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 of
Germany - Serious disturbance in the economy of a Member State - Regional
economic development - Community Framework on State Aid to the Motor
Vehicle 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 Chambers
of Aloyse May, 31 Grand-Rue,
and
Volkswagen AG and Volkswagen Sachsen GmbH, companies incorporated under
German law, established in Wolfsburg (Germany) and Mosel (Germany)
respectively, represented by Michael Schütte, Rechtsanwalt, Berlin, and Martina
Maier, Rechtsanwalt, Düsseldorf, with an address for service in Luxembourg at the
Chambers of Bonn and Schmitt, 62 Avenue Guillaume,
supported by
Federal Republic of Germany, represented initially by Ernst Röder and
subsequently by Wolf-Dieter Plessing, Ministerialräte, acting as Agents, assisted byThomas Oppermann, Professor at the University of Tübingen, with an address for
service at the Federal Ministry of Economics and Technology, Bonn (Germany),
v
Commission of the European Communities, represented initially by Paul Nemitz
and Anders Jessen, of its Legal Service, and, subsequently, by Paul Nemitz alone,
acting as Agents, assisted by Hans-Jürgen Rabe, Georg Berrisch and Marco Nuñez
Müller, Rechtsanwälte, Hamburg, with an address for service in Luxembourg at the
office of Carlos Gómez de la Cruz, of its Legal Service, Wagner Centre, Kirchberg,
supported by
United Kingdom of Great Britain and Northern Ireland, represented by John
Collins, of the Treasury Solicitor's Department, acting as Agent, assisted by Sarah
Moore, Barrister, of the Bar of England and Wales, with an address for service in
Luxembourg at the Embassy of the United Kingdom, 14 Boulevard Roosevelt,
APPLICATION for the partial annulment of Commission Decision 96/666/EC of
26 June 1996 concerning aid granted by Germany to the Volkswagen Group for
works in Mosel and Chemnitz (OJ 1996 L 308, p. 46),
THE COURT OF FIRST INSTANCE
OF THE EUROPEAN COMMUNITIES (Second Chamber, Extended
Composition),
composed of: A. Potocki, President, K. Lenaerts, C.W. Bellamy, J. Azizi and
A.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 1988
to establish a Community framework on State aid to the motor vehicle industry
('Community framework), based on Article 93(1) of the EC Treaty (now Article
88(1) EC), it had laid down the conditions for implementing that framework,
reproduced in a document attached to the letter. It asked Member States to
inform 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 in
the Official Journal of the European Communities (OJ 1989 C 123, p. 3). Point 2.5
thereof 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 framework
was to impose stricter discipline on the granting of aid in the motor vehicle industry
in order to ensure that the competitiveness of the Community industry was not
distorted by unfair competition. The Commission stated that it could operate an
effective policy only if it were able to take a position on individual cases before aid
was 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 an
approved aid scheme to (an) undertaking(s) operating in the motor vehicle sector
as defined above, where the cost of the project to be aided exceeds ECU 12 million
are 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, any
such project, whatever its cost and aid intensity, is of course subject without
exception to the obligation of notification pursuant to Article 93(3) of the EEC
Treaty. Where aid is not directly linked to a particular project, all proposed aid
must be notified, even if paid under schemes already approved by the Commission.
Member States shall inform the Commission, in sufficient time to enable it to
submit its comments, of any plan to grant or alter aid.
- 5.
- In Point 3 of the Community framework, concerning guidelines for the assessment
of aid cases, the Commission stated, inter alia, as follows:
'- Regional Aid
[...]
The Commission acknowledges the valuable contribution to regional development
which can be made by the implantation of new motor vehicle and componentproduction facilities and/or the expansion of such existing activities in disadvantaged
regions. For this reason the Commission has a generally positive attitude towards
investment aid granted in order to help overcome structural handicaps in
disadvantaged 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 such
aids in future, the Commission should give itself an opportunity to assess the
regional development benefits (i.e. the promotion of a lasting development of the
region 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 central
importance of regional aid for the achievement of cohesion within the Community
but rather to ensure that other aspects of Community interest such as the
development of the Community's industry are also taken into account.
[...]
- 6.
- Since the German Government indicated to the Commission that it had decided
not to apply the Community framework, the Commission adopted, in accordance
with Article 93(2) of the Treaty, Decision 90/381/EEC of 21 February 1990
concerning 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 the
Commission pursuant to Article 93(3) of the EEC Treaty all aid measures
to be granted for projects costing more than ECU 12 million under the aid
schemes set out in the Annex hereto to undertakings operating in the motor
vehicle sector as defined in sub-section 2.1 of the Community framework for
State aid to the motor vehicle industry. Such notification shall be effected
in conformity with the requirements laid down in sub-sections 2.2 and 2.3.
The Federal Republic of Germany shall, moreover, provide annual reports
as 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 also
comply with the obligations of Article 1(1) with regard to all other aid
schemes capable of benefiting the motor vehicle industry.
3. Aid to undertakings in the motor vehicle industry operating in Berlin which
are granted under the Berlin Förderungsgesetz are excluded from the prior
notification obligation provided for in the framework but shall be included
in the annual reports required by that framework.
- 7.
- By letter of 2 October 1990 addressed to the German Government, the
Commission approved the regional aid scheme laid down for 1991 by theNineteenth Outline Plan adopted pursuant to the German Law of 6 October 1969
on 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 the
measures envisaged, to take account of the Community framework existing in
certain 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 in
certain sectors even if it were granted in the context of approved programmes
(regional aid for example), or which make its implementation subject to the need
for 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 is
intended to benefit exceeds 12 million ecus.
- 8.
- The political reunification of Germany was declared on 3 October 1990, entailing
the accession to the Federal Republic of Germany of five new Länder from the
former German Democratic Republic, including the Freistaat Sachsen (Free State
of Saxony).
- 9.
- By letter of 31 December 1990, the Commission informed Member States that it
considered 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 to
the motor vehicle industry [...]. The only modification which the Commission has
decided extends the prior notification obligation for the Federal Republic of
Germany to Berlin (West) and the territory of the former GDR (Article 1(3) of the
Commission's Decision of 21 February 1990, as published in OJ No L 188 of 20
July 1990, is no longer valid as from 1 January 1991).
After two years the framework shall be reviewed by the Commission. If
modifications appear necessary (or the possible repeal of the framework) these
shall be decided upon by the Commission following consultation with the Member
States.
- 11.
- By letters to the German Government of 5 December 1990 and 11 April 1991, the
Commission approved the application of the Joint Task Law to the new Länder,
whilst reiterating the need, when implementing the measures in question, to take
account of the Community framework existing in certain sectors of industry.
Similarly, by letter of 9 January 1991, it approved the extension of existing regional
aid schemes to the new Länder, stating that the provisions of the Community
framework had to be complied with.
- 12.
- On 23 December 1992, the Commission decided that 'the [Community] framework
will not be modified, and that it would remain valid until a subsequent review to
be organised by the Commission. That decision formed the subject-matter of a
notice (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] ECR
I-1651, at paragraph 39, the Court of Justice held that that decision should be
interpreted 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 of
application of two years, expiring on 31 December 1994.
- 14.
- Following the delivery of that judgment, by letter of 6 July 1995, the Commission
informed Member States that, in the Community interest, it had decided on 5 July
1995 to prolong retroactively from 1 January 1995 its decision of 23 December
1992, thereby making the Community framework apply without interruption. The
Commission stated that that prolongation would come to an end once the
procedure under Article 93(1) of the Treaty, which it had simultaneously decided
to open, had concluded (see paragraph 15 below). That decision, which formed the
subject-matter of a notice (95/C 284/03) published in the Official Journal of the
European Communities (OJ 1995 C 284, p. 3), was annulled by the judgment of the
Court of Justice of 15 April 1997 in Case C-292/95 Spain v Commission [1997] ECR
I-1931.
- 15.
- By a second letter of 6 July 1995, the Commission further informed the Member
States of its decision of 5 July 1995 to propose to them, in the light of the judgment
in Spain v Commission, to reintroduce the Community framework for a period of
two years whilst making a number of amendments thereto, in particular the raising
of the notification threshold to 17 million ecus (see Notice 95/C 284/03, cited
above). The new text of the proposed Community framework provided, at Point
2.5, that: 'The appropriate measures shall enter into force when all Member
States have signalled their agreement or at the latest by 1 January 1996. All aid
projects, which have not yet received a final approval by the competent authority
by that date, shall be subject to prior notification. The German Government gave
its approval to that reintroduction of the Community framework by letter of 15
August 1995.
Factual background
- 16.
- The entry into force of the economic, monetary and social union between the
Federal Republic of Germany and the German Democratic Republic on 1 July
1990 brought with it the collapse of demand for, and production of, Trabant
vehicles 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 the
businesses of the former German Democratic Republic, which led to an agreement
in principle in October 1990. That agreement provided, inter alia:
- for the joint creation of Sächsische Automobilbau GmbH ('SAB), a
company entrusted with the responsibility for maintaining jobs
('Beschäftigungsgesellschaft), 87.5% of whose capital was initially held by
the THA and 12.5% by Volkswagen;
- for the reopening by SAB of the existing paint workshop (then under
construction) and the final assembly workshop on the Mosel site ('Mosel
I);
- for the reopening by Volkswagen Sachsen GmbH ('VW Sachsen), a
wholly-owned subsidiary of Volkswagen, of an existing vehicle-production
plant on the Chemnitz site ('Chemnitz I);
- for the resumption by VW Sachsen of cylinder-head production at the
Eisenach site; and
- for the creation by VW Sachsen of a new motor vehicle construction plant
in Mosel, comprising the four main activities of manufacture, namely metal
pressing, skeleton bodywork, painting and final assembly ('Mosel II) and
a new vehicle-production plant in Chemnitz ('Chemnitz II).
- 17.
- It was initially agreed that the reopening and restructuring of Mosel I and
Chemnitz I constituted a temporary solution, designed to avoid unemployment of
the 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 Government
to notify it, in accordance with the Community framework, of State aid for those
investment projects. By letters of 14 December 1990 and 14 March 1991, the
Commission insisted that that aid could not be put into effect without having been
notified to the Commission and received its approval. That question was also
entered on the agenda of two bilateral meetings held in Bonn on 31 January and
7 February 1991.
- 19.
- On 22 March 1991, on the basis of the Joint Task Law, the Saxon Ministry of the
Economy and Employment adopted two decrees providing for the grant of certain
investment grants to VW Sachsen in relation to Mosel II and Chemnitz II ('the
1991 decrees). The amount envisaged for those grants totalled DEM 757 million
for Mosel II, with payments spread out between 1991 and 1994, and
DEM 147 million for Chemnitz II, with payments spread out between 1991 and
1996.
- 20.
- On 18 March 1991, the Finanzamt (Tax Office) Zwickau-Land addressed a decision
to VW Sachsen providing for the grant of certain investment allowances in
accordance with the German law on investment allowances
(Investitionszulagengesetz) of 1991.
- 21.
- The Volkswagen group also sought the possibility of making special depreciation
write-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 with
certain 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 was
intended to grant it in the context of the aid schemes approved by the Commission
for the new Länder. By letter of 17 April 1991, the Commission indicated that the
letter from the German authorities of 25 March 1991 constituted a notification
pursuant 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 the
Community framework was not applicable to the new Länder between 1 January
and 31 March 1991. In the submission of those authorities, since the aid in
question had been approved before 31 March 1991, the various files related thereto
could henceforth be examined by the Commission only by reference to the regional
aids scheme (see paragraph 7 above). The Commission rejected the arguments of
the German authorities at a meeting on 10 July 1991 and requested further detailed
information by letter of 16 July 1991. Following the reply of the German
Government of 17 September 1991, the Commission raised a new series of
questions 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 to
DEM 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 opened
the procedure under Article 93(2) of the Treaty for reviewing the compatibility of
the various aids for financing the investments in Mosel I and II, Chemnitz I and II
and 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 for
the following reasons.
- they have not been properly notified to the Commission according to the
procedure of Article 93(3) of the EEC Treaty;
- the apparent high aid intensity proposed to a plan involving significant
expansion of capacity within the European car market could give rise to
unfair distortion of competition;
- not enough evidence has been presented to date which justifies the
combination of the relatively high intensity of regional aid, the granting of
indirect investment aid by the THA and the granting of a temporary
operating aid also by THA by reference to the structural and economic
problems which VW undoubtedly faces in the new Länder; on the contrary,
the global aid intensity could be disproportionately high and incompatible
with 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 to
suspend all aid payments until the review procedure was terminated.
- 28.
- By letter of 24 April 1992, the Commission asked the German authorities, the THA
and Volkswagen for further information. Further to a meeting of 28 April 1992
and 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 and
12 June, 20 and 29 July, 8 and 25 September, 16 and 21 October, and 4 and 25
November 1992; Volkswagen gave additional information by letters of 15 June and
30 October 1992, and 12 and 20 June 1993. The parties also met on 16 June, 9
September, 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 the
investments initially intended for the Mosel and Chemnitz factories. The paint
workshop and final assembly line of Mosel II were henceforth to become
operational only in 1997, and the vehicle-production unit at Chemnitz II was not
to enter into service until 1996. The Commission agreed to review its assessment
on the basis of Volkswagen's new investment projects.
- 30.
- On 30 March 1993, the Saxon Ministry of the Economy and Employment adopted
two decrees amending the 1991 decrees ('the 1993 decrees). The total amount
of the investment grants thenceforth envisaged amounted to DEM 708 million for
Mosel II, with payments spread between 1991 and 1997, and DEM 195 million for
Chemnitz II, with payments spread between 1992 and 1997.
- 31.
- Certain details of Volkswagen's new investment projects were submitted to the
Commission during an interview which took place on 5 May 1993. By letter of 6
June 1993, Germany also communicated certain information on those projects,
which Volkswagen supplemented by letters of 24 June and 6 July 1993 and a fax
message of 10 November 1993. That new information was also examined during
interviews which took place on 18 May, 10 June, 2 and 22 July 1993. Fresh
information of the production capacities envisaged by Volkswagen was supplied in
a letter from the German Government of 15 February and a fax message of 25
February 1994.
- 32.
- The Commission also collected new information on those projects on a visit to the
sites at the beginning of April 1994 and during interviews which took place on 11
May and 2, 7 and 24 June 1994. In addition, documents were submitted to it on
the occasion of those interviews and others were sent to it by the German
authorities 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 adopted
two decrees amending the 1991 and 1993 decrees ('the 1994 decrees). The total
amount of the investment grants thenceforth envisaged amounted to
DEM 648 million for Mosel II, with payments spread between 1991 and 1997, and
DEM 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 did
not already own.
- 35.
- On 27 July 1994, the Commission adopted Decision 94/1068/EC of 27 July 1994
concerning aid granted to the Volkswagen Group for investments in the new
German 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 the
recitals):
'On opening the procedure the Commission had regarded all Volkswagen's
investment plans in Saxony as a single project and therefore intended to decide on
all elements of State aid together. Even after its decision in 1993 to postpone
investment in the new plants, Volkswagen initially argued that this did not affect
the production technology, the labour input and other crucial variables. This year,
however, on the basis of information collected during a site visit and through new
expert advice, it became obvious that this view could no longer be maintained.
Volkswagen also acknowledged to the Commission that their former plans had
become obsolete and that they were being reworked. The new plans for the new
car and engine plants Mosel II and Chemnitz II will now be closely linked to the
development of the Golf A4 that will be put into production at the same time as
Mosel II is now planned to come on stream, i.e. in 1997. A final version of the new
plans will only be available at the end of 1994. On the basis of current information
these new plans will include significant changes in technology and productionstructure. Under these circumstances it is obvious that the original link between the
investment projects in the existing former THA plants and the new greenfield
projects has been severed. The Commission has therefore decided to limit its
current decision to the restructuring aid for the existing plants, on which it can form
a clear opinion on the basis of the available information, and to postpone the
decision on the aid to the greenfield projects until Volkswagen and Germany are
able to present their definitive investment and aid plans.
- 36.
- The Mosel I decision shows that the paint and final assembly workshops of Mosel
I were modernised and altered in accordance with the agreement concluded with
the THA (see paragraph 16 above). In an initial period to 1992, Mosel I was used
for the final assembly of the VW Polo and Golf A2 models, the parts for which
were manufactured elsewhere by other plants of the Volkswagen group and
delivered to Mosel in separate pieces. From July 1992, the combined use of the
paint and final assembly workshops of Mosel I, the alteration of which had just
been completed, and of the new body workshop of Mosel II, which had just come
into service, allowed the production launch of the Golf A3 model at Mosel,
pressing work being carried out elsewhere. As a result, logistics were transferred
from 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, were
established in the proximity. The new press shop of Mosel II started to function
in March 1994, close to Mosel I.
- 37.
- It was in those circumstances that, in Article 1 of the Mosel I decision, the
Commission declared various aids granted up to the end of 1993 (the date on which
the restructuring was to be completed), and amounting to DEM 487.3 million for
Mosel I and DEM 84.8 million for Chemnitz I, compatible with the common
market. However, certain aid granted subsequently was declared incompatible with
the common market, particularly that categorised as aid for replacement and
modernisation investments, which according to the Mosel I decision could not be
authorised under the Community framework (see the Mosel I decision, Points IX
and X).
- 38.
- Subsequently, the German Government verbally informed the Commission, a
number 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 that
they were required to notify it of Volkswagen's projects for those new plants, so
that it could carry out a review of the aids concerned. That letter received no
reply. By letter of 4 August 1995, the Commission requested that the necessary
information be communicated to it as soon as possible, stating that, if Germany did
not comply with that request, it would adopt a provisional decision, followed by a
definitive 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 the
German Government to provide all documentation, information and data on the
new investment projects of the Volkswagen Group in the new German Länder and
on 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 an
interview on 20 November 1995. That information was confirmed by letter of 13
December 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 German
authorities. After an interview on 23 January 1996, most of the missing information
was communicated to the Commission by letters of 1 and 12 February 1996.
- 41.
- On 21 February 1996, the Saxon Ministry of the Economy and Employment
adopted two decrees amending the 1991, 1993 and 1994 decrees ('the 1996
decrees). The total amount of the investment grants thenceforth envisaged
amounted to DEM 499 million for Mosel II, with payments spread between 1991
and 1997, and DEM 109 million for Chemnitz II, with payments spread between
1992 and 1997.
- 42.
- By letter of 23 February 1996, the Commission reminded the German authorities
that it still lacked certain information. That information was communicated to it
at an interview on 25 March 1996 and was subsequently discussed on 2 and 11
April 1996. A further interview took place on 29 May 1996.
- 43.
- On 26 June 1996, the Commission adopted Decision 96/666/EC concerning aid
granted by Germany to the Volkswagen Group in Mosel and Chemnitz (OJ 1996
L 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 of
Volkswagen AG in Saxony is compatible with Article 92(3)(c) of the EC Treaty and
Article 61(3)(c) of the EEA Agreement:
- aid granted by Germany to [the Volkswagen group] for [its] investment
projects in Mosel (Mosel II) and Chemnitz (Chemnitz II) in the form of
investment grants (Investitionszuschüsse) of up to DEM 418.7 million,
- aid granted by Germany to [the Volkswagen group] for [its] investment
projects in Mosel (Mosel II) and Chemnitz (Chemnitz II) in the form of
investment allowances (Investitionszulagen) of up to DEM 120.4 million.
Article 2
The following aid proposed by Germany for the various investment projects of
Volkswagen AG in Saxony is incompatible with Article 92(3)(c) of the EC Treaty
and Article 61(3)(c) of the EEA Agreement and may not be granted:
- the proposed investment aid for [the Volkswagen group] for [its] investment
projects in Mosel II and Chemnitz II in the form of special depreciation on
investment under the Assisted Areas Law (Fördergebietsgesetz) with a
nominal value of DEM 51.67 million,
- the proposed investment aid to [the Volkswagen group] for [its] investment
project in Mosel II in the form of investment grants (Investitionszuschüsse)
in excess of the amount specified in the first indent of Article 1 and
constituting an additional DEM 189.1 million.
Article 3
Germany shall ensure that the capacity of the Mosel plants in 1997 does not exceed
a level of 432 units per day [...]
Furthermore, Germany shall send to, and discuss with, the Commission an annual
report on the realisation on the DEM 2 654.1 million of eligible investments in
Mosel II and Chemnitz II and the actual payments of aid so as to ensure that the
combined effective aid intensity expressed in gross grant equivalent does not exceed
22.3% for Mosel II and 20.8% for Chemnitz II [...]
Article 4
Germany shall inform the Commission within one month of the notification of this
Decision 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 the
Free 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 had
declared 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 August
and 13 September 1996, the Free State of Saxony, of the one part, and Volkswagen
and 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-143/96
respectively.
- 46.
- By application lodged at the Registry of the Court of Justice on 16 September
1996, the Federal Republic of Germany brought an action, registered under case
number C-301/96, for the partial annulment of the Decision.
- 47.
- By application lodged at the Registry of the Court of Justice on 16 September
1996, the Commission brought an action against the Federal Republic of Germany
for failure to fulfil its obligations, following the payment by the Free State of
Saxony of DEM 90.7 million in aids which had been declared by the Decision to
be incompatible with the common market. That action was registered under case
number C-302/96.
- 48.
- By a separate application, lodged at the Registry of the Court of First Instance on
8 November 1996, the Commission raised an objection of inadmissibility under
Article 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 First
Instance.
- 50.
- By applications lodged at the Registry of the Court of First Instance on 13 and 19
February 1997 respectively, the Federal Republic of Germany and the United
Kingdom 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 requested
that certain information be treated as confidential in relation to the United
Kingdom.
- 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, Extended
Composition) held an informal meeting with the parties.
- 54.
- By order of 30 June 1998, the Court of First Instance (Second Chamber, Extended
Composition) joined the objection of inadmissibility raised by the Commission to
the substance of the case.
- 55.
- By orders of 1 and 3 July 1998, the President of the Second Chamber, Extended
Composition, of the Court of First Instance granted leave to the Federal Republic
of Germany and the United Kingdom to intervene in Cases T-132/96 and T-143/96
in support of the applicants and the Commission respectively. The President also
partially allowed the applications for confidential treatment.
- 56.
- By order of 7 July 1998, the President of the Second Chamber, Extended
Composition, of the Court of First Instance joined Cases T-132/96 and T-143/96 for
the 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 Court
of First Instance (Second Chamber, Extended Composition) in the context of
measures of organisation of procedure, the main parties and the Federal Republic
of Germany stated their view of the likely consequences for the further conduct of
Cases T-132/96 and T-143/96, with particular reference to the subject-matter of the
dispute, 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 parties
presented oral argument and replied to the oral questions of the Court of First
Instance 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 in
gross grant equivalent is limited to 22.3% for Mosel II and 20.8% for
Chemnitz II;
- annul Article 1 of the Decision in so far as the amount of investment grants
declared compatible with the common market is limited to
DEM 418.7 million;
- order the Commission to pay the costs.
- 61.
- The Federal Republic of Germany supports the form of order sought by the
applicants.
- 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 Court
to hold that the action had become devoid of subject-matter in so far as it sought
the annulment of the first indent of Article 2 of the Decision, declaring investment
aid in the form of special depreciation on investment incompatible with the
common market, and to apply Article 87(6) of the Rules of Procedure in that
respect. The Court also took formal notice of the fact that, in the Commission's
submission, that request must be interpreted as a partial discontinuance and entail
the 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 a
territorial entity such as the Free State of Saxony does not, a priori, have the
capacity to bring an action under Article 173 of the EC Treaty (now, after
amendment, Article 230 EC) in the context of the State-aid regime, since it is only
the 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, after
amendment, 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 of
notification in Article 93(3) of the Treaty applies only to the Member State
concerned; that only that State is involved in the procedure implemented pursuant
to Article 93(2) of the Treaty; that, if the Commission decides that an aid is
incompatible with the common market, the obligation to withdraw or amend it falls
on the Member State only, and that, where that obligation is not complied with, the
action by the Commission under the second subparagraph of Article 93(2) of the
Treaty is directed solely against the Member State.
- 68.
- In those circumstances, to recognise a territorial entity as having a right of action
would call into question the exclusive responsibility of the Member State as regardsaid financed through public resources, and could give rise to conflicts of interest
between 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 Saxony
and the Federal Republic of Germany are partially identical, and the former cannot
be regarded as a different person from the latter without altering the system of
remedies established by Article 173 of the Treaty.
- 70.
- The Commission adds that if the action were held to be admissible, this would
necessarily entail a proliferation of such actions, increase legal uncertainty,
endanger the system laid down by Articles 92 and 93 of the Treaty, and thus
jeopardise the implementation of the Commission's decisions in the field of State
aid.
- 71.
- The Commission argues, secondly, that the Free State of Saxony has no interest in
bringing an action under the fourth paragraph of Article 173 of the Treaty for the
twofold reason that, on the one hand, the aid granted by it in this case was
prescribed by federal laws and, on the other, the Federal Republic of Germany has
a right of action under the second paragraph of Article 173. In the Commission's
submission, therefore, the Free State of Saxony cannot be regarded as having an
interest in bringing an action which is distinct from that of Germany, which has
moreover also brought an action for the annulment of the Decision (Case
C-301/96).
- 72.
- The fact that the Free State of Saxony has the status of a 'Land in accordance
with the internal constitution of the Federal Republic of Germany is, the
Commission submits, of no relevance in Community law. The EC Treaty confers
no individual rights on the Länder, save those which may be conferred upon them
by 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 the
Free State of Saxony, as a legal person, automatically has standing to bring an
action in Community law (see the Opinion of Advocate General Lenz in Case 62/87
Exécutif Régional Wallon and Glaverbel v Commission [1988] ECR 1573, 1581,
paragraph 13; Opinion of Advocate General Van Gerven in Case C-70/88
Parliament v Council [1990] ECR I-2041, I-2063; Opinion of Advocate General
Lenz in Case C-298/89 Gibraltar v Council [1993] ECR I-3605, I-3621, paragraphs
38 to 51).
- 73.
- Moreover, investment aid in the form of special depreciation granted under the law
known as the Fördergebietsgesetz was based solely on a federal law, the Gesetz
über Sonderabschreibungen und Abzugsbeträge im Fördergebiet, the application
of which, pursuant to Article 87 of the Basic Law, falls to the tax authorities. The
Commission 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 91a
of the Basic Law, which in principle entrusted the various Länder with 'the
improvement of regional economic structures, but in close cooperation with the
Federation (see Case 248/84 Germany v Commission [1987] ECR 4013, paragraph
2 et seq.), which bore half the expenses. Moreover, according to Article 85 of the
Basic 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 the
action of the Federation continues to be exercised at the stage of the
implementation of the joint tasks and, secondly, that the Federation and the Länder
have 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 are
distinct from those of Germany (see Case 282/85 DEFI v Commission [1986] ECR
2469, paragraph 18). In this case, legal protection is ensured by the fact that the
Federal Republic of Germany has itself brought an action.
- 74.
- Thirdly, the Commission maintains that the Free State of Saxony is neither directly
nor individually concerned by the Decision.
- 75.
- It is not directly concerned because, first, it did not at any time participate in the
administrative procedure, unlike the other applicants, and, secondly, its obligation
to award investment grants is based on a federal law. The fact that, under Article
9 of the Joint Task Law, implementation of the outline plan is entrusted to the
Länder, with the Federation reimbursing half the expenses, does nothing to alter
than assessment. In any event, the Decision concerns not merely investment grants
but also other subsidies granted by the Federation. It is a single decision, on the
whole 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 thereby
distinguishing it individually just as in the case of the person addressed (see the
Opinion of Advocate General Lenz in Case 222/83 Municipality of Differdange v
Commission [1984] ECR 2889, 2898, 2905).
- 77.
- Finally, the Commission argues that the situation in this case is equivalent to that
identified by the Court of First Instance in its order in Case T-238/97 Comunidad
Autónoma de Cantabria v Council [1998] ECR II-2271. By contrast, the judgments
of 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 v
Commission [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 federal
authorities and under federal law; secondly, investment grants are based on federal
law, the Free State of Saxony not exercising any competence of its own and having
no discretion in the matter; and, thirdly, the Decision does not require the Free
State of Saxony to claim repayment of the aid in question but merely prohibits its
payment.
- 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 the
decisions to grant the aid in question fall within its exclusive competence under
German law, that that aid was at least partially financed by it, that its
representatives took part in the administrative procedure, and that it is in any event
directly and individually concerned by the Decision.
- 80.
- The Federal Republic of Germany essentially supports the arguments of the Free
State 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 has
legal personality under German law, it may bring an action for annulment under
the fourth paragraph of Article 173 of the Treaty, whereby any natural or legal
person may institute proceedings against a decision addressed to that person and
against decisions which, although in the form of a regulation or a decision
addressed to another person, are of direct and individual concern to the former
(Vlaams Gewest, paragraph 28 and case-law cited therein; order in Comunidad
Autónoma de Cantabria, cited above, paragraph 43).
- 82.
- Since the Decision was addressed to the Federal Republic of Germany, it is
therefore necessary to ascertain whether it is of direct and individual concern to the
Free State of Saxony.
- 83.
- In that respect, it should be recalled that persons other than those to whom a
decision is addressed may only claim to be individually concerned within the
meaning of the fourth paragraph of Article 173 of the Treaty if that decision affects
them by reason of certain attributes which are peculiar to them, or by reason of
circumstances in which they are differentiated from all other persons, and by virtue
of these factors distinguishes them individually just as in the case of the person
addressed (Case 25/62 Plaumann v Commission [1963] ECR 95, 107; Case 169/84
Cofaz v Commission [1986] ECR 391, paragraph 22). The purpose of that
provision is to ensure that legal protection is also available to a person who, whilst
not the person to whom the contested measure is addressed, is in fact affected by
it 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 of
Saxony, partly from its own resources. It not only affects measures of which the
Free State of Saxony is the author, namely the decrees of 1991, 1993, 1994 and
1996, but also prevents it from exercising its autonomous powers as it would wish(see the judgments in Vlaams Gewest, paragraph 29, and Regione Autonoma Friuli
Venezia Giulia, paragraph 31).
- 85.
- As to those powers, paragraphs 2 to 4 of the judgment in Case 248/84 Germany v
Commission, cited in paragraph 73 above and relied on by the Commission, show
that, in the Federal Republic of Germany, regional aid is as a general rule granted
by 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 the
improvement of regional economic structures. Under the Joint Task Law adopted
on the basis of Article 91a, aid programmes have been established since 1972 in the
form of framework plans adopted regularly on a joint basis between the Federation
and the Länder. Aid paid in implementation of those framework plans are
financed both by the Federal State and by the Länder. In parallel with the
framework plans adopted pursuant to the Joint Task Law, the Länder may also
maintain regional aid programmes for the benefit of undertakings investing within
their territory.
- 86.
- Furthermore, the Decision has the effect of obliging the Free State of Saxony to
initiate the administrative procedure for recovering the aid from recipients, a
procedure which it alone has the power to implement at national level. In that
respect, formal notice was taken at the hearing, at the Commission's request, of the
fact 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 of
Saxony cannot be compared with that of the Comunidad Autónoma de Cantabria
which gave rise to the order in Case T-238/97, cited above, since that regional body
claimed to be distinguished individually merely on the basis of the socio-economic
repercussions of the contested measure in its territory.
- 88.
- It follows that the Free State of Saxony is individually concerned by the Decision
within the meaning of the fourth paragraph of Article 173 of the Treaty.
- 89.
- Moreover, even though the Decision was addressed to the Federal Republic of
Germany, the national authorities did not exercise any discretion when
communicating it to the Free State of Saxony.
- 90.
- The latter is therefore also directly concerned by the contested measure within the
meaning of the fourth paragraph of Article 173 of the Treaty (see Joined Cases
41/70, 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 Company
and Others v Council [1979] ECR 1185, paragraph 11; Case 207/86 Apesco v
Commission [1988] ECR 2151, paragraph 12).
- 91.
- As for the question whether the interest of the Free State of Saxony in contesting
the Decision is subsumed within the interest of the German State (see Regione
Autonoma 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 rise
to the judgment in DEFI, cited in paragraph 73 above. In that case, the French
Government had the power to determine the management and policy of the DEFI
Committee and thus also to determine the interests which the DEFI should defend.
By contrast, the investment grants at issue in this case constitute measures taken
by the Free State of Saxony pursuant to the financial and legislative autonomy
which it enjoys directly by virtue of the German constitution.
- 92.
- It follows that the Free State of Saxony has an interest in challenging the Decision
which is distinct from that of the German State, and, therefore, that it is entitled
to take action against that decision under the fourth paragraph of Article 173 of
the Treaty.
- 93.
- As for the other pleas and arguments raised by the Commission in support of its
objection of inadmissibility, these must be rejected for reasons identical to those set
out in paragraphs 37 to 49 of the judgment in Regione Autonoma Friuli Venezia
Giulia.
- 94.
- For all those reasons, the Commission's objection of inadmissibility must be
dismissed.
Substance
- 95.
- In support of their claims in Case T-143/96, Volkswagen and VW Sachsen raise
essentially four pleas in law, alleging, respectively, distortion of the facts, which they
claim amounts to an infringement of essential procedural requirements within the
meaning 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 the
principle of the protection of legitimate expectations. They also claim that the
reasoning in the Decision is defective in a number of respects. In support of its
claims in Case T-132/96, the Free State of Saxony puts forward two pleas in law
alleging, respectively, infringement of Article 92(2)(c) of the Treaty and
infringement of Article 92(3) of the Treaty.
- 96.
- It must be observed, however, that the plea alleging distortion of the facts by the
Commission, as set out by the applicants, has no independent content in relation
to the other pleas in the action. Moreover, a distortion of the facts cannot be
characterised as an 'infringement of essential procedural requirements within the
meaning of Article 173 of the Treaty. Furthermore, the Court is not bound by the
parties' characterisation of their pleas and arguments.
- 97.
- In this case, it is necessary to examine the whole of the pleas and arguments in the
actions under three main headings, concerning the alleged infringements, first, of
Article 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 complaints
concerning distortion of the facts and the plea alleging defects in the reasoning for
the Decision can in any event be exhaustively examined whilst at the same time
being formally attached to one or other of those three headings, as the applicants
acknowledged 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 the
Treaty by indicating, in the third paragraph of Point X of the Decision, that the
derogation provided for therein 'should be interpreted narrowly and should not be
applied to regional aid for new investment projects. The Commission thusdeclined to examine whether the conditions for applying that provision were met
in this case and contented itself with a reference to considerations of
appropriateness, whereas, in the matter of a legal derogation from the prohibition
of 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 of
Advocate 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 apply
after the reunification of Germany in 1990, even in regions not adjacent to the
former frontier.
- 100.
- Secondly, they maintain that Article 92(2)(c) of the Treaty was applicable to the
new Länder. That provision made general reference to regions affected by the
division 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 at
the time of the signature of the Maastricht Treaty, that an equivalent provision was
inserted in the Agreement on the European Economic Area, and that, at the
conclusion of the Amsterdam Treaty, that provision was repeated without
amendment in the new Article 87(2)(c) EC. According to the Free State of
Saxony, the only obvious interpretation of the intention thus manifested by the
High Contracting Parties is that that provision should apply to all of those regions
of Germany which, by reason of the economic damage caused there by the
Communist regime, remain significantly behind other regions of the Federal
Republic from the point of view of economic development.
- 102.
- In that respect, the Free State of Saxony challenges the Commission's persistent
refusal 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 the
Commission in its decision of 11 December 1964 concerning aids designed to
facilitate the integration of the Saarland into the economy of the Federal Republic
of Germany (Bulletin of the European Economic Community No 2-1965, p. 33; 'the
Saar decision).
- 103.
- Thirdly, the applicants point out that the German Government claimed during the
administrative procedure that Article 92(2)(c) of the Treaty should be applied (see
Point V, first paragraph, subparagraph 1 of the Decision). Since that provision is
a 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 conditions
for applying the derogation were not met in this case, and not on the German
Government to prove the opposite. Yet the Commission refused to take
cognisance of more detailed information or to consider that question, despite a
letter from Commission Member Sir Leon Brittan to the German Government of
1 June 1992, indicating that the possibility of applying Article 92(2)(c) of the Treaty
would be examined by the Commission's departments. By so doing, the
Commission 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 and
is therefore insufficient to justify the failure to apply Article 92(2)(c) of the Treaty
in this case (see, in particular, Case 24/62 Germany v Commission [1963] ECR 131,
155; Joined Cases 296/82 and 318/82 Netherlands and Leeuwarder
Papierwarenfabriek 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 Joined
Cases 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 that
the addressee of a decision has the possibility of finding the reasons for it in
previous 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 this
point cannot be corrected in the defence, since the Decision does not contain
reasons, even in rudimentary form (Case 195/80 Michel v Parliament [1981] ECR
2861, paragraph 22; Case 183/83 Krupp v Commission [1985] ECR 3609, paragraph
21; 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 the
defence, to the effect that application of Article 92(2)(c) of the Treaty in the new
Länder is excluded for territorial reasons, conflicts with that adopted in the
Decision.
- 106.
- Fifthly, the applicants maintain that the reasoning for the Decision is itself
contradictory, in so far as, in the Decision, the Commission excludes the application
of Article 92(2)(c) of the Treaty on the ground that this case concerns a 'new
investment project, whilst indicating in its investigation of the aid pursuant to
Article 92(3)(c) of the Treaty that this was not a 'new investment but an
extension of existing capacity.
- 107.
- Sixthly, the applicants argue that the Free State of Saxony, especially in the part
of its territory including the cities of Zwickau and Chemnitz, fulfilled the conditions
laid down by Article 92(2)(c) of the Treaty in that it was entirely cut off from West
Germany from the economic point of view. In that respect, the Free State of
Saxony refers to an expert report by Von Dohnanyi and Pohl, establishing that the
poor economic situation of the new Länder results from the division of Germany.
- 108.
- In order to determine the disadvantages resulting from that partition, the applicants
maintain that it is necessary to compare the economic situation of Saxony before
and after that partition. By contrast, they argue that the consequences of the
political and economic system established in the German Democratic Republic are
irrelevant for the purposes of this action.
- 109.
- Before the division of Germany, a large motor-vehicle industry, and particularly
Auto Union AG, had been set up in the region, at Zwickau and Chemnitz. By
reason of the partition, sales of vehicles on the traditional markets, situated in West
Germany and the rest of Europe, were entirely broken off. Auto Union AG then
set up new factories at Ingolstadt, in Bavaria. Subsequently, despite the existence
of limited openings in eastern Europe, production of vehicles and engines in
Zwickau and Chemnitz collapsed. Without the division of Germany, Auto Union
AG, which subsequently became Audi, would have been able to remain in the
region and would be as prosperous as it is now.
- 110.
- In those circumstances, the applicants argue, all the aid at issue, intended to
facilitate the establishment of a motor vehicle construction plant and an engine
construction 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 of
Germany continue. In this case, only the prospect of receiving all that aid gave
Volkswagen the incentive to invest in the re-establishment of a motor vehicle
industry comparable in size to that which existed in the region before partition.
Volkswagen's investments were, moreover, a signal aimed at encouraging other
undertakings to invest in the region.
- 111.
- Seventhly, the applicants argue that the Commission's refusal to apply Article
92(2)(c) of the Treaty in the Mosel I decision is irrelevant, since neither the
German Government nor Volkswagen had the opportunity to challenge that
decision in law, the main part of the aid in question having been declared
compatible with the common market.
- 112.
- The Commission was therefore wrong in the Decision to apply the criteria of
Article 92(3) of the Treaty, and particularly those of the Community framework,
which differ fundamentally from those which it should have applied under Article
92(2)(c) of the Treaty.
- 113.
- The Federal Republic of Germany essentially supports the arguments of the
applicants 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, Mr
Kohl, told the President of the Commission, Mr Delors, that the German
Government '[regarded] Article 92(2)(c) of the EEC Treaty as the determining
factor as regards matters currently pending before the Commission of the
European Communities. Notwithstanding its difference with the Commission
concerning the application of that provision to the new Länder, the Federal
Republic of Germany had cooperated with the Commission in the context of the
administrative procedure, given that, in other matters, the Commission had shown
understanding of the difficult economic situation in those Länder, making
compromises possible. The German Government had, however, expressly stated
a reservation in order to emphasise that, in its opinion, on a correct interpretation
of 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 aid
is automatically compatible with the common market. Moreover, under Article
93(2) of the Treaty, the Commission's investigation should be limited to verifying
that the national authorities which granted the aid did not 'misuse the criteria of
Article 92(2)(c) of the Treaty.
- 116.
- Unlike Article 92(2)(b) of the Treaty, concerning aid in cases of natural disaster
and similar occurrences, Article 92(2)(c) does not aim to 'make good damage but
to 'compensate for the consequences of the division of Germany. That more
flexible formulation takes account of the complex economic situation connected
with the disadvantages caused by that partition, and envisaged the whole of the
measures intended to create economic and social structures in the new Länder
comparable with those existing in the other regions of Germany.
- 117.
- According to the German Government, Article 92(2)(c) of the Treaty covers all the
territory of the new Länder. The 'economic disadvantages at issue in this case
were clearly 'caused by the division of Germany, as is shown by comparing the
percentage of German motor-vehicle production carried on in Saxony before 1939
(about 27% in 1936) with that achieved in 1990 (about 5%). That decline was
primarily due to the loss of traditional market openings in the West and their
forced replacement by those of Comecon in an inefficient form of economy.
- 118.
- Finally, the German Government emphasises that Volkswagen's investments in
Saxony amounted in 1996 to a total of approximately DEM 3.5 billion and
generated about 23 000 jobs. Such investments were thus of crucial importance for
reconstruction works in the new Länder.
- 119.
- The Commission maintains that it did in fact verify whether Article 92(2)(c) of the
Treaty 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 administrative
procedure of providing all the information making it possible to determine whether
the conditions for the requested derogation were fulfilled (Philip Morris, paragraph
18, and the Opinion of Advocate General Capotorti in that case, p. 2693,
paragraph 6; Italy v Commission, paragraph 20; Opinion of Advocate General
Darmon in Germany v Commission, p. 4025, paragraph 8). Neither the German
Government nor Volkswagen claimed the benefit of Article 92(2)(c) of the Treaty
after February 1993, and they did not at any time submit concrete evidence that the
conditions required by that provision were met, even after the Commission
disapplied it in this case in the Mosel I decision.
- 121.
- Secondly, being a derogating provision, Article 92(2)(c) of the Treaty should be
interpreted narrowly (Joined Cases 3/58 to 18/58, 25/58 and 26/58 Barbara
Erzbergbau 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 direct
causal link between the economic disadvantage to be compensated for and the
division of Germany. Since reunification, the direct consequences of that division
had practically disappeared, rail and road links having been re-established and
traditional market openings being once again accessible. Since 1990, therefore, that
provision has applied only in certain exceptional cases.
- 123.
- The Commission argues that the retention of the provision in Article 92(2)(c) of
the Treaty in the Maastricht and Amsterdam Treaties is explained by the veto put
forward by the Federal Republic of Germany against its removal. Neither the
Treaty on European Union nor the Amsterdam Treaty reveal any intention to give
the new Article 87(2)(c) EC any meaning other than that of Article 92(2)(c) of the
Treaty in its initial interpretation. Nor, moreover, do the applicants explain why
that provision should henceforth cover not only the consequences of the division
of Germany but also the repercussions of the planned economy of the German
Democratic Republic and the consequences of the introduction of a market
economy 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 by
reason of their immediate proximity to the frontier were capable of benefiting from
aids pursuant to Article 92(2)(c) of the Treaty. These were primarily regionsbordering on the eastern zone ('Zonenrand) and West Berlin. The reunification
of Germany did not alter that principle in any way. Even if, in certain exceptional
cases, application of Article 92(2)(c) of the Treaty might be justified in relation to
border regions situated on both sides of the former frontier and thus to the
'Zonenrand of the former German Democratic Republic, the Commission
maintains that that provision does not permit general and widespread support for
the 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 aid
granted 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 1994
concerning aid to producers of glass containers and porcelain in Tettau (OJ 1994
C 178, p. 24; the 'Tettau decision)], concerning cases in which the direct
consequences 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 not
use Article 92(2)(c) of the Treaty. As for the decision concerning the Saarland, the
Commission points out that that was already a Land at the time the EEC Treaty
entered into force. Moreover, on a reading of EEC Bulletin No 2-1965, there was
nothing to support the conclusion that the aid in question was authorised pursuant
to 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 direct
consequence not of the division of Germany but of the political system of the
former German Democratic Republic and of the reunification itself, especially the
loss of the markets of those Länder in the context of Comecon and relations with
the former USSR, the entry into force of German monetary, economic and social
union, the alignment of East German salary levels with those of West Germany and
legal uncertainty concerning, in particular, real-property rights.
- 127.
- In any event, the motor vehicle industry established in Zwickau and Chemnitz
suffered a decline before the end of the Second World War, as moreover did that
of other European countries.
- 128.
- Finally, knowing that its decision-making practice had never been challenged, the
Commission had no cause to state further grounds in the Decision as to the
inapplicability 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 market
includes '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 in
order to compensate for the economic disadvantages caused by that division.
- 130.
- Far from being implicitly repealed following German reunification, that provision
was retained by both the Maastricht Treaty concluded on 7 February 1992 and the
Amsterdam Treaty concluded on 2 October 1997. Moreover, an identical provision
was inserted into Article 61(2)(c) of the Agreement on the European Economic
Area 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 authority
and effectiveness of which must be preserved, it cannot therefore be assumed that
that provision has become devoid of purpose since the reunification of Germany,
as the Commission maintained at the hearing, contradicting its own administrative
practice (see, in particular, the Daimler-Benz and Tettau decisions).
- 132.
- It should, nevertheless, be emphasised that, since it is a derogation from the
general principle laid down in Article 92(1) of the Treaty that State aid is
incompatible with the common market, Article 92(2)(c) of the Treaty must be
interpreted narrowly.
- 133.
- Moreover, as the Court of Justice has emphasised, in interpreting a provision of
Community law it is necessary to consider not only its wording but also the context
in which it occurs and the aims of the rules of which it forms part (Case 292/83
Merck 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 the
establishment of the dividing line between the two zones in 1948. Therefore, the
'economic disadvantages caused by that division can only mean the economic
disadvantages caused by the isolation which the establishment or maintenance of
that frontier entailed, such as, for example, the encirclement of certain areas (see
the Daimler-Benz decision), the breaking of communication links (see the Tettau
decision), or the loss of the natural markets of certain undertakings, which
therefore need support, either to be able to adapt to new conditions or to be able
to survive that disadvantage (on that point, but in relation to the fourth paragraph
of 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 the
undeniable economic backwardness suffered by the new Länder, until such time as
they 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 and
aims.
- 136.
- The economic disadvantages suffered by the new Länder as a whole have not been
caused by the division of Germany within the meaning of Article 92(2)(c) of the
Treaty. As such, the division of Germany has had only marginal consequences on
the economic development of either zone, which, moreover, it affected equally at
the outset, and it has not prevented the economies of the original Länder from
developing favourably thereafter.
- 137.
- It follows that the differences in development between the original and the new
Länder are explained by causes other than the division of Germany as such, and in
particular by the different politico-economic systems established in each State on
either side of the frontier.
- 138.
- It also follows from the above that the Commission did not make any error of law
by stating generally, in the third paragraph of Point X of the Decision, that the
derogation laid down in Article 92(2)(c) of the Treaty should not be applied to
regional aid for new investment projects and that the derogations provided for in
Article 92(3)(a) and (c) of the Treaty and the Community framework were
sufficient to deal with the problems faced by the new Länder.
- 139.
- In that respect, the applicants are wrong to accuse the Commission of contradictory
reasoning in its description of the disputed investments at other points in the
Decision as extensions of existing capacity. The expression 'regional aid for new
investment projects is used in reply to a general argument raised by the German
Government (see Point V, first paragraph, subparagraph 1 of the Decision) and
thus concerns not aid to Volkswagen's investment plans at Mosel II and Chemnitz
II specifically, but the whole of the aid intended to promote general economic
development of the new Länder.
- 140.
- Moreover, as regards the question whether, apart from its character as aid for the
economic development of the Free State of Saxony, the aid in question is
specifically designed to compensate for the disadvantages caused by the division of
Germany, it should be borne in mind that a Member State which seeks to be
allowed to grant aid by way of derogation from the Treaty rules has a duty to
collaborate with the Commission, requiring it in particular to provide all the
information to enable the Commission to verify that the conditions for the
derogation sought are fulfilled (Italy v Commission, paragraph 20).
- 141.
- On that point, there is nothing in the documents before the Court to show that the
German Government or the applicants put forward specific arguments during the
administrative procedure in order to prove a causal link between the situation of
the motor-vehicle industry in Saxony after German reunification and the division
of Germany.
- 142.
- The Commission is therefore right in maintaining that the parties have not put
forward 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 on
those questions to its written submissions in Case C-301/96, have argued that proof
of the economic disadvantages caused to Saxony by the division of Germany arose
from a comparison between German motor-vehicle production carried on in that
region before 1939 and that achieved in 1990. According to those parties, the
relative decline of the motor-vehicle industry in Saxony, compared with that of
West Germany in general, was caused in particular by the partition of the German
market 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 First
Instance, given that it was not raised during the administrative procedure (see
Joined 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 traditional
outlets for the motor-vehicle industry in Saxony, that would not automatically mean
that the poor economic situation of that industry in 1990 was a direct consequence
of that loss of outlets caused, ex hypothesi, by the division of Germany in 1948. The
difficulties referred to by the applicants are primarily the result of the different
economic organisation of the East German regime itself, which was not 'caused by
the 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 before
1939 and that in 1990 is not therefore in itself enough to establish the existence of
a sufficiently direct link between the economic disadvantages suffered by that
industry at the time of the granting of the aid in dispute and the 'division of
Germany within the meaning of Article 92(2)(c).
- 147.
- As for the decision concerning the Saarland, none of the parties have produced or
requested it in these proceedings. The applicants have failed to show that the
latter decision reflected a different approach by the Commission in the past and
that such an approach, if it were established, would call into question the validity
of the legal assessments made in 1996.
- 148.
- In those circumstances, the applicants and the Federal Republic of Germany have
not adduced sufficient evidence to support the conclusion that the Commission
exceeded the limits of its discretion by holding that the aid in question did not
comply with the conditions for benefiting from the derogation laid down in Article
92(2)(c) of the Treaty.
- 149.
- As for the complaint of insufficient reasoning, it should be recalled that the
statement of reasons required by Article 190 of the EC Treaty (now Article 253
EC) must clearly and unequivocally show the reasoning of the institution which
adopted the measure, so as to enable the Community judicature to exercise its
power of review and the persons concerned to know the grounds on which the
measure 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 the
Commission's refusal to apply the derogation in Article 92(2)(c) of the Treaty to
the facts of the case.
- 151.
- Nevertheless, the Decision was adopted in a context that was well known to the
German Government and the applicants and forms part of a consistent line of
decision-making practice, particularly in relation to those parties. Such a decision
may be supported by a summary statement of reasons (Case 73/74 Papiers Peints
v Commission [1975] ECR 1491, paragraph 31; Case T-34/92 Fiatagri and New
Holland Ford v Commission [1994] ECR II-905, paragraph 35).
- 152.
- Since 1990, in its relations with the Commission, the German Government has
referred many times to Article 92(2)(c) of the Treaty, insisting on the importance
of 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, cited
above).
- 153.
- The arguments put forward by the German Government in that regard were
rejected in various letters or decisions of the Commission [see, in particular, the
Commission notice pursuant to Article 93(2) of the EEC Treaty to other Member
States and other parties concerned regarding the proposal by the GermanGovernment to award State aid to the Opel group in support of its investment
plans in the new Länder (OJ 1993 C 43, p. 14); the Commission notice pursuant
to Article 93(2) of the EEC Treaty to other Member States and interested parties
concerning 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 on
the proposal to award aid to SST-Garngesellschaft mbH, Thüringen (OJ 1994 L
114, p. 21); the Mosel I decision; and Commission Decision 94/1074/EC of 5
December 1994 on the German authorities' proposal to award aid to Textilwerke
Deggendorf 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 to
DEM 125.2 million, incompatible with the common market after excluding, on
grounds identical to those used in the Decision, the possibility that that aid might
be 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 against
that earlier decision.
- 155.
- Even though, between the adoption of the Mosel I decision and the adoption of the
Decision, the Commission, the German authorities and the applicants have had
numerous contacts revealing their continuing differences of opinion concerning the
applicability of Article 92(2)(c) of the Treaty to the aid in question (see Points V
and VI of the Decision), it should also be noted that no specific or new argument
has been put forward in that context, particularly as to the existence of a causal link
between the position of the motor-vehicle industry in Saxony after German
reunification and the division of Germany (see paragraph 141 above).
- 156.
- In those circumstances, the Court finds that the applicants and the Federal
Republic of Germany were sufficiently informed of the grounds for the Decision
and that, in the absence of more specific arguments, the Commission was not
obliged to state the grounds for it more extensively.
- 157.
- It follows from the above considerations as a whole that the complaints alleging
infringement of Article 92(2)(c) of the Treaty and an insufficient statement of
reasons 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 Article
92(3) of the Treaty, some arising from the general tenor of that article and others
relating specifically, and respectively, to subparagraphs (a) and (b) of that
provision. It is appropriate to begin by considering whether there has been
infringement 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 the
Treaty by not examining the conditions for applying that provision. They refer to
the 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 is
true that German unification has had negative effects on the German economy, but
these 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 disturbance
in the economy of a Member State when, in 1991, aid was approved for a
privatisation programme in Greece. In its decision the Commission noted that the
privatisation programme was an integral part of the undertakings given pursuantto Council Decision 91/306/EEC of 4 March 1991 in connection with the
consolidation of the national economy as a whole. The German situation is clearly
different.
- 160.
- The applicants submit, first, that such a statement of reasons is insufficient. The
Commission merely repeated a standard formula appearing in previous decisions
(see, in particular, the Mosel I decision). The Decision did not touch in any way
on the decisive question, namely whether, in the particular circumstances of the
case, the aid was designed to remedy a serious disturbance in the economy of the
Federal Republic of Germany. Nor did the Decision explain what the differences
were between the present case and the privatisation programme in Greece, which
in the Commission's argument justified the non-application of Article 92(3)(b) of
the Treaty.
- 161.
- Secondly, the Commission did not seriously examine the question of the
applicability of Article 92(3)(b) of the Treaty, even though the German
Government had relied on it a number of times during the administrative
procedure, arguing that the problems of integrating the former planned economy
of the new Länder and transforming it into a market economy caused a serious
disturbance in its economy.
- 162.
- Thirdly, the applicants argue that the conditions for applying Article 92(3)(b) of the
Treaty are fulfilled in this case. It was sufficient for that purpose to establish that
the aid in question was intended to remedy a serious disturbance in the economy
of a Land (Philip Morris, paragraphs 20 to 25). In that respect, the Free State of
Saxony had been notable, particularly in 1991, for a remarkably low gross national
product in comparison with the European average and a particularly high rate of
unemployment. Moreover, application of Article 92(3)(b) of the Treaty was not
excluded where the aid in question was intended for a single undertaking, and
neither did it depend on the share held by that undertaking in the national
economy. 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 the
economic 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 privatisation
programme in Greece, approved in implementation of a Council decision and
concerning the whole of the economy of that Member State, it was merely recalling
the conditions normally required for the purposes of applying Article 92(3)(b) of
the 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 with
the common market if it is '[...] to remedy a serious disturbance in the economy
of a Member State.
- 167.
- It follows from the context and general scheme of that provision that the
disturbance in question must affect the whole of the economy of the Member State
concerned, 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 provision
such as Article 92(3)(b) of the Treaty. The judgment in Philip Morris, relied on by
the applicants in support of their argument, makes no comment of any kind on the
point at issue here.
- 168.
- The applicants' argument must therefore be rejected as inoperative since they
merely refer to the state of the economy of the Free State of Saxony, without even
alleging that this caused a serious disturbance of the economy in the Federal
Republic of Germany as a whole.
- 169.
- Moreover, the question whether German reunification has caused a serious
disturbance in the economy of the Federal Republic of Germany involves complex
assessments of an economic and social nature, to be made within a Community
context, which fall within the exercise of the wide discretion which the Commission
enjoys under Article 92(3) of the Treaty (see, by analogy, Case C-355/95 P TWD
v Commission [1997] ECR I-2549, paragraph 26). In that context, judicial review
must be limited to verifying whether the rules on procedure and the statement of
reasons have been complied with, that the facts are materially accurate, and that
there has been no manifest error of assessment and no misuse of powers. In
particular, it is not for the Community judicature to substitute its economic
assessment for that of the Commission (Case T-380/94 AIUFFASS and AKT v
Commission [1996] ECR II-2169, paragraph 56; Case T-149/95 Ducros v
Commission [1997] ECR II-2031, paragraph 63).
- 170.
- In this case, the applicants have not put forward any concrete evidence capable of
establishing that the Commission made a manifest error of assessment in taking the
view that the unfavourable repercussions of the reunification of Germany on the
German economy, however real, did not in themselves constitute a ground for
applying 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 be
sufficient having regard to the context of the case, to its antecedents, especially the
Mosel I decision, and to the absence of specific arguments raised during the
administrative procedure. In that regard, the considerations set out in paragraphs
140 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 laid
down in Article 92(3)(b) of the Treaty.
- 172.
- It follows from the above that the complaints alleging infringement of Article
92(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 the
standard 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 of
the Decision. Yet the Decision did not contain any discussion concerning the
possible application of Article 92(3)(a) of the Treaty. By refusing to express any
view 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 stricter
than those of Article 92(3)(c) in determining which regions are capable of
benefiting from the derogations, Article 92(3)(a) does not require that trading
conditions should not be adversely affected to an extent contrary to the common
interest (Germany v Commission, paragraph 19). In the applicants' submission, it
thus constitutes a special provision, the applicability of which should be examined
in 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 national
authorities to offer an investor wishing to set up business in a particularly
disadvantaged region a special encouragement ('top up aid) going beyond mere
compensation for regional disadvantages. Even if it is not possible totally to
exclude considerations relating to the economic sector when carrying out an
investigation under Article 92(3)(a) of the Treaty (Case C-169/95 Spain v
Commission [1997] ECR I-135), in the case of aid to economically weak regions for
the 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, sectoral
considerations play a more important role. The applicants thus maintain that a
higher intensity of aid is permissible in the former case.
- 177.
- In those circumstances, the applicants argue, the reference in the Decision to the
existence of surplus production capacity in the motor-vehicle industry was not
sufficient to exclude the application of Article 92(3)(a) of the Treaty. That wasonly a consideration to be potentially taken into account when exercising the
discretion implied by that rule. Moreover, decisions involving a discretion required
a 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 56/64
and 58/64 Consten and Grundig v Commission [1966] ECR 299, 352), especially in
the 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 be
authorised under Article 92(3)(a) of the Treaty, as is shown by the third paragraph
of 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 the
maximum intensity limit for regional aid (that is to say the amount of the aid as a
percentage of the amount of the investment) at 35% for the regions envisaged in
Article 92(3)(a) of the Treaty and 18% for those envisaged in Article 92(3)(c) of
the Treaty. Since the Decision authorised aid of an intensity of 22.3% for Mosel
II and 20.8% for Chemnitz II, it was obvious that the Commission applied Article
92(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 wide
discretion it enjoys in the matter (Case C-225/91 Matra v Commission [1993] ECR
I-3203, paragraph 23 et seq.). It was entitled in particular to take account of the
effects of the aid in question on the economic sector concerned throughout the
Community, including the risk of creating surplus production capacity, and the
proportionality between the amount of the aid and the regional disadvantages.
- 181.
- Thirdly, the Commission emphasises, the Decision sets out in its detail that the aid
in question would exacerbate existing overcapacity in the motor-vehicle industry,
and was thus contrary to the Community interest. It had therefore given sufficient
reasons 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 be
applied in priority over Article 92(3)(c). It adds that regions falling under Article
92(3)(a) of the Treaty are characterised by the fact that an investor encounters cost
disadvantages for his investment there that are greater than in regions falling under
Article 92(3)(c) of the Treaty. Given that, in a case such as the present, those
disadvantages are taken into consideration in analysing costs and benefits for the
purposes of calculating the total amount of aid capable of being authorised by the
Commission, account was therefore taken of the higher eligibility for aid of regions
falling 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 its
particular scope.
Findings of the Court
- 183.
- In the first paragraph of Point X of the Decision, the Commission begins by
recalling the argument of the German Government that the three derogations laid
down respectively by Articles 92(2)(c), 92(3)(b) and 92(3)(a) of the Treaty are
applicable in this case. In the two following paragraphs, the Commission states the
reasons leading it to exclude the application of Articles 92(3)(b) and 92(2)(c) to the
aids in question. In the second sentence of the third paragraph, the Commission
states 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 vehicle
industry allow it to respond appropriately to the problems which the new Länder
are facing.
- 184.
- The Commission therefore acknowledged the applicability to the aid in question not
only of Article 92(3)(c) but also of Article 92(3)(a), as is confirmed by the use of
wording from the latter in the first paragraph of Point XII of the Decision. The
Commission there acknowledges that the new Länder constitute 'an
underdeveloped region where 'the standard of living is low and 'the level of
unemployment is exceptionally high and still rising. It then states that high levels
of investment and other aid have been authorised 'in order to contribute to the
development of the region.
- 185.
- In its pleadings, the Commission has further argued, without being contradicted by
the applicants or the German Government, that in this case it allowed an aid
intensity higher than it was its policy to accept when applying Article 92(3)(c) of
the Treaty to regional aid in Germany. It that respect, it has explained that the
specific disadvantages encountered by investors in the regions falling within Article
92(3)(a) of the Treaty are taken into consideration in its cost-benefit analysis for
the purposes of fixing the total amount of the aid capable of being authorised, so
that those calculations take account of the higher aid eligibility of those regions.
- 186.
- The argument that the Commission was unwilling to apply the more favourable
provision of Article 92(3)(a) of the Treaty to the aid in question is therefore
unfounded.
- 187.
- Moreover, in its judgment in Spain v Commission, the Court of Justice expressly
rejected the argument of the applicants in their application by holding (at
paragraph 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 the
Commission should take no account of the Community interest when applying
Article 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 or
markets in the Community as a whole. The Court of Justice also held (at
paragraph 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 implications
of the aid covered by those provisions but also, in the light of Article 92(1), its
impact on trade between Member States and thus the sectoral repercussions to
which it might give rise at Community level.
- 188.
- In those circumstances, the arguments by which the applicants criticise the
reference in the Decision to existing surplus capacity in the motor-vehicle industry
are clearly ill founded, having regard to the wide discretion which the Commission
enjoys under Article 92(3) of the Treaty (see also the judgment in Spain v
Commission, 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 the
Decision that, in assessing regional aid to the motor vehicle industry, such top-up
aid 'is normally approved except in cases where the investment contributes to the
creation of capacity problems in the relevant sector. In such cases, the aid will be
strictly limited to the net regional disadvantages.
- 189.
- Finally, the Court finds that the Commission gave proper reasons, especially in
Points X, XI and XII of the Decision, for its assessment with respect to Article
92(3)(a) of the Treaty.
- 190.
- It follows from the above that the complaints alleging infringement of Article
92(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 the
Community framework
- Arguments of the parties
- 192.
- The applicants argue that, in order to express a view as to the compatibility of aid
with the common market, the Commission must take into account the information
which 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 in
that respect on Case C-301/87 France v Commission [1990] ECR I-307, paragraphs
43 and 45 (the 'Boussac judgment) and Case T-266/94 Skibsværftsforeningen and
Others v Commission [1996] ECR II-1399, paragraphs 96 and 98. In addition, they
raise the following arguments:
- where Article 93(3) of the Treaty provides that the Commission is to be
informed in advance of any aid plans, that is precisely in order to enable it
to examine ex ante their compatibility with the common market;
- the deciding moment for assessing the compatibility of aid with the common
market is that at which it produces its effects on competition (see, as
regards the repayment of aid, Case C-348/93 Commission v Italy [1995] ECR
I-673, paragraph 26);
- the assessment of the existence of a State-aid element, and in particular the
application of the 'private investor in a market economy test, must be
made ex ante (Boussac judgment, paragraphs 43 to 45; Tubemeuse II; Case
C-305/89 Italy v Commission [1991] ECR I-1603, paragraph 19);
- assessment of the situation ex post is contrary to the principle of a State
governed by the rule of law. If the factual and legal situation that is
decisive for assessing an aid were to be that prevailing at the time the
Commission's decision were adopted, the Commission would be able to
choose the most convenient moment according to the desired result.
Moreover, the criteria must be foreseeable, which is not guaranteed if the
situation is assessed ex post.
- 193.
- It follows, in the applicants' submission, that the compatibility of the aid in question
with 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 when
the Decision was adopted, since all instalments of aid granted in the context of a
single decision and by virtue of a single project must be assessed in accordance with
the same legal and factual framework.
- 194.
- The applicants go on to argue, first, that the aid in question falls within a
programme of regional aid that was already approved, and that the Commission
was therefore not entitled to subject it to an examination of its compatibility with
the Community framework. In their submission, the Commission had only the
limited power to examine whether the aid in question complied with the conditions
of 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 not
concern the substance, but merely reduced the amount of the aid, thus attenuating
its negative consequences for competition. As for the investment subsidies, a firm
undertaking concerning them was given on 18 March 1991 (see paragraph 20
above).
- 196.
- All that aid was granted within the context of the Nineteenth Outline Plan adopted
pursuant to the Law on the Joint Task. That programme had already been
approved by the Commission, as is shown by the fourth paragraph of Point VIII of
the Decision. It follows, in the applicants' submission, that the clause in the 1991
decrees, whereby the aid was granted subject to its authorisation by the
Commission, was devoid of purpose.
- 197.
- Moreover, the applicants challenge the claim in the Commission's defence that, in
its approval of the general aid programmes, it expressly reserved to itself the right
to verify whether Articles 92 and 93 of the Treaty were complied with. They
accuse the Commission of not having sent to them the documents said to contain
that reservation and argue that their production at the rejoinder stage is out of
time and inadmissible.
- 198.
- Even if the Commission's approval of the Nineteenth Outline Plan contained a
reservation whereby the provisions of the Community framework had to be
complied with, that framework, the applicants argue, was not applicable in March
1991, 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 the
framework was to be applied for a two-year period from 1 January 1989. The
Community framework therefore expired on 31 December 1990. The Federal
Republic of Germany did not consent to its reintroduction until April 1991, after
the definitive grant of the aid in question.
- 200.
- In that respect, the applicants put the following specific points by way of support
for their argument:
- Decision 90/381 of 21 February 1990, cited above, requiring the Federal
Republic of Germany, 'pursuant to the Community framework, to notify
aid exceeding a certain amount to the Commission, was not applicable to
the new Länder, which did not yet form part of that Member State, and it
could not have extended that framework, which expired on 31 December
1990, 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 26
March 1991, made available on 27 March 1991, after the definitive grant of
the aid in question. The Community framework could not apply
retrospectively, because its wording did not so provide and because it would
be contrary to the principle of legal certainty to place the commencement
of 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 framework
has not been established. Moreover, it is doubtful whether that decisionwas validly adopted. The Commission's letter to the Member States is
dated 31 December 1990, although the Commission does not hold meetings
at the end of the year. Moreover, the text published in the Official Journal
of the European Communities (OJ 1991 C 81, p. 4) does not correspond to
that received by the German Government;
- the Commission's letter proposing to the German Government that the
Community framework be extended was not received by that government
until 8 January 1991, as evidenced by the entry stamp by the permanent
representation of Germany at the European Communities. At that date,
the validity of the former Community framework had already expired, and
the Commission's proposal should therefore be understood as proposing the
reintroduction of that framework, without the possibility of retrospective
application in the absence of consent from the Member States (Case
C-135/93 Spain v Commission, paragraph 24; Case C-292/95 Spain v
Commission, paragraph 28 et seq.);
- the Community framework has in itself no binding force as against Member
States for as long as they do not consent to it. In this case, the Federal
Republic 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 to
the Member of the Commission responsible for competition matters theposition of his government to the effect that the Community framework did
not apply to the new Länder, and the consent of the Federal Republic was
not finally given until April 1991.
- 201.
- The Commission argues essentially that it was entitled to apply the Community
framework as in force in June 1996 and to take account of the factual
circumstances existing at the date on which the Decision was adopted. In this case,
the applicants had changed their plans fundamentally since March 1991, and the
decrees 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 to
examine 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 it
with a view to its prior authorisation.
- Findings of the Court
- 203.
- Contrary to what the applicants maintain, the aid measures in dispute cannot be
regarded as falling within a regional aid programme already approved by the
Commission and thus exempt from the duty of prior notification.
- 204.
- By referring, in the Nineteenth Outline Plan adopted pursuant to the Joint Task
Law, to a number of specific sectors in which each of the projects to be supported
remained subject to the need for prior authorisation from the Commission (see
paragraph 7 above), Germany acknowledged that approval of the regional aid
envisaged by that outline plan did not extend to the sectors in question and, in
particular, the motor-vehicle industry, to the extent that the cost of a support
operation exceeded 12 million ecus.
- 205.
- That is confirmed, in particular, by the Commission's letter of 2 October 1990
approving the regional aid scheme laid down for 1991 by the Nineteenth Outline
Plan (see paragraph 7 above) and by its letter of 5 December 1990 approving the
application of the Joint Task Law to the new Länder (see paragraph 11 above), in
which the Commission expressly drew the attention of the German Government to
the need to take account, when implementing the measures contemplated, of the
Community framework existing in certain sectors of industry; by its letters of 14
December 1990 and 14 March 1991, insisting that the aid for Volkswagen's new
investments could not be implemented without having first been notified to the
Commission and having received its approval (see paragraph 18 above); and by the
fact that each of the 1991 decrees states that it is 'subject to the authorisation of
the Commission. The applicants are wrong in arguing that such a reference is
devoid of purpose having regard to the authorisation already obtained by virtue of
the approval of the Nineteenth Outline Plan; that approval does not extend to the
motor-vehicle industry, as has just been pointed out in paragraph 204 above. The
applicants are also incorrect in arguing that the production of the letters referred
to above, in an annex to the rejoinder, was out of time and inadmissible. In the
first place, those letters are cited both in Point II of the Decision and in the
decision to initiate the investigation procedure. Moreover, they were produced in
response 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 the
Community framework was suspended between January and April 1991, even if
established, cannot have the legal consquence that the aid to the motor-vehicle
industry is to be regarded as covered by the approval of the Nineteenth Outline
Plan. On the contrary, if that fact were established, it would have to be held that
Article 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 the
duty of prior notification to the Commission, and that it could not be implemented
before the procedure had led to a final decision.
- 208.
- By contrast, the question whether or not the Community framework had binding
force vis-à-vis Germany in March 1991 is of no relevance for the purposes of these
proceedings.
- 209.
- In that respect, it should be emphasised that, although the rules of the Community
framework, as 'appropriate measures proposed by the Commission to theMember States on the basis of Article 93(1) of the Treaty, are entirely devoid of
binding 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 to
prevent the Commission from examining the aid which must be notified to it in the
light of those rules when exercising the wide discretion which it enjoys for the
purposes of applying Articles 92 and 93 of the Treaty.
- 210.
- It should, nevertheless, be added that the applicants' argument that the
investigation, in 1996, of the compatibility of the aid at issue with the common
market could be based only on assessment criteria which existed in 1991 finds no
support 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, and
Case C-241/94 France v Commission [1996] ECR I-4551, paragraph 33, the Court
of Justice stated that the legality of a decision concerning aid is to be assessed in
the light of the information available to the Commission when the decision was
adopted. The Court of First Instance did the same in Joined Cases T-371/94 and
T-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 between
Member States, any aid 'which distorts or threatens to distort competition. It
follows that, when it establishes the existence of an aid within the meaning of that
provision, the Commission is not strictly bound by the conditions of competition
existing at the date on which its decision is adopted. It must carry out an
assessment in a dynamic perspective and take account of the foreseeable
development of competition and the effects which the aid in question will have
upon it.
- 212.
- The Commission cannot therefore be criticised for having taken account of factors
arising after the adoption of a plan to grant or alter aid. The fact that the Member
State concerned implemented the proposed measures before the investigation
procedure resulted in a final decision, in breach of its obligations under Article
93(3) of the Treaty, is of no relevance to that question.
- 213.
- The applicants' argument that such a practice is incompatible with the principle of
legal certainty cannot be accepted. Whilst the preliminary investigation procedure
under Article 93(3) of the Treaty is intended to allow the Commission sufficient
time, the Commission must, nevertheless, act diligently and take account of the
interest of the Member States of being informed of the position quickly in spheres
where the need to intervene may be urgent by reason of the effect that the
Member States expect from the planned incentive measures. The Commission
must therefore take a position within a reasonable period, which the Court of
Justice has assessed at two months [Case 120/73 Lorenz v Commission [1973] ECR
1471, paragraph 4; see also Article 4 of Council Regulation (EC) No 659/1999 of
22 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 same
general duty of diligence where it decides to initiate the inter partes investigation
procedure laid down by Article 93(2) of the Treaty, and its failure to act in the
matter may in appropriate cases be condemned by the Community judicature in
proceedings under Article 175 of the EC Treaty (now Article 232 EC).
- 214.
- Moreover, the question of a possible infringement of the principle of legal certainty
does not arise in this case. The length of time which elapsed between the date on
which the first decrees granting aid were adopted (March 1991) and the date of the
Decision (26 June 1996) was due, first, to the absence of complete notification of
the measures in question; secondly, to the successive amendments which the
applicants made to their plans, which in turn entailed successive amendments to the
decrees granting the aid; and, thirdly, to the considerable difficulties which the
Commission encountered in obtaining from the German Government and the
applicants the information which it needed in order to take a decision (see
paragraphs 16 to 42 above).
- 215.
- In particular, the Mosel I decision shows that, at the beginning of 1993, the
Commission was in a position to take a decision on the whole of Volkswagen's
investment plans, as initially submitted to it. It was at the express request of
Volkswagen, submitted on 31 January 1993, that the Commission limited its
assessment to the aid concerning Mosel I and Chemnitz I. It was then necessary
to wait until 1995, when the Commission threatened the German authorities that
it would adopt a decision on the basis of the incomplete file in its possession, for
the information which it needed to be finally communicated to it. In short, it was
not until 1996 that the Commission was placed in a position to take a decision with
full 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 1996
decrees. Although the parties disagree as to the extent of those successive
amendments, it is undisputed that, at the very least, they involved a significant
reduction in the scale of the plans and, above all, the postponement by three to
four years of the entry into service of the paint and final assembly workshops of
Mosel II and Chemnitz II.
- 217.
- In those circumstances, the applicants are wrong when they maintain that the
Commission 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 the
contrary, the Commission was right to take account in its assessment of the changes
that were subsequently made.
- 218.
- Moreover, even if it had initially approved the aid granted by the 1991 decrees, the
Commission would have been entitled to re-examine it at the time of its
amendment, in accordance with Article 93(3) of the Treaty, under which the
Commission 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 was
no surplus capacity in the motor-vehicle industry in 1991, the Commission would
in principle have been entitled to take account of surplus capacity which became
apparent from 1993 onwards.
- 219.
- It follows from the above that the applicants' arguments concerning, first, the need
for an investigation ex ante and, secondly, the inapplicability of the Community
framework, must be rejected in their entirety.
(b) The classification of the paint and final assembly workshops at Mosel II and
Chemnitz II as 'extensions of existing capacity
- Arguments of the parties
- 220.
- The Free State of Saxony submits that, by making a distinction between extensions
of existing capacity and new investments that does not appear in the Community
framework, the Commission infringed the principle of institutional equilibrium
(Case C-70/88 Parliament v Council, cited in paragraph 72 above, at paragraphs 21
and 22; Case C-316/91 Parliament v Council [1994] ECR I-625, paragraph 11 et
seq.). 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 of
Articles 92 and 93 of the Treaty.
- 221.
- The applicants also argue that it is incorrect to classify the paint and final assembly
workshops of Mosel II and Chemnitz II as 'extensions of existing capacity. If they
had been classified as 'greenfield investments, like the press and body shops of
Mosel II, all the investment grants at issue would have been declared compatible
with 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 II
had been built on a field, its buildings and facilities were entirely new and
materially separate from Mosel I, and they were built by a different company from
the one that built the latter. Moreover, Mosel I was destined for closure on the
entry into service of all parts of Mosel II. Throughout the administrative procedure
and in the Decision itself, the Commission had always referred to the applicants'
'new factories or 'new investment plans. Mosel II should therefore be regarded
as 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 that
respect, the Commission wrongly established a distinction between the press and
body shops of Mosel II on the one hand and the paint and final assembly
workshops of Mosel II and Chemnitz II on the other, whereas the project as a
whole 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 operations
of manufacture (pressing, skeleton bodywork, painting and final assembly), with an
engine-construction plant nearby, did not undergo any modification despite the
spacing 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 of
1991.
- 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 assembly
workshop was simply postponed from 1994 to 1996, and that of the paint shop from
1994 to 1997. Only the logistics centre, which did not form part of the production
units, was constructed not, as envisaged, by Volkswagen on the Mosel site, but by
another undertaking some kilometres away from the factory.
- 226.
- The applicants add that the technology used at Mosel II is more modern than that
initially envisaged, that production has been simplified and automated and that
productivity has been increased, especially by the use of qualified suppliers nearby
and the externalisation of certain services. They stress, however, that the
investment project has not changed in content but has simply been adapted to
technical progress.
- 227.
- It does not follow from the solution adopted on a transitional basis, consisting in
the delivery by the already-finished part of Mosel II of skeleton bodywork to Mosel
I, that Mosel II is not a greenfield investment. In that regard, the Commission
erred in holding that that solution had permitted the establishment in Mosel in
1994 of a 'fully operational factory, composed of the assembly and paint shops of
Mosel 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 an
integrated motor-vehicle construction plant. There are considerable technical
differences between them, making lasting integration of Mosel I in Mosel II's
production process economically absurd.
- 229.
- The Commission was perfectly aware that Mosel I was only an interim solution and
that it was intended to be closed. The applicants refer to the ninth paragraph of
Point IX of the Mosel I decision, according to which 'the rationale behind the
interim project was to maintain and train a workforce for automobile production
at the location until the new plant Mosel II comes on stream.
- 230.
- In accordance with that interim solution, assembly was abandoned at Mosel I on
23 December 1996 and the paint shop was closed in March 1997. Assembly of the
Passat B5 model started at Mosel II in October 1996. Only a small part of Mosel
I'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 into
Mosel II.
- 231.
- It is, moreover, both technically and economically out of the question to maintain
Mosel 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's
undertakings in Saxony had been profitable since 1994 (ninth paragraph of Point
XII of the Decision). On the contrary, Volkswagen transferred DEM 367 million
to VW Sachsen to compensate for its losses between 1994 and 1996. The
Commission was aware of this. The applicants add that there is no connection
between, on the one hand, a factory's productivity and rate of use and, on the
other, its profitability. In any event, the alleged profitability of the Mosel facilities
in 1994 played no part in the administrative procedure, and neither the applicants
nor the Federal Republic of Germany had the opportunity to express their point
of view on the question.
- 233.
- The applicants see no relevance in the fact that, in 1996, they had already
eliminated certain typical disadvantages of a greenfield investment. Volkswagen
made efforts, at its own expense and with a view to the completion of Mosel ll, to
develop infrastructure, logistical organisation and supplier structure. Moreover, the
initial 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 the
disadvantages in connection with the investments in Mosel II.
- 234.
- As regards the training of Mosel I's workers for the needs of Mosel II, the
applicants argue that the traditional (solvent-based) painting technique used in
Mosel I differs considerably from the (water-based) technique used in Mosel II.
The same applies to the final assembly chain. The highly advanced technologies
of the Mosel II facilities and computerised control techniques require a particular
mastery of machines which is in no way comparable with the know-how employed
in Mosel I.
- 235.
- As regards suppliers, there were none meeting Volkswagen's needs established in
the area in 1990. However, thanks to Volkswagen's efforts in anticipation of Mosel
II, 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 Chemnitz
not on account of the transitional retention of Mosel I and Chemnitz I, but solely
on 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 paint
and final assembly shops at Mosel II was Volkswagen's decision in 1993 to divide
the Mosel II project into four separate units, the construction and entry into service
of which were to happen at different times. The Commission maintains thatconsideration of the disadvantages linked to operating costs must commence for
each of those units separately at the time of its entry into service.
- 237.
- In the Commission's view, Volkswagen has had an operational motor-vehicle
construction plant in Mosel since July 1992, the date of the entry into service of the
Mosel II body shop, an on-site pressing unit not being strictly necessary. In any
event, as from 1994 at the latest, Volkswagen was able to prepare vehicles, with
parts delivered by its suppliers, in its press shop (entered service March 1994) and
skeleton body shop (entered service July 1992) at Mosel II, and to finish them in
the paint and final assembly shops of Mosel I, situated close by on the same
industrial estate.
- Findings of the Court
- 238.
- It should be noted that investigation of the compatibility of the aid at issue with the
common market, in accordance with the Community framework, consisted primarily
in assessing the net additional costs entailed by setting up at the chosen site as
compared with setting up in a central, non-disadvantaged area of the Community.
- 239.
- Concerning the calculation of operating costs, the Commission makes a distinction
between what it calls 'greenfield investments, the additional costs of which it takes
into 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 only
three 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 situated
in 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 the
following typical special problems as compared with the extension of an existing
plant: lack of adequate infrastructure, lack of organised logistics, no trained
workforce adapted to the needs of the company, and no established supplier
structure. If, however, these services can be provided by a nearby plant belonging
to the same group, then the project is treated as an extension, even if it is located
in a green field. The Community concept differs from the concept of new
investments that may be defined in national law. Since, in the case of a greenfield
project as defined in this way, more difficulties arise and the time-span for reaching
full capacity and thus viability is somewhat longer, there is justification for
calculating the operating cost disadvantages over a longer period.
- 241.
- Contrary to what the Free State of Saxony maintains, the Commission does not
undermine the principle of institutional equilibrium by making such a distinction.
The power to make any appropriate regulations for the application of Articles 92
and 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-established
operational criteria, such as those underlying the distinction between greenfield
investments and extensions of existing capacity, when exercising the wide discretion
which it enjoys in applying those provisions.
- 242.
- In this case, the Commission considered that the skeleton body shop and the press
shop of Mosel II were greenfield investments. It therefore took their operating
costs into account over a period of five years, namely from 1993 until 1997 (body
shop) and from 1994 until 1998 (press shop), in its cost-benefit analysis. By
contrast, the paint and final assembly shops of Mosel II and Chemnitz II were
classified as extensions of existing capacity, with the result that their operating costs
were 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 Point
XII of the Decision:
'In the present case, the Commission had to take into account the fact that the
different shops of the investment in Mosel come on stream at different times.
Thus, the start-up problems associated with the different subprojects will also occur
at different times. Furthermore, the Commission took account of the fact that,
through the delay in project implementation, the character of the project has also
changed. With the setting up of the press and body shops and their link with the
modernised paint shop and final assembly halls of the old Mosel I plant, a fully
operational car plant was established in Mosel by 1994. This is also demonstrated
by 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 no
longer constitutes a greenfield investment but represents an extension of existing
capacity. Since a supplier structure is already in place [...], [...] the infrastructure
exists and ... most of the workers will be taken over from Mosel I, the typical
handicaps 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 capacity
extension, the build up of production in these plants is very rapid. Although the
German authorities and VW originally suggested an analysis of the period from
1998 to 2002 for all projects in Mosel and Chemnitz, the Commission has analysed
the operating handicaps over five years for the proposed greenfield projects, i.e. for
1993 to 1997 (body shop) and for 1994 to 1998 (press shop), and over three years
for the extension projects, i.e. 1997 to 1999 (paint shop, final assembly, Chemnitz
II). It was also taken into account that the press shop and the body shop will be
expanded from a production capacity of 432 cars/day to 750 cars/day during the
same period in order to be able to supply fully the new Mosel II paint shop and
final assembly. Therefore, the additional operating handicaps for this period (1997
to 1999) that can be attributed to this extension of capacity were also included in
the analysis.
- 244.
- As stated above, the question whether the paint and final assembly shops of Mosel
II and Chemnitz II were to be classified as extensions of existing capacity or as
greenfield investments falls within the wide discretion which the Commission enjoys
when applying Article 92(3) of the Treaty. Review by the Court of First Instance
must therefore be restricted to checking that the facts relied on in making the
disputed classification are materially accurate, and that there has been no obvious
error in the assessment of those facts (see the Matra judgment, cited in paragraph
180 above, at paragraphs 23 to 28).
- 245.
- It should be noted, moreover, that the classification of an investment as an
extension of existing capacity or, on the other hand, as a greenfield investment, is
made in a Community context, irrespective of the classification under the
accounting or tax law of the Member State to which the beneficiary undertaking is
subject (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 is
manifestly erroneous. That conception is based on the idea that the taking into
account of the disadvantages linked to the operating costs of a new plant must
commence at the time of its entry into service or, when the coming-on-stream of
its various production units is staggered, at the time of the entry into service of
each of them. Each unit must thus form the subject-matter of a separate
assessment, so as to permit the state of development of the site to be taken into
account as at the time of its entry into service. That conception complies with the
rule that derogations from the principle laid down in Article 92(1) of the Treaty
that State aid is incompatible with the common market are to be interpreted
strictly.
- 247.
- In this case, contrary to their initial plans, the applicants opened the four
workshops of Mosel II at different times between 1992 and 1997. In those
circumstances, the arguments they put forward are not sufficient to invalidate the
Commission's conclusion that the paint and final assembly shops of Mosel II and
Chemnitz II cannot be classified as greenfield investments, since, from 1994 at the
latest, there was a fully operational motor-vehicle production unit in Mosel
composed of the paint and final assembly shops of Mosel I (in the modernisation
of which the applicants invested more than DEM 414 million, and which the Mosel
I decision describes as an ultra-modern assembly and paint factory), the skeleton
body and press shops of Mosel II (which entered service in July 1992 and March1994 respectively), and Chemnitz I. As the Commission has pointed out, without
being contradicted, the production capacity of that unit has been 100 656 vehicles
per year since 1992, and 34 000 vehicles of the new model Golf A3 were built there
in 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 and
Chemnitz II form a whole and that the combination of Mosel I/Chemnitz I and the
first part of Mosel II represents only an interim solution. It should nevertheless beremembered that the Volkswagen group has enjoyed considerable aid, amounting
to DEM 487.3 million for Mosel I and DEM 84.8 million for Chemnitz I (see the
Mosel I decision). That aid enabled it to have the benefit of a fully operational
motor-vehicle construction plant in 1994 at the latest, and to commence production
as from that year. If that aid had not been granted, its Mosel II and Chemnitz II
projects 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 quickly
and 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 the
Volkswagen group to benefit from the greenfield investment regime twice in
relation to the same project for the construction of a motor-vehicle factory.
- 249.
- Moreover, as the Commission has pointed out, investments are not primarily meant
to secure State aid but to ensure future profits. Therefore, an investor who
succeeds in eliminating certain handicaps connected with his investment, more
quickly, by accelerating the entry into service of certain parts of his project, should
not consider himself 'penalised by a reduction in the aid which he may enjoy,
since his operating costs in connection with the infrastructure diminish and his
production conditions improve.
- 250.
- Accordingly, the Commission has not made any manifest error of assessment in
classifying 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 maintain
that those workshops of Mosel II and Chemnitz II were erected 'on a greenfield
site. On the contrary, as the Commission maintains, the Volkswagen group had
already, 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 1997
at the latest, it had in place an appropriate infrastructure, organised logistics, a
workforce 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 to
undergo a certain amount of training before being able to work on the new models
or according to the new production techniques does not mean that that workforce
was untrained within the meaning of the definition of greenfield investments.
- 253.
- As for suppliers, the document joined as Annex B4 to the application in Case
T-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 of
construction, equipment and services, together employing 22 000 workers.
According to the same document, the number of local suppliers rose from 0 in 1990
to 87 in June 1993. The Commission has argued, without being contradicted, thatthat represents a proportion of local suppliers of 30%, which far exceeds the
European average in the motor-vehicle industry.
- 254.
- The foregoing considerations cannot be invalidated by a factual error allegedly
made by the Commission in its assessment of the profitability of the Volkswagen
undertakings in Saxony since 1994. In the first place, the alleged error has not
been established, since the accounts of those undertakings, produced as an annex
to the rejoinder in Case T-143/96, show that they made an operating profit of
DEM 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 new
motor-vehicle plant is only one of a number of indicators for determining whether
that plant should be regarded as a greenfield investment or as an extension. It
should be noted in that respect that the Decision treats the profitability of the
Volkswagen undertakings in Saxony as no more than a confirmation that, as early
as 1994, Mosel I and the pressing and skeleton body shops of Mosel II formed a
complete and operational motor-vehicle construction plant.
- 255.
- Moreover, the question whether or not the facilities of Mosel I will be retained in
service after the completion of Mosel II is irrelevant for the purposes of the
present analysis.
- 256.
- As for Chemnitz II, the applicants have not put forward any concrete argument
capable of casting doubt on the Commission's assessment that this was an
investment extending Chemnitz I. The Commission has pointed out that the
transfer of production of various engine parts from Chemnitz I to Chemnitz II took
place 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 the
purposes of challenging the classification of the paint and final assembly shops of
Mosel 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 investment
was made on the basis of incomplete documents and that the reasons for that
analysis were insufficiently and/or erroneously stated.
- 259.
- They claim, first, that the Commission did not take account of certain essential
documents. The Commission sent to Mr Sterk, the expert it designated to carry
out 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 therefore
incomplete and likely to mislead the expert.
- 260.
- At a meeting held on 29 May 1996, Volkswagen became aware of the fact that the
expert 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 time
which elapsed between the sending of those documents and the adoption of the
Decision on 26 June 1996, and from the Decision itself, that the expert was not in
a position to study them.
- 261.
- In the light of the expert report produced in the defence, the applicants claim that
the expert did not have the time to examine carefully the handicaps described in
points 6.1.1, 6.1.3 and 6.5.2 to 6.5.7 of that report, and in particular the subsidy for
connection to the road network.
- 262.
- Secondly, the applicants argue that the fifth, sixth, seventh, eleventh, twelfth and
thirteenth paragraphs of Point XII of the Decision do not provide a
comprehensible explanation of the calculation of costs and benefits, with the result
that the Decision infringes Article 190 of the Treaty.
- 263.
- In their submission, even if the Commission is not required to set out in the
Decision each of the factors entering into the calculation of the extra investment
and operating costs, the most significant of them should be indicated and
quantified, at least in outline. They maintain that this is so a fortiori where the aid
declared incompatible with the common market is substantial.
- 264.
- Thirdly, the Decision does not indicate what additional costs put forward by
Volkswagen were not accepted. In particular, Volkswagen estimated that if, within
a short space of time, the employees of VW Sachsen were no longer to be
remunerated in accordance with the collective agreement for the Saxon metallurgy
industry but in accordance with Volkswagen's own tariff, this would entail an
increase in the burden of wages and salaries of DEM 161.6 million. That risk was
an essential element which the Commission completely ignored or wrongly
dismissed, making no mention of it in the Decision. In that respect, the explanation
contained in the defence comes too late.
- 265.
- The applicants add that the Commission made a factual error in stating, in the
fourteenth paragraph of Point XII of the Decision, that, during the administrative
procedure, 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 position
to understand the cost-benefit analysis carried out by the Commission. That,
however, is irrelevant to the question whether sufficient reasons are stated in the
Decision 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 therefore
have sufficed for the Commission to have sent them the analysis as an integral part
of the Decision.
- 267.
- The Commission states, inter alia, that it entrusted Plant Location International, a
subsidiary of the company auditors Price Waterhouse, with the task of preparing
a draft cost-benefit analysis. That draft was checked and corrected, where
necessary, by the relevant departments of the Commission. Volkswagen had
contacts with Mr Sterk, who was the last person to be concerned with the matter
for Plant Locational International, several months before the Decision was adopted,
and in particular at the meetings on 11 April and 29 May 1996. The 1996
documentation, supplied by the Commission to Mr Sterk, contained all the relevant
information. Since Mr Sterk analysed the situation over a period of months and
was therefore conversant with the project in all its details, it was possible for him
to examine rapidly and completely the 1993 and 1994 documents which Volkswagen
subsequently 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 the
cost-benefit analysis, it should be pointed out that, according to settled case-law, the
reasons given for a measure must be assessed, in particular, by reference to the
interest which the addressee or other persons concerned may have in receiving
explanations, particularly where they played an active part in the procedure prior
to the adoption of the contested measure and knew the reasons of fact and law
which led the Commission to take its decision (see, for example, Case T-106/96
Wirtschaftsvereinigung Stahl v Commission [1999] ECR II-0000, paragraph 172). It
should also be pointed out that the Commission is not required, in stating its
reasons for a decision, to reply to all the issues of fact and law raised by the
interested parties, provided it takes account of all the circumstances and all the
relevant factors of the case (British Airways and British Midland Airways, paragraph
94).
- 269.
- In this case, the documents before the Court show that the applicants were closely
associated with the administrative procedure which led to the drawing up of the
Decision. 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 and
were commented upon point by point with their representatives and those of the
German Government, especially at the meetings of 11 April and 29 May 1996 (see
the minutes of those meetings, Annexes B9 and B12 to the defence in Case
T-143/96). It appears, moreover, that the definitive cost-benefit analysis on which
the Decision is based essentially reproduces the analysis contained in the drafts
examined at those meetings, the alterations that were made being favourable to the
applicants.
- 270.
- In those circumstances, neither the fact that the Decision does not reproduce the
detailed figures of the cost-benefit analysis, nor the fact that the analysis was not
annexed to the Decision, constitutes a breach of the duty to state reasons laid down
in Article 190 of the Treaty.
- 271.
- Moreover, the applicants have failed to demonstrate that the Commission's expert
was not in a position to express a view on the documents which were sent to him
at the end of May and the beginning of June 1996. On the contrary, it should be
noted that the expert report (Annex 13 to the defence in Case T-143/96) is
endorsed 'January 22, 1996, revised June, 1996. Moreover, the Commission
observes, rightly, that the fact that some of the data sent was not treated as
constituting additional investment or operating costs does not mean that it was not
examined. That applies in particular to the request of the local authorities for
repayment of the subsidy granted to the applicants in 1994 for the costs of
connection to the road network, on the subject of which the applicants' point of
view 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 additional
costs were not accepted, that complaint merges with the allegation of defective
reasoning and must be rejected on the grounds indicated above. As regards, more
particularly, the cost of DEM 161.6 million which might result from the future
application of Volkswagen's collective agreement on wages and salaries to the
workers 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 time
when the Decision was adopted, and which could not therefore be taken into
account in the cost-benefit analysis.
- 273.
- It is also clear from the minutes of the meeting on 29 May 1996 (Annex 12 to the
defence in Case T-143/96, p. 3) that Volkswagen had indeed acknowledged that the
Commission's analysis concerning the calculation of operating costs was reasonable
and could be accepted.
- 274.
- It follows that the applicants' arguments concerning the calculation of the costs and
benefits 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 the
ground of overcapacity problems in the motor-vehicle industry.
- 276.
- The Commission did not touch on the really decisive question in the context of
Article 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 up
in 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 that
the establishment of suppliers on the spot, and other multiplier effects for the
economy of the new Länder, will indirectly permit the creation of 20 000 others.
- 277.
- Moreover, the Commission itself acknowledged that the motor-vehicle industry has
been suffering from overcapacity only since 1993. Since the aid is to be assessed
by reference to the market situation at the time when it was granted, in March
1991, those overcapacity problems should not have been taken into consideration
and the top-up aid should therefore have been authorised.
- 278.
- In addition, the Decision contained a limitation on the production capacity of
Mosel II until 1997. Therefore, the applicants submit, the Commission could not
refuse 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 not
authorised where the investment contributes to the creation of overcapacity
problems in the industry concerned. The Commission carefully examined
overcapacity existing since 1993 in the motor-vehicle industry, on the basis of
precise figures. In those circumstances, it was not necessary to assess separately
whether 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) or
92(3)(a) of the Treaty, the Commission may take account of the consequences of
aid on the industry concerned (Matra, paragraph 26). The Commission was
therefore entitled to take into account all the factors existing at the time when the
Decision was adopted in June 1996.
- 281.
- In this case, the first paragraph of Point XII of the Decision shows that the
Commission duly took into account the need to create incentives to invest in
disadvantaged regions, such as Mosel and Chemnitz. Indeed, it is stated in that
paragraph that high levels of investment and other aid have been authorised there
in order to contribute to the development of the region, and that the regions of
Mosel 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 paragraph
of Point XI of the Decision, that 'top-up aid intended to create particular
incentives to invest in disadvantaged regions is not authorised where the investment
contributes to the creation of capacity problems in the relevant sector. Similarly,
in the nineteenth paragraph of Point XII of the Decision, the Commission states
that, 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 aid
to the net incremental costs facing the investor in the disadvantaged region.
- 283.
- Moreover, the Decision sets out, precisely and in detail, the considerable
overcapacity problems existing since 1993 in the motor-vehicle construction industry
(fifteenth paragraph of Point XII) and the extent to which that overcapacity will be
exacerbated by the investments in question (eighteenth paragraph of Point XII).
The Commission also takes account (in the sixteenth and seventeenth paragraphs
of Point XII) of the limitation of Mosel II's production capacity.
- 284.
- Having regard to the above considerations, and bearing in mind the broad power
of assessment which the Commission has in the matter, the applicants' arguments
concerning 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 an
intensity, expressed in gross grant equivalent, of 22.3% for Mosel II and 20.8% for
Chemnitz II are acceptable. It states that investment grants of DEM 418.7 million
for Mosel II and Chemnitz II and investment allowances of DEM 120.4 million for
Mosel II and Chemnitz II may be authorised. According to Article 1 of the
Decision, the granting of aid up to those amounts is compatible with the common
market. According to Article 2 of the Decision, the granting of special depreciation
with a value of DEM 51.67 million for Mosel II and Chemnitz II and of investment
grants of DEM 189.1 million for Mosel II and Chemnitz II is incompatible with the
common market.
- 286.
- According to the applicants, the Commission has infringed Article 190 of the Treaty
in that it is not possible to determine, from the gross grant equivalent which it has
used, the amounts stated in Articles 1 and 2 of the Decision. The decision did not
state the discount rate used by the Commission. Even knowing that factor, on the
basis of information belatedly provided in the defence in Case T-143/96, it was
impossible to ascertain with certainty what calculation gave rise to the amounts
indicated in Articles 1 and 2 of the Decision.
- 287.
- That argument cannot be accepted. As the Court has held above, the applicants
and the German Government were closely associated with the administrative
procedure and were thus placed in a position to discuss point by point the
successive draft cost-benefit analyses prepared by the Commission since 1992.
Although they do not appear in the Decision, the method of calculating the
discounting of the gross grant equivalent used to arrive at the authorised amount
of aid and, in particular, the rate of discounting ('Nominal Discount Rate) of
7.5%, appear both in the cost-benefit analysis annexed to the Commission's expert
report and in the minutes of the meeting of 29 May 1996.
- 288.
- It follows from the all the foregoing considerations that the complaints relating to
infringement 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 protection
of legitimate expectations by classifying the paint and final assembly shops of Mosel
II and Chemnitz II as extensions of existing capacity and, in consequence, adopting
a reference period of three years for the cost-benefit analysis. The Commission
had caused them to entertain a justified hope that it would examine the aid
promised by means of a cost-benefit analysis based on a five-year period.
- 290.
- In their submission, the expectations of traders deserve protection where a
Community institution has given rise to justified hopes on their part as to its future
conduct (Case 265/85 Van Den Bergh en Jurgens v Commission [1987] ECR 1155,
paragraph 44). Similarly, traders who have taken measures in reliance on the
existing state of the law are protected against a subsequent alteration of the
institutions' assessment of those measures (Case 161/88 Binder v Hauptzollamt Bad
Reichenhall [1989] ECR 2415, paragraphs 21 to 23; Case C-189/89 Spagl v
Hauptzollamt Rosenheim [1990] ECR I-4539, paragraph 9; Crispoltoni, paragraph
21).
- 291.
- In this case, the Commission classified Mosel II and Chemnitz II as new or
greenfield investments throughout the administrative procedure, from September
1990 until April 1996. In that respect, the applicants points to the following
factors:
- in its letter to the German Government of 19 September 1990, the
Commission requested notification of all aid 'for Volkswagen's new
investment;
- in its letter informing that Government of its decision to initiate the
investigation procedure, the Commission distinguished between the
'retention of existing production units (Mosel I) and the 'construction of
a new adjacent plant (Mosel II);
- during the years 1992 to 1994, the Commission carried out a cost-benefit
analysis for Mosel II and Chemnitz II which was based on a reference
period of five years;
- in the Mosel I decision, the Commission referred frequently to the 'new
plants of Mosel II and Chemnitz II, which showed that, despite the delaysin completing the project, it regarded those investments not as an extension
of Mosel I and Chemnitz I but as new investments;
- in its Decision 96/179 of 31 October 1995, referred to in paragraph 39
above, 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 22
December 1995, the officials and the expert of the Commission explained that the
Mosel II and Chemnitz II projects could not be regarded in their entirety as
greenfield investments. The only relevant question discussed on that occasion was
whether the calculation of the disadvantages was to have a single starting-point,
namely the completion of the project, or several starting-points corresponding to
the completion of each of the workshops.
- 293.
- It is also incorrect to maintain that, at the meeting of 11 April 1996, the parties had
discussed the application of a three-year period to the disadvantages in connection
with 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 on
a five-year period.
- 294.
- Although the application of a three-year period for the disadvantages connected
with the operation of the paint and final assembly shops of Mosel II was discussed
at the meeting of 29 May 1996, the minutes of that meeting clearly show that the
applicants did not in any way accept the principle of this.
- 295.
- The applicants emphasise that they have never altered the conception of their
projects. In any event, the staggering of the investments over a period of time was
known from the beginning of 1993. At the time of the adoption of the Mosel I
decision in July 1994, therefore, the Commission knew of the amendments adopted
by Volkswagen to the Mosel II and Chemnitz II projects. Since the Commission
had adopted a separate decision concerning the aid to Mosel I, Volkswagen had
understood that it considered Mosel I and Mosel II as two distinct projects which
were to be treated separately from the point of view of the State-aid regime. The
applicants also state that the situation existing at the time the Decision was adopted
was 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 skeleton
bodywork produced there were painted at Mosel I, where they underwent final
assembly.
- 296.
- The applicants further argue that it was only with the prospect of Mosel II and
Chemnitz II being classified by the Commission as new investments that they
invested considerable sums. They maintain that, at the time of the adoption of the
Mosel I decision, it was still possible to halt completely the investments in the paint
and 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 the
Commission would classify those workshops as extensions of existing capacity.
- 297.
- The Commission denies that it ever gave the impression that it classified Mosel II
and Chemnitz II as greenfield investments.
- 298.
- The applicants could not, in any event, rely on statements made prior to March
1996, since they were based on an incomplete knowledge of the facts. The
applicants and/or the Federal Republic of Germany concealed relevant information
until the last moment, with the result that the Commission lacked essential data for
assessing the investment projects.
- 299.
- Nor, moreover, may the applicants plead a legitimate expectation, since they were
aware of the fact that the Commission might refuse to authorise part of the aid
granted, and that they would therefore be obliged to repay the aid already
implemented unlawfully. What is more, VW Sachsen's annual balance sheet of
31 December 1995 shows that the applicants had envisaged that possibility and set
aside 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 that
the Community administration gave rise to justified hopes on his part (see, for
example, Case T-489/93 Unifruit Hellas v Commission [1994] ECR II-1201,
paragraph 51). However, no one may plead infringement of the principle of the
protection of legitimate expectations in the absence of specific assurances given to
him by the administration (Case T-521/93 Atlanta and Others v European
Community [1996] ECR II-1707, paragraph 57; Case T-113/96 Dubois et Fils v
Council and Commission [1998] ECR II-125, paragraph 68).
- 301.
- In this case, it is sufficient to observe that the Commission never gave an assurance
that the Volkswagen group's investments in Mosel II and Chemnitz II would be
classified in their entirety as 'greenfield investments.
- 302.
- The fact that the Commission referred to Volkswagen's 'new investments or 'new
implantations throughout the administrative procedure, between 1990 and 1996,
is irrelevant in that respect, since that expression was used in its everyday meaning
and was intended merely to distinguish the investments in Mosel I from those in
Mosel II, without taking any position on the question whether the latter investments
should 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 investigation
procedure, 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 the
beginning of 1993, and the subsequent alterations to those plans in 1994 and 1996,
rendered the Commission's earlier assessments obsolete, and thus also rendered
obsolete any assurances it might have given concerning the classification of Mosel
II 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 for
as long as they failed to supply the Commission with all the information which it
needed in order to take its decision with full knowledge of the facts. Therefore, the
statements and the conduct of the Commission prior to the beginning of 1996
cannot 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 (Annex
B9 to the defence in Case T-143/96, p. 4) that the discussions were particularly
concerned with whether, in respect of the paint and final assembly shops of Mosel
II, the cost-benefit analysis should take account of incremental operating costs over
a period of three years or five years. Thus, as soon as it had all the information
necessary 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 of
legitimate 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 be
ordered to pay the costs if they have been applied for in the successful party's
pleadings. Under Article 87(5) of the Rules of Procedure, a party who discontinues
or withdraws from proceedings is to be ordered to pay the costs if they have been
applied for in the other party's pleadings. Under Article 87(4) of the Rules of
Procedure, Member States which have intervened in the proceedings are to bear
their own costs.
- 310.
- It follows from the above that, on a proper view of those provisions, the applicants
must bear their own costs and pay those of the Commission, save in so far as they
have been incurred by the Commission as a result of the intervention of the
Federal 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 its
intervention. The United Kingdom shall bear its own costs.
On those grounds,
THE COURT OF FIRST INSTANCE (Second Chamber, Extended
Composition)
hereby:
1. Takes formal notice that the applicants discontinue their action in Case
T-143/96 in so far as it seeks the annulment of the first indent of Article 2
of Commission Decision 96/666/EC of 26 June 1996 concerning aid granted
by 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 incurred
by the defendant, save in so far as they have been incurred by the latter as
a result of the intervention of the Federal Republic of Germany. The
Federal Republic of Germany shall bear its own costs and pay the costs
incurred by the Commission as a result of its intervention. The United
Kingdom 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 the
Community 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 II
and 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