with the internal logic of Article9, since the provision set out in paragraph 5 is the subject of a separate andautonomous paragraph within the scheme of that article and, specifically, does notform part of paragraph 4.

76.

    At a more general level, although the prohibition in Article 4(c) of the ECSCTreaty is formulated in stricter terms than that in Article 92 of the EC Treaty, thesubstantive and procedural provisions in the Code of 1993 and the systemestablished by Articles 92 and 93 of the EC Treaty do not differ in principle. As aresult, it would not be justified to interpret the provisions of the Code of 1993, inrelation to Article 4(c) of the ECSC Treaty, more restrictively than paragraphs 2and 3 of Article 92 of the EC Treaty in the light of paragraph 1 thereof.

77.

    The Court of Justice has held that breach of the procedural obligations referred toin Article 93(3) of the EC Treaty is not such as to relieve the Commission from theduty of examining the compatibility of aid in the light of Article 92(2) of the ECTreaty and that the Commission cannot declare that aid unlawful without checkingwhether or not it is compatible with the common market (see Boussac, paragraphs21 to 23, and, more explicitly, Case C-142/87 Belgium v Commission [1990] ECRI-959, paragraph 20; and Case C-354/90 Fédération Nationale du CommerceExtérieur des Produits Alimentaires and Syndicat National des Négociants etTransformateurs de Saumon v French State [1991] ECR I-5505, paragraph 13).

78.

    That interpretation, which obliges the Commission to make an ex post factoassessment, necessarily means that the question whether it has the power to giveex post facto approval to aid paid prior to authorisation must be answered in theaffirmative. In other words, nothing required the Commission to adopt, in this case,a more restrictive approach, in the matter of procedure, than that indicated in thecase-law mentioned in the previous paragraph.

79.

    In the light of the particular features of the present case, which falls within theambit of the scheme of aid to the coal industry, the lessons which the applicantseeks to draw from Delimitis and Distillers Company, relating to Article 85 of theEC Treaty and Article 86 of the EC Treaty (now Article 82 EC) and to block andindividual exemptions, are irrelevant.

80.

    As regards the case-law relating to the Fifth Steel Code, which the applicant relieson in the present context, it should be pointed out that the steel sector ischaracterised by the competitiveness of the undertakings operating on the market.By contrast, the coal sector has been marked, since 1965, by the need of theCommunity's industry to obtain constant financial support and by the structuraluncompetitiveness in that industry (communication of 27 January 1993, p. 2 et seq.,in particular p. 9). The President of the Court of Justice indeed stated, in the orderin Germany v Commission, cited above, paragraphs 54, 57 and 80, that the steelsector is particularly sensitive to interference in its competitive operation, since thepurpose of the system of aid to that sector is to ensure the survival of successfulundertakings and not to maintain undertakings which could not continue to existunder normal market conditions. Since the State aid regime in the steel sector isstricter than that in the coal sector, that case-law cannot be transposed to thepresent case.

81.

    As regards the judgment in UK Steel Association, it is sufficient to observe that theCourt of First Instance annulled the decision contested in that case on the groundthat the Commission had infringed one of the substantive provisions of the FifthSteel Code and authorised aid which, in truth, could not be considered compatiblewith the proper functioning of the common market. What is concerned in thepresent case, on the other hand, is the application of the procedural provisions ofthe Code of 1993.

82.

    Finally, in Preussag Stahl, the Court of First Instance inferred from the limitednature of the period during which the aid at issue in that case could be consideredcompatible with the common market that the Commission's authorisation of thataid was also required to be given during that period (paragraphs 38 to 43).However, the aid at issue in this case may be considered Community aid,compatible with the common market, until 2002. As a result, the contested decisionwhich granted authorisation of that aid in 1998 is in no way affected by the issuesdealt with in Preussag Stahl.

83.

    For all the reasons set out above, the plea based on the Commission's alleged lackof competence to authorise ex post facto aid already paid, as formulated inparagraph 30, first indent, above, must be dismissed.

The plea of infringement of Article 3 of the Code of 1993

— Arguments of the parties

84.

    As a preliminary point, the applicant submits that the State aid paid in Germanythat has been authorised by the Commission, on the one hand, frustrates itsattempts to gain access to the German market, and, on the other hand, has anartificial influence on world market prices, which prevents its production frombecoming more competitive on the United Kingdom market and on the worldmarket. It states that, after restructuring, without receiving any State aid, it hasbecome very competitive and sells at prices close to the world average. However,it is exposed to competition from German undertakings which, as recipients of suchaid, can offer prices lower than its own.

85.

    The applicant submits that, by approving operating aid under Article 3 of the Codewithout having examined the economic viability of each of the recipientundertakings, the Commission has infringed the ECSC Treaty and committed amanifest error. As is clear from Article 3(2) and Article 4 of, and the preamble to,the Code, it is necessary to distinguish between operating aid (Article 3) and aidintended to allow a cessation of production (Article 4). In accordance with Article2(1), first indent, of the Code, only undertakings which can become viable in theforeseeable future may receive operating aid.

86.

    The applicant concludes from this that Article 3 of the Code precludes operatingaid from being granted to undertakings merely because they plan to reduce theirproduction costs. Where there is no prospect of viability, the only possible aid isthat under Article 4 of the Code, which is subject to the submission of a closureplan with a deadline for closure between now and 2002.

87.

    According to the applicant, that distinction of principle between Article 3 andArticle 4 of the Code is borne out by the preamble thereto: under the 10thparagraph of point III of the preamble, it is only for undertakings which have nohope of making progress towards greater economic viability in view of coal priceson the world markets that aid arrangements should make it possible to mitigate thesocial and regional consequences of closures. According to the 11th paragraph ofpoint III of the preamble, steps must be taken not only to create conditions forhealthier competition but also to bring about a long-term improvement in thecompetitiveness of this industry throughout the Community in relation to the worldmarket.

88.

    The applicant adds that its view is supported by the Commission's 'CommunityGuidelines on State Aid for Rescuing and Restructuring Firms in Difficulty‘ (OJ1994 C 368, p. 12, hereinafter 'the Guidelines‘). It refers, in particular, toparagraph 3.2.2(i), according to which the sine qua non of all restructuring plans isthat they must restore the long-term viability and competitiveness of theundertaking within a reasonable timescale on the basis of realistic assumptions asto its future operating conditions. In that context, the applicant refers to thejudgment in UK Steel Association.

89.

    Referring to the Guidelines, the applicant states that the concept of viability mustbe understood to refer not to the competitiveness of the undertaking concerned atthe time when the aid was granted, but to its ability to reach, within a reasonabletimescale and on the basis of realistic assumptions as to its future operation, asituation in which it is capable of competing on the world market in the long termon its own merits and without further aid. It refers, in addition, to thecommunication of 27 January 1993 (see paragraph 3, above). According to thatcommunication, the primary objective of the management of any coal undertakingshould be its economic profitability and operating aid must help to render anysubsidy unnecessary within two four-year periods (p. 20); operating aid should beunderstood to mean any aid intended for the current production of undertakingswhich are preparing to become economically viable in the long term.

90.

    The applicant then refers to the Mid-Term Report (see paragraph 24, above), inwhich the Commission states that operating aid is conditional on the obligation tomake further progress towards economic viability in the light of coal prices oninternational markets, with the aim of degression of aid, which should imply thatthe undertakings receiving that aid 'must have hope of achieving a degree ofcompetitiveness with imported coal‘ (p. 4 of the Report).

91.

    According to the applicant, the argument put forward by the Commission wouldproduce bizarre results, since the most profitable mining undertakings in theCommunity would close, while those which have no chance of becomingcompetitive would continue to operate. Undertaking A which is alreadyrestructured and has rationalised its production, but which cannot reduce itsproduction costs further, would, for that reason, not receive any operating aid,while undertaking B, whose production costs are actually much higher than thoseof undertaking A, could have such aid granted and authorised simply by showingthat it has succeeded in reducing those costs, even if they are still much higher thanthose of undertaking A and even if it has no prospect of viability in the long term.

92.

    The applicant is opposed to any extensive interpretation of Article 3 of the Codein the terms advocated by the Commission. The general prohibition on State aidpursuant to Article 4(c) of the ECSC Treaty and the nature of the Code, as anexception adopted under Article 95 of that Treaty, show that if aid is to be capableof approval it must comply strictly with the conditions laid down by that code.

93.

    Consequently, any exception to the general rule in Article 4 of the ECSC Treaty,which prohibits State aid, must be necessary in order to attain one of theCommunity objectives laid down in Articles 2 to 4 of the Treaty, such as, inter alia,ensuring the most rational distribution of production at the highest level ofproductivity (Article 2), the establishment of the lowest prices (Article 3(c)) and themaintenance of conditions which will encourage undertakings to expand andimprove their production potential (Article 3(d)).

94.

    Finally, a decision adopted under Article 95 of the ECSC Treaty, such as the Codeof 1993, must also take into account Article 5 of the Treaty, pursuant to which theCommunity is to ensure, inter alia, the maintenance of normal conditions ofcompetition and is to exert direct influence on production or upon the market onlywhen circumstances so require.

95.

    In response to the applicant's preliminary observations, the Commission submits,without being contradicted on that point, that the applicant could, for its part, haveapplied for State aid, but that the United Kingdom, although it agreed to theadoption of the Code of 1993, has made a political choice not to pay any more aidto the British mining industry. In the Commission's submission it is therefore thepolicy implemented by its own government which is affecting the applicant'seconomic interests. The applicant is attempting to impose the effects of that policyon the undertakings of other Member States by means of legal proceedings.

96.

    As regards the substance of the action, the Commission and the parties interveningin its support contend that the criterion which the applicant advocates in order toestablish whether operating aid may be authorised under Article 3 of the Code,namely 'the realistic prospect of becoming viable in the long term‘, is contrary tothe explicit wording of Articles 2 and 3 of the Code and incompatible with the

purpose of the Code as set out in the preamble thereto. Recognising that theobjective of viability is difficult for coal mines to achieve, since they are structurallyuncompetitive, the Code merely requires that those mines be capable of reducingtheir production costs in order to achieve degression of operating aid. It isinconceivable that the Council would have assented to a condition which, accordingto the applicant's interpretation, would have meant that aid under Article 3 of theCode could not be granted in any Member State.

— Findings of the Court

97.

    It should be stated at the outset that no provision in the Code states expressly thatoperating aid must be strictly reserved for undertakings with reasonable chances ofachieving economic viability in the long term, in the sense that they must becapable of meeting competition on the world market on their own merits. It is thusby an interpretation of the relevant provisions of the Code that it is necessary todetermine the scope of the notion of viability which is inherent in the scheme ofoperating aid, that is to say, according to generally accepted usage, aid intended torelieve an undertaking, either wholly or in part, of the expenses which it woulditself normally have had to bear in connection with its day-to-day management orits usual activities (see, for example, Case T-459/93 Siemens v Commission [1995]ECR II-1675, paragraph 48).

98.

    Article 3(1) of the Code defines operating aid, by reference to its purpose, as aid'to cover the difference between production costs and the selling price freelyagreed between the contracting parties in the light of the conditions prevailing onthe world market‘.

99.

    Under Articles 3(2), 8 and 9(6) of the Code, read in conjunction, authorisation ofoperating aid is, in addition, subject to prior communication of a modernisation,rationalisation and restructuring plan which, under the first subparagraph of Article3(2), is designed 'to improve the economic viability of the undertakings concernedby reducing production costs‘. The second subparagraph of that provision adds thatthe plan must provide for appropriate measures 'to generate a trend towards areduction in production costs at 1992 prices, during the period 1994 to 2002‘.

100.

    Those provisions do not require that the undertaking in receipt of aid achieveviability by the end of a fixed period. They require only that economic viability'improve‘. Article 2(1) of the Code, the first indent of which relates to operatingaid under Article 3, also requires no more than the achievement of 'furtherprogress towards economic viability‘ without attaching any precise deadlines to thatcondition.

101.

    The reason for that open-ended formulation is the economic reality on which thescheme of State aid to the Community's coal industry is based, namely the

structural uncompetitiveness faced by that industry because most of its undertakingsremain uncompetitive in relation to imports from third countries.

102.

    As is clear from the communication of 27 January 1993 (p. 2 et seq.), theCommunity coal sector has been characterised, since 1965, by permanent financialsupport in the form of State aid. The constant financial needs of the Community'scoal industry also necessitated, therefore, the adoption of the Code of 1993.According to the graph set out in the communication of 27 January 1993 (p. 9),average national production costs between 1975 and 1991 were significantly higherthan the average price of imported coal, which led the Commission to concludethat it 'clearly reveal[ed] that uncompetitiveness remains a problem for the entirecoal industry in the Community‘. The Commission continued, in the samecommunication, that '[t]he coal industry in the Community remains dependent onState aid‘ (p. 17). Moreover, in its Mid-Term Report, the Commission noted thepersistent lack of any medium- to long-term prospects of economic viability for thevast majority of the coal industry in the Community (p. 26 of the Report).

103.

    It follows that improvement in the economic viability of a given undertakingnecessarily means no more than a reduction in the level of its non-profitability andits non-competitiveness. Furthermore, in its communication of 27 January 1993 (p.21), the Commission states that setting a competitiveness target, based on reliableestimates of long-term trends on the world market, is a difficult exercise.

104.

    Although the applicant refers to the Commission's declaration, according to whichthe objective of phasing out operating aid should be achieved over two four-yearperiods (p. 20 of the abovementioned communication), that provisional timetablecannot be severed from the Community scheme of guide costs which theCommission proposed to introduce in order to speed up the phasing-out ofoperating aid. That scheme, which was more restrictive as regards authorisation ofaid than that under Article 3 of the Code, was not approved by the Council. Itfollows that the two four-year periods relied on by the applicant are irrelevant inthe context of the logic of Article 3 of the Code.

105.

    Next, it is necessary to examine the means, laid down by the Code, by which theobjective of improving economic viability is to be achieved.

106.

    Under the first subparagraph of Article 3(2) of the Code, that improvement mustbe achieved 'by reducing production costs‘. Thus, by expressly providing that thatreduction must improve the 'viability‘ and not only the economic 'situation‘ of theundertakings concerned, the legislature expressed the idea that a reduction inproduction costs which is insignificant, or indeed purely symbolic, is not sufficientto justify authorisation of operating aid to those undertakings. It is not possibleseriously to imagine an improvement in the competitiveness of the Community coalsector (11th paragraph of point III in the preamble to the Code) if the reductionin production costs is insignificant in economic and financial terms.

107.

    That finding is not contradicted by the second subparagraph of Article 3(2) of theCode which states that a 'trend‘ towards a reduction by the year 2002 is deemedsufficient. Although that wording does not preclude the possibility that anundertaking, in particular at the beginning of the period 1994 to 2002, may fail,during a given year, to reduce its production costs for overriding reasons, withoutthereby losing the right to obtain operating aid, an improvement in viabilityrequires that such an undertaking effect a reduction in production costs which iscommensurately more sustained in the following years.

108.

    Contrary to the Commission's argument, reducing production costs is not sufficientto justify authorisation of operating aid. Article 2(1) of the Code posits,furthermore, the principle that only aid which helps to achieve at least one of theobjectives specified can be considered compatible with the common market.Moreover, Article 9(4) and (6) of the Code requires the Commission to checkwhether any aid planned is in conformity with those same objectives.

109.

    It is clear from the very wording of Article 2(1) of the Code that the threeobjectives listed correspond to particular categories of aid. The objective of making,in the light of coal prices on international markets, further progress towardseconomic viability with the aim of achieving degression of aid (first indent) refersto operating aid under Article 3 of the Code. In the light of that correlationbetween objectives and categories of aid, the Commission's argument that it issufficient to pursue, in granting operating aid, any of the three abovementionedobjectives, in particular that relating to problems created by reduction in activity,must be rejected.

110.

    As regards the determination of the scope of the objective defined in Article 2(1),first indent, of the Code, the legal, economic and historical analysis which has justbeen carried out in regard to the interpretation of Article 3 of the Code remainsvalid. It follows that making 'further progress towards economic viability in thelight of coal prices on international markets‘ is virtually synonymous with'improving economic viability‘, in the sense in which that phrase has beenconstrued above, provided that the financial advantages obtained from reducingproduction costs result in 'degression of aids‘.

111.

    As a result, if it appears that a significant reduction in production costs makes itpossible to achieve a degression of aid, the Commission is entitled to consider thatthe undertakings concerned are capable of improving their economic viability.

112.

    It follows that undertakings, whose production costs are such that no real progresstowards economic viability, as defined above, can be expected, can receive only aidfor reduction of activity under Article 4.

113.

    Those conclusions are not contradicted by the passages in the communication of27 January 1993 and in the Mid-Term Report which are relied on by the applicant.In those documents the Commission insists on the principle that the notion of

economic viability must be 'in line with the objectives and criteria laid down in theDecision‘, stating that 'to phase out the aid by cutting production costs [is] the sinequa non for improving the international competitiveness of the Community's coalindustry‘ (pp. 20 and 18 of the communication of 27 January 1993) and thatundertakings 'capable of attaining the cost-cutting target ... could aspire to adegree of competitiveness in the long term‘ (p. 4 of the Mid-Term Report).

114.

    Similarly, in the light of the Court's above analysis of the relevant provisions of theCode, the Guidelines relied on by the applicant cannot justify a different result,particularly because point 2.2 of those Guidelines limits their scope in that theyapply to the coal sector only to the extent that they are consistent with the specialrules governing that sector.

115.

    Finally, those conclusions on the wording, context and purpose of Articles 2, 3 and4 of the Code are not at variance with the restrictive construction of Article 4(c)of the ECSC Treaty advocated by the applicant. As pointed out above (paragraph111), authorisation of operating aid is subject to the condition that the recipientundertakings have achieved a significant reduction in their production costs, makingdegression of that aid possible.

116.

    It follows that the plea of infringement of Article 3 of the Code, as formulated inparagraph 30, second indent, above, must be dismissed.

Costs

117.

    It is appropriate to reserve the costs.

On those grounds,

THE COURT OF FIRST INSTANCE (First Chamber, Extended Composition),

ruling, as requested by the parties, on two of the pleas relied on by the applicant,as formulated in paragraph 30 above,

hereby:

1.    Declares that the plea based on breach of the alleged prohibition on givingex post facto approval to aid paid without prior approval is unfounded;

2.    Declares that the plea of infringement of Article 3 of Commission DecisionNo 3632/93/ECSC of 28 December 1993 establishing Community rules forState aid to the coal industry is unfounded;

3.    Dismisses the application in so far as it is based on those two pleas;

4.    Invites the parties to state their views, within a period to be fixed by thePresident of the Court of First Instance, on the further steps to be takenin the proceedings;

5.    Reserves the costs.

Vesterdorf Bellamy Pirrung             Meij                        Vilaras

Delivered in open court in Luxembourg on 9 September 1999.

H. Jung

B. Vesterdorf

Registrar

President

1: Language of the case: English.