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

15 December 1999 (1)

(State aid - Compensation for economic disadvantages caused by the division ofGermany - Serious disturbance in the economy of a Member State - Regionaleconomic development - Community Framework on State Aid to the MotorVehicle Industry)

In Joined Cases T-132/96 and T-143/96,

Freistaat Sachsen, represented by Karl Pfeiffer and Jochim Sedemund,Rechtsanwälte, Berlin, with an address for service in Luxembourg at the Chambersof Aloyse May, 31 Grand-Rue,

and

Volkswagen AG and Volkswagen Sachsen GmbH, companies incorporated underGerman law, established in Wolfsburg (Germany) and Mosel (Germany)respectively, represented by Michael Schütte, Rechtsanwalt, Berlin, and MartinaMaier, Rechtsanwalt, Düsseldorf, with an address for service in Luxembourg at theChambers of Bonn and Schmitt, 62 Avenue Guillaume,

applicants,

supported by

Federal Republic of Germany, represented initially by Ernst Röder andsubsequently by Wolf-Dieter Plessing, Ministerialräte, acting as Agents, assisted byThomas Oppermann, Professor at the University of Tübingen, with an address forservice at the Federal Ministry of Economics and Technology, Bonn (Germany),

intervener,

v

Commission of the European Communities, represented initially by Paul Nemitzand Anders Jessen, of its Legal Service, and, subsequently, by Paul Nemitz alone,acting as Agents, assisted by Hans-Jürgen Rabe, Georg Berrisch and Marco NuñezMüller, Rechtsanwälte, Hamburg, with an address for service in Luxembourg at theoffice of Carlos Gómez de la Cruz, of its Legal Service, Wagner Centre, Kirchberg,

defendant,

supported by

United Kingdom of Great Britain and Northern Ireland, represented by JohnCollins, of the Treasury Solicitor's Department, acting as Agent, assisted by SarahMoore, Barrister, of the Bar of England and Wales, with an address for service inLuxembourg at the Embassy of the United Kingdom, 14 Boulevard Roosevelt,

intervener,

APPLICATION for the partial annulment of Commission Decision 96/666/EC of26 June 1996 concerning aid granted by Germany to the Volkswagen Group forworks in Mosel and Chemnitz (OJ 1996 L 308, p. 46),

THE COURT OF FIRST INSTANCE

OF THE EUROPEAN COMMUNITIES (Second Chamber, ExtendedComposition),

composed of: A. Potocki, President, K. Lenaerts, C.W. Bellamy, J. Azizi andA.W.H. Meij, Judges,

Registrar: A. Mair, Administrator,

having regard to the written procedure and further to the hearing on 30 June 1999,

gives the following

Judgment

Legal background

1.

    By letter of 31 December 1988, the Commission informed Member States that,during its meeting of 22 December 1988 and following its decision of 19 July 1988to establish a Community framework on State aid to the motor vehicle industry('Community framework‘), based on Article 93(1) of the EC Treaty (now Article88(1) EC), it had laid down the conditions for implementing that framework,reproduced in a document attached to the letter. It asked Member States toinform it of their acceptance of that framework within one month.

2.

    The Community framework was the subject of a notice (89/C 123/03) published inthe Official Journal of the European Communities (OJ 1989 C 123, p. 3). Point 2.5thereof provided that it was to 'enter into force on 1 January 1989‘ and to be'valid for two years‘.

3.

    According to the fourth paragraph of Point 1, a major objective of the frameworkwas to impose stricter discipline on the granting of aid in the motor vehicle industryin order to ensure that the competitiveness of the Community industry was notdistorted by unfair competition. The Commission stated that it could operate aneffective policy only if it were able to take a position on individual cases before aidwas granted.

4.

    Under the first paragraph of Point 2.2 of the Community framework:

'All aid measures to be granted by public authorities within the scope of anapproved aid scheme to (an) undertaking(s) operating in the motor vehicle sectoras defined above, where the cost of the project to be aided exceeds ECU 12 millionare subject to prior notification on the basis of Article 93(3) of the EEC Treaty. As regards aid to be granted outside the scope of an approved aid scheme, anysuch project, whatever its cost and aid intensity, is of course subject withoutexception to the obligation of notification pursuant to Article 93(3) of the EECTreaty. Where aid is not directly linked to a particular project, all proposed aidmust be notified, even if paid under schemes already approved by the Commission. Member States shall inform the Commission, in sufficient time to enable it tosubmit its comments, of any plan to grant or alter aid.‘

5.

    In Point 3 of the Community framework, concerning guidelines for the assessmentof aid cases, the Commission stated, inter alia, as follows:

'- Regional Aid

[...]

The Commission acknowledges the valuable contribution to regional developmentwhich can be made by the implantation of new motor vehicle and componentproduction facilities and/or the expansion of such existing activities in disadvantagedregions. For this reason the Commission has a generally positive attitude towardsinvestment aid granted in order to help overcome structural handicaps indisadvantaged parts of the Community.

[Such] aid is usually granted automatically in accordance with [detailed rules]previously approved by the Commission. By requiring prior notification of suchaids in future, the Commission should give itself an opportunity to assess theregional development benefits (i.e. the promotion of a lasting development of theregion by creating viable jobs, linkages into [the] local and Community economy)against possible adverse effects on the sector as a whole (such as the creation of[significant] overcapacity). Such an evaluation does not seek to deny the centralimportance of regional aid for the achievement of cohesion within the Communitybut rather to ensure that other aspects of Community interest such as thedevelopment of the Community's industry are also taken into account.

[...]‘

6.

    Since the German Government indicated to the Commission that it had decidednot to apply the Community framework, the Commission adopted, in accordancewith Article 93(2) of the Treaty, Decision 90/381/EEC of 21 February 1990concerning German aid schemes for the motor vehicle industry (OJ 1990 L 188, p.55). Article 1 of that decision provides:

'1.    From 1 May 1990, the Federal Republic of Germany shall notify to theCommission pursuant to Article 93(3) of the EEC Treaty all aid measuresto be granted for projects costing more than ECU 12 million under the aidschemes set out in the Annex hereto to undertakings operating in the motorvehicle sector as defined in sub-section 2.1 of the Community framework forState aid to the motor vehicle industry. Such notification shall be effectedin conformity with the requirements laid down in sub-sections 2.2 and 2.3.The Federal Republic of Germany shall, moreover, provide annual reportsas required by the framework.

2.    Further to the list of aid schemes set out in the Annex to this Decision(which list is not exhaustive), the Federal Republic of Germany shall alsocomply with the obligations of Article 1(1) with regard to all other aidschemes capable of benefiting the motor vehicle industry.

3.    Aid to undertakings in the motor vehicle industry operating in Berlin whichare granted under the Berlin Förderungsgesetz are excluded from the priornotification obligation provided for in the framework but shall be includedin the annual reports required by that framework.‘

7.

    By letter of 2 October 1990 addressed to the German Government, theCommission approved the regional aid scheme laid down for 1991 by theNineteenth Outline Plan adopted pursuant to the German Law of 6 October 1969on the Joint Task [between the Federal Government and the Länder] of'Improving the regional economic structure‘ (Gesetz über die Gemeinschaftsaufgabe'Verbesserung der regionalen Wirtschaftsstruktur‘; hereinafter 'the Joint Task Law‘),whilst at the same time issuing a reminder of the need, when implementing themeasures envisaged, to take account of the Community framework existing incertain sectors of industry. The Nineteenth Outline Plan itself indicates (Part I,point 9.3, p. 43) that the Commission:

'has taken decisions which prohibit the implementation of State aid granted incertain sectors even if it were granted in the context of approved programmes(regional aid for example), or which make its implementation subject to the needfor prior authorisation of each of the projects which it is intended to benefit ...

Such rules exist in the following areas:

(a) ...

-    the motor-vehicle industry, in so far as the cost of an operation which it isintended to benefit exceeds 12 million ecus.‘

8.

    The political reunification of Germany was declared on 3 October 1990, entailingthe accession to the Federal Republic of Germany of five new Länder from theformer German Democratic Republic, including the Freistaat Sachsen (Free Stateof Saxony).

9.

    By letter of 31 December 1990, the Commission informed Member States that itconsidered it necessary to extend the Community framework.

10.

    That Commission decision also formed the subject-matter of a notice (91/C 81/05)published in the Official Journal of the European Communities (OJ 1991 C 81, p.4). That notice stated, inter alia, as follows:

'[...] the Commission believes it necessary to renew the framework on State aid tothe motor vehicle industry [...]. The only modification which the Commission hasdecided extends the prior notification obligation for the Federal Republic ofGermany to Berlin (West) and the territory of the former GDR (Article 1(3) of theCommission's Decision of 21 February 1990, as published in OJ No L 188 of 20July 1990, is no longer valid as from 1 January 1991).

After two years the framework shall be reviewed by the Commission. Ifmodifications appear necessary (or the possible repeal of the framework) theseshall be decided upon by the Commission following consultation with the MemberStates.‘

11.

    By letters to the German Government of 5 December 1990 and 11 April 1991, theCommission approved the application of the Joint Task Law to the new Länder,whilst reiterating the need, when implementing the measures in question, to takeaccount of the Community framework existing in certain sectors of industry. Similarly, by letter of 9 January 1991, it approved the extension of existing regionalaid schemes to the new Länder, stating that the provisions of the Communityframework had to be complied with.

12.

    On 23 December 1992, the Commission decided that 'the [Community] frameworkwill not be modified‘, and that it would remain valid until a subsequent review tobe organised by the Commission. That decision formed the subject-matter of anotice (93/C 36/06) published in the Official Journal of the European Communities(OJ 1993 C 36, p. 17).

13.

    In its judgment of 29 June 1995 in Case C-135/93 Spain v Commission [1995] ECRI-1651, at paragraph 39, the Court of Justice held that that decision should beinterpreted as 'having extended the framework only until its next review, which,like the previous ones, had to take place at the end of a further period ofapplication of two years‘, expiring on 31 December 1994.

14.

    Following the delivery of that judgment, by letter of 6 July 1995, the Commissioninformed Member States that, in the Community interest, it had decided on 5 July1995 to prolong retroactively from 1 January 1995 its decision of 23 December1992, thereby making the Community framework apply without interruption. TheCommission stated that that prolongation would come to an end once theprocedure under Article 93(1) of the Treaty, which it had simultaneously decidedto open, had concluded (see paragraph 15 below). That decision, which formed thesubject-matter of a notice (95/C 284/03) published in the Official Journal of theEuropean Communities (OJ 1995 C 284, p. 3), was annulled by the judgment of theCourt of Justice of 15 April 1997 in Case C-292/95 Spain v Commission [1997] ECRI-1931.

15.

    By a second letter of 6 July 1995, the Commission further informed the MemberStates of its decision of 5 July 1995 to propose to them, in the light of the judgmentin Spain v Commission, to reintroduce the Community framework for a period oftwo years whilst making a number of amendments thereto, in particular the raisingof the notification threshold to 17 million ecus (see Notice 95/C 284/03, citedabove). The new text of the proposed Community framework provided, at Point2.5, that: 'The appropriate measures shall enter into force when all MemberStates have signalled their agreement or at the latest by 1 January 1996. All aidprojects, which have not yet received a final approval by the competent authorityby that date, shall be subject to prior notification.‘ The German Government gaveits approval to that reintroduction of the Community framework by letter of 15August 1995.

Factual background

16.

    The entry into force of the economic, monetary and social union between theFederal Republic of Germany and the German Democratic Republic on 1 July1990 brought with it the collapse of demand for, and production of, Trabantvehicles in Saxony. In order to safeguard the motor-vehicle industry in that region,Volkswagen AG ('Volkswagen‘) entered into negotiations with theTreuhandanstalt ('THA‘), the public-law body entrusted with restructuring thebusinesses of the former German Democratic Republic, which led to an agreementin principle in October 1990. That agreement provided, inter alia:

-    for the joint creation of Sächsische Automobilbau GmbH ('SAB‘), acompany entrusted with the responsibility for maintaining jobs('Beschäftigungsgesellschaft‘), 87.5% of whose capital was initially held bythe THA and 12.5% by Volkswagen;

-    for the reopening by SAB of the existing paint workshop (then underconstruction) and the final assembly workshop on the Mosel site ('MoselI‘);

-    for the reopening by Volkswagen Sachsen GmbH ('VW Sachsen‘), awholly-owned subsidiary of Volkswagen, of an existing vehicle-productionplant on the Chemnitz site ('Chemnitz I‘);

-    for the resumption by VW Sachsen of cylinder-head production at theEisenach site; and

-    for the creation by VW Sachsen of a new motor vehicle construction plantin Mosel, comprising the four main activities of manufacture, namely metalpressing, skeleton bodywork, painting and final assembly ('Mosel II‘) anda new vehicle-production plant in Chemnitz ('Chemnitz II‘).

17.

    It was initially agreed that the reopening and restructuring of Mosel I andChemnitz I constituted a temporary solution, designed to avoid unemployment ofthe existing workforce, pending the entry into service of Mosel II and Chemnitz II,scheduled for 1994.

18.

    By letter of 19 September 1990, the Commission asked the German Governmentto notify it, in accordance with the Community framework, of State aid for thoseinvestment projects. By letters of 14 December 1990 and 14 March 1991, theCommission insisted that that aid could not be put into effect without having beennotified to the Commission and received its approval. That question was alsoentered on the agenda of two bilateral meetings held in Bonn on 31 January and7 February 1991.

19.

    On 22 March 1991, on the basis of the Joint Task Law, the Saxon Ministry of theEconomy and Employment adopted two decrees providing for the grant of certaininvestment grants to VW Sachsen in relation to Mosel II and Chemnitz II ('the1991 decrees‘). The amount envisaged for those grants totalled DEM 757 millionfor Mosel II, with payments spread out between 1991 and 1994, andDEM 147 million for Chemnitz II, with payments spread out between 1991 and1996.

20.

    On 18 March 1991, the Finanzamt (Tax Office) Zwickau-Land addressed a decisionto VW Sachsen providing for the grant of certain investment allowances inaccordance with the German law on investment allowances(Investitionszulagengesetz) of 1991.

21.

    The Volkswagen group also sought the possibility of making special depreciationwrite-offs, in accordance with the German Assisted Areas Law(Fördergebietsgesetz) of 1991.

22.

    By letter of 25 March 1991, the German authorities supplied the Commission withcertain information concerning the aid referred to in paragraphs 19 to 21 above,whilst indicating that they did not yet have more precise information and that it wasintended to grant it in the context of the aid schemes approved by the Commissionfor the new Länder. By letter of 17 April 1991, the Commission indicated that theletter from the German authorities of 25 March 1991 constituted a notificationpursuant to Article 93(3) of the Treaty, but that further information was necessary.

23.

    By letter of 29 May 1991, the German authorities argued, inter alia, that theCommunity framework was not applicable to the new Länder between 1 Januaryand 31 March 1991. In the submission of those authorities, since the aid inquestion had been approved before 31 March 1991, the various files related theretocould henceforth be examined by the Commission only by reference to the regionalaids scheme (see paragraph 7 above). The Commission rejected the arguments ofthe German authorities at a meeting on 10 July 1991 and requested further detailedinformation by letter of 16 July 1991. Following the reply of the GermanGovernment of 17 September 1991, the Commission raised a new series ofquestions by letter of 27 November 1991.

24.

    In October and December 1991, the Volkswagen group received investment grants amounting to DEM 360.8 million and investment allowances amounting toDEM 10.6 million in relation to Mosel II and Chemnitz II.

25.

    By decision of 18 December 1991 (OJ 1992 C 68, p. 14; 'the decision to review‘),notified to the German Government on 14 January 1992, the Commission openedthe procedure under Article 93(2) of the Treaty for reviewing the compatibility ofthe various aids for financing the investments in Mosel I and II, Chemnitz I and IIand the Eisenach factory with the common market.

26.

    In that decision, the Commission concluded, inter alia:

'[...] the aids proposed by [the German] authorities give rise to major concern forthe following reasons.

-    they have not been properly notified to the Commission according to theprocedure of Article 93(3) of the EEC Treaty;

-    the apparent high aid intensity proposed to a plan involving significantexpansion of capacity within the European car market could give rise tounfair distortion of competition;

-    not enough evidence has been presented to date which justifies thecombination of the relatively high intensity of regional aid, the granting ofindirect investment aid by the THA and the granting of a temporaryoperating aid also by THA by reference to the structural and economicproblems which VW undoubtedly faces in the new Länder; on the contrary,the global aid intensity could be disproportionately high and incompatiblewith the criteria of the Community framework on State aid to the sector.‘

27.

    By letter of 29 January 1992, the German Government declared itself willing tosuspend all aid payments until the review procedure was terminated.

28.

    By letter of 24 April 1992, the Commission asked the German authorities, the THAand Volkswagen for further information. Further to a meeting of 28 April 1992and the Commission's letters of 14 May, 5 June, 21 August and 17 November 1992,the German authorities provided additional information by letters of 20 May, 3 and12 June, 20 and 29 July, 8 and 25 September, 16 and 21 October, and 4 and 25November 1992; Volkswagen gave additional information by letters of 15 June and30 October 1992, and 12 and 20 June 1993. The parties also met on 16 June, 9September, 12 and 16 October and 3 December 1992, and on 8 and 11 June 1993.

29.

    On 13 January 1993, Volkswagen decided to postpone a large part of theinvestments initially intended for the Mosel and Chemnitz factories. The paintworkshop and final assembly line of Mosel II were henceforth to becomeoperational only in 1997, and the vehicle-production unit at Chemnitz II was notto enter into service until 1996. The Commission agreed to review its assessmenton the basis of Volkswagen's new investment projects.

30.

    On 30 March 1993, the Saxon Ministry of the Economy and Employment adoptedtwo decrees amending the 1991 decrees ('the 1993 decrees‘). The total amountof the investment grants thenceforth envisaged amounted to DEM 708 million forMosel II, with payments spread between 1991 and 1997, and DEM 195 million forChemnitz II, with payments spread between 1992 and 1997.

31.

    Certain details of Volkswagen's new investment projects were submitted to theCommission during an interview which took place on 5 May 1993. By letter of 6June 1993, Germany also communicated certain information on those projects,which Volkswagen supplemented by letters of 24 June and 6 July 1993 and a faxmessage of 10 November 1993. That new information was also examined duringinterviews which took place on 18 May, 10 June, 2 and 22 July 1993. Freshinformation of the production capacities envisaged by Volkswagen was supplied ina letter from the German Government of 15 February and a fax message of 25February 1994.

32.

    The Commission also collected new information on those projects on a visit to thesites at the beginning of April 1994 and during interviews which took place on 11May and 2, 7 and 24 June 1994. In addition, documents were submitted to it onthe occasion of those interviews and others were sent to it by the Germanauthorities and by Volkswagen on 10 May, 30 June and 4 and 12 July 1994.

33.

    On 24 May 1994, the Saxon Ministry of the Economy and Employment adoptedtwo decrees amending the 1991 and 1993 decrees ('the 1994 decrees‘). The totalamount of the investment grants thenceforth envisaged amounted toDEM 648 million for Mosel II, with payments spread between 1991 and 1997, andDEM 167 million for Chemnitz II, with payments spread between 1992 and 1997.

34.

    By an agreement of 21 June 1994, supplemented by an annex of 1 November 1994,Volkswagen acquired from the THA the 87.5% of the shares in SAB which it didnot already own.

35.

    On 27 July 1994, the Commission adopted Decision 94/1068/EC of 27 July 1994concerning aid granted to the Volkswagen Group for investments in the newGerman Länder (OJ 1994 L 385, p. 1; 'the Mosel I decision‘). In that decision,the Commission found, inter alia, as follows (Point IV, fourth paragraph, of therecitals):

'On opening the procedure the Commission had regarded all Volkswagen'sinvestment plans in Saxony as a single project and therefore intended to decide onall elements of State aid together. Even after its decision in 1993 to postponeinvestment in the new plants, Volkswagen initially argued that this did not affectthe production technology, the labour input and other crucial variables. This year,however, on the basis of information collected during a site visit and through newexpert advice, it became obvious that this view could no longer be maintained.Volkswagen also acknowledged to the Commission that their former plans hadbecome obsolete and that they were being reworked. The new plans for the newcar and engine plants Mosel II and Chemnitz II will now be closely linked to thedevelopment of the Golf A4 that will be put into production at the same time asMosel II is now planned to come on stream, i.e. in 1997. A final version of the newplans will only be available at the end of 1994. On the basis of current informationthese new plans will include significant changes in technology and productionstructure. Under these circumstances it is obvious that the original link between theinvestment projects in the existing former THA plants and the new greenfieldprojects has been severed. The Commission has therefore decided to limit itscurrent decision to the restructuring aid for the existing plants, on which it can forma clear opinion on the basis of the available information, and to postpone thedecision on the aid to the greenfield projects until Volkswagen and Germany areable to present their definitive investment and aid plans.‘

36.

    The Mosel I decision shows that the paint and final assembly workshops of MoselI were modernised and altered in accordance with the agreement concluded withthe THA (see paragraph 16 above). In an initial period to 1992, Mosel I was usedfor the final assembly of the VW Polo and Golf A2 models, the parts for whichwere manufactured elsewhere by other plants of the Volkswagen group anddelivered to Mosel in separate pieces. From July 1992, the combined use of thepaint and final assembly workshops of Mosel I, the alteration of which had justbeen completed, and of the new body workshop of Mosel II, which had just comeinto service, allowed the production launch of the Golf A3 model at Mosel,pressing work being carried out elsewhere. As a result, logistics were transferredfrom the Wolfsburg site to Mosel I in January 1993, and new supplier undertakings,capable of supplying the necessary parts to Mosel I and Chemnitz I, wereestablished in the proximity. The new press shop of Mosel II started to functionin March 1994, close to Mosel I.

37.

    It was in those circumstances that, in Article 1 of the Mosel I decision, theCommission declared various aids granted up to the end of 1993 (the date on whichthe restructuring was to be completed), and amounting to DEM 487.3 million forMosel I and DEM 84.8 million for Chemnitz I, compatible with the commonmarket. However, certain aid granted subsequently was declared incompatible withthe common market, particularly that categorised as aid for replacement andmodernisation investments, which according to the Mosel I decision could not beauthorised under the Community framework (see the Mosel I decision, Points IXand X).

38.

    Subsequently, the German Government verbally informed the Commission, anumber of times, of delays occurring in the creation of Mosel II and Chemnitz II. In a letter of 12 April 1995, the Commission reminded the German authorities thatthey were required to notify it of Volkswagen's projects for those new plants, sothat it could carry out a review of the aids concerned. That letter received noreply. By letter of 4 August 1995, the Commission requested that the necessaryinformation be communicated to it as soon as possible, stating that, if Germany didnot comply with that request, it would adopt a provisional decision, followed by adefinitive one, on the basis of the information it already had. In reply to that letter,the German Government informed the Commission, by letter of 22 August 1995,that Volkswagen's investment projects were still not finalised.

39.

    On 31 October 1995, the Commission adopted Decision 96/179/EC, enjoining theGerman Government to provide all documentation, information and data on thenew investment projects of the Volkswagen Group in the new German Länder andon the aid to be granted to them (OJ 1996 L 53, p. 50).

40.

    Following that decision, certain information concerning those projects and on thesubject of production capacity was communicated to the Commission during aninterview on 20 November 1995. That information was confirmed by letter of 13December 1995 and clarified on a visit to the sites on 21 and 22 December 1995. On 15 January 1996, the Commission put other questions to the Germanauthorities. After an interview on 23 January 1996, most of the missing informationwas communicated to the Commission by letters of 1 and 12 February 1996.

41.

    On 21 February 1996, the Saxon Ministry of the Economy and Employmentadopted two decrees amending the 1991, 1993 and 1994 decrees ('the 1996decrees‘). The total amount of the investment grants thenceforth envisagedamounted to DEM 499 million for Mosel II, with payments spread between 1991and 1997, and DEM 109 million for Chemnitz II, with payments spread between1992 and 1997.

42.

    By letter of 23 February 1996, the Commission reminded the German authoritiesthat it still lacked certain information. That information was communicated to itat an interview on 25 March 1996 and was subsequently discussed on 2 and 11April 1996. A further interview took place on 29 May 1996.

43.

    On 26 June 1996, the Commission adopted Decision 96/666/EC concerning aidgranted by Germany to the Volkswagen Group in Mosel and Chemnitz (OJ 1996L 308, p. 46; 'the Decision‘), the operative part of which reads as follows:

'Article 1

The following aid proposed by Germany for the various investment projects ofVolkswagen AG in Saxony is compatible with Article 92(3)(c) of the EC Treaty andArticle 61(3)(c) of the EEA Agreement:

-    aid granted by Germany to [the Volkswagen group] for [its] investmentprojects in Mosel (Mosel II) and Chemnitz (Chemnitz II) in the form ofinvestment grants (Investitionszuschüsse) of up to DEM 418.7 million,

-    aid granted by Germany to [the Volkswagen group] for [its] investmentprojects in Mosel (Mosel II) and Chemnitz (Chemnitz II) in the form ofinvestment allowances (Investitionszulagen) of up to DEM 120.4 million.

Article 2

The following aid proposed by Germany for the various investment projects ofVolkswagen AG in Saxony is incompatible with Article 92(3)(c) of the EC Treatyand Article 61(3)(c) of the EEA Agreement and may not be granted:

-    the proposed investment aid for [the Volkswagen group] for [its] investmentprojects in Mosel II and Chemnitz II in the form of special depreciation oninvestment under the Assisted Areas Law (Fördergebietsgesetz) with anominal value of DEM 51.67 million,

-    the proposed investment aid to [the Volkswagen group] for [its] investmentproject in Mosel II in the form of investment grants (Investitionszuschüsse)in excess of the amount specified in the first indent of Article 1 andconstituting an additional DEM 189.1 million.

Article 3

Germany shall ensure that the capacity of the Mosel plants in 1997 does not exceeda level of 432 units per day [...]

Furthermore, Germany shall send to, and discuss with, the Commission an annualreport on the realisation on the DEM 2 654.1 million of eligible investments inMosel II and Chemnitz II and the actual payments of aid so as to ensure that thecombined effective aid intensity expressed in gross grant equivalent does not exceed22.3% for Mosel II and 20.8% for Chemnitz II [...]

Article 4

Germany shall inform the Commission within one month of the notification of thisDecision of the measures taken to comply herewith.

Article 5

This Decision is addressed to the Federal Republic of Germany.‘

44.

    Following a letter sent by the chairman of Volkswagen to the first minister of theFree State of Saxony on 8 July 1996, the Free State of Saxony paid Volkswagen,in July 1996, DEM 90.7 million in investment grants which the Commission haddeclared in its Decision to be incompatible with the common market.

Procedure

45.

    By applications lodged at the Registry of the Court of First Instance on 26 Augustand 13 September 1996, the Free State of Saxony, of the one part, and Volkswagenand VW Sachsen, of the other part, brought two actions for the partial annulmentof the Decision, which were registered under case numbers T-132/96 and T-143/96respectively.

46.

    By application lodged at the Registry of the Court of Justice on 16 September1996, the Federal Republic of Germany brought an action, registered under casenumber C-301/96, for the partial annulment of the Decision.

47.

    By application lodged at the Registry of the Court of Justice on 16 September1996, the Commission brought an action against the Federal Republic of Germanyfor failure to fulfil its obligations, following the payment by the Free State ofSaxony of DEM 90.7 million in aids which had been declared by the Decision tobe incompatible with the common market. That action was registered under casenumber C-302/96.

48.

    By a separate application, lodged at the Registry of the Court of First Instance on8 November 1996, the Commission raised an objection of inadmissibility underArticle 114(1) of the Rules of Procedure in Case T-132/96.

49.

    By order of 4 February 1997, the Court of Justice stayed proceedings in Case C-301/96 Germany v Commission until the delivery of judgments by the Court of FirstInstance.

50.

    By applications lodged at the Registry of the Court of First Instance on 13 and 19February 1997 respectively, the Federal Republic of Germany and the UnitedKingdom applied for leave to intervene in Cases T-132/96 and T-143/96.

51.

    By letters of 10 April and 17 July 1997 and 26 May 1998, the applicants requestedthat certain information be treated as confidential in relation to the UnitedKingdom.

52.

    By order of 26 March 1998, the President of the Court of Justice removed Case C-302/96 from the register.

53.

    On 29 June 1998, the Court of First Instance (Second Chamber, ExtendedComposition) held an informal meeting with the parties.

54.

    By order of 30 June 1998, the Court of First Instance (Second Chamber, ExtendedComposition) joined the objection of inadmissibility raised by the Commission tothe substance of the case.

55.

    By orders of 1 and 3 July 1998, the President of the Second Chamber, ExtendedComposition, of the Court of First Instance granted leave to the Federal Republicof Germany and the United Kingdom to intervene in Cases T-132/96 and T-143/96in support of the applicants and the Commission respectively. The President alsopartially allowed the applications for confidential treatment.

56.

    By order of 7 July 1998, the President of the Second Chamber, ExtendedComposition, of the Court of First Instance joined Cases T-132/96 and T-143/96 forthe purposes of the written procedure, the oral procedure and the judgment.

57.

    By letters received between 17 and 22 July 1998 in reply to a question by the Courtof First Instance (Second Chamber, Extended Composition) in the context ofmeasures of organisation of procedure, the main parties and the Federal Republicof Germany stated their view of the likely consequences for the further conduct ofCases T-132/96 and T-143/96, with particular reference to the subject-matter of thedispute, of the amicable settlement which had occurred in Case C-302/96.

58.

    On hearing the report of the Judge-Rapporteur, the Court of First Instance(Second Chamber, Extended Composition) decided to open the oral procedure. With the exception of the United Kingdom, which was excused, the partiespresented oral argument and replied to the oral questions of the Court of FirstInstance at the hearing in open court on 30 June 1999.

Forms of order sought by the parties

59.

    The Free State of Saxony claims that the Court should:

-    annul Article 2 of the Decision;

-    order the Commission to pay the costs.

60.

    Volkswagen and VW Sachsen claim that the Court should:

-    annul Article 2 of the Decision;

-    annul Article 3 of the Decision in so far as the aids intensity expressed ingross grant equivalent is limited to 22.3% for Mosel II and 20.8% forChemnitz II;

-    annul Article 1 of the Decision in so far as the amount of investment grantsdeclared compatible with the common market is limited toDEM 418.7 million;

-    order the Commission to pay the costs.

61.

    The Federal Republic of Germany supports the form of order sought by theapplicants.

62.

    The Commission contends in Case T-132/96 that the Court should:

-    dismiss the application as inadmissible and, in the alternative, as unfounded;

-    order the Free State of Saxony to pay the costs.

63.

    The Commission contends in Case T-143/96 that the Court should:

-    dismiss the application as unfounded;

-    hold Volkswagen and VW Sachsen jointly and severally liable for the costs.

64.

    The United Kingdom supports the form of order sought by the Commission.

65.

    At the hearing on 30 June 1999, the applicants in Case T-143/96 asked the Courtto hold that the action had become devoid of subject-matter in so far as it soughtthe annulment of the first indent of Article 2 of the Decision, declaring investmentaid in the form of special depreciation on investment incompatible with thecommon market, and to apply Article 87(6) of the Rules of Procedure in thatrespect. The Court also took formal notice of the fact that, in the Commission'ssubmission, that request must be interpreted as a partial discontinuance and entailthe application of Article 87(5) of the Rules of Procedure.

The admissibility of the application in Case T-132/96

Arguments of the parties

66.

    In support of its objection of inadmissibility, the Commission argues, first, that aterritorial entity such as the Free State of Saxony does not, a priori, have thecapacity to bring an action under Article 173 of the EC Treaty (now, afteramendment, Article 230 EC) in the context of the State-aid regime, since it is onlythe Member States which Article 93 of the Treaty envisages as legal persons vis-à-vis the Community.

67.

    The Commission states in particular that Article 92 of the EC Treaty (now, afteramendment, Article 87 EC) refers in paragraph (1), as does Article 93(2), to aid'granted by a Member State or through State resources‘; that the duty ofnotification in Article 93(3) of the Treaty applies only to the Member Stateconcerned; that only that State is involved in the procedure implemented pursuantto Article 93(2) of the Treaty; that, if the Commission decides that an aid isincompatible with the common market, the obligation to withdraw or amend it fallson the Member State only, and that, where that obligation is not complied with, theaction by the Commission under the second subparagraph of Article 93(2) of theTreaty is directed solely against the Member State.

68.

    In those circumstances, to recognise a territorial entity as having a right of actionwould call into question the exclusive responsibility of the Member State as regardsaid financed through public resources, and could give rise to conflicts of interestbetween the territorial entity and the Member State concerned, which neither the Commission nor the Community judicature would have power to resolve.

69.

    In any event, from the point of view of Community law, the Free State of Saxonyand the Federal Republic of Germany are partially identical, and the former cannotbe regarded as a different person from the latter without altering the system ofremedies established by Article 173 of the Treaty.

70.

    The Commission adds that if the action were held to be admissible, this wouldnecessarily entail a proliferation of such actions, increase legal uncertainty,endanger the system laid down by Articles 92 and 93 of the Treaty, and thusjeopardise the implementation of the Commission's decisions in the field of Stateaid.

71.

    The Commission argues, secondly, that the Free State of Saxony has no interest inbringing an action under the fourth paragraph of Article 173 of the Treaty for thetwofold reason that, on the one hand, the aid granted by it in this case wasprescribed by federal laws and, on the other, the Federal Republic of Germany hasa right of action under the second paragraph of Article 173. In the Commission'ssubmission, therefore, the Free State of Saxony cannot be regarded as having aninterest in bringing an action which is distinct from that of Germany, which hasmoreover also brought an action for the annulment of the Decision (CaseC-301/96).

72.

    The fact that the Free State of Saxony has the status of a 'Land‘ in accordancewith the internal constitution of the Federal Republic of Germany is, theCommission submits, of no relevance in Community law. The EC Treaty confersno individual rights on the Länder, save those which may be conferred upon themby Article 198a of the EC Treaty (now, after amendment, Article 263 EC) in thecontext of the 8 Committee of the Regions. It does not follow therefore, that theFree State of Saxony, as a legal person, automatically has standing to bring anaction in Community law (see the Opinion of Advocate General Lenz in Case 62/87Exécutif Régional Wallon and Glaverbel v Commission [1988] ECR 1573, 1581,paragraph 13; Opinion of Advocate General Van Gerven in Case C-70/88Parliament v Council [1990] ECR I-2041, I-2063; Opinion of Advocate GeneralLenz in Case C-298/89 Gibraltar v Council [1993] ECR I-3605, I-3621, paragraphs38 to 51).

73.

    Moreover, investment aid in the form of special depreciation granted under the lawknown as the Fördergebietsgesetz was based solely on a federal law, the Gesetzüber Sonderabschreibungen und Abzugsbeträge im Fördergebiet, the applicationof which, pursuant to Article 87 of the Basic Law, falls to the tax authorities. TheCommission submits that the same applies as regards tax allowances for investment(Investitionszulagengesetz, 1993). Similarly, the Joint Task Law, on which theinvestment grants in question were based, was a federal law based on Article 91aof the Basic Law, which in principle entrusted the various Länder with 'theimprovement of regional economic structures‘, but in close cooperation with theFederation (see Case 248/84 Germany v Commission [1987] ECR 4013, paragraph2 et seq.), which bore half the expenses. Moreover, according to Article 85 of theBasic Law, the Federal Government could adopt general administrative provisions,issue instructions to the authorities of the Land and send representatives to them,and require reports and communication of the file. That shows, first, that theaction of the Federation continues to be exercised at the stage of theimplementation of the joint tasks and, secondly, that the Federation and the Länderhave identical interests when it comes to improving regional economic structures. The Free State of Saxony is therefore unable to show in what way its interests aredistinct from those of Germany (see Case 282/85 DEFI v Commission [1986] ECR2469, paragraph 18). In this case, legal protection is ensured by the fact that theFederal Republic of Germany has itself brought an action.

74.

    Thirdly, the Commission maintains that the Free State of Saxony is neither directlynor individually concerned by the Decision.

75.

    It is not directly concerned because, first, it did not at any time participate in theadministrative procedure, unlike the other applicants, and, secondly, its obligationto award investment grants is based on a federal law. The fact that, under Article9 of the Joint Task Law, implementation of the outline plan is entrusted to theLänder, with the Federation reimbursing half the expenses, does nothing to alterthan assessment. In any event, the Decision concerns not merely investment grantsbut also other subsidies granted by the Federation. It is a single decision, on thewhole of the aid, addressed to the Federal Republic of Germany only.

76.

    Nor, the Commission submits, is the Free State of Saxony individually concerned. It is not in a factual situation differentiating it from all other persons, and therebydistinguishing it individually just as in the case of the person addressed (see theOpinion of Advocate General Lenz in Case 222/83 Municipality of Differdange vCommission [1984] ECR 2889, 2898, 2905).

77.

    Finally, the Commission argues that the situation in this case is equivalent to thatidentified by the Court of First Instance in its order in Case T-238/97 ComunidadAutónoma de Cantabria v Council [1998] ECR II-2271. By contrast, the judgmentsof the Court of First Instance in Case T-214/95 Vlaams Gewest v Commission [1998]ECR II-717 and Case T-288/97 Regione Autonoma Friuli Venezia Giulia vCommission [1999] ECR II-0000 cannot be transposed to this case because, first,investment aid in the form of exceptional write-offs are granted by the federalauthorities and under federal law; secondly, investment grants are based on federallaw, the Free State of Saxony not exercising any competence of its own and havingno discretion in the matter; and, thirdly, the Decision does not require the FreeState of Saxony to claim repayment of the aid in question but merely prohibits itspayment.

78.

    The United Kingdom essentially supports the Commission's arguments.

79.

    The Free State of Saxony contests the Commission's arguments. It maintains,essentially, that the Commission encouraged it to bring the action, that thedecisions to grant the aid in question fall within its exclusive competence underGerman law, that that aid was at least partially financed by it, that itsrepresentatives took part in the administrative procedure, and that it is in any eventdirectly and individually concerned by the Decision.

80.

    The Federal Republic of Germany essentially supports the arguments of the FreeState of Saxony.

Findings of the Court of First Instance

81.

    As a preliminary point, it must be observed that, since the Free State of Saxony haslegal personality under German law, it may bring an action for annulment underthe fourth paragraph of Article 173 of the Treaty, whereby any natural or legalperson may institute proceedings against a decision addressed to that person andagainst decisions which, although in the form of a regulation or a decisionaddressed to another person, are of direct and individual concern to the former(Vlaams Gewest, paragraph 28 and case-law cited therein; order in ComunidadAutónoma de Cantabria, cited above, paragraph 43).

82.

    Since the Decision was addressed to the Federal Republic of Germany, it istherefore necessary to ascertain whether it is of direct and individual concern to theFree State of Saxony.

83.

    In that respect, it should be recalled that persons other than those to whom adecision is addressed may only claim to be individually concerned within themeaning of the fourth paragraph of Article 173 of the Treaty if that decision affectsthem by reason of certain attributes which are peculiar to them, or by reason ofcircumstances in which they are differentiated from all other persons, and by virtueof these factors distinguishes them individually just as in the case of the personaddressed (Case 25/62 Plaumann v Commission [1963] ECR 95, 107; Case 169/84Cofaz v Commission [1986] ECR 391, paragraph 22). The purpose of thatprovision is to ensure that legal protection is also available to a person who, whilstnot the person to whom the contested measure is addressed, is in fact affected byit in the same way as is the addressee (Municipality of Differdange, cited above,paragraph 9).

84.

    In this case, the Decision is concerned with aid granted by the Free State ofSaxony, partly from its own resources. It not only affects measures of which theFree State of Saxony is the author, namely the decrees of 1991, 1993, 1994 and1996, but also prevents it from exercising its autonomous powers as it would wish(see the judgments in Vlaams Gewest, paragraph 29, and Regione Autonoma FriuliVenezia Giulia, paragraph 31).

85.

    As to those powers, paragraphs 2 to 4 of the judgment in Case 248/84 Germany vCommission, cited in paragraph 73 above and relied on by the Commission, showthat, in the Federal Republic of Germany, regional aid is as a general rule grantedby the various Länder, even though, since an amendment to the Basic Law in 1969,a new Article 91a provides that the Federation is also to contribute to theimprovement of regional economic structures. Under the Joint Task Law adoptedon the basis of Article 91a, aid programmes have been established since 1972 in theform of framework plans adopted regularly on a joint basis between the Federationand the Länder. Aid paid in implementation of those framework plans arefinanced both by the Federal State and by the Länder. In parallel with theframework plans adopted pursuant to the Joint Task Law, the Länder may alsomaintain regional aid programmes for the benefit of undertakings investing withintheir territory.

86.

    Furthermore, the Decision has the effect of obliging the Free State of Saxony toinitiate the administrative procedure for recovering the aid from recipients, aprocedure which it alone has the power to implement at national level. In thatrespect, formal notice was taken at the hearing, at the Commission's request, of thefact that part of the aid had been repaid to the Free State of Saxony itself.

87.

    Contrary to what the Commission maintains, the situation of the Free State ofSaxony cannot be compared with that of the Comunidad Autónoma de Cantabriawhich gave rise to the order in Case T-238/97, cited above, since that regional bodyclaimed to be distinguished individually merely on the basis of the socio-economicrepercussions of the contested measure in its territory.

88.

    It follows that the Free State of Saxony is individually concerned by the Decisionwithin the meaning of the fourth paragraph of Article 173 of the Treaty.

89.

    Moreover, even though the Decision was addressed to the Federal Republic ofGermany, the national authorities did not exercise any discretion whencommunicating it to the Free State of Saxony.

90.

    The latter is therefore also directly concerned by the contested measure within themeaning of the fourth paragraph of Article 173 of the Treaty (see Joined Cases41/70, 42/70, 43/70 and 44/70 International Fruit Company and Others v Commission[1971] ECR 411, paragraphs 26 to 28; Case 113/77 NTN Toyo Bearing Companyand Others v Council [1979] ECR 1185, paragraph 11; Case 207/86 Apesco vCommission [1988] ECR 2151, paragraph 12).

91.

    As for the question whether the interest of the Free State of Saxony in contestingthe Decision is subsumed within the interest of the German State (see RegioneAutonoma Friuli Venezia Giulia, paragraph 34), it follows from the above that itsposition cannot be compared with that of the applicant in the case which gave riseto the judgment in DEFI, cited in paragraph 73 above. In that case, the FrenchGovernment had the power to determine the management and policy of the DEFICommittee and thus also to determine the interests which the DEFI should defend. By contrast, the investment grants at issue in this case constitute measures takenby the Free State of Saxony pursuant to the financial and legislative autonomywhich it enjoys directly by virtue of the German constitution.

92.

    It follows that the Free State of Saxony has an interest in challenging the Decisionwhich is distinct from that of the German State, and, therefore, that it is entitledto take action against that decision under the fourth paragraph of Article 173 ofthe Treaty.

93.

    As for the other pleas and arguments raised by the Commission in support of itsobjection of inadmissibility, these must be rejected for reasons identical to those setout in paragraphs 37 to 49 of the judgment in Regione Autonoma Friuli VeneziaGiulia.

94.

    For all those reasons, the Commission's objection of inadmissibility must bedismissed.

Substance

95.

    In support of their claims in Case T-143/96, Volkswagen and VW Sachsen raiseessentially four pleas in law, alleging, respectively, distortion of the facts, which theyclaim amounts to an infringement of essential procedural requirements within themeaning of Article 173 of the Treaty, infringement of Article 92(2)(c) of the Treaty,various infringements of Article 92(3) of the Treaty and infringement of theprinciple of the protection of legitimate expectations. They also claim that thereasoning in the Decision is defective in a number of respects. In support of itsclaims in Case T-132/96, the Free State of Saxony puts forward two pleas in lawalleging, respectively, infringement of Article 92(2)(c) of the Treaty andinfringement of Article 92(3) of the Treaty.

96.

    It must be observed, however, that the plea alleging distortion of the facts by theCommission, as set out by the applicants, has no independent content in relationto the other pleas in the action. Moreover, a distortion of the facts cannot becharacterised as an 'infringement of essential procedural requirements‘ within themeaning of Article 173 of the Treaty. Furthermore, the Court is not bound by theparties' characterisation of their pleas and arguments.

97.

    In this case, it is necessary to examine the whole of the pleas and arguments in theactions under three main headings, concerning the alleged infringements, first, ofArticle 92(2)(c) of the Treaty, secondly, of Article 92(3) of the Treaty, and, thirdly,of the principle of the protection of legitimate expectations. The complaintsconcerning distortion of the facts and the plea alleging defects in the reasoning forthe Decision can in any event be exhaustively examined whilst at the same timebeing formally attached to one or other of those three headings, as the applicantsacknowledged in their written observations on the Report for the Hearing.

I -    Infringement of Article 92(2)(c) of the Treaty

Arguments of the parties

98.

    According to the applicants, the Commission infringed Article 92(2)(c) of theTreaty by indicating, in the third paragraph of Point X of the Decision, that thederogation provided for therein 'should be interpreted narrowly and should not beapplied to regional aid for new investment projects‘. The Commission thusdeclined to examine whether the conditions for applying that provision were metin this case and contented itself with a reference to considerations ofappropriateness, whereas, in the matter of a legal derogation from the prohibitionof State aid laid down in Article 92(1) of the Treaty, it had no margin of discretion(see Case 730/79 Philip Morris v Commission [1980] ECR 2671, paragraph 17;Opinion of Advocate General Tesauro in Case C-142/87 Belgium v Commission[1990] ECR I-959, I-979, paragraph 19 (hereinafter 'Tubemeuse II)‘; Opinion ofAdvocate General Lenz in Case 102/87 France v Commission [1988] ECR 4067,4075, paragraph 25).

99.

    First, the applicants argue that Article 92(2)(c) of the Treaty continued to applyafter the reunification of Germany in 1990, even in regions not adjacent to theformer frontier.

100.

    Secondly, they maintain that Article 92(2)(c) of the Treaty was applicable to thenew Länder. That provision made general reference to regions affected by thedivision of Germany, without making any distinction between East and West.

101.

    The applicants emphasise that Article 92(2)(c) of the Treaty was not abrogated atthe time of the signature of the Maastricht Treaty, that an equivalent provision wasinserted in the Agreement on the European Economic Area, and that, at theconclusion of the Amsterdam Treaty, that provision was repeated withoutamendment in the new Article 87(2)(c) EC. According to the Free State ofSaxony, the only obvious interpretation of the intention thus manifested by theHigh Contracting Parties is that that provision should apply to all of those regionsof Germany which, by reason of the economic damage caused there by theCommunist regime, remain significantly behind other regions of the FederalRepublic from the point of view of economic development.

102.

    In that respect, the Free State of Saxony challenges the Commission's persistentrefusal to apply Article 92(2)(c) of the Treaty to the new Länder since 1990. Itpoints to the contradiction between that position and the position taken by theCommission in its decision of 11 December 1964 concerning aids designed tofacilitate the integration of the Saarland into the economy of the Federal Republicof Germany (Bulletin of the European Economic Community No 2-1965, p. 33; 'theSaar decision‘).

103.

    Thirdly, the applicants point out that the German Government claimed during theadministrative procedure that Article 92(2)(c) of the Treaty should be applied (seePoint V, first paragraph, subparagraph 1 of the Decision). Since that provision isa legal derogation from the prohibition laid down in Article 92(1) of the Treaty,they maintain that the onus was on the Commission to establish that the conditionsfor applying the derogation were not met in this case, and not on the GermanGovernment to prove the opposite. Yet the Commission refused to takecognisance of more detailed information or to consider that question, despite aletter from Commission Member Sir Leon Brittan to the German Government of1 June 1992, indicating that the possibility of applying Article 92(2)(c) of the Treatywould be examined by the Commission's departments. By so doing, theCommission also failed to fulfil its obligation to research the relevant facts itself(Joined Cases 56/64 and 58/64 Consten and Grundig v Commission [1966] ECR 299;Case 27/76 United Brands v Commission [1978] ECR 207, paragraphs 267 and 268;Case T-9/89 Hüls v Commission [1992] ECR II-499, paragraphs 66 to 68).

104.

    Fourthly, the reasoning of the Decision on that point (Point X, third paragraph)does not comply with the requirements of the case-law of the Court of Justice andis therefore insufficient to justify the failure to apply Article 92(2)(c) of the Treatyin this case (see, in particular, Case 24/62 Germany v Commission [1963] ECR 131,155; Joined Cases 296/82 and 318/82 Netherlands and LeeuwarderPapierwarenfabriek v Commission [1985] ECR 809, paragraphs 23 and 24; Case C-364/90 Italy v Commission [1993] ECR I-2097, paragraphs 44 and 45; and JoinedCases C-329/93, C-62/95 and C-63/95 Germany v Commission [1996] ECR I-5151,paragraphs 36 and 53). In that regard, the applicants maintain that the fact thatthe addressee of a decision has the possibility of finding the reasons for it inprevious decisions is not sufficient (Case 294/81 Control Data Belgium v Commission[1983] ECR 911, 932).

105.

    The applicants argue that the deficiency in reasoning affecting the Decision on thispoint cannot be corrected in the defence, since the Decision does not containreasons, even in rudimentary form (Case 195/80 Michel v Parliament [1981] ECR2861, paragraph 22; Case 183/83 Krupp v Commission [1985] ECR 3609, paragraph21; Case T-61/89 Dansk Pelsdyravlerforening v Commission [1992] ECR II-1931,paragraphs 131 and 137). In any event, the line of argument put forward in thedefence, to the effect that application of Article 92(2)(c) of the Treaty in the newLänder is excluded for territorial reasons, conflicts with that adopted in theDecision.

106.

    Fifthly, the applicants maintain that the reasoning for the Decision is itselfcontradictory, in so far as, in the Decision, the Commission excludes the applicationof Article 92(2)(c) of the Treaty on the ground that this case concerns a 'newinvestment project‘, whilst indicating in its investigation of the aid pursuant toArticle 92(3)(c) of the Treaty that this was not a 'new investment‘ but anextension of existing capacity.

107.

    Sixthly, the applicants argue that the Free State of Saxony, especially in the partof its territory including the cities of Zwickau and Chemnitz, fulfilled the conditionslaid down by Article 92(2)(c) of the Treaty in that it was entirely cut off from WestGermany from the economic point of view. In that respect, the Free State ofSaxony refers to an expert report by Von Dohnanyi and Pohl, establishing that thepoor economic situation of the new Länder results from the division of Germany.

108.

    In order to determine the disadvantages resulting from that partition, the applicantsmaintain that it is necessary to compare the economic situation of Saxony beforeand after that partition. By contrast, they argue that the consequences of thepolitical and economic system established in the German Democratic Republic areirrelevant for the purposes of this action.

109.

    Before the division of Germany, a large motor-vehicle industry, and particularlyAuto Union AG, had been set up in the region, at Zwickau and Chemnitz. Byreason of the partition, sales of vehicles on the traditional markets, situated in WestGermany and the rest of Europe, were entirely broken off. Auto Union AG thenset up new factories at Ingolstadt, in Bavaria. Subsequently, despite the existenceof limited openings in eastern Europe, production of vehicles and engines inZwickau and Chemnitz collapsed. Without the division of Germany, Auto UnionAG, which subsequently became Audi, would have been able to remain in theregion and would be as prosperous as it is now.

110.

    In those circumstances, the applicants argue, all the aid at issue, intended tofacilitate the establishment of a motor vehicle construction plant and an engineconstruction plant in Saxony, is 'necessary‘ within the meaning of Article 92(2)(c)of the Treaty to the extent that the disadvantages resulting from the division ofGermany continue. In this case, only the prospect of receiving all that aid gaveVolkswagen the incentive to invest in the re-establishment of a motor vehicleindustry comparable in size to that which existed in the region before partition. Volkswagen's investments were, moreover, a signal aimed at encouraging otherundertakings to invest in the region.

111.

    Seventhly, the applicants argue that the Commission's refusal to apply Article92(2)(c) of the Treaty in the Mosel I decision is irrelevant, since neither theGerman Government nor Volkswagen had the opportunity to challenge thatdecision in law, the main part of the aid in question having been declaredcompatible with the common market.

112.

    The Commission was therefore wrong in the Decision to apply the criteria ofArticle 92(3) of the Treaty, and particularly those of the Community framework,which differ fundamentally from those which it should have applied under Article92(2)(c) of the Treaty.

113.

    The Federal Republic of Germany essentially supports the arguments of theapplicants and also refers to its written submissions in Case C-301/96.

114.

    In a letter of 9 December 1992 concerning this case, the Federal Chancellor, MrKohl, told the President of the Commission, Mr Delors, that the GermanGovernment '[regarded] Article 92(2)(c) of the EEC Treaty as the determiningfactor as regards matters currently pending before the Commission of theEuropean Communities‘. Notwithstanding its difference with the Commissionconcerning the application of that provision to the new Länder, the FederalRepublic of Germany had cooperated with the Commission in the context of theadministrative procedure, given that, in other matters, the Commission had shownunderstanding of the difficult economic situation in those Länder, makingcompromises possible. The German Government had, however, expressly stateda reservation in order to emphasise that, in its opinion, on a correct interpretationof the Treaty Article 92(2)(c) should be applied.

115.

    The Federal Republic of Germany insists that this is a legal derogation and that,where the factors envisaged by Article 92(2)(c) of the Treaty are present, the aidis automatically compatible with the common market. Moreover, under Article93(2) of the Treaty, the Commission's investigation should be limited to verifyingthat the national authorities which granted the aid did not 'misuse‘ the criteria ofArticle 92(2)(c) of the Treaty.

116.

    Unlike Article 92(2)(b) of the Treaty, concerning aid in cases of natural disasterand similar occurrences, Article 92(2)(c) does not aim to 'make good damage‘ butto 'compensate‘ for the consequences of the division of Germany. That moreflexible formulation takes account of the complex economic situation connectedwith the disadvantages caused by that partition, and envisaged the whole of themeasures intended to create economic and social structures in the new Ländercomparable with those existing in the other regions of Germany.

117.

    According to the German Government, Article 92(2)(c) of the Treaty covers all theterritory of the new Länder. The 'economic disadvantages‘ at issue in this casewere clearly 'caused‘ by the division of Germany, as is shown by comparing thepercentage of German motor-vehicle production carried on in Saxony before 1939(about 27% in 1936) with that achieved in 1990 (about 5%). That decline wasprimarily due to the loss of traditional market openings in the West and theirforced replacement by those of Comecon in an inefficient form of economy.

118.

    Finally, the German Government emphasises that Volkswagen's investments inSaxony amounted in 1996 to a total of approximately DEM 3.5 billion andgenerated about 23 000 jobs. Such investments were thus of crucial importance forreconstruction works in the new Länder.

119.

    The Commission maintains that it did in fact verify whether Article 92(2)(c) of theTreaty was applicable in this case. It was however entitled to decline to apply it,giving the same reasoning as adopted in the Mosel I decision.

120.

    First, the German Government did not discharge its duty during the administrativeprocedure of providing all the information making it possible to determine whetherthe conditions for the requested derogation were fulfilled (Philip Morris, paragraph18, and the Opinion of Advocate General Capotorti in that case, p. 2693,paragraph 6; Italy v Commission, paragraph 20; Opinion of Advocate GeneralDarmon in Germany v Commission, p. 4025, paragraph 8). Neither the GermanGovernment nor Volkswagen claimed the benefit of Article 92(2)(c) of the Treatyafter February 1993, and they did not at any time submit concrete evidence that theconditions required by that provision were met, even after the Commissiondisapplied it in this case in the Mosel I decision.

121.

    Secondly, being a derogating provision, Article 92(2)(c) of the Treaty should beinterpreted narrowly (Joined Cases 3/58 to 18/58, 25/58 and 26/58 BarbaraErzbergbau and Others v High Authority [1960] ECR 366, 408 and 409).

122.

    Thirdly, the Commission argues that Article 92(2)(c) of the Treaty requires a directcausal link between the economic disadvantage to be compensated for and thedivision of Germany. Since reunification, the direct consequences of that divisionhad practically disappeared, rail and road links having been re-established andtraditional market openings being once again accessible. Since 1990, therefore, thatprovision has applied only in certain exceptional cases.

123.

    The Commission argues that the retention of the provision in Article 92(2)(c) ofthe Treaty in the Maastricht and Amsterdam Treaties is explained by the veto putforward by the Federal Republic of Germany against its removal. Neither theTreaty on European Union nor the Amsterdam Treaty reveal any intention to givethe new Article 87(2)(c) EC any meaning other than that of Article 92(2)(c) of theTreaty in its initial interpretation. Nor, moreover, do the applicants explain whythat provision should henceforth cover not only the consequences of the divisionof Germany but also the repercussions of the planned economy of the GermanDemocratic Republic and the consequences of the introduction of a marketeconomy after the reunification of the country.

124.

    Fourthly, the Commission argues that, even before the reunification of Germany,only certain regions of the former Federal Republic which were disadvantaged byreason of their immediate proximity to the frontier were capable of benefiting fromaids pursuant to Article 92(2)(c) of the Treaty. These were primarily regionsbordering on the eastern zone ('Zonenrand‘) and West Berlin. The reunificationof Germany did not alter that principle in any way. Even if, in certain exceptionalcases, application of Article 92(2)(c) of the Treaty might be justified in relation toborder regions situated on both sides of the former frontier and thus to the'Zonenrand‘ of the former German Democratic Republic, the Commissionmaintains that that provision does not permit general and widespread support forthe development of the new Länder.

125.

    Fifthly, the Commission emphasises the consistency of its decision-making practice. Since the reunification of Germany, it based only two decisions on Article 92(2)(c)of the Treaty [Commission Decision 92/465/EEC of 14 April 1992 concerning aidgranted by the Land of Berlin (Germany) to Daimler-Benz AG (OJ 1992 L 263,p. 15; the 'Daimler-Benz decision‘) and a Commission decision of 13 April 1994concerning aid to producers of glass containers and porcelain in Tettau (OJ 1994C 178, p. 24; the 'Tettau decision‘)], concerning cases in which the directconsequences of the line of the frontier between the two zones continued to be felt. In its other decisions concerning aid to the new Länder, the Commission did notuse Article 92(2)(c) of the Treaty. As for the decision concerning the Saarland, theCommission points out that that was already a Land at the time the EEC Treatyentered into force. Moreover, on a reading of EEC Bulletin No 2-1965, there wasnothing to support the conclusion that the aid in question was authorised pursuantto Article 92(2)(c) of the Treaty rather than Article 92(2)(b).

126.

    Sixthly, the poor general economic situation of the new Länder was a directconsequence not of the division of Germany but of the political system of theformer German Democratic Republic and of the reunification itself, especially theloss of the markets of those Länder in the context of Comecon and relations withthe former USSR, the entry into force of German monetary, economic and socialunion, the alignment of East German salary levels with those of West Germany andlegal uncertainty concerning, in particular, real-property rights.

127.

    In any event, the motor vehicle industry established in Zwickau and Chemnitzsuffered a decline before the end of the Second World War, as moreover did thatof other European countries.

128.

    Finally, knowing that its decision-making practice had never been challenged, theCommission had no cause to state further grounds in the Decision as to theinapplicability of Article 92(2)(c) of the Treaty.

Findings of the Court of First Instance

129.

    Under Article 92(2)(c) of the Treaty, aid compatible with the common marketincludes 'aid granted to the economy of certain areas of the Federal Republic ofGermany affected by the division of Germany, in so far as such aid is required inorder to compensate for the economic disadvantages caused by that division‘.

130.

    Far from being implicitly repealed following German reunification, that provisionwas retained by both the Maastricht Treaty concluded on 7 February 1992 and theAmsterdam Treaty concluded on 2 October 1997. Moreover, an identical provisionwas inserted into Article 61(2)(c) of the Agreement on the European EconomicArea concluded on 2 May 1992 (OJ 1994 L 1, p. 3).

131.

    Having regard to the objective scope of the rules of Community law, the authorityand effectiveness of which must be preserved, it cannot therefore be assumed thatthat provision has become devoid of purpose since the reunification of Germany,as the Commission maintained at the hearing, contradicting its own administrativepractice (see, in particular, the Daimler-Benz and Tettau decisions).

132.

    It should, nevertheless, be emphasised that, since it is a derogation from thegeneral principle laid down in Article 92(1) of the Treaty that State aid isincompatible with the common market, Article 92(2)(c) of the Treaty must beinterpreted narrowly.

133.

    Moreover, as the Court of Justice has emphasised, in interpreting a provision ofCommunity law it is necessary to consider not only its wording but also the contextin which it occurs and the aims of the rules of which it forms part (Case 292/83Merck v Hauptzollamt Hamburg-Jonas [1983] ECR 3781, 3792; Case 337/82 St.Nikolaus Brennerei v Hauptzollamt Krefeld [1984] ECR 1051, 1062).

134.

    In this case, the phrase 'division of Germany‘ refers historically to theestablishment of the dividing line between the two zones in 1948. Therefore, the'economic disadvantages caused by that division‘ can only mean the economicdisadvantages caused by the isolation which the establishment or maintenance ofthat frontier entailed, such as, for example, the encirclement of certain areas (seethe Daimler-Benz decision), the breaking of communication links (see the Tettaudecision), or the loss of the natural markets of certain undertakings, whichtherefore need support, either to be able to adapt to new conditions or to be ableto survive that disadvantage (on that point, but in relation to the fourth paragraphof Article 70 of the ECSC Treaty, see Barbara Erzbergbau, p. 409).

135.

    By contrast, the conception of the applicants and the German Government,according to which Article 92(2)(c) of the Treaty permits full compensation for theundeniable economic backwardness suffered by the new Länder, until such time asthey reach a level of development comparable with that of the original Länder,disregards both the nature of that provision as a derogation and its context andaims.

136.

    The economic disadvantages suffered by the new Länder as a whole have not beencaused by the division of Germany within the meaning of Article 92(2)(c) of theTreaty. As such, the division of Germany has had only marginal consequences on

the economic development of either zone, which, moreover, it affected equally atthe outset, and it has not prevented the economies of the original Länder fromdeveloping favourably thereafter.

137.

    It follows that the differences in development between the original and the newLänder are explained by causes other than the division of Germany as such, and inparticular by the different politico-economic systems established in each State oneither side of the frontier.

138.

    It also follows from the above that the Commission did not make any error of lawby stating generally, in the third paragraph of Point X of the Decision, that thederogation laid down in Article 92(2)(c) of the Treaty should not be applied toregional aid for new investment projects and that the derogations provided for inArticle 92(3)(a) and (c) of the Treaty and the Community framework weresufficient to deal with the problems faced by the new Länder.

139.

    In that respect, the applicants are wrong to accuse the Commission of contradictoryreasoning in its description of the disputed investments at other points in theDecision as extensions of existing capacity. The expression 'regional aid for newinvestment projects‘ is used in reply to a general argument raised by the GermanGovernment (see Point V, first paragraph, subparagraph 1 of the Decision) andthus concerns not aid to Volkswagen's investment plans at Mosel II and ChemnitzII specifically, but the whole of the aid intended to promote general economicdevelopment of the new Länder.

140.

    Moreover, as regards the question whether, apart from its character as aid for theeconomic development of the Free State of Saxony, the aid in question isspecifically designed to compensate for the disadvantages caused by the division ofGermany, it should be borne in mind that a Member State which seeks to beallowed to grant aid by way of derogation from the Treaty rules has a duty tocollaborate with the Commission, requiring it in particular to provide all theinformation to enable the Commission to verify that the conditions for thederogation sought are fulfilled (Italy v Commission, paragraph 20).

141.

    On that point, there is nothing in the documents before the Court to show that theGerman Government or the applicants put forward specific arguments during theadministrative procedure in order to prove a causal link between the situation ofthe motor-vehicle industry in Saxony after German reunification and the divisionof Germany.

142.

    The Commission is therefore right in maintaining that the parties have not putforward specific evidence capable of justifying the application of Article 92(2)(c)of the Treaty to this case.

143.

    Before the Court, the applicants, and the German Government, which refers onthose questions to its written submissions in Case C-301/96, have argued that proofof the economic disadvantages caused to Saxony by the division of Germany arosefrom a comparison between German motor-vehicle production carried on in thatregion before 1939 and that achieved in 1990. According to those parties, therelative decline of the motor-vehicle industry in Saxony, compared with that ofWest Germany in general, was caused in particular by the partition of the Germanmarket and the corresponding loss of that industry's traditional outlets to the West,following that partition.

144.

    In so far as that argument is capable of being raised before the Court of FirstInstance, given that it was not raised during the administrative procedure (seeJoined Cases C-278/92, C-279/82 and C-280/82 Spain v Commission [1994] ECR I-4103, paragraph 31; Case T-37/97 Forges de Clabecq v Commission [1999] ECR II-0000, paragraph 93), it must be rejected.

145.

    Even if there were obstacles to inter-German trade, entailing the loss of traditionaloutlets for the motor-vehicle industry in Saxony, that would not automatically meanthat the poor economic situation of that industry in 1990 was a direct consequenceof that loss of outlets caused, ex hypothesi, by the division of Germany in 1948. Thedifficulties referred to by the applicants are primarily the result of the differenteconomic organisation of the East German regime itself, which was not 'caused bythe division of Germany‘ within the meaning of Article 92(2)(c) of the Treaty.

146.

    A comparison between the position of the motor-vehicle industry in Saxony before1939 and that in 1990 is not therefore in itself enough to establish the existence ofa sufficiently direct link between the economic disadvantages suffered by thatindustry at the time of the granting of the aid in dispute and the 'division ofGermany‘ within the meaning of Article 92(2)(c).

147.

    As for the decision concerning the Saarland, none of the parties have produced orrequested it in these proceedings. The applicants have failed to show that thelatter decision reflected a different approach by the Commission in the past andthat such an approach, if it were established, would call into question the validityof the legal assessments made in 1996.

148.

    In those circumstances, the applicants and the Federal Republic of Germany havenot adduced sufficient evidence to support the conclusion that the Commissionexceeded the limits of its discretion by holding that the aid in question did notcomply with the conditions for benefiting from the derogation laid down in Article92(2)(c) of the Treaty.

149.

    As for the complaint of insufficient reasoning, it should be recalled that thestatement of reasons required by Article 190 of the EC Treaty (now Article 253EC) must clearly and unequivocally show the reasoning of the institution whichadopted the measure, so as to enable the Community judicature to exercise itspower of review and the persons concerned to know the grounds on which themeasure was adopted (see, for example, Case T-84/96 Cipeke v Commission [1997]ECR II-2081, paragraph 46).

150.

    In this case, the Decision contains only a brief summary of the grounds for theCommission's refusal to apply the derogation in Article 92(2)(c) of the Treaty tothe facts of the case.

151.

    Nevertheless, the Decision was adopted in a context that was well known to theGerman Government and the applicants and forms part of a consistent line ofdecision-making practice, particularly in relation to those parties. Such a decisionmay be supported by a summary statement of reasons (Case 73/74 Papiers Peintsv Commission [1975] ECR 1491, paragraph 31; Case T-34/92 Fiatagri and NewHolland Ford v Commission [1994] ECR II-905, paragraph 35).

152.

    Since 1990, in its relations with the Commission, the German Government hasreferred many times to Article 92(2)(c) of the Treaty, insisting on the importanceof that provision for the recovery of the former East Germany (see, in particular,the letter from Chancellor Kohl to President Delors of 9 December 1992, citedabove).

153.

    The arguments put forward by the German Government in that regard wererejected in various letters or decisions of the Commission [see, in particular, theCommission notice pursuant to Article 93(2) of the EEC Treaty to other MemberStates and other parties concerned regarding the proposal by the GermanGovernment to award State aid to the Opel group in support of its investmentplans in the new Länder (OJ 1993 C 43, p. 14); the Commission notice pursuantto Article 93(2) of the EEC Treaty to other Member States and interested partiesconcerning aid which Germany proposes to grant Rhône-Poulenc Rhotex GmbH(OJ 1993 C 210, p. 11); Commission Decision 94/266/EC of 21 December 1993 onthe proposal to award aid to SST-Garngesellschaft mbH, Thüringen (OJ 1994 L114, p. 21); the Mosel I decision; and Commission Decision 94/1074/EC of 5December 1994 on the German authorities' proposal to award aid to TextilwerkeDeggendorf GmbH, Thüringen (OJ 1994 L 386, p. 13)].

154.

    In that respect, particular importance should be accorded to the Mosel I decision,in which the Commission declared some of the aid in question, amounting toDEM 125.2 million, incompatible with the common market after excluding, ongrounds identical to those used in the Decision, the possibility that that aid mightbe covered by Article 92(2)(c) of the Treaty. It should be noted, moreover, thatneither the applicants nor the German authorities have brought any action againstthat earlier decision.

155.

    Even though, between the adoption of the Mosel I decision and the adoption of theDecision, the Commission, the German authorities and the applicants have hadnumerous contacts revealing their continuing differences of opinion concerning theapplicability of Article 92(2)(c) of the Treaty to the aid in question (see Points Vand VI of the Decision), it should also be noted that no specific or new argumenthas been put forward in that context, particularly as to the existence of a causal linkbetween the position of the motor-vehicle industry in Saxony after Germanreunification and the division of Germany (see paragraph 141 above).

156.

    In those circumstances, the Court finds that the applicants and the FederalRepublic of Germany were sufficiently informed of the grounds for the Decisionand that, in the absence of more specific arguments, the Commission was notobliged to state the grounds for it more extensively.

157.

    It follows from the above considerations as a whole that the complaints alleginginfringement of Article 92(2)(c) of the Treaty and an insufficient statement ofreasons must be rejected.

II -    Infringement of Article 92(3) of the Treaty

158.

    The applicants claim that there have been a number of infringements of Article92(3) of the Treaty, some arising from the general tenor of that article and othersrelating specifically, and respectively, to subparagraphs (a) and (b) of thatprovision. It is appropriate to begin by considering whether there has beeninfringement of Article 92(3)(b).

Infringement of Article 92(3)(b) of the Treaty

Arguments of the parties

159.

    The applicants maintain that the Commission has infringed Article 92(3)(b) of theTreaty by not examining the conditions for applying that provision. They refer tothe second paragraph of Point X of the Decision, according to which:

'The derogation in Article 92(3)(b) can certainly not be applied to Germany. It istrue that German unification has had negative effects on the German economy, butthese alone are not sufficient to apply that provision to an aid scheme. Recently,the Commission took the view that an aid scheme remedied a serious disturbancein the economy of a Member State when, in 1991, aid was approved for aprivatisation programme in Greece. In its decision the Commission noted that theprivatisation programme was an integral part of the undertakings given pursuantto Council Decision 91/306/EEC of 4 March 1991 in connection with theconsolidation of the national economy as a whole. The German situation is clearlydifferent.‘

160.

    The applicants submit, first, that such a statement of reasons is insufficient. TheCommission merely repeated a standard formula appearing in previous decisions(see, in particular, the Mosel I decision). The Decision did not touch in any wayon the decisive question, namely whether, in the particular circumstances of thecase, the aid was designed to remedy a serious disturbance in the economy of theFederal Republic of Germany. Nor did the Decision explain what the differenceswere between the present case and the privatisation programme in Greece, whichin the Commission's argument justified the non-application of Article 92(3)(b) ofthe Treaty.

161.

    Secondly, the Commission did not seriously examine the question of theapplicability of Article 92(3)(b) of the Treaty, even though the GermanGovernment had relied on it a number of times during the administrativeprocedure, arguing that the problems of integrating the former planned economyof the new Länder and transforming it into a market economy caused a seriousdisturbance in its economy.

162.

    Thirdly, the applicants argue that the conditions for applying Article 92(3)(b) of theTreaty are fulfilled in this case. It was sufficient for that purpose to establish thatthe aid in question was intended to remedy a serious disturbance in the economyof a Land (Philip Morris, paragraphs 20 to 25). In that respect, the Free State ofSaxony had been notable, particularly in 1991, for a remarkably low gross nationalproduct in comparison with the European average and a particularly high rate ofunemployment. Moreover, application of Article 92(3)(b) of the Treaty was notexcluded where the aid in question was intended for a single undertaking, andneither did it depend on the share held by that undertaking in the nationaleconomy. That argument, raised by the Commission in its defence in Case T-143/96, is, the applicants maintain, out of time and inadmissible in any event.

163.

    The Commission argues, first, that it has a wide discretion when making theeconomic and social assessments referred to in Article 92(3)(b) of the Treaty(Philip Morris, paragraph 24).

164.

    It maintains, secondly, that in referring to the aid granted to the privatisationprogramme in Greece, approved in implementation of a Council decision andconcerning the whole of the economy of that Member State, it was merely recallingthe conditions normally required for the purposes of applying Article 92(3)(b) ofthe Treaty. There was therefore no infringement of Article 190 of the Treaty.

165.

    Thirdly, the Commission maintains that the conditions for applying Article 92(3)(b)have not been fulfilled in this case.

Findings of the Court

166.

    Under Article 92(3)(b) of the Treaty, aid may be considered to be compatible withthe common market if it is '[...] to remedy a serious disturbance in the economyof a Member State‘.

167.

    It follows from the context and general scheme of that provision that thedisturbance in question must affect the whole of the economy of the Member Stateconcerned, and not merely that of one of its regions or parts of its territory. This,moreover, is in conformity with the need to interpret strictly a derogating provisionsuch as Article 92(3)(b) of the Treaty. The judgment in Philip Morris, relied on bythe applicants in support of their argument, makes no comment of any kind on thepoint at issue here.

168.

    The applicants' argument must therefore be rejected as inoperative since theymerely refer to the state of the economy of the Free State of Saxony, without evenalleging that this caused a serious disturbance of the economy in the FederalRepublic of Germany as a whole.

169.

    Moreover, the question whether German reunification has caused a seriousdisturbance in the economy of the Federal Republic of Germany involves complexassessments of an economic and social nature, to be made within a Communitycontext, which fall within the exercise of the wide discretion which the Commissionenjoys under Article 92(3) of the Treaty (see, by analogy, Case C-355/95 P TWDv Commission [1997] ECR I-2549, paragraph 26). In that context, judicial reviewmust be limited to verifying whether the rules on procedure and the statement ofreasons have been complied with, that the facts are materially accurate, and thatthere has been no manifest error of assessment and no misuse of powers. Inparticular, it is not for the Community judicature to substitute its economicassessment for that of the Commission (Case T-380/94 AIUFFASS and AKT vCommission [1996] ECR II-2169, paragraph 56; Case T-149/95 Ducros vCommission [1997] ECR II-2031, paragraph 63).

170.

    In this case, the applicants have not put forward any concrete evidence capable ofestablishing that the Commission made a manifest error of assessment in taking theview that the unfavourable repercussions of the reunification of Germany on theGerman economy, however real, did not in themselves constitute a ground forapplying Article 92(3)(b) of the Treaty to an aid scheme.

171.

    As for the statement of reasons for the Decision, although brief, it appears to besufficient having regard to the context of the case, to its antecedents, especially theMosel I decision, and to the absence of specific arguments raised during theadministrative procedure. In that regard, the considerations set out in paragraphs140 to 142 and 149 to 156 above apply, mutatis mutandis, as regards the statementof reasons for the Commission's refusal to apply in this case the derogation laiddown in Article 92(3)(b) of the Treaty.

172.

    It follows from the above that the complaints alleging infringement of Article92(3)(b) of the Treaty and an insufficient statement of reasons must be rejected.

Infringement of Article 92(3)(a) of the Treaty

Arguments of the parties

173.

    The applicants argue that the Commission infringed Article 92(3)(a) of the Treaty,which provides that 'aid to promote the economic development of areas where thestandard of living is abnormally low or where there is serious underemployment‘may be considered to be compatible with the common market.

174.

    First, they maintain that Saxony is one of the regions envisaged by that provision,as the Commission impliedly acknowledged in the first paragraph of Point XII ofthe Decision. Yet the Decision did not contain any discussion concerning thepossible application of Article 92(3)(a) of the Treaty. By refusing to express anyview on that point, the Commission abused its discretion and infringed that rule.

175.

    Secondly, although the requirements of Article 92(3)(a) of the Treaty are stricterthan those of Article 92(3)(c) in determining which regions are capable ofbenefiting from the derogations, Article 92(3)(a) does not require that tradingconditions should not be adversely affected to an extent contrary to the commoninterest (Germany v Commission, paragraph 19). In the applicants' submission, itthus constitutes a special provision, the applicability of which should be examinedin priority to that of Article 92(3)(c) of the Treaty.

176.

    Thirdly, the applicants state that Article 92(3)(a) of the Treaty allows the nationalauthorities to offer an investor wishing to set up business in a particularlydisadvantaged region a special encouragement ('top up‘ aid) going beyond merecompensation for regional disadvantages. Even if it is not possible totally toexclude considerations relating to the economic sector when carrying out aninvestigation under Article 92(3)(a) of the Treaty (Case C-169/95 Spain vCommission [1997] ECR I-135), in the case of aid to economically weak regions forthe purposes of that provision, more weight must be given to regional development,whereas, in the case of regions envisaged by Article 92(3)(c) of the Treaty, sectoralconsiderations play a more important role. The applicants thus maintain that ahigher intensity of aid is permissible in the former case.

177.

    In those circumstances, the applicants argue, the reference in the Decision to theexistence of surplus production capacity in the motor-vehicle industry was notsufficient to exclude the application of Article 92(3)(a) of the Treaty. That wasonly a consideration to be potentially taken into account when exercising thediscretion implied by that rule. Moreover, decisions involving a discretion requireda particularly extensive and detailed statement of reasons (Joined Cases 36/59,37/59, 38/59 and 40/59 Präsident Ruhrkohlen and Others v High Authority [1960]ECR 423, 439 et seq.; Opinion of Advocate General Roemer in Joined Cases 56/64and 58/64 Consten and Grundig v Commission [1966] ECR 299, 352), especially inthe case of decisions concerning State aids intended to benefit defined undertakings(Opinion of Advocate General Darmon in Germany v Commission, p. 4027).

178.

    The Commission maintains that it did examine the question whether aid might beauthorised under Article 92(3)(a) of the Treaty, as is shown by the third paragraphof Point X and the first paragraph of Point XII of the Decision.

179.

    It points out first that, in the case of Germany, it has a policy of fixing themaximum intensity limit for regional aid (that is to say the amount of the aid as apercentage of the amount of the investment) at 35% for the regions envisaged inArticle 92(3)(a) of the Treaty and 18% for those envisaged in Article 92(3)(c) ofthe Treaty. Since the Decision authorised aid of an intensity of 22.3% for MoselII and 20.8% for Chemnitz II, it was obvious that the Commission applied Article92(3)(a) of the Treaty to the facts of the case.

180.

    Whilst acknowledging that the new Länder are regions capable of receiving aidunder Article 92(3)(a) of the Treaty, the Commission cites, secondly, the widediscretion it enjoys in the matter (Case C-225/91 Matra v Commission [1993] ECRI-3203, paragraph 23 et seq.). It was entitled in particular to take account of theeffects of the aid in question on the economic sector concerned throughout theCommunity, including the risk of creating surplus production capacity, and theproportionality between the amount of the aid and the regional disadvantages.

181.

    Thirdly, the Commission emphasises, the Decision sets out in its detail that the aidin question would exacerbate existing overcapacity in the motor-vehicle industry,and was thus contrary to the Community interest. It had therefore given sufficientreasons for its refusal to authorise that aid under Article 92(3)(a) of the Treaty,beyond the accepted limits.

182.

    Finally, the Commission argues that Article 92(3)(a) of the Treaty should not beapplied in priority over Article 92(3)(c). It adds that regions falling under Article92(3)(a) of the Treaty are characterised by the fact that an investor encounters costdisadvantages for his investment there that are greater than in regions falling underArticle 92(3)(c) of the Treaty. Given that, in a case such as the present, thosedisadvantages are taken into consideration in analysing costs and benefits for thepurposes of calculating the total amount of aid capable of being authorised by theCommission, account was therefore taken of the higher eligibility for aid of regionsfalling within Article 92(3)(a) of the Treaty. Therefore, the Commission argues,parallel application of subparagraphs (a) and (c) of Article 92(3) of the Treatycannot have the effect of depriving the provision in subparagraph (a) of itsparticular scope.

Findings of the Court

183.

    In the first paragraph of Point X of the Decision, the Commission begins byrecalling the argument of the German Government that the three derogations laiddown respectively by Articles 92(2)(c), 92(3)(b) and 92(3)(a) of the Treaty areapplicable in this case. In the two following paragraphs, the Commission states thereasons leading it to exclude the application of Articles 92(3)(b) and 92(2)(c) to theaids in question. In the second sentence of the third paragraph, the Commissionstates that 'not only the conditions for exemption provided for in Article 92(3)(a)and (c) but also ... the Community framework on State aid to the motor vehicleindustry allow it to respond appropriately to the problems which the new Länderare facing‘.

184.

    The Commission therefore acknowledged the applicability to the aid in question notonly of Article 92(3)(c) but also of Article 92(3)(a), as is confirmed by the use ofwording from the latter in the first paragraph of Point XII of the Decision. TheCommission there acknowledges that the new Länder constitute 'anunderdeveloped region‘ where 'the standard of living is low‘ and 'the level ofunemployment is exceptionally high and still rising‘. It then states that high levelsof investment and other aid have been authorised 'in order to contribute to thedevelopment of the region‘.

185.

    In its pleadings, the Commission has further argued, without being contradicted bythe applicants or the German Government, that in this case it allowed an aidintensity higher than it was its policy to accept when applying Article 92(3)(c) ofthe Treaty to regional aid in Germany. It that respect, it has explained that thespecific disadvantages encountered by investors in the regions falling within Article92(3)(a) of the Treaty are taken into consideration in its cost-benefit analysis forthe purposes of fixing the total amount of the aid capable of being authorised, sothat those calculations take account of the higher aid eligibility of those regions.

186.

    The argument that the Commission was unwilling to apply the more favourableprovision of Article 92(3)(a) of the Treaty to the aid in question is thereforeunfounded.

187.

    Moreover, in its judgment in Spain v Commission, the Court of Justice expresslyrejected the argument of the applicants in their application by holding (atparagraph 17) that the difference in wording between subparagraphs (a) and (c)of Article 92(3) of the Treaty '[could not] lead to the conclusion that theCommission should take no account of the Community interest when applyingArticle 92(3)(a), and that it must confine itself to verifying the regional specificityof the measures involved, without assessing their impact on the relevant market ormarkets in the Community as a whole.‘ The Court of Justice also held (atparagraph 20) that 'the application of both Article 92(3)(a) and Article 92(3)(c)presupposes the need to take into consideration not only the regional implicationsof the aid covered by those provisions but also, in the light of Article 92(1), itsimpact on trade between Member States and thus the sectoral repercussions towhich it might give rise at Community level‘.

188.

    In those circumstances, the arguments by which the applicants criticise thereference in the Decision to existing surplus capacity in the motor-vehicle industryare clearly ill founded, having regard to the wide discretion which the Commissionenjoys under Article 92(3) of the Treaty (see also the judgment in Spain vCommission, paragraph 18). That applies particularly in respect of 'top-up‘ aid,as to which the Commission states in the fifth paragraph of Point XI of theDecision that, in assessing regional aid to the motor vehicle industry, such top-upaid 'is normally approved except in cases where the investment contributes to thecreation of capacity problems in the relevant sector. In such cases, the aid will bestrictly limited to the net regional disadvantages‘.

189.

    Finally, the Court finds that the Commission gave proper reasons, especially inPoints X, XI and XII of the Decision, for its assessment with respect to Article92(3)(a) of the Treaty.

190.

    It follows from the above that the complaints alleging infringement of Article92(3)(a) of the Treaty and an insufficient statement of reasons must be rejected.

Contravention of the general scheme of Article 92(3) of the Treaty

191.

    The applicants put forward essentially five complaints.

(a)    The need for an investigation ex ante and the applicability of theCommunity framework

- Arguments of the parties

192.

    The applicants argue that, in order to express a view as to the compatibility of aidwith the common market, the Commission must take into account the informationwhich it held at the time the aid in question was granted (investigation ex ante)rather than at the time it adopted its decision (investigation ex post). They rely inthat respect on Case C-301/87 France v Commission [1990] ECR I-307, paragraphs43 and 45 (the 'Boussac‘ judgment) and Case T-266/94 Skibsværftsforeningen andOthers v Commission [1996] ECR II-1399, paragraphs 96 and 98. In addition, theyraise the following arguments:

-    where Article 93(3) of the Treaty provides that the Commission is to beinformed in advance of any aid plans, that is precisely in order to enable itto examine ex ante their compatibility with the common market;

-    the deciding moment for assessing the compatibility of aid with the commonmarket is that at which it produces its effects on competition (see, asregards the repayment of aid, Case C-348/93 Commission v Italy [1995] ECRI-673, paragraph 26);

-    the assessment of the existence of a State-aid element, and in particular theapplication of the 'private investor in a market economy‘ test, must bemade ex ante (Boussac judgment, paragraphs 43 to 45; Tubemeuse II; CaseC-305/89 Italy v Commission [1991] ECR I-1603, paragraph 19);

-    assessment of the situation ex post is contrary to the principle of a Stategoverned by the rule of law. If the factual and legal situation that isdecisive for assessing an aid were to be that prevailing at the time theCommission's decision were adopted, the Commission would be able tochoose the most convenient moment according to the desired result. Moreover, the criteria must be foreseeable, which is not guaranteed if thesituation is assessed ex post.

193.

    It follows, in the applicants' submission, that the compatibility of the aid in questionwith the common market must be assessed at the date on which it was granted,namely 22 March 1991, and not at the date of the adoption of the Decision in 1996. That approach also applied to the parts of the aid which were not yet paid whenthe Decision was adopted, since all instalments of aid granted in the context of asingle decision and by virtue of a single project must be assessed in accordance withthe same legal and factual framework.

194.

    The applicants go on to argue, first, that the aid in question falls within aprogramme of regional aid that was already approved, and that the Commissionwas therefore not entitled to subject it to an examination of its compatibility withthe Community framework. In their submission, the Commission had only thelimited power to examine whether the aid in question complied with the conditionsof the regional aid programme already approved.

195.

    In this case, the investment grants were definitively allocated by the 1991 decrees(see paragraph 19 above). The amendments made to those decrees later did notconcern the substance, but merely reduced the amount of the aid, thus attenuatingits negative consequences for competition. As for the investment subsidies, a firmundertaking concerning them was given on 18 March 1991 (see paragraph 20above).

196.

    All that aid was granted within the context of the Nineteenth Outline Plan adoptedpursuant to the Law on the Joint Task. That programme had already beenapproved by the Commission, as is shown by the fourth paragraph of Point VIII ofthe Decision. It follows, in the applicants' submission, that the clause in the 1991decrees, whereby the aid was granted subject to its authorisation by theCommission, was devoid of purpose.

197.

    Moreover, the applicants challenge the claim in the Commission's defence that, inits approval of the general aid programmes, it expressly reserved to itself the rightto verify whether Articles 92 and 93 of the Treaty were complied with. Theyaccuse the Commission of not having sent to them the documents said to containthat reservation and argue that their production at the rejoinder stage is out oftime and inadmissible.

198.

    Even if the Commission's approval of the Nineteenth Outline Plan contained areservation whereby the provisions of the Community framework had to becomplied with, that framework, the applicants argue, was not applicable in March1991, the date of the definitive grant of the aid in question.

199.

    Point 2.5 of the Community framework, as published in 1989, shows that theframework was to be applied for a two-year period from 1 January 1989. TheCommunity framework therefore expired on 31 December 1990. The FederalRepublic of Germany did not consent to its reintroduction until April 1991, afterthe definitive grant of the aid in question.

200.

    In that respect, the applicants put the following specific points by way of supportfor their argument:

-    Decision 90/381 of 21 February 1990, cited above, requiring the FederalRepublic of Germany, 'pursuant to‘ the Community framework, to notifyaid exceeding a certain amount to the Commission, was not applicable tothe new Länder, which did not yet form part of that Member State, and itcould not have extended that framework, which expired on 31 December1990, beyond its original duration;

-    the decision to extend the duration of the Community framework,henceforth extended to the new Länder, was published in OJ C 81 of 26March 1991, made available on 27 March 1991, after the definitive grant ofthe aid in question. The Community framework could not applyretrospectively, because its wording did not so provide and because it wouldbe contrary to the principle of legal certainty to place the commencementof the validity of a Community measure at a time prior to its publication(Case C-368/89 Crispoltoni [1991] ECR I-3695, paragraph 17);

-    the date of adoption of the decision extending the Community frameworkhas not been established. Moreover, it is doubtful whether that decisionwas validly adopted. The Commission's letter to the Member States isdated 31 December 1990, although the Commission does not hold meetingsat the end of the year. Moreover, the text published in the Official Journalof the European Communities (OJ 1991 C 81, p. 4) does not correspond tothat received by the German Government;

-    the Commission's letter proposing to the German Government that theCommunity framework be extended was not received by that governmentuntil 8 January 1991, as evidenced by the entry stamp by the permanentrepresentation of Germany at the European Communities. At that date,the validity of the former Community framework had already expired, andthe Commission's proposal should therefore be understood as proposing thereintroduction of that framework, without the possibility of retrospectiveapplication in the absence of consent from the Member States (CaseC-135/93 Spain v Commission, paragraph 24; Case C-292/95 Spain vCommission, paragraph 28 et seq.);

-    the Community framework has in itself no binding force as against MemberStates for as long as they do not consent to it. In this case, the FederalRepublic of Germany opposed the Community framework from the outset(see Decision 90/381 of 21 February 1990, cited above); on 7 February 1991,the Secretary of State at the Federal Ministry of the Economy explained tothe Member of the Commission responsible for competition matters theposition of his government to the effect that the Community framework didnot apply to the new Länder, and the consent of the Federal Republic wasnot finally given until April 1991.

201.

    The Commission argues essentially that it was entitled to apply the Communityframework as in force in June 1996 and to take account of the factualcircumstances existing at the date on which the Decision was adopted. In this case,the applicants had changed their plans fundamentally since March 1991, and thedecrees granting the aid had also been amended several times up to February 1996. There could therefore be no question of the Commission, in 1996, having toexamine the compatibility of the aid by reference to the situation prevailing in 1991,whilst in the meantime all the relevant criteria had been fundamentally changed.

202.

    The Commission further contends that the aid in question had to be notified to itwith a view to its prior authorisation.

- Findings of the Court

203.

    Contrary to what the applicants maintain, the aid measures in dispute cannot beregarded as falling within a regional aid programme already approved by theCommission and thus exempt from the duty of prior notification.

204.

    By referring, in the Nineteenth Outline Plan adopted pursuant to the Joint TaskLaw, to a number of specific sectors in which each of the projects to be supportedremained subject to the need for prior authorisation from the Commission (seeparagraph 7 above), Germany acknowledged that approval of the regional aidenvisaged by that outline plan did not extend to the sectors in question and, inparticular, the motor-vehicle industry, to the extent that the cost of a supportoperation exceeded 12 million ecus.

205.

    That is confirmed, in particular, by the Commission's letter of 2 October 1990approving the regional aid scheme laid down for 1991 by the Nineteenth OutlinePlan (see paragraph 7 above) and by its letter of 5 December 1990 approving theapplication of the Joint Task Law to the new Länder (see paragraph 11 above), inwhich the Commission expressly drew the attention of the German Government tothe need to take account, when implementing the measures contemplated, of theCommunity framework existing in certain sectors of industry; by its letters of 14December 1990 and 14 March 1991, insisting that the aid for Volkswagen's newinvestments could not be implemented without having first been notified to theCommission and having received its approval (see paragraph 18 above); and by thefact that each of the 1991 decrees states that it is 'subject to the authorisation ofthe Commission‘. The applicants are wrong in arguing that such a reference isdevoid of purpose having regard to the authorisation already obtained by virtue ofthe approval of the Nineteenth Outline Plan; that approval does not extend to themotor-vehicle industry, as has just been pointed out in paragraph 204 above. Theapplicants are also incorrect in arguing that the production of the letters referredto above, in an annex to the rejoinder, was out of time and inadmissible. In thefirst place, those letters are cited both in Point II of the Decision and in thedecision to initiate the investigation procedure. Moreover, they were produced inresponse to an assertion made for the first time in the reply.

206.

    In the light of the factors described above, the fact that application of theCommunity framework was suspended between January and April 1991, even ifestablished, cannot have the legal consquence that the aid to the motor-vehicleindustry is to be regarded as covered by the approval of the Nineteenth OutlinePlan. On the contrary, if that fact were established, it would have to be held thatArticle 93(3) of the Treaty remained fully applicable to the aid in question.

207.

    It follows from the above that, in any event, the aid in dispute was subject to theduty of prior notification to the Commission, and that it could not be implementedbefore the procedure had led to a final decision.

208.

    By contrast, the question whether or not the Community framework had bindingforce vis-à-vis Germany in March 1991 is of no relevance for the purposes of theseproceedings.

209.

    In that respect, it should be emphasised that, although the rules of the Communityframework, as 'appropriate measures‘ proposed by the Commission to theMember States on the basis of Article 93(1) of the Treaty, are entirely devoid ofbinding force and bind Member States only if the latter have consented to them(Case C-292/95 Spain v Commission, paragraphs 30 to 33), there is nothing toprevent the Commission from examining the aid which must be notified to it in thelight of those rules when exercising the wide discretion which it enjoys for thepurposes of applying Articles 92 and 93 of the Treaty.

210.

    It should, nevertheless, be added that the applicants' argument that theinvestigation, in 1996, of the compatibility of the aid at issue with the commonmarket could be based only on assessment criteria which existed in 1991 finds nosupport in the case-law of the Court of Justice and the Court of First Instance. Thus, in Case 234/84 Belgium v Commission [1986] ECR 2263, paragraph 16, andCase C-241/94 France v Commission [1996] ECR I-4551, paragraph 33, the Courtof Justice stated that the legality of a decision concerning aid is to be assessed inthe light of the information available to the Commission when the decision wasadopted. The Court of First Instance did the same in Joined Cases T-371/94 andT-394/94 British Airways and Others and British Midland Airways v Commission[1998] ECR II-2405, paragraph 81).

211.

    Moreover, Article 92(1) of the Treaty prohibits, in so far as it affects trade betweenMember States, any aid 'which distorts or threatens to distort competition‘. Itfollows that, when it establishes the existence of an aid within the meaning of thatprovision, the Commission is not strictly bound by the conditions of competitionexisting at the date on which its decision is adopted. It must carry out anassessment in a dynamic perspective and take account of the foreseeabledevelopment of competition and the effects which the aid in question will haveupon it.

212.

    The Commission cannot therefore be criticised for having taken account of factorsarising after the adoption of a plan to grant or alter aid. The fact that the MemberState concerned implemented the proposed measures before the investigationprocedure resulted in a final decision, in breach of its obligations under Article93(3) of the Treaty, is of no relevance to that question.

213.

    The applicants' argument that such a practice is incompatible with the principle oflegal certainty cannot be accepted. Whilst the preliminary investigation procedureunder Article 93(3) of the Treaty is intended to allow the Commission sufficienttime, the Commission must, nevertheless, act diligently and take account of theinterest of the Member States of being informed of the position quickly in sphereswhere the need to intervene may be urgent by reason of the effect that theMember States expect from the planned incentive measures. The Commissionmust therefore take a position within a reasonable period, which the Court ofJustice has assessed at two months [Case 120/73 Lorenz v Commission [1973] ECR1471, paragraph 4; see also Article 4 of Council Regulation (EC) No 659/1999 of22 March 1999 laying down detailed rules for the application of Article 93 of theEC Treaty (OJ 1999 L 83, p. 1]. Moreover, the Commission is bound by the samegeneral duty of diligence where it decides to initiate the inter partes investigationprocedure laid down by Article 93(2) of the Treaty, and its failure to act in thematter may in appropriate cases be condemned by the Community judicature inproceedings under Article 175 of the EC Treaty (now Article 232 EC).

214.

    Moreover, the question of a possible infringement of the principle of legal certaintydoes not arise in this case. The length of time which elapsed between the date onwhich the first decrees granting aid were adopted (March 1991) and the date of theDecision (26 June 1996) was due, first, to the absence of complete notification ofthe measures in question; secondly, to the successive amendments which theapplicants made to their plans, which in turn entailed successive amendments to thedecrees granting the aid; and, thirdly, to the considerable difficulties which theCommission encountered in obtaining from the German Government and theapplicants the information which it needed in order to take a decision (seeparagraphs 16 to 42 above).

215.

    In particular, the Mosel I decision shows that, at the beginning of 1993, theCommission was in a position to take a decision on the whole of Volkswagen'sinvestment plans, as initially submitted to it. It was at the express request ofVolkswagen, submitted on 31 January 1993, that the Commission limited itsassessment to the aid concerning Mosel I and Chemnitz I. It was then necessaryto wait until 1995, when the Commission threatened the German authorities thatit would adopt a decision on the basis of the incomplete file in its possession, forthe information which it needed to be finally communicated to it. In short, it wasnot until 1996 that the Commission was placed in a position to take a decision withfull knowledge of the facts.

216.

    In the meantime, the applicants' initial plans had been changed three times and,in consequence, the 1991 decrees had been amended by the 1993, 1994 and 1996decrees. Although the parties disagree as to the extent of those successiveamendments, it is undisputed that, at the very least, they involved a significantreduction in the scale of the plans and, above all, the postponement by three tofour years of the entry into service of the paint and final assembly workshops ofMosel II and Chemnitz II.

217.

    In those circumstances, the applicants are wrong when they maintain that theCommission was required to examine plans that were successively devised in 1993,1994 or 1996 solely in the light of the information at its disposal in 1991. On thecontrary, the Commission was right to take account in its assessment of the changesthat were subsequently made.

218.

    Moreover, even if it had initially approved the aid granted by the 1991 decrees, theCommission would have been entitled to re-examine it at the time of itsamendment, in accordance with Article 93(3) of the Treaty, under which theCommission is to be informed, in sufficient time to enable it to submit itscomments, of any plans to alter the aid. Thus, while acknowledging that there wasno surplus capacity in the motor-vehicle industry in 1991, the Commission wouldin principle have been entitled to take account of surplus capacity which becameapparent from 1993 onwards.

219.

    It follows from the above that the applicants' arguments concerning, first, the needfor an investigation ex ante and, secondly, the inapplicability of the Communityframework, must be rejected in their entirety.

(b)    The classification of the paint and final assembly workshops at Mosel II andChemnitz II as 'extensions of existing capacity‘

- Arguments of the parties

220.

    The Free State of Saxony submits that, by making a distinction between extensionsof existing capacity and new investments that does not appear in the Communityframework, the Commission infringed the principle of institutional equilibrium(Case C-70/88 Parliament v Council, cited in paragraph 72 above, at paragraphs 21and 22; Case C-316/91 Parliament v Council [1994] ECR I-625, paragraph 11 etseq.). They maintain that, under Article 94 of the EC Treaty (now Article 89 EC),it is for the Council to make any appropriate regulations for the application ofArticles 92 and 93 of the Treaty.

221.

    The applicants also argue that it is incorrect to classify the paint and final assemblyworkshops of Mosel II and Chemnitz II as 'extensions of existing capacity‘. If theyhad been classified as 'greenfield investments‘, like the press and body shops ofMosel II, all the investment grants at issue would have been declared compatiblewith the common market.

222.

    First, the applicants maintain that the classification 'extension of existing capacity‘applies only in cases of enlargement of an existing factory. In this case, Mosel IIhad been built on a field, its buildings and facilities were entirely new andmaterially separate from Mosel I, and they were built by a different company fromthe one that built the latter. Moreover, Mosel I was destined for closure on theentry into service of all parts of Mosel II. Throughout the administrative procedureand in the Decision itself, the Commission had always referred to the applicants''new factories‘ or 'new investment plans‘. Mosel II should therefore be regardedas a greenfield investment. The same applies to Chemnitz II.

223.

    Secondly, Mosel II and Chemnitz II also satisfy the definition of 'greenfield‘investment given in the eighth paragraph of Point XII of the Decision. In thatrespect, the Commission wrongly established a distinction between the press andbody shops of Mosel II on the one hand and the paint and final assemblyworkshops of Mosel II and Chemnitz II on the other, whereas the project as awhole constitutes a greenfield investment.

224.

    The applicants emphasise that Mosel II and Chemnitz II constitute a single project,even though executed in several stages. The basic conception of that project,namely the construction of a motor-vehicle factory comprising the four operationsof manufacture (pressing, skeleton bodywork, painting and final assembly), with anengine-construction plant nearby, did not undergo any modification despite thespacing out in time, the reduction of the sum invested and the reduction ofproduction capacity and the amount of the aid in relation to the initial project of1991.

225.

    The applicants insist that the production premises were constructed as planned. The skeleton bodywork and press shops of Mosel II were completed as planned,in 1992 and 1994 respectively. The entry into service of the final assemblyworkshop was simply postponed from 1994 to 1996, and that of the paint shop from1994 to 1997. Only the logistics centre, which did not form part of the productionunits, was constructed not, as envisaged, by Volkswagen on the Mosel site, but byanother undertaking some kilometres away from the factory.

226.

    The applicants add that the technology used at Mosel II is more modern than thatinitially envisaged, that production has been simplified and automated and thatproductivity has been increased, especially by the use of qualified suppliers nearbyand the externalisation of certain services. They stress, however, that theinvestment project has not changed in content but has simply been adapted totechnical progress.

227.

    It does not follow from the solution adopted on a transitional basis, consisting inthe delivery by the already-finished part of Mosel II of skeleton bodywork to MoselI, that Mosel II is not a greenfield investment. In that regard, the Commissionerred in holding that that solution had permitted the establishment in Mosel in1994 of a 'fully operational‘ factory, composed of the assembly and paint shops ofMosel I and the press and skeleton body shops of Mosel II.

228.

    Mosel I and II were never designed or constructed with a view to their forming anintegrated motor-vehicle construction plant. There are considerable technicaldifferences between them, making lasting integration of Mosel I in Mosel II'sproduction process economically absurd.

229.

    The Commission was perfectly aware that Mosel I was only an interim solution andthat it was intended to be closed. The applicants refer to the ninth paragraph ofPoint IX of the Mosel I decision, according to which 'the rationale behind theinterim project was to maintain and train a workforce for automobile productionat the location until the new plant Mosel II comes on stream‘.

230.

    In accordance with that interim solution, assembly was abandoned at Mosel I on23 December 1996 and the paint shop was closed in March 1997. Assembly of thePassat B5 model started at Mosel II in October 1996. Only a small part of MoselI's buildings were still used for touching-up work and to store detached componentsfrom other factories in the group. It was not intended to integrate Mosel I intoMosel II.

231.

    It is, moreover, both technically and economically out of the question to maintainMosel I facilities in service, or to reopen them, after the completion of Mosel II.

232.

    Moreover, the Commission made a factual error in stating that Volkswagen'sundertakings in Saxony had been profitable since 1994 (ninth paragraph of PointXII of the Decision). On the contrary, Volkswagen transferred DEM 367 millionto VW Sachsen to compensate for its losses between 1994 and 1996. TheCommission was aware of this. The applicants add that there is no connectionbetween, on the one hand, a factory's productivity and rate of use and, on theother, its profitability. In any event, the alleged profitability of the Mosel facilitiesin 1994 played no part in the administrative procedure, and neither the applicantsnor the Federal Republic of Germany had the opportunity to express their pointof view on the question.

233.

    The applicants see no relevance in the fact that, in 1996, they had alreadyeliminated certain typical disadvantages of a greenfield investment. Volkswagenmade efforts, at its own expense and with a view to the completion of Mosel ll, todevelop infrastructure, logistical organisation and supplier structure. Moreover, theinitial disadvantages had not been taken into consideration in the Mosel I decision,so that the Commission was under a duty in the Decision to take account of all thedisadvantages in connection with the investments in Mosel II.

234.

    As regards the training of Mosel I's workers for the needs of Mosel II, theapplicants argue that the traditional (solvent-based) painting technique used inMosel I differs considerably from the (water-based) technique used in Mosel II. The same applies to the final assembly chain. The highly advanced technologiesof the Mosel II facilities and computerised control techniques require a particularmastery of machines which is in no way comparable with the know-how employedin Mosel I.

235.

    As regards suppliers, there were none meeting Volkswagen's needs established inthe area in 1990. However, thanks to Volkswagen's efforts in anticipation of MoselII, there were eight 'just-in-time‘ suppliers present in 1994 and, at the end of 1997,there were 11 suppliers of that type, supplying 13 modular construction groups. However, those subcontractors established themselves near Mosel and Chemnitznot on account of the transitional retention of Mosel I and Chemnitz I, but solelyon account of the long-term perspective offered by Mosel II and Chemnitz II.

236.

    The Commission contends that the decisive factor in the categorisation of the paintand final assembly shops at Mosel II was Volkswagen's decision in 1993 to dividethe Mosel II project into four separate units, the construction and entry into serviceof which were to happen at different times. The Commission maintains thatconsideration of the disadvantages linked to operating costs must commence foreach of those units separately at the time of its entry into service.

237.

    In the Commission's view, Volkswagen has had an operational motor-vehicleconstruction plant in Mosel since July 1992, the date of the entry into service of theMosel II body shop, an on-site pressing unit not being strictly necessary. In anyevent, as from 1994 at the latest, Volkswagen was able to prepare vehicles, withparts delivered by its suppliers, in its press shop (entered service March 1994) andskeleton body shop (entered service July 1992) at Mosel II, and to finish them inthe paint and final assembly shops of Mosel I, situated close by on the sameindustrial estate.

- Findings of the Court

238.

    It should be noted that investigation of the compatibility of the aid at issue with thecommon market, in accordance with the Community framework, consisted primarilyin assessing the net additional costs entailed by setting up at the chosen site ascompared with setting up in a central, non-disadvantaged area of the Community.

239.

    Concerning the calculation of operating costs, the Commission makes a distinctionbetween what it calls 'greenfield‘ investments, the additional costs of which it takesinto account for a period of five years, and what it refers to as 'extension‘investments, the additional operating costs of which it takes into account for onlythree years.

240.

    According to the eighth paragraph of Point XII of the Decision:

'The term ”greenfield project” does not simply mean that the project is situatedin a green field somewhere, but that, from the investing company's point of view,the site is a new, as yet undeveloped one. Consequently, the company faces thefollowing typical special problems as compared with the extension of an existingplant: lack of adequate infrastructure, lack of organised logistics, no trainedworkforce adapted to the needs of the company, and no established supplierstructure. If, however, these services can be provided by a nearby plant belongingto the same group, then the project is treated as an extension, even if it is locatedin a green field. The Community concept differs from the concept of newinvestments that may be defined in national law. Since, in the case of a greenfieldproject as defined in this way, more difficulties arise and the time-span for reachingfull capacity and thus viability is somewhat longer, there is justification forcalculating the operating cost disadvantages over a longer period.‘

241.

    Contrary to what the Free State of Saxony maintains, the Commission does notundermine the principle of institutional equilibrium by making such a distinction. The power to make any appropriate regulations for the application of Articles 92and 93 of the Treaty, conferred on the Council by Article 94 of the Treaty, is in noway called into question by the fact that the Commission uses pre-establishedoperational criteria, such as those underlying the distinction between greenfieldinvestments and extensions of existing capacity, when exercising the wide discretionwhich it enjoys in applying those provisions.

242.

    In this case, the Commission considered that the skeleton body shop and the pressshop of Mosel II were greenfield investments. It therefore took their operatingcosts into account over a period of five years, namely from 1993 until 1997 (bodyshop) and from 1994 until 1998 (press shop), in its cost-benefit analysis. Bycontrast, the paint and final assembly shops of Mosel II and Chemnitz II wereclassified as extensions of existing capacity, with the result that their operating costswere taken into account over a period of three years, namely from 1997 until 1999.

243.

    In that respect, the Commission states in the ninth and tenth paragraphs of PointXII of the Decision:

'In the present case, the Commission had to take into account the fact that thedifferent shops of the investment in Mosel come on stream at different times. Thus, the start-up problems associated with the different subprojects will also occurat different times. Furthermore, the Commission took account of the fact that,through the delay in project implementation, the character of the project has alsochanged. With the setting up of the press and body shops and their link with themodernised paint shop and final assembly halls of the old Mosel I plant, a fullyoperational car plant was established in Mosel by 1994. This is also demonstratedby the profitability of the VW companies in Saxony since 1994.

The future investment for a new paint and final assembly hall in Mosel II thus nolonger constitutes a greenfield investment but represents an extension of existingcapacity. Since a supplier structure is already in place [...], [...] the infrastructureexists and ... most of the workers will be taken over from Mosel I, the typicalhandicaps associated with greenfield investments will arise to a much lesser degree.This also applies to the Chemnitz II engine plant. As in other cases of capacityextension, the build up of production in these plants is very rapid. Although theGerman authorities and VW originally suggested an analysis of the period from1998 to 2002 for all projects in Mosel and Chemnitz, the Commission has analysedthe operating handicaps over five years for the proposed greenfield projects, i.e. for1993 to 1997 (body shop) and for 1994 to 1998 (press shop), and over three yearsfor the extension projects, i.e. 1997 to 1999 (paint shop, final assembly, ChemnitzII). It was also taken into account that the press shop and the body shop will beexpanded from a production capacity of 432 cars/day to 750 cars/day during thesame period in order to be able to supply fully the new Mosel II paint shop andfinal assembly. Therefore, the additional operating handicaps for this period (1997to 1999) that can be attributed to this extension of capacity were also included inthe analysis.‘

244.

    As stated above, the question whether the paint and final assembly shops of MoselII and Chemnitz II were to be classified as extensions of existing capacity or asgreenfield investments falls within the wide discretion which the Commission enjoyswhen applying Article 92(3) of the Treaty. Review by the Court of First Instancemust therefore be restricted to checking that the facts relied on in making thedisputed classification are materially accurate, and that there has been no obviouserror in the assessment of those facts (see the Matra judgment, cited in paragraph180 above, at paragraphs 23 to 28).

245.

    It should be noted, moreover, that the classification of an investment as anextension of existing capacity or, on the other hand, as a greenfield investment, ismade in a Community context, irrespective of the classification under theaccounting or tax law of the Member State to which the beneficiary undertaking issubject (see, by analogy, Case T-459/93 Siemens v Commission [1995] ECR II-1675,paragraph 76).

246.

    In that respect, it has not been established that the Commission's conception ismanifestly erroneous. That conception is based on the idea that the taking intoaccount of the disadvantages linked to the operating costs of a new plant mustcommence at the time of its entry into service or, when the coming-on-stream ofits various production units is staggered, at the time of the entry into service ofeach of them. Each unit must thus form the subject-matter of a separateassessment, so as to permit the state of development of the site to be taken intoaccount as at the time of its entry into service. That conception complies with therule that derogations from the principle laid down in Article 92(1) of the Treatythat State aid is incompatible with the common market are to be interpretedstrictly.

247.

    In this case, contrary to their initial plans, the applicants opened the fourworkshops of Mosel II at different times between 1992 and 1997. In thosecircumstances, the arguments they put forward are not sufficient to invalidate theCommission's conclusion that the paint and final assembly shops of Mosel II andChemnitz II cannot be classified as greenfield investments, since, from 1994 at thelatest, there was a fully operational motor-vehicle production unit in Moselcomposed of the paint and final assembly shops of Mosel I (in the modernisationof which the applicants invested more than DEM 414 million, and which the MoselI decision describes as an ultra-modern assembly and paint factory), the skeletonbody and press shops of Mosel II (which entered service in July 1992 and March1994 respectively), and Chemnitz I. As the Commission has pointed out, withoutbeing contradicted, the production capacity of that unit has been 100 656 vehiclesper year since 1992, and 34 000 vehicles of the new model Golf A3 were built therein 1992, 71 800 in 1993, 90 100 in 1994 and 100 100 in 1995.

248.

    The applicants have, it is true, argued that the investments in Mosel II andChemnitz II form a whole and that the combination of Mosel I/Chemnitz I and thefirst part of Mosel II represents only an interim solution. It should nevertheless beremembered that the Volkswagen group has enjoyed considerable aid, amountingto DEM 487.3 million for Mosel I and DEM 84.8 million for Chemnitz I (see theMosel I decision). That aid enabled it to have the benefit of a fully operationalmotor-vehicle construction plant in 1994 at the latest, and to commence productionas from that year. If that aid had not been granted, its Mosel II and Chemnitz IIprojects would have been classified as greenfield investment in their entirety, but,as against this, the new plant would not have been able to enter service so quicklyand the investments there would have been more costly since it would, in any event,have had to develop its infrastructure, logistics, workforce and supplier network. In short, the applicants' argument, if accepted, would thus amount to allowing theVolkswagen group to benefit from the greenfield investment regime twice inrelation to the same project for the construction of a motor-vehicle factory.

249.

    Moreover, as the Commission has pointed out, investments are not primarily meantto secure State aid but to ensure future profits. Therefore, an investor whosucceeds in eliminating certain handicaps connected with his investment, morequickly, by accelerating the entry into service of certain parts of his project, shouldnot consider himself 'penalised‘ by a reduction in the aid which he may enjoy,since his operating costs in connection with the infrastructure diminish and hisproduction conditions improve.

250.

    Accordingly, the Commission has not made any manifest error of assessment inclassifying the paint and final assembly shops of Mosel II, and Chemnitz II, as'extensions of an existing plant‘. It is incorrect in those circumstances to maintainthat those workshops of Mosel II and Chemnitz II were erected 'on a greenfieldsite‘. On the contrary, as the Commission maintains, the Volkswagen group hadalready, in 1996, eliminated certain disadvantages typical of a greenfield investment,in the sense in which that expression is used in the Decision.

251.

    In particular, the documents before the Court show that, as from 1994, and by 1997at the latest, it had in place an appropriate infrastructure, organised logistics, aworkforce trained to meet its needs and a well-established supplier structure.

252.

    As the Commission has pointed out, the fact that the Mosel I workforce,comprising about 1 330 employees and which was transferred to Mosel II, had toundergo a certain amount of training before being able to work on the new modelsor according to the new production techniques does not mean that that workforcewas untrained within the meaning of the definition of greenfield investments.

253.

    As for suppliers, the document joined as Annex B4 to the application in CaseT-143/96 shows that, in Mosel at the end of 1995, there were 129 suppliers of parts(eight under the 'just in time‘ method) and 267 suppliers in the field ofconstruction, equipment and services, together employing 22 000 workers. According to the same document, the number of local suppliers rose from 0 in 1990to 87 in June 1993. The Commission has argued, without being contradicted, thatthat represents a proportion of local suppliers of 30%, which far exceeds theEuropean average in the motor-vehicle industry.

254.

    The foregoing considerations cannot be invalidated by a factual error allegedlymade by the Commission in its assessment of the profitability of the Volkswagenundertakings in Saxony since 1994. In the first place, the alleged error has notbeen established, since the accounts of those undertakings, produced as an annexto the rejoinder in Case T-143/96, show that they made an operating profit ofDEM 49.4 million in 1994, DEM 170 million in 1995 and DEM 209 million in 1996. Moreover, the Commission has rightly observed that the profitability of a newmotor-vehicle plant is only one of a number of indicators for determining whetherthat plant should be regarded as a greenfield investment or as an extension. Itshould be noted in that respect that the Decision treats the profitability of theVolkswagen undertakings in Saxony as no more than a confirmation that, as earlyas 1994, Mosel I and the pressing and skeleton body shops of Mosel II formed acomplete and operational motor-vehicle construction plant.

255.

    Moreover, the question whether or not the facilities of Mosel I will be retained inservice after the completion of Mosel II is irrelevant for the purposes of thepresent analysis.

256.

    As for Chemnitz II, the applicants have not put forward any concrete argumentcapable of casting doubt on the Commission's assessment that this was aninvestment extending Chemnitz I. The Commission has pointed out that thetransfer of production of various engine parts from Chemnitz I to Chemnitz II tookplace progressively between 1996 and 1998, so that the two plants, in parallel,produced essential engine parts (see Annex B10 to the application in Case T-143/96).

257.

    It follows from the above that the arguments put forward by the applicants for thepurposes of challenging the classification of the paint and final assembly shops ofMosel II and Chemnitz II as extensions of existing capacity must be rejected.

(c)    The calculation of the costs and benefits of the investment

- Arguments of the parties

258.

    The applicants maintain that the analysis of the costs and benefits of the investmentwas made on the basis of incomplete documents and that the reasons for thatanalysis were insufficiently and/or erroneously stated.

259.

    They claim, first, that the Commission did not take account of certain essentialdocuments. The Commission sent to Mr Sterk, the expert it designated to carryout that analysis, only the documentation which Volkswagen sent in January 1996. In fact, that documentation was only an addition to the documents submitted byVolkswagen in May 1993 and May 1994. The documentation of 1996 was thereforeincomplete and likely to mislead the expert.

260.

    At a meeting held on 29 May 1996, Volkswagen became aware of the fact that theexpert did not have the 1993 and 1994 documents and sent them to him directly. However, the applicants argue, it is evident from the very short period of timewhich elapsed between the sending of those documents and the adoption of theDecision on 26 June 1996, and from the Decision itself, that the expert was not ina position to study them.

261.

    In the light of the expert report produced in the defence, the applicants claim thatthe expert did not have the time to examine carefully the handicaps described inpoints 6.1.1, 6.1.3 and 6.5.2 to 6.5.7 of that report, and in particular the subsidy forconnection to the road network.

262.

    Secondly, the applicants argue that the fifth, sixth, seventh, eleventh, twelfth andthirteenth paragraphs of Point XII of the Decision do not provide acomprehensible explanation of the calculation of costs and benefits, with the resultthat the Decision infringes Article 190 of the Treaty.

263.

    In their submission, even if the Commission is not required to set out in theDecision each of the factors entering into the calculation of the extra investmentand operating costs, the most significant of them should be indicated andquantified, at least in outline. They maintain that this is so a fortiori where the aiddeclared incompatible with the common market is substantial.

264.

    Thirdly, the Decision does not indicate what additional costs put forward byVolkswagen were not accepted. In particular, Volkswagen estimated that if, withina short space of time, the employees of VW Sachsen were no longer to beremunerated in accordance with the collective agreement for the Saxon metallurgyindustry but in accordance with Volkswagen's own tariff, this would entail anincrease in the burden of wages and salaries of DEM 161.6 million. That risk wasan essential element which the Commission completely ignored or wronglydismissed, making no mention of it in the Decision. In that respect, the explanationcontained in the defence comes too late.

265.

    The applicants add that the Commission made a factual error in stating, in thefourteenth paragraph of Point XII of the Decision, that, during the administrativeprocedure, its provisional cost-benefit analysis was accepted by Volkswagen.

266.

    In their reply, the applicants state that, thanks to the defence, they are in a positionto understand the cost-benefit analysis carried out by the Commission. That,however, is irrelevant to the question whether sufficient reasons are stated in theDecision itself. The applicants repeat that that is not the case, since the cost-benefit analysis was not annexed to the Decision. The business secrets containedin that analysis were those of the applicants themselves, and it would thereforehave sufficed for the Commission to have sent them the analysis as an integral partof the Decision.

267.

    The Commission states, inter alia, that it entrusted Plant Location International, asubsidiary of the company auditors Price Waterhouse, with the task of preparinga draft cost-benefit analysis. That draft was checked and corrected, wherenecessary, by the relevant departments of the Commission. Volkswagen hadcontacts with Mr Sterk, who was the last person to be concerned with the matterfor Plant Locational International, several months before the Decision was adopted,and in particular at the meetings on 11 April and 29 May 1996. The 1996documentation, supplied by the Commission to Mr Sterk, contained all the relevantinformation. Since Mr Sterk analysed the situation over a period of months andwas therefore conversant with the project in all its details, it was possible for himto examine rapidly and completely the 1993 and 1994 documents which Volkswagensubsequently sent to him.

- Findings of the Court

268.

    As regards, first of all, the allegation that the statement of reasons is defective,inasmuch as the Decision does not provide a comprehensible explanation of thecost-benefit analysis, it should be pointed out that, according to settled case-law, thereasons given for a measure must be assessed, in particular, by reference to theinterest which the addressee or other persons concerned may have in receivingexplanations, particularly where they played an active part in the procedure priorto the adoption of the contested measure and knew the reasons of fact and lawwhich led the Commission to take its decision (see, for example, Case T-106/96Wirtschaftsvereinigung Stahl v Commission [1999] ECR II-0000, paragraph 172). Itshould also be pointed out that the Commission is not required, in stating itsreasons for a decision, to reply to all the issues of fact and law raised by theinterested parties, provided it takes account of all the circumstances and all therelevant factors of the case (British Airways and British Midland Airways, paragraph94).

269.

    In this case, the documents before the Court show that the applicants were closelyassociated with the administrative procedure which led to the drawing up of theDecision. In particular, they have not denied the fact that the successive draft cost-benefit analyses prepared by the Commission from 1992 were sent to them andwere commented upon point by point with their representatives and those of theGerman Government, especially at the meetings of 11 April and 29 May 1996 (seethe minutes of those meetings, Annexes B9 and B12 to the defence in CaseT-143/96). It appears, moreover, that the definitive cost-benefit analysis on whichthe Decision is based essentially reproduces the analysis contained in the draftsexamined at those meetings, the alterations that were made being favourable to theapplicants.

270.

    In those circumstances, neither the fact that the Decision does not reproduce thedetailed figures of the cost-benefit analysis, nor the fact that the analysis was notannexed to the Decision, constitutes a breach of the duty to state reasons laid downin Article 190 of the Treaty.

271.

    Moreover, the applicants have failed to demonstrate that the Commission's expertwas not in a position to express a view on the documents which were sent to himat the end of May and the beginning of June 1996. On the contrary, it should benoted that the expert report (Annex 13 to the defence in Case T-143/96) isendorsed 'January 22, 1996, revised June, 1996‘. Moreover, the Commissionobserves, rightly, that the fact that some of the data sent was not treated asconstituting additional investment or operating costs does not mean that it was notexamined. That applies in particular to the request of the local authorities forrepayment of the subsidy granted to the applicants in 1994 for the costs ofconnection to the road network, on the subject of which the applicants' point ofview is discussed - and rejected - by the expert at point 6.1.1 of the report.

272.

    As for the applicants' complaint that the Decision does not state which additionalcosts were not accepted, that complaint merges with the allegation of defectivereasoning and must be rejected on the grounds indicated above. As regards, moreparticularly, the cost of DEM 161.6 million which might result from the futureapplication of Volkswagen's collective agreement on wages and salaries to theworkers at Mosel, the Commission has rightly pointed out that this was ahypothetical risk, the occurrence of which it was not possible to assess at the timewhen the Decision was adopted, and which could not therefore be taken intoaccount in the cost-benefit analysis.

273.

    It is also clear from the minutes of the meeting on 29 May 1996 (Annex 12 to thedefence in Case T-143/96, p. 3) that Volkswagen had indeed acknowledged that theCommission's analysis concerning the calculation of operating costs was reasonableand could be accepted.

274.

    It follows that the applicants' arguments concerning the calculation of the costs andbenefits of the investment must be rejected.

(d)    Top-up aid

- Arguments of the parties

275.

    The applicants submit that the Commission erred in rejecting the possibility of top-up aid, in addition to simple compensation for regional disadvantages, on theground of overcapacity problems in the motor-vehicle industry.

276.

    The Commission did not touch on the really decisive question in the context ofArticle 92(3)(c) of the Treaty, namely incentive to set up businesses in adisadvantaged region. In this case, only top-up aid could lead investors to set upin Mosel and Chemnitz. Nor did the Commission take account of the fact that,according to the Decision itself, 3 600 jobs were created or safeguarded, and thatthe establishment of suppliers on the spot, and other multiplier effects for theeconomy of the new Länder, will indirectly permit the creation of 20 000 others.

277.

    Moreover, the Commission itself acknowledged that the motor-vehicle industry hasbeen suffering from overcapacity only since 1993. Since the aid is to be assessedby reference to the market situation at the time when it was granted, in March1991, those overcapacity problems should not have been taken into considerationand the top-up aid should therefore have been authorised.

278.

    In addition, the Decision contained a limitation on the production capacity ofMosel II until 1997. Therefore, the applicants submit, the Commission could notrefuse to allow the top-up aid, at least for the pressing and skeleton body shops.

279.

    According to the Commission, the Decision explains that top-up aid is notauthorised where the investment contributes to the creation of overcapacityproblems in the industry concerned. The Commission carefully examinedovercapacity existing since 1993 in the motor-vehicle industry, on the basis ofprecise figures. In those circumstances, it was not necessary to assess separatelywhether there was any need to create particular incentives in Mosel and Chemnitz.

- Findings of the Court

280.

    In the exercise of its power of assessment, whether pursuant to Article 92(2)(c) or92(3)(a) of the Treaty, the Commission may take account of the consequences ofaid on the industry concerned (Matra, paragraph 26). The Commission wastherefore entitled to take into account all the factors existing at the time when theDecision was adopted in June 1996.

281.

    In this case, the first paragraph of Point XII of the Decision shows that theCommission duly took into account the need to create incentives to invest indisadvantaged regions, such as Mosel and Chemnitz. Indeed, it is stated in thatparagraph that high levels of investment and other aid have been authorised therein order to contribute to the development of the region, and that the regions ofMosel and Chemnitz are eligible for investment aid of up to 33% (until April 1991)and of up to 35% gross aid intensity (after that date).

282.

    The Commission makes the qualifying statement, however, in the fifth paragraphof Point XI of the Decision, that 'top-up‘ aid intended to create particularincentives to invest in disadvantaged regions is not authorised where the investmentcontributes to the creation of capacity problems in the relevant sector. Similarly,in the nineteenth paragraph of Point XII of the Decision, the Commission statesthat, when applying the Community framework to cases where investments haveadverse effects on the sector as a whole, it has a policy of strictly limiting the aidto the net incremental costs facing the investor in the disadvantaged region.

283.

    Moreover, the Decision sets out, precisely and in detail, the considerableovercapacity problems existing since 1993 in the motor-vehicle construction industry(fifteenth paragraph of Point XII) and the extent to which that overcapacity will beexacerbated by the investments in question (eighteenth paragraph of Point XII). The Commission also takes account (in the sixteenth and seventeenth paragraphsof Point XII) of the limitation of Mosel II's production capacity.

284.

    Having regard to the above considerations, and bearing in mind the broad powerof assessment which the Commission has in the matter, the applicants' argumentsconcerning top-up aid must be rejected.

(e)    The determination of the aid authorised

285.

    The Decision concludes, in the nineteenth paragraph of Point XII, that aid of anintensity, expressed in gross grant equivalent, of 22.3% for Mosel II and 20.8% forChemnitz II are acceptable. It states that investment grants of DEM 418.7 millionfor Mosel II and Chemnitz II and investment allowances of DEM 120.4 million forMosel II and Chemnitz II may be authorised. According to Article 1 of theDecision, the granting of aid up to those amounts is compatible with the commonmarket. According to Article 2 of the Decision, the granting of special depreciationwith a value of DEM 51.67 million for Mosel II and Chemnitz II and of investmentgrants of DEM 189.1 million for Mosel II and Chemnitz II is incompatible with thecommon market.

286.

    According to the applicants, the Commission has infringed Article 190 of the Treatyin that it is not possible to determine, from the gross grant equivalent which it hasused, the amounts stated in Articles 1 and 2 of the Decision. The decision did notstate the discount rate used by the Commission. Even knowing that factor, on thebasis of information belatedly provided in the defence in Case T-143/96, it wasimpossible to ascertain with certainty what calculation gave rise to the amountsindicated in Articles 1 and 2 of the Decision.

287.

    That argument cannot be accepted. As the Court has held above, the applicantsand the German Government were closely associated with the administrativeprocedure and were thus placed in a position to discuss point by point thesuccessive draft cost-benefit analyses prepared by the Commission since 1992. Although they do not appear in the Decision, the method of calculating thediscounting of the gross grant equivalent used to arrive at the authorised amountof aid and, in particular, the rate of discounting ('Nominal Discount Rate‘) of7.5%, appear both in the cost-benefit analysis annexed to the Commission's expertreport and in the minutes of the meeting of 29 May 1996.

288.

    It follows from the all the foregoing considerations that the complaints relating toinfringement of Article 92(3) of the Treaty must be dismissed.

III -     Breach of the principle of the protection of legitimate expectations

Arguments of the parties

289.

    The applicants submit that the Commission infringed the principle of the protectionof legitimate expectations by classifying the paint and final assembly shops of MoselII and Chemnitz II as extensions of existing capacity and, in consequence, adoptinga reference period of three years for the cost-benefit analysis. The Commissionhad caused them to entertain a justified hope that it would examine the aidpromised by means of a cost-benefit analysis based on a five-year period.

290.

    In their submission, the expectations of traders deserve protection where aCommunity institution has given rise to justified hopes on their part as to its futureconduct (Case 265/85 Van Den Bergh en Jurgens v Commission [1987] ECR 1155,paragraph 44). Similarly, traders who have taken measures in reliance on theexisting state of the law are protected against a subsequent alteration of theinstitutions' assessment of those measures (Case 161/88 Binder v Hauptzollamt BadReichenhall [1989] ECR 2415, paragraphs 21 to 23; Case C-189/89 Spagl vHauptzollamt Rosenheim [1990] ECR I-4539, paragraph 9; Crispoltoni, paragraph21).

291.

    In this case, the Commission classified Mosel II and Chemnitz II as new orgreenfield investments throughout the administrative procedure, from September1990 until April 1996. In that respect, the applicants points to the followingfactors:

-    in its letter to the German Government of 19 September 1990, theCommission requested notification of all aid 'for Volkswagen's newinvestment‘;

-    in its letter informing that Government of its decision to initiate theinvestigation procedure, the Commission distinguished between the'retention of existing production units‘ (Mosel I) and the 'construction ofa new adjacent plant‘ (Mosel II);

-    during the years 1992 to 1994, the Commission carried out a cost-benefitanalysis for Mosel II and Chemnitz II which was based on a referenceperiod of five years;

-    in the Mosel I decision, the Commission referred frequently to the 'newplants‘ of Mosel II and Chemnitz II, which showed that, despite the delaysin completing the project, it regarded those investments not as an extensionof Mosel I and Chemnitz I but as new investments;

-    in its Decision 96/179 of 31 October 1995, referred to in paragraph 39above, the Commission referred to those projects as 'new investments‘.

292.

    The applicants deny, moreover, that, on the occasion of the site visits on 21 and 22December 1995, the officials and the expert of the Commission explained that theMosel II and Chemnitz II projects could not be regarded in their entirety asgreenfield investments. The only relevant question discussed on that occasion waswhether the calculation of the disadvantages was to have a single starting-point,namely the completion of the project, or several starting-points corresponding tothe completion of each of the workshops.

293.

    It is also incorrect to maintain that, at the meeting of 11 April 1996, the parties haddiscussed the application of a three-year period to the disadvantages in connectionwith the operation of the paint and final assembly shops of Mosel II. The cost-benefit analysis presented by the Commission on 16 April 1996 was still based ona five-year period.

294.

    Although the application of a three-year period for the disadvantages connectedwith the operation of the paint and final assembly shops of Mosel II was discussedat the meeting of 29 May 1996, the minutes of that meeting clearly show that theapplicants did not in any way accept the principle of this.

295.

    The applicants emphasise that they have never altered the conception of theirprojects. In any event, the staggering of the investments over a period of time wasknown from the beginning of 1993. At the time of the adoption of the Mosel Idecision in July 1994, therefore, the Commission knew of the amendments adoptedby Volkswagen to the Mosel II and Chemnitz II projects. Since the Commissionhad adopted a separate decision concerning the aid to Mosel I, Volkswagen hadunderstood that it considered Mosel I and Mosel II as two distinct projects whichwere to be treated separately from the point of view of the State-aid regime. Theapplicants also state that the situation existing at the time the Decision was adoptedwas identical to that existing at the time of the adoption of the Mosel I decision. The pressing and body shops of Mosel II were in service and the skeletonbodywork produced there were painted at Mosel I, where they underwent finalassembly.

296.

    The applicants further argue that it was only with the prospect of Mosel II andChemnitz II being classified by the Commission as new investments that theyinvested considerable sums. They maintain that, at the time of the adoption of theMosel I decision, it was still possible to halt completely the investments in the paintand final assembly shops and transfer them to another site, and, they add, theywould indeed have taken that decision if they had known at the time that theCommission would classify those workshops as extensions of existing capacity.

297.

    The Commission denies that it ever gave the impression that it classified Mosel IIand Chemnitz II as greenfield investments.

298.

    The applicants could not, in any event, rely on statements made prior to March1996, since they were based on an incomplete knowledge of the facts. Theapplicants and/or the Federal Republic of Germany concealed relevant informationuntil the last moment, with the result that the Commission lacked essential data forassessing the investment projects.

299.

    Nor, moreover, may the applicants plead a legitimate expectation, since they wereaware of the fact that the Commission might refuse to authorise part of the aidgranted, and that they would therefore be obliged to repay the aid alreadyimplemented unlawfully. What is more, VW Sachsen's annual balance sheet of31 December 1995 shows that the applicants had envisaged that possibility and setaside considerable reserves for that reason.

Findings of the Court

300.

    It is settled case-law that the right to protection of legitimate expectations may beclaimed by any individual who finds himself in a position in which it is shown thatthe Community administration gave rise to justified hopes on his part (see, forexample, Case T-489/93 Unifruit Hellas v Commission [1994] ECR II-1201,paragraph 51). However, no one may plead infringement of the principle of theprotection of legitimate expectations in the absence of specific assurances given tohim by the administration (Case T-521/93 Atlanta and Others v EuropeanCommunity [1996] ECR II-1707, paragraph 57; Case T-113/96 Dubois et Fils vCouncil and Commission [1998] ECR II-125, paragraph 68).

301.

    In this case, it is sufficient to observe that the Commission never gave an assurancethat the Volkswagen group's investments in Mosel II and Chemnitz II would beclassified in their entirety as 'greenfield‘ investments.

302.

    The fact that the Commission referred to Volkswagen's 'new investments‘ or 'newimplantations‘ throughout the administrative procedure, between 1990 and 1996,is irrelevant in that respect, since that expression was used in its everyday meaningand was intended merely to distinguish the investments in Mosel I from those inMosel II, without taking any position on the question whether the latter investmentsshould be regarded as extensions of existing capacity or as greenfield investments,within the meaning of the Decision.

303.

    It should also be pointed out that, in the decision to initiate the investigationprocedure, the Commission informed the German Government of its seriousconcerns as to the compatibility of the aid in question with the common market,by reason, in particular, of its apparent high intensity (see paragraph 26 above).

304.

    In any event, the fundamental alteration made to the applicants' plans at thebeginning of 1993, and the subsequent alterations to those plans in 1994 and 1996,rendered the Commission's earlier assessments obsolete, and thus also renderedobsolete any assurances it might have given concerning the classification of MoselII and Chemnitz II as extensions of existing capacity or as greenfield investments.

305.

    Moreover, the applicants were not entitled to rely on any legitimate expectation foras long as they failed to supply the Commission with all the information which itneeded in order to take its decision with full knowledge of the facts. Therefore, thestatements and the conduct of the Commission prior to the beginning of 1996cannot have given rise to legitimate expectations on the part of the applicants.

306.

    For the rest, it is clear from the minutes of the meeting of 11 April 1996 (AnnexB9 to the defence in Case T-143/96, p. 4) that the discussions were particularlyconcerned with whether, in respect of the paint and final assembly shops of MoselII, the cost-benefit analysis should take account of incremental operating costs overa period of three years or five years. Thus, as soon as it had all the informationnecessary for its assessment, the Commission made it known that the applicants'investments in Mosel II and Chemnitz II could not be classified in their entirety as'greenfield‘ investments.

307.

    It follows that the plea alleging breach of the principle of the protection oflegitimate expectations must be rejected as unfounded.

308.

    The applications must therefore be dismissed in their entirety.

Costs

309.

    Under Article 87(2) of the Rules of Procedure, an unsuccessful party is to beordered to pay the costs if they have been applied for in the successful party'spleadings. Under Article 87(5) of the Rules of Procedure, a party who discontinuesor withdraws from proceedings is to be ordered to pay the costs if they have beenapplied for in the other party's pleadings. Under Article 87(4) of the Rules ofProcedure, Member States which have intervened in the proceedings are to beartheir own costs.

310.

    It follows from the above that, on a proper view of those provisions, the applicantsmust bear their own costs and pay those of the Commission, save in so far as theyhave been incurred by the Commission as a result of the intervention of theFederal Republic of Germany. The Federal Republic of Germany shall bear itsown costs. It must also pay the costs incurred by the Commission as a result of itsintervention. The United Kingdom shall bear its own costs.

On those grounds,

THE COURT OF FIRST INSTANCE (Second Chamber, ExtendedComposition)

hereby:

1.    Takes formal notice that the applicants discontinue their action in CaseT-143/96 in so far as it seeks the annulment of the first indent of Article 2of Commission Decision 96/666/EC of 26 June 1996 concerning aid grantedby Germany to the Volkswagen Group for works in Mosel and Chemnitz;

2.    Dismisses the applications as to the remainder;

3.    Orders the applicants to bear their own costs and to pay the costs incurredby the defendant, save in so far as they have been incurred by the latter asa result of the intervention of the Federal Republic of Germany. TheFederal Republic of Germany shall bear its own costs and pay the costsincurred by the Commission as a result of its intervention. The UnitedKingdom shall bear its own costs.

PotockiLenaerts Bellamy Azizi Meij

Delivered in open court in Luxembourg on 15 December 1999.

H. Jung

A. Potocki

Registrar

President

Table of contents

    Legal background

II - 3

    Factual background

II - 7

    Procedure

II - 13

    Forms of order sought by the parties

II - 15

    The admissibility of the application in Case T-132/96

II - 16

        Arguments of the parties

II - 16

        Findings of the Court of First Instance

II - 19

    Substance

II - 21

        I -    Infringement of Article 92(2)(c) of the Treaty

II - 22

            Arguments of the parties

II - 22

            Findings of the Court of First Instance

II - 27

        II -    Infringement of Article 92(3) of the Treaty

II - 32

            Infringement of Article 92(3)(b) of the Treaty

II - 32

                Arguments of the parties

II - 32

                Findings of the Court

II - 34

            Infringement of Article 92(3)(a) of the Treaty

II - 35

                Arguments of the parties

II - 35

                Findings of the Court

II - 37

            Contravention of the general scheme of Article 92(3) of the Treaty

II - 38

                (a)    The need for an investigation ex ante and the applicability of theCommunity framework

II - 38

                    - Arguments of the parties

II - 38

                    - Findings of the Court

II - 41

                (b)    The classification of the paint and final assembly workshops at Mosel IIand Chemnitz II as 'extensions of existing capacity‘

II - 45

                    - Arguments of the parties

II - 45

                    - Findings of the Court

II - 48

                (c)    The calculation of the costs and benefits of the investment

II - 52

                    - Arguments of the parties

II - 52

                    - Findings of the Court

II - 54

                (d)    Top-up aid

II - 55

                    - Arguments of the parties

II - 55

                    - Findings of the Court

II - 56

                (e)    The determination of the aid authorised

II - 57

        III -     Breach of the principle of the protection of legitimate expectations

II - 58

            Arguments of the parties

II - 58

            Findings of the Court

II - 60

1: Language of the case: German.