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

24 October 1997 (1)

(ECSC — Action for annulment — State aid — Individual decisions authorizing thegrant of State aid to steel undertakings — Incompatibility with Treaty provisions— Retroactivity — Article 4(b) and (c) and the first and second paragraphs ofArticle 95 of the Treaty)

In Case T-239/94,

Association des Aciéries Européennes Indépendantes (EISA), an associationconstituted under Belgian law, established in Brussels, represented by AlexandreVandencasteele, of the Brussels Bar, with an address for service in Luxembourg atthe Chambers of Ernest Arendt, 8-10 Rue Mathias Hardt,

applicant,

v

Commission of the European Communities, represented by Michel Nolin and BenSmulders, of its Legal Service, acting as Agents, with an address for service inLuxembourg at the office of Carlos Gómez de la Cruz, Wagner Centre, Kirchberg,

defendant,

supported by

Council of the European Union, represented by Rüdiger Bandilla and StephanMarquardt, respectively Director and Administrator in its Legal Service, acting asAgents, with an address for service in Luxembourg at the office of AlessandroMorbilli, Manager of the Legal Affairs Directorate of the European InvestmentBank, 100 Boulevard Konrad Adenauer,

Federal Republic of Germany, represented by Ernst Röder, Ministerialrat in theFederal Ministry of the Economy, and Bernd Kloke, Oberregierungsrat in the sameMinistry, acting as Agents, with an address for service in Luxembourg at theGerman Embassy, 20-22 Avenue Émile Reuter,

Italian Republic, represented by Umberto Leanza, Head of the Legal Service,Ministry of Foreign Affairs, acting as Agent, assisted by Pier Giorgio Ferri,Avvocato dello Stato, with an address for service in Luxembourg at the ItalianEmbassy, 5 Rue Marie-Adélaïde,

Ilva Laminati Piani SpA, a company incorporated under Italian law, established inRome, represented by Aurelio Pappalardo, of the Trapani Bar, and MassimoMerola, of the Rome Bar, with an address for service in Luxembourg at theChambers of Alain Lorang, 51 Rue Albert I,

interveners,

APPLICATION for the annulment of Commission Decisions 94/256/ECSC to94/261/ECSC of 12 April 1994 concerning aid to be granted by various MemberStates to steel undertakings established in their respective territories (OJ 1994L 112, pp. 45, 52, 58, 64, 71 and 77),

THE COURT OF FIRST INSTANCE

OF THE EUROPEAN COMMUNITIES (First Chamber, ExtendedComposition),

composed of: A. Saggio, President, A. Kalogeropoulos, V. Tiili, A. Potocki andR.M. Moura Ramos, Judges,

Registrar: H. Jung,

having regard to the written procedure and further to the hearing on 25 February1997,

gives the following

Judgment

Legal background

1.

    The Treaty establishing the European Coal and Steel Community ('the Treaty‘)prohibits in principle State aid to the steel industry by providing in Article 4(c) that'subsidies or aids granted by States, or special charges imposed by States, in anyform whatsoever‘ are recognized as incompatible with the common market for coaland steel and are accordingly to be abolished and prohibited within the Community,as provided in the Treaty.

2.

    The first and second paragraphs of Article 95 of the Treaty provide as follows:

'In all cases not provided for in this Treaty where it becomes apparent that adecision or recommendation of the Commission is necessary to attain, within thecommon market in coal and steel and in accordance with Article 5, one of theobjectives of the Community set out in Articles 2, 3 and 4, the decision may betaken or the recommendation made with the unanimous assent of the Council andafter the consultative Committee has been consulted.

Any decision so taken or recommendation so made shall determine what penalties,if any, may be imposed‘.

3.

    In order to meet the needs of restructuring the steel sector, the Commission reliedon the first two paragraphs of Article 95 of the ECSC Treaty in order to establish,as from the beginning of the 1980s, a Community scheme under which the grantof State aid to the steel industry could be authorized in a limited number of cases. That scheme has been subject to successive amendments in order to resolve thespecific economic difficulties of the steel industry. Thus, the Community Steel AidCode in force during the period under consideration in this case is the fifth in theseries, having been established by Commission Decision No 3855/91/ECSC of 27November 1991 establishing Community rules for aid to the steel industry (OJ 1991L 362, p. 57; hereinafter 'the Aid Code‘). The recitals in the preamble to thatdecision show that that code, like its predecessors, establishes a Community system,inasmuch as it is designed to cover aid, whether specific or non-specific, financedby Member States in any form whatsoever. The Code does not authorize eitheroperating or restructuring aid, save in the case of aid for closure.

The facts

4.

    In view of the deterioration of the economic and financial situation in the steelindustry, the Commission presented a restructuring plan to the Council and the

European Parliament on 23 November 1992 in its Communication SEC (92) 2160final entitled 'Towards greater competitiveness in the steel industry: the need offurther restructuring‘. That plan was based on the finding of structuralovercapacity and was aimed primarily at achieving, through the voluntaryparticipation of steel companies, a substantial and definitive capacity reduction ofthe order of at least 19 million tonnes. With that aim in view, it proposed a seriesof accompanying measures in the social field, together with financial incentivesincluding Community aid. In parallel with that plan, the Commission gave anexploratory mandate to an independent expert, Mr Braun, former Director Generalfor industrial affairs at the Commission, his essential task being to list projects forthe closure of steel undertakings over the period envisaged in the abovecommunication, which covered the years 1993 to 1995. On 29 January 1993 MrBraun, having contacted the heads of some 70 steel undertakings, submitted hisreport, entitled 'Current or Planned Restructuring in the Steel Industry‘.

5.

    In its Conclusions of 25 February 1993, the Council welcomed the broad outlinesof the programme submitted by the Commission following the Braun Report, witha view to achieving a substantial reduction in excess production capacity. Theenduring restructuring of the steel industry was to be facilitated by 'a package ofsupporting measures of limited duration which strictly comply with the rules oncontrol of State aid‘, it being understood in relation to such aid that 'theCommission [confirmed] its commitment to rigorous and objective application ofthe aids code and [would] ensure that any derogations proposed to the Councilunder Article 95 of the Treaty contribute fully to the required overall effort toreduce capacity. The Council [would] act promptly on [those] proposals, on thebasis of objective criteria‘.

6.

    Accordingly, the Council and the Commission indicated in their joint statemententered in the minutes of the Council meeting of 17 December 1993 — which referto the global agreement reached within the Council to grant assents under the firstand second paragraphs of Article 95 of the Treaty for State aid for the publicundertakings Sidenor (Spain), Sächsische Edelstahlwerke GmbH (Germany),Corporación de la Siderurgia Integral (CSI, Spain), Ilva (Italy), EKO Stahl AG(Germany) and Siderurgia Nacional (Portugal) — that they '[believed] that the onlyway to secure a healthy EC steel industry, able to compete on the world market,[was] to put a permanent end to State subsidization of the steel industry and toclose loss-making capacity. In giving its unanimous consent to the current Article95 proposals, the Council [reaffirmed] its commitment to a strict application of theSteel Aids Code [...] and, in the absence of authorization under the Code, Article4(c) of the ECSC Treaty. Without prejudice to the right of any Member State torequest a decision under Article 95 of the ECSC Treaty, and in accordance with theCouncil conclusions of 25 February 1993, the Council [declared] its firmcommitment to avoid any further Article 95 derogations in respect of aid for anyindividual companies‘.

7.

    On 22 December 1993 the Council gave its assent in accordance with the first twoparagraphs of Article 95 of the Treaty as regards the grant of the abovementionedaid intended to accompany the restructuring or privatization of the publicundertakings concerned.

8.

    It was against that legal and factual background and with a view to facilitatingfurther restructuring of the steel industry that, on 12 April 1994, following theCouncil's assent, the Commission adopted six ad hoc decisions on the basis of thefirst and second paragraphs of Article 95 of the Treaty, which authorize thegranting of State aid not meeting the criteria permitting derogation, pursuant to theAid Code, from Article 4(c) of the Treaty. In those six decisions the Commissionauthorized, respectively, grant of the aid which Germany planned to grant to EKOStahl AG, Eisenhüttenstadt (Decision 94/256/ECSC, OJ 1994 L 112, p. 45,hereinafter 'Decision 92/256‘), the aid which Portugal planned to grant toSiderurgia Nacional (Decision 94/257/ECSC, OJ 1994 L 112, p. 52), the aid whichSpain planned to grant to Corporación de la Siderurgia Integral (CSI) (Decision94/258/ECSC, OJ 1994 L 112, p. 58), the grant by Italy of State aid to the publicsteel sector (Ilva steel group) (Decision 94/259/ECSC, OJ 1994 L 112, p. 64), theaid which Germany planned to grant to Sächsische Edelstahlwerke GmbH,Freital/Sachsen (Decision 94/260/ECSC, OJ 1994 L 112, p. 71) and the aid whichSpain planned to grant to Sidenor, an undertaking producing special steels(Decision 94/261/ECSC, OJ 1994 L 112, p. 77).

9.

    Those authorizations were made the subject, in accordance with the Council'sassent, of 'obligations corresponding to net capacity reductions of at least 2 milliontonnes of crude steel and a maximum of 5.4 million tonnes of hot rolled products(disregarding the possible construction of a wide-strip mill at Sestão and anincrease in the capacity of EKO Stahl above 900 000 tonnes after mid-1999)‘ onthe basis of the Commission's communication to the Council and the EuropeanParliament of 13 April 1994 (COM(94) 125 final) presenting an intermediate reporton the restructuring of the steel industry and making suggestions for theconsolidation of that process in the spirit of the conclusion reached by the Councilof 25 February 1993, mentioned above.

Procedure

10.

    It was in those circumstances that, by application lodged at the Registry of theCourt of First Instance on 6 June 1994, the Association des Aciéries EuropéennesIndépendantes (EISA) applied under Article 33 of the Treaty for the annulmentof the six decisions of 12 April 1994 mentioned above.

11.

    By separate document received at the Registry of the Court of First Instance onthe same date, the applicant also applied under Article 39 of the Treaty for theapplication of Article 1 of the contested decisions to be suspended inasmuch as

those decisions declared the aid in question to be compatible with the orderlyfunctioning of the common market and therefore authorized it. That applicationwas dismissed by order of the President of the Court of First Instance of 15 July1994 (Case T-239/94 R EISA v Commission [1994] ECR II-703).

12.

    In parallel, two other actions were brought, one by British Steel plc againstDecisions 94/258 and 94/259 of 12 April 1994, mentioned above, respectivelyauthorizing the grant of State aid to CSI and to the Ilva steel group (CaseT-243/94), and the other by Wirtschaftsvereinigung Stahl, Thyssen Stahl AG,Preussag Stahl AG and Hoogovens Groep BV against Decision 94/259 authorizingthe granting of State aid to the Ilva steel group (Case T-244/94).

13.

    In these proceedings the Federal Republic of Germany, the Council, the ItalianRepublic and Ilva Laminati Piani Spa (hereinafter 'Ilva‘) lodged applications atthe Registry of the Court of First Instance dated 14, 24 and 28 October and 2November 1994 respectively for leave to intervene in support of the defendant. Byorders of 25 and 28 November and 15 December 1994 the President of the SecondChamber, Extended Composition, of the Court of First Instance granted thoseapplications.

14.

    On 21 December 1994 the Commission, by Decision 94/1075/ECSC concerning aidto be granted by Germany to the steel company EKO Stahl GmbH,Eisenhüttenstadt (OJ 1994 L 386, p. 18), withdrew the abovementioned Decision94/256 concerning that undertaking.

15.

    On 3 December 1996 the Court put to the Commission, under Article 64(3) of theRules of Procedure, a number of questions, to which it submitted answers withinthe time allowed.

16.

    Upon hearing the report of the Judge-Rapporteur, the Court of First Instancedecided to open the oral procedure without any preparatory enquiry. The partiespresented oral argument and answered questions put to them by the Court at thehearing on 25 February 1997.

Forms of order sought

17.

    The applicant claims that the Court of First Instance should:

—    annul Commission Decisions 94/256/ECSC to 94/261/ECSC of 12 April1994;

—    order the Commission to pay the costs.

18.

    The defendant, supported by the Council and the Italian Republic, contends thatthe Court of First Instance should:

—    dismiss the application;

—    order the applicant to pay the costs.

19.

    The Federal Republic of Germany contends that the Court should:

—    dismiss the application in so far as it seeks the annulment of Decisions94/256 and 94/260.

20.

    Ilva contends that the Court of First Instance should:

—    declare the application admissible but unfounded;

—    order the applicant to pay the costs in their entirety, including thoseincurred by Ilva.

Admissibility

Arguments of the parties

21.

    In support of the admissibility of its application, the applicant maintains that,contrary to the German Government's contention, it is an undertaking which isconcerned, within the meaning of the second paragraph of Article 33 of the Treaty,by the contested decisions (Joined Cases 172/83 and 226/83 Hoogovens vCommission [1985] ECR 2831 and Case C-180/88 Wirtschaftsvereinigung Eisen- und Stahlindustrie v Commission [1990] ECR I-4413). It also states that theproduction of several of its members competes directly with that of the twoGerman undertakings to which the aid in question has been granted and with thatof their purchasers.

22.

    The Federal Republic of Germany contests the locus standi of the applicant on theground that it has not shown that the contested decisions are harmful to its owninterests or to those of the undertakings which it represents. In particular, themembers of EISA are not in competition with EKO Stahl and SächsischeEdelstahlwerke, since it does not appear that they manufacture the same products.

Findings of the Court

23.

    It is necessary, before examining whether there is a bar to proceeding with thecase, as suggested by the Federal Republic of Germany, to consider whether in thelight of the Rules of Procedure it is permissible for that intervener to raise such amatter.

24.

    The defendant did not raise the question of inadmissibility during the writtenprocedure. Submissions made in an application to intervene are to be limited tosupporting the submissions of one of the parties (second paragraph of Article 34and the first paragraph of Article 46 of the ECSC Statute of the Court of Justice). Moreover, interveners must accept the case as they find it at the time of theirintervention (Article 116(3) of the Rules of Procedure).

25.

    It follows that the intervener, the Federal Republic of Germany, has no standingto submit that there is a bar to proceeding with the case and the Court of FirstInstance is not therefore required to consider the grounds of inadmissibility onwhich it relies (see in that connection Case C-313/90 CIRFS and Others vCommission [1993] ECR I-1125).

26.

    However, under Article 113 of the Rules of Procedure, the Court may at any timeof its own motion consider whether there exists any absolute bar to proceeding witha case, including any raised by the interveners (see in that connection Joined CasesC-305/86 and C-160/87 Neotype Techmashexport v Commission and Council [1990]ECR I-2945 and Case C-225/91 Matra v Commission [1993] ECR I-3203).

27.

    In this case the matter raised by the Federal Republic of Germany, in so far as itconcerns the applicant's locus standi and its access to certain remedies, gives riseto the question whether there is an absolute bar to proceeding with the case, and,in accordance with the abovementioned case-law, may therefore be considered bythe Court of its own motion.

28.

    In that context, the Court points out that according to settled case-law anassociation within the meaning of Article 48 of the Treaty, made up of undertakingsin the steel industry, whose purpose is to represent the common interests of itsmembers, is concerned — within the meaning of the second paragraph of Article 33of the Treaty — by decisions authorizing the payment of State aid to competingundertakings (see Wirtschaftsvereinigung Eisen- und Stahlindustrie v Commission,cited above, paragraph 23).

29.

    EISA is an association made up of independent European steel companies, so thatit may be presumed that State-owned steel undertakings receiving aid authorizedby the contested decisions are competitors of the members of EISA. As theapplicant has stated, it has not been disputed by the defendant or by theinterveners, with the exception of the Federal Republic of Germany, that theundertakings represented by EISA do in fact compete with the State-owned steelundertakings which benefited from the aid authorized by the contested decisions. As far as the Federal Republic of Germany is concerned, it merely contended that'it does not appear‘ that the members of EISA manufacture the same products asEKO Stahl or Sächsische Edelstahlwerke, without however putting forwardadequate arguments to call in question the status, as competitors, of theundertakings represented by EISA.

30.

    EISA's application must therefore be held to be admissible.

The subject-matter of the application for annulment

Arguments of the parties

31.

    The Federal Republic of Germany maintains that the application for annulment ofDecision 94/256 concerning EKO Stahl AG (hereinafter 'EKO‘) has becomedevoid of purpose since the Commission withdrew that decision by means ofDecision 94/1075 of 21 December 1994, cited above.

32.

    The applicant observes that, even if Decision 94/256 concerning EKO has beenwithdrawn by the Commission, the application for the annulment of that decisionis not thereby rendered devoid of purpose since the applicant has an interest insecuring a finding by the Court that the individual decisions authorizing the grantof operational State aid on the basis of the first and second paragraphs of Article95 of the Treaty are illegal, in order to prevent any repetition of that practice.

33.

    The Commission confirms that, by its Decision 94/1075 of 21 December 1994, citedabove, it 'withdrew and cancelled‘ its Decision 94/256 and that as a result theapplication for annulment regarding Decision 94/256 has become devoid of purposeand there is no need for the Court to adjudicate on it.

Findings of the Court

34.

    The Court considers that the applicant's view is unfounded. According to settledcase-law, it is inappropriate to adjudicate on an application for annulment wherethe contested decision has been withdrawn, rendering it inapplicable (see forexample the order of the Court of Justice in Case 75/83 Ferriere San Carlo vCommission [1983] ECR 3123). It is not disputed that the contested decision hasbeen withdrawn, thereby becoming inapplicable. The action for annulment byEISA against Decision 94/256 has therefore become devoid of purpose, and it isunnecessary to examine the reasons which prompted the Commission to withdrawthat decision.

35.

    Consequently, there is no need to adjudicate on that part of the application whichconcerns the annulment of Decision 94/256.

Substance

36.

    In support of its application for annulment the applicant puts forward two pleas inlaw, alleging, first, infringement of the Treaty and of the Aid Code and misuse ofpowers and, second, that the contested decisions are retroactive.

The first plea in law: infringement of the Treaty and of the Aid Code and misuse ofpowers

37.

    In support of its first plea in law the applicant alleges, first, failure to observe theprohibition of State aid laid down by the Treaty and the Aid Code and misuse ofpowers, second, infringement of the conditions for the application of the firstparagraph of Article 95 of the Treaty and, third, breach of the principle of non-discrimination laid down by the Treaty.

Arguments of the parties

38.

    The applicant states first that, in the contested decisions, the Commission expresslyrecognizes that the aid in question is incompatible with the Treaty and the AidCode. However, that institution was not entitled to derogate from the prohibitionof aid laid down by those instruments by basing itself on the first and secondparagraphs of Article 95 of the Treaty. The adoption of the contested decisionsinvolves what is in fact a modification of the Treaty and necessitated a prioramendment thereof, in accordance with the procedure laid down by Article N ofthe Treaty on European Union, following the repeal by Article H(21) of thatTreaty of Article 96 of the ECSC Treaty, with effect from 1 November 1993.

39.

    The applicant claims that, by granting a series of individual derogations withoutspecifying the circumstances which prompted it to depart from the provisions of theAid Code for the benefit of the five undertakings with which the contesteddecisions were concerned, the Commission purported to exercise a power whichwas excessively vague and general, going beyond any adjustment to the Treatycovered by either the first or the third or fourth paragraphs of Article 95 andwhich, in any event, does not allow any verification as to whether the conditions forthe application of those provisions are met.

40.

    In particular, the contested decisions do not relate to a case not covered by theTreaty: on the contrary, Article 4(c) of the Treaty expressly prohibits State aid. The applicant rejects the Commission's argument that the contested decisionsauthorize not State aid prohibited by Article 4(c) of the Treaty but Community aid. It submits that it is clear from the contested decisions that they approve nationalaid and not Community aid. It is clear that the Commission's action was limitedto authorizing the Member States concerned, under certain conditions, to grant totheir companies aid for which they themselves determine the amount and thedetailed arrangements, outside the Community context. By thus disregarding theprohibition of State aid laid down by the Treaty, even in pursuit of a purpose

purportedly in conformity with the objectives of the Treaty, the contested decisionsundermine the principle of a Community governed by the rule of law.

41.

    Accordingly, the applicant considers that the individual nature of the derogationsfrom the prohibition of State aid laid down by the Treaty, granted by the contesteddecisions, shows that they were intended not to deal with a case not provided forby the Treaty with a view to attaining the objectives laid down by the Treaty butrather to resolve the difficulties encountered by certain undertakings in complyingwith the Treaty rules, observance of which is required of their competitors. Thosedecisions in fact are intended to legalize certain State aid which could not fit intothe legal framework defined by the Treaty. Moreover, even if the problem herecould be regarded as not provided for by the Treaty, which the applicant denies,recourse to the first and second paragraphs of Article 95 of the Treaty to adoptindividual decisions in order to deal with a general problem constitutes a misuse ofpowers. Such recourse runs counter to one of the fundamental objectives of theTreaty, namely equality of treatment as between economic operators.

42.

    The applicant then submits that the conditions for the application of the firstparagraph of Article 95 of the Treaty are not met by the contested decisions. Byauthorizing operational aid, those decisions do not fit into the operationalframework of the common market for steel and do not pursue the attainment ofany Community objective. Moreover, they are not necessary for the purpose ofattaining the objectives pursued.

43.

    First, the applicant submits that the contested decisions do not fit into theoperational framework of the common market in steel and do not seek to attainany of the Community objectives defined in Articles 2, 3 and 4, as required by thefirst paragraph of Article 95 of the Treaty. The decisions are intended artificiallyto maintain excess production, through the grant of operational aid. In support ofthat view, the applicant states, first, that the contested decisions do not contain theinformation necessary to show that the restructuring plans presented by theMember States concerned are viable. The applicant also expresses doubts as to thevalue of the statement that the aid in question will be the last operating aidgranted, since in the past the Commission has already been prompted to defaulton such assurances. In that connection, it observes that, in its Conclusions of 17December 1993, the Council took care to state that it was without prejudice to theright of any Member State to seek a decision under Article 95 that it declared itselfto be resolved to avoid any further derogation for aid in favour of any givenundertaking. The applicant refers to the difficulties — which became apparent assoon as the first reports from the Member States were submitted, as is clear fromthe Commission communication to the Council and the European Parliament of 21June 1994, entitled 'Fresh impetus for restructuring the steel industry in theCommunity‘, referred to above — with which the Commission is confronted inmonitoring compliance with the conditions imposed by the contested decisions.

44.

    In those circumstances, the contested decisions run counter to attainment of mostof the objectives laid down in the abovementioned articles of the Treaty, byartificially maintaining unviable undertakings, thus perpetuating the excess capacitywhich gave rise to the structural crisis affecting the industry as a whole. Thus, theydo not enable conditions to be established under which the most rationaldistribution of production referred to in the second paragraph of Article 2 of theTreaty can be achieved. Moreover, the aid in question improves the position of thebeneficiary undertakings on the market, as a result of a policy of subsidized pricesand/or production. By contributing to artificial distortion of the conditions ofcompetition, the aid in question is not such as to ensure a price level allowing thenecessary amortization and a normal return on invested capital (Article 3(c) of theTreaty), maintenance of conditions which will encourage undertakings to expandand improve their production potential (Article 3(d)), harmonization of workingand living conditions for workers (Article 3(e)), the growth of international trade(Article 3(f)), or orderly expansion and modernization of production and theimprovement of quality (Article 3(g)). The grant of aid to certain steelundertakings severely undermines the viability of the other undertakings as a resultof artificially keeping their competitors in business. The applicant states that, whilstit is true that the Aid Code in force from 1980 to 1985 envisaged the possibility ofgranting operational aid, the effect of such aid on the competitive position ofundertakings was strictly limited at that time by the framework imposed onproduction and prices by the Commission from 1980 to 1988 under the system tobe established in times of manifest crisis referred to in Article 58 of the Treaty.

45.

    Secondly, the contested decisions are not necessary for attainment of the objectivespursued, as required by the first paragraph of Article 95 of the Treaty. Theapplicant rejects the Commission's argument that those decisions form part of ageneral policy of capacity reductions accompanied by supporting measures, in linewith the abovementioned Braun Report of 29 January 1993. Such a general policycould be implemented by existing legislative measures and regulations. Since theAid Code expressly authorizes aid for closure, a capacity reduction could have beenachieved by means of social supporting measures intended to reduce the burdensborne by undertakings in connection with closures. That, moreover, was thesolution advocated in the Braun Report which, according to the applicant, refersto the harmful consequences of financial intervention by the public authorities ofthe kind authorized in this case by the contested decisions. The applicant alsostates that it was never involved in the drawing up of the restructuring planapproved by the Council which, contrary to that institution's assertions, was notprepared 'jointly with the steel industry‘.

46.

    Finally, the applicant considers that the contested decisions involve discriminationbetween producers, contrary to Article 4(b) of the Treaty. It contests the view,first, that the closure of production capacity by the undertakings to which the aidis granted, referred to in Article 3 of the contested decisions, demonstrates thatthere is no discrimination between those undertakings and other producers in thesteel industry. In particular, the capacity reduction of 750 000 tonnes per year for

each ECU 1 000 million of aid granted, imposed by the contested decisions, isparticularly favourable if compared with the ratio of 516 000 tonnes perECU 400 000, which will not be paid until after closure, adopted in discussionsbetween the Commission and Bresciani, a private Italian steel undertaking. Furthermore, it is clear from the table relating to the capacity reductions providedfor in the contested decisions, as produced by the Commission, that most of theclosures are scheduled for the end of the period over which the aid is granted. During that period the competitiveness of the beneficiary undertakings will thus beartificially increased. Moreover, certain reductions are substantially offset by newinvestments. The latter involve an increase of 900 000 tonnes capacity both for CSIand for Siderurgia Nacional. Also, other reductions relate to capacity which isnominal rather than real. That applies to Ilva as regards at least 300 000 tonnes.

47.

    The applicant states, furthermore, that the discrimination derives also from the factthat the beneficiary undertakings may, when being reorganized, reduce theirfinancing costs to a minimum of 3.5% of annual turnover, which corresponds to theaverage for Community steel undertakings (Article 4 of Decision 94/256 and Article3 of the other contested decisions). The contested decisions thus make it possibleartificially to reduce to the Community average the financing costs of non-viableundertakings which, as a result, will have a significantly higher level of indebtedness. The applicant adds that the discrimination alleged by it cannot be imputed to theMember States concerned, as the Commission suggests, even if the aid in questioncomes from those States. Before taking any decision based on the first and secondparagraphs of Article 95, the Commission is required to ensure that it involves nodiscrimination contrary to the objectives laid down in Article 4(b) of the Treaty.

48.

    The Commission, supported by the interveners, denies that the aid authorized bythe contested decisions is incompatible with the Treaty. It concedes that the aid,as notified by the Member States concerned, was incompatible with the Treaty byvirtue of Article 4(c) thereof and the Aid Code, as national aid, in view of the factthat it did not come within the scope of that provision. It states, however, that theaid in question 'became Community aid‘ as a result of the contested decisionsauthorizing it on the basis of the first and second paragraphs of Article 95, after theimposition of strict conditions, so that such aid may be regarded as compatible withthe functioning of the common market.

49.

    The Commission explains that it was empowered to adopt the contested decisionson the basis of the first and second paragraphs of Article 95 of the Treaty. Itcontends that, in spite of the adoption of increasingly strict Steel Aid Codes, theCommunity steel industry has, since the beginning of the 1990s, gone through 'itsmost difficult period since the first half of the 1980s‘, as indicated in the preamblesto the five contested decisions. In its judgment in Case 214/83 Germany vCommission [1985] ECR 3053, the Court of Justice recognized that a crisis situationis a situation not provided for by the Treaty and may justify intervention under thefirst and second paragraphs of Article 95 thereof. The only limitation which the

Court of Justice placed on Commission action lies in the fact that it 'cannotapprove aid the grant of which may result in manifest discrimination between thepublic and private sectors. In such a case the grant of aid would involve distortionof competition to an extent contrary to the common interest‘ (Case 304/85 Falck v Commission [1987] ECR 871, paragraph 27). In this case, the aid authorizedby the contested decisions does not involve any discrimination, particularly since theCommission made the authorization of it subject to the condition that the netfinancing costs of the beneficiary undertakings were not to be less than 3.5% (or3.2% in the case of AST) of their annual turnover, corresponding to the presentaverage for Community steel undertakings. Furthermore, by making authorizationof the aid in question subject to proportional offsetting measures, in the form ofsubstantial capacity reductions, the contested decisions form part of an overallrestructuring plan which was implemented also in the interests of privateundertakings.

50.

    The Commission states that the applicant does not deny that Community aid maybe granted on the basis of Article 95 of the Treaty under general decisions. Theonly question which arises is therefore whether aid for partial closures, which wasnot available under the Aid Code, could be the subject of individual approvaldecisions based on those provisions. An ad hoc approval, under the procedureestablished by Article 95, is possible provided that it pursues the same aim and issubject to the same conditions as aid authorized under the successive Aid Codes. The Commission considers that to be the case here, since the contested decisionsimpose the three essential conditions associated with the grant of State aid in thesteel industry, in accordance with the practice consistently followed by theCommission since 1980. In particular, the Commission verified, on the basis ofreports drawn up by independent experts in most cases, that the aid authorizedwould guarantee the financial viability of the beneficiary undertaking. The amountof aid was limited to what was strictly necessary. Finally, the aid was offset bycapacity reductions proportionate to the amount of the aid, so as to serve thecommon interest.

51.

    In those circumstances, the Commission rejects the view that the power exercisedby it in adopting the contested decisions was too vague and general to come withinthe framework defined by Article 95 of the Treaty. It concedes that, as theapplicant says, 'the contested decisions do not set up a regulatory frameworkallowing all undertakings in the objective circumstances described by the rules tobenefit from a derogation from the prohibition laid down in Article 4(c) of theTreaty.‘ However, those individual decisions are based on the same logic as thevarious codes introduced since 1980 and impose sufficiently clear and preciseconditions, so that the complaints put forward by the applicant have no basis.

52.

    In particular, the Commission contends that, contrary to the applicant's assertions,the contested decisions pursue the attainment of Community objectives, as requiredby the first and second paragraphs of Article 95 of the Treaty. It points out thatit made provision, on the basis of the Braun Report, mentioned above, for two

parallel and complementary actions consisting of, first, preparation of a capacityreduction programme covering at least 19 million tonnes and, second, theintroduction of supporting measures relating to social aspects, improvement ofstructures, and stabilization of the market and external relations on the basis of theexisting rules, in particular the Aid Code and Articles 46, 53(a) and 56 of theTreaty (Annex 9 to the defence), in order to facilitate implementation of thatprogramme. Being concerned with the progressive elimination of excess capacityas part of an overall plan, the reorganization of the undertakings concerned and,therefore, the preservation of thousands of jobs, the contested decisions pursue theobjectives defined in Articles 2 and 3 of the Treaty.

53.

    The Commission also rejects the applicant's criticisms concerning the proceduresfor supervision. It contends in particular that the reports from the Member Statesare not relevant because the validity of a decision cannot be affected by steps takenafter its adoption.

54.

    For its part, the Council states that the contested decisions constitute an essentialpart of the restructuring plan drawn up by the Commission in consultation with thesteel industry in view of the new difficulties which have emerged in the steel sector. The contested decisions relate to aid which, although not provided for by theTreaty, contributes to the attainment of its objectives, in particular recovery of themarket through partial closures of production plant as part of a definitive capacityreduction programme. The aid in question should therefore be regarded asCommunity aid, not prohibited by Article 4(c) of the Treaty, which prohibits Stateaid for the sole reason that such aid might in principle give rise to distortions ofcompetition contrary to the objectives of the Treaty. In this case, that provisiondoes not therefore raise any obstacle to authorization of the aid at issue under thefirst paragraph of Article 95 of the Treaty. By adopting the contested decisions,the Commission did not exceed the powers conferred on it by that article.

55.

    The Federal Republic of Germany states that the contested decisions form part ofthe present programme for restructuring of the Community steel industry adoptedby the Council in its Conclusions of 25 February 1993. They are properly based onthe first and second paragraphs of Article 95 of the Treaty since they relate to asituation not provided for by the Treaty or the Aid Code, not only because of thedeterioration of the situation on the steel market but also because the Germanundertakings concerned were subject, before the end of 1990, to a controlled andplanned economy. The German Government also draws attention to the parallelbetween the Aid Code and the contested decisions as regards pursuit of thefundamental objectives of the Treaty. In both cases, it is for the Member State todecide, in accordance with the national rules, whether to grant aid funded by thenational budget and to choose the beneficiary undertakings, even where the aid isallocated under the Aid Code. As regards the capacity reduction imposed by thecontested decisions, they are in line with the usual ratio of 750 000 tonnes for each1 000 million ecus of aid. Moreover, those decisions do not place the beneficiary

undertakings in a privileged situation as compared with competing undertakings,since they limit the amount of aid authorized to what is strictly necessary, preventany alleviation of indebtedness beyond the usual level in the industry and providefor appropriate self-financing by private investors.

56.

    The Italian Republic, for its part, maintains that the aid in question is notincompatible with the common market in steel since it is clearly necessary forattainment of the Community objectives laid down in Articles 2, 3 and 4 of theTreaty. It explains that intervention funded from State resources is not in itselfcontrary to the Treaty provided that it pursues the objectives defined by the Treaty. In particular Article 4, which treats State aid in the same way as customs duties andquantitative restrictions, prohibits the grant of State aid only in the framework ofa State policy for the protection of national undertakings. The lack of any generalprohibition of State aid is confirmed by the fact that Article 5 of the Treatyincludes financial support measures for undertakings among the means availableto the Community for the accomplishment of its task. According to the ItalianGovernment, the criterion for determining whether aid is lawful relates not to thesource from which it is funded, namely the State or the Community, but to itsconformity with the objectives of the Treaty. In this case, the serious crises in theEuropean steel industry made action by the Community necessary in order tosafeguard both production and employment. In those circumstances, in the absenceof specific rules in the Treaty, the Commission was empowered to rely on the firstparagraph of Article 95 of the Treaty to authorize the aid in question.

57.

    Ilva maintains that, in accordance with the case-law of the Court of Justice, thepurpose of the first paragraph of Article 95 of the Treaty is to establish a systemfor special derogations from the Treaty in order to enable the Commission to copewith unforeseen situations which justify case-by-case temporary adjustments to theTreaty either in the form of a single individual measure or in the form of a decisioncreating a regulatory framework to cover an unspecified number of cases. In thatconnection, the adoption of a general regulatory framework is not always necessary,where the situation does not demand it, as the text of the first paragraph of Article95 makes no reference to it. In any event, in this case, such a framework isprovided by the abovementioned Council resolution of 25 February 1993. Accordingly, Ilva contends that the Aid Code cannot be seen as exhaustive. Its solefunction is to determine the fundamental conditions under which certain specificcategories of aid can be regarded as compatible with the Treaty. It does not in anyway bar the adoption of supplementary decisions authorizing aid not falling withinthose categories or not fulfilling the prescribed conditions where, after a detailedexamination of the aid, the Commission considers that it is conducive to attainmentof one of the Treaty objectives and that the other conditions for application of thefirst paragraph of Article 95 are fulfilled.

58.

    In this case, the aid in question facilitates restructuring of the undertakingsconcerned and reduction of production capacity. It thereby helps to ensure thatthe economies of the Member States do not suffer fundamental and persistent

disturbances, in accordance with the second paragraph of Article 2 of the Treaty. Moreover, reorganization of the undertakings concerned enables thousands of jobsto be preserved, an aim which corresponds to the second paragraph of Article 2and Article 3(e) of the Treaty, and the effectiveness of their production facilitiesto be maximized, an objective set by Article 3(d) and (g), in observance of theprinciples of sound economic management laid down in Article 3(c).

59.

    Finally, Ilva does not agree that the aid in question is discriminatory. Thecircumstances of the beneficiaries of the aid authorized by the contested decisionsdiffered sufficiently from those of their competitors when the aid was authorized,and, according to settled case-law (Germany v Commission, cited above), there istherefore no discrimination in such a situation. In any event, any suchdiscrimination would not be attributable to the Commission but rather to theMember States, which must take the initiative to ask the Commission to authorizeaid (Falck v Commission, cited above).

Findings of the Court

— The alleged breach of the prohibition of State aid, and misuse of powers

60.

    The applicant submits essentially that, by authorizing the aid in question in theindividual decisions, the Commission used the powers conferred on it by the firstand second paragraphs of Article 95 of the Treaty in order to evade the prohibitionof State aid laid down by the Treaty and by the Aid Code. Its view is based on thepremiss that that code — the validity of which it does not formally contest — definesin a binding and exhaustive manner the categories of State aid which may beauthorized.

61.

    It is appropriate first to consider the legal context of the contested decisions. Article 4(c) of the Treaty prohibits, in principle, State aid within the EuropeanCoal and Steel Community to the extent to which it is liable to undermineattainment of the essential objectives of the Community laid down by the Treaty,in particular the establishment of conditions of free competition. According to thatprovision, '[t]he following are recognized as incompatible with the common marketfor coal and steel and shall accordingly be abolished and prohibited within theCommunity, as provided in this Treaty: ... ((c) subsidies or aids by States ... in anyform whatsoever‘.

62.

    However, the existence of such a prohibition does not mean that all State aidwithin the sphere of the ECSC must be regarded as incompatible with theobjectives of the Treaty. Article 4(c), interpreted in the light of all the objectivesof the Treaty, as defined by Articles 2 to 4 thereof, is not intended to impede thegrant of State aid capable of contributing to attainment of the objectives of theTreaty. It reserves to the Community institutions the right to assess the

compatibility with the Treaty and, if appropriate, to authorize the grant of such aid,in the area covered by the Treaty. That analysis is confirmed by the judgment inCase 30/59 De Gezamenlijke Steenkolenmijnen in Limburg v High Authority [1961]ECR 1, in which the Court of Justice held that, just as certain non-State financialassistance to coal- and steel-producing undertakings can be allocated only by theCommission or with its express authorization, Article 4(c) must similarly beinterpreted as conferring on the Community institutions exclusive competence withregard to aid within the Community (grounds of judgment, B.I.1.(b), sixthparagraph, p. 22).

63.

    In the scheme of the Treaty, Article 4(c) does not therefore prevent theCommission from authorizing, by way of derogation, aid envisaged by the MemberStates and compatible with the objectives of the Treaty, on the basis of the first andsecond paragraphs of Article 95, in order to deal with unforeseen situations (seeCase 9/61 Netherlands v High Authority [1962] ECR 213).

64.

    The abovementioned provisions of Article 95 empower the Commission to adopta decision or a recommendation, with the unanimous assent of the Council andafter the ECSC Consultative Committee has been consulted, in all cases notprovided for by the Treaty in which such a decision or recommendation appearsnecessary in order to attain, within the common market in coal and steel and inaccordance with Article 5, one of the objectives of the Community set out inArticles 2, 3 and 4. They provide that any decision or recommendation so madeis to determine what penalties, if any, may be imposed. It follows that, to theextent to which, by contrast with the EC Treaty, the ECSC Treaty confers on theCommission or the Council no specific power to authorize State aid, theCommission is empowered, by the first and second paragraphs of Article 95, totake all measures necessary to attain the objectives of the Treaty and, therefore,to authorize, under the procedure thereby established, such aid as seems to it tobe necessary to attain those objectives.

65.

    The Commission is thus competent, in the absence of any specific Treaty provision,to adopt any general or individual decision necessary for attainment of theobjectives of the Treaty. The first and second paragraphs of Article 95, whichconfer that power upon it, do not give any specific indication of the scope of thedecisions which the Commission may adopt. In those circumstances, it is for theCommission to assess in each case which of the two kinds of decision, general orindividual, is the most appropriate to attainment of the objectives pursued.

66.

    In the sphere of State aid, the Commission has used the legal instrumentconstituted by the first and second paragraphs of Article 95 of the Treaty in twodifferent ways. First, it has adopted general decisions — the 'Aid Codes‘ — allowinga general derogation from the prohibition of State aid regarding certain specifiedcategories of aid. Secondly, it has adopted individual decisions authorizing certaintypes of specific aid on an exceptional basis.

67.

    In this case, the problem is, therefore, to determine the respective object and scopeof the Aid Code and of the contested individual decisions.

68.

    It should be borne in mind that the aid code applicable in the period covered bythe contested decisions was established by Commission Decision No 3855/91 of 27November 1991, cited above. This was the Fifth Aid Code which, as provided inArticle 9 thereof, entered into force on 1 January 1992 and applied until 31December 1996. Based on the first and second paragraphs of Article 95 of theTreaty, that code was expressly stated to continue the series of earlier codes (see,in particular, Commission Decisions Nos 3484/85/ECSC of 27 November 1985 and322/89/ECSC of 1 February 1989 establishing Community rules for aid to the steelindustry, OJ 1985 L 340, p. 1 and OJ 1989 L 38, p. 8 respectively), by reference towhich it may therefore be interpreted. It may be seen from its preamble (see inparticular point I of the grounds of Decision No 3855/91) that it was intended inthe first place 'not to deprive the steel industry of aid for research anddevelopment or for bringing plants into line with new environmental standards‘. In order to reduce production overcapacity and restore balance to the market, italso authorized, under certain conditions, 'social aid to encourage the partialclosure of plants or finance the permanent cessation of all ECSC activities by theleast competitive enterprises‘. Finally, it expressly prohibited operating orinvestment aid, with the exception of 'regional investment aid in certain MemberStates‘. The possibility of such regional aid was available to undertakingsestablished in Greece, Portugal or the former German Democratic Republic.

69.

    The five decisions at issue, for their part, were adopted by the Commission on thebasis of the first and second paragraphs of Article 95 of the Treaty for the purpose,according to the preambles to those decisions, of facilitating the restructuring ofpublic steel undertakings experiencing serious difficulties in the Member Statesconcerned, in which the steel industry was experiencing its worst crisis as a resultof the severe deterioration of the Community steel market. The essential aim ofthe aid in question was privatization of the beneficiary undertakings. TheCommission made clear in the contested decisions that the very difficult economicsituation confronting the Community steel industry was accounted for by largelyunforeseeable economic factors. It considered therefore that it was facing anexceptional situation not specifically provided for in the Treaty (point IV of thegrounds).

70.

    A comparison of the Fifth Aid Code with the contested decisions thus makes itclear that those various measures have the same legal basis, namely the first andsecond paragraphs of Article 95 of the Treaty, and derogate from the generalprohibition of aid laid down as a principle by Article 4(c) of the Treaty. Theirscope is different: the Code refers in general to certain categories of aid which itregards as compatible with the Treaty and the contested decisions authorize, forexceptional reasons and on one occasion only, aid which could not in principle beregarded as compatible with the Treaty.

71.

    In that light, the applicant's view that the Commission was not empowered toderogate, by individual decisions, from the prohibition of State aid laid down,according to the applicant, not only by Article 4(c) of the Treaty but also by theAid Code, cannot be upheld. The Code constitutes a binding legal framework onlyfor the types of aid enumerated by it which are compatible with the Treaty. Inrelation thereto, it establishes a comprehensive system intended to ensure uniformtreatment, in the context of a single procedure, for all aid within the categorieswhich it defines. The Commission is only bound by that system when assessing thecompatibility with the Treaty of aid covered by the Code. It cannot thereforeauthorize such aid by an individual decision conflicting with the general rulesestablished by that code (see Case 113/77 NTN Toyo Bearing and Others v Council [1979] ECR 1185 (the 'ball bearings case‘); Case 118/87 ISO v Council [1979]ECR 1277; Case 119/77 Nippon Seiko and Others v Council [1979] ECR 1303; Case120/77 Koyo Seiko and Others v Council and Commission [1979] ECR 1337; Case121/77 Nachi Fujikoshi and Others v Council [1979] ECR 1363 and Joined Cases140/82, 146/82, 221/82 and 226/82 Walzstahl-Vereinigung and Thyssen v Commission[1984] ECR 951, and Joined Cases 33/86, 44/86, 110/86, 226/86 and 285/86 Peine-Salzgitter and Hoogovens v Commission [1988] ECR 4309, and CIRFS and Othersv Commission, cited above).

72.

    Conversely, aid not falling within the categories specially referred to by theprovisions of the Code may benefit from an individual derogation from thatprohibition if the Commission considers, in the exercise of the discretion which itenjoys under Article 95 of the Treaty, that such aid is necessary for attainment ofthe objectives of the Treaty. The Aid Code is only intended to authorize generally,and subject to certain conditions, derogations from the prohibition of aid for certaincategories of aid which it lists exhaustively. The Commission is not competentunder the first and second paragraphs of Article 95 of the Treaty, which areconcerned only with cases not provided for by the Treaty (see Netherlands v High Authority, cited above, paragraph 2), to prohibit certain categories of aid, sincesuch a prohibition is already imposed by the Treaty itself, in Article 4(c). Aid notfalling into categories which the Code exempts from that prohibition thus remainssubject exclusively to Article 4(c). It follows that, where such aid neverthelessproves necessary to attain the objectives of the Treaty, the Commission isempowered to rely on Article 95 of the Treaty in order to deal with thatunforeseen situation, if need be by means of an individual decision (see paragraphs32 to 36 above).

73.

    In this case, the decisions at issue — authorizing State aid for the restructuring oflarge public steel-making groups in certain Member States — do not fall within thescope of the Aid Code. The latter introduces, under certain conditions, derogationsof general scope from the prohibition of State aid solely in cases of aid for researchand development, aid for environmental protection, aid for closures and regionalaid for steel undertakings established on the territory or part of the territory ofcertain Member States. However, the operating aid and restructuring aid at issuein this case manifestly fall within none of the abovementioned categories of aid.

It follows that the derogations authorized by the contested decisions are not subjectto the conditions laid down in the Aid Code and therefore supplement it for thepurpose of pursuing the objectives set out in the Treaty (see paragraphs 77 to 83below).

74.

    In those circumstances, the contested decisions cannot be regarded as unjustifiedderogations from the Fifth Aid Code but constitute measures based, like that code,on the first and second paragraphs of Article 95 of the Treaty.

75.

    It follows that the applicant's view that the contested decisions were adopted inorder to favour the undertakings to which the aid in question was granted, bymodifying the Aid Code in a disguised manner, has no basis. The Commissioncould not in any circumstances, by adopting the Aid Code, relinquish the powerconferred on it by Article 95 of the Treaty to adopt individual measures in orderto deal with unforeseen situations. Since in this case the Code does not cover theeconomic situation which prompted it to adopt the contested decisions, theCommission was entitled to rely on Article 95 of the Treaty in order to authorizethe aid in question, provided that it observed the conditions for the application ofthat provision.

76.

    For all the foregoing reasons, the allegations of breach of the prohibition of Stateaid, and misuse of powers, must be rejected.

— The alleged infringement of the first paragraph of Article 95 of the Treaty

77.

    It must be borne in mind at the outset that, as held earlier in this judgment, theCommission is empowered, by virtue of the first and second paragraphs of Article95 of the Treaty, to authorize State aid within the Community whenever theeconomic situation in the steel industry renders the adoption of measures of thatkind necessary with a view to attainment of one of the objectives of theCommunity.

78.

    That condition is fulfilled in particular where the sector concerned is experiencingexceptional situations of crisis. In that connection, the Court of Justice emphasizedin its judgment in Case 214/83 Germany v Commission [1985] ECR 3053, paragraph30, that 'there is a close link, for the purposes of the implementation of the ECSCTreaty, between the granting of aid to the steel industry and the restructuring whichthat industry is required to undertake‘. The Commission, for the purpose of suchimplementation, considers in its discretion whether aid intended to accompany therestructuring measures is compatible with the fundamental principles of the Treaty.

79.

    In this case, it is not disputed that, at the beginning of the 1990s, the Europeansteel industry was beset with a sudden and serious crisis through the combinedeffect of several factors such as the international economic recession, loss of

traditional export outlets, a steep increase in competition from steel industries indeveloping countries and the rapid growth of Community imports of steel productsfrom the member countries of the Organization of Petroleum Exporting Countries(OPEC). It is against the background of that crisis that, in this case, it should beconsidered whether the aid in question was necessary, as required by the first andsecond paragraphs of Article 95 of the Treaty, with a view to attaining thefundamental objectives of the Treaty.

80.

    The contested decisions clearly indicate, in point IV of their grounds, that theirpurpose is to reorganize the steel industry in the Member States concerned, andthereby to contribute to attainment of the objectives laid down in Articles 2 and 3of the Treaty. To that end, they seek to provide a sound and viable structure forthe undertakings receiving the aid which they authorized.

81.

    In that regard, the applicant questions whether the contested decisions were reallyintended to restore the viability of the beneficiary undertakings, on the grounds,first, that they did not contain the necessary information to show that therestructuring plans notified by the Member States concerned were capable ofrestoring such viability and, second, that there was no guarantee that theCommission would not subsequently authorize the grant of further aid to the sameundertakings, as had already occurred in the past. Those assertions must berejected.

82.

    The antecedents to the contested decisions and the statement of the reasons onwhich those decisions are based reveal a thorough analysis of the present crisis inthe European steel industry and of the most appropriate means for dealing with it. The Commission directed that an investigation be carried out by an independentexpert, Mr Braun, whose task was to list plans for the closure of steel undertakings;his report was submitted on 29 January 1993. That report corroborates theinformation contained in the communication from the Commission to the Councilof 23 November 1992 (see paragraph 4 above). Moreover, it is clear fromdocuments before the Court that the Commission, with the assistance of outsideexperts, considered very carefully the restructuring plans accompanying the aidprogrammes envisaged by the Member States concerned in terms of their capacityto ensure the viability of the beneficiary undertakings (point III of the grounds ofeach of the contested decisions). Furthermore, the communications from theCommission to the Council in the course of the procedure which led to theadoption of the contested decisions also contain a detailed examination of theconditions under which the beneficiary undertakings would be viable.

83.

    Moreover, the contested decisions clearly indicate the principal aspects of therestructuring plans intended to be implemented through the grant of the aid inquestion. They show that the aid is intended to facilitate privatization of the State-owned undertakings receiving it, or of some of their plants, the closure ofunprofitable facilities, the reduction of certain excess capacity and the shedding ofjobs — accompanied, where appropriate, by social measures designed to ensure a

balance between considerations of a social nature and requirements linked with thefuture profitability of the undertakings concerned. Those various aspects are dealtwith in a precise and detailed manner (see point II of the grounds of the contesteddecision). All those aspects, taken together, show that the contested decisions seekto provide the undertakings concerned with a sound and profitable structure.

84.

    In those circumstances, the suggestion — referring only to the ineffectiveness ofcertain earlier aid, without any examination of the specific restructuring measuresprovided for in the contested decisions with a view to ensuring the viability of thebeneficiary undertakings — that the aid in question will probably not be capable ofproducing the intended results constitutes nothing more than purely speculative andhypothetical conjecture. As to the applicant's arguments concerning matters post-dating the adoption of the contested decisions, mentioned in particular in theCommunication of 21 June 1994, they are in any event — even if well founded,which has not been established — irrelevant to any assessment of the propriety ofthose decisions, which cannot be affected by circumstances arising after theiradoption.

85.

    It having been established that the contested decisions are in fact intended toensure the viability of the beneficiary undertakings, it should be verified whether,in the context of the crisis experienced by the steel industry (see paragraphs 77 to79 above), that aim falls within the scope of the objectives laid down in Articles 2and 3 of the Treaty, specifically referred to in the grounds of those decisions.

86.

    Against that background, it must be borne in mind first of all that, in view of thediversity of the objectives determined by the Treaty, the Commission's role consists,according to settled case-law, in ensuring that those various objectives arereconciled at all times, exercising the discretion available to it in order to meet therequirements of the common interest (see Case 9/56 Meroni v High Authority [1958]ECR 133, at p. 173, Case 8/57 Groupement des Hauts Fourneaux et Aciéries Belgesv High Authority [1958] ECR 245, at p. 253, and Joined Cases 351/85 and 360/85Fabrique de Fer de Charleroi and Dillinger Hüttenwerke v Commission [1987] ECR3639, paragraph 15). In particular, in Joined Cases 154/78, 205/78, 206/78, 226/78,227/78, 228/78, 263/78, 264/78, 31/79, 39/79, 83/79 and 85/79 Valsabbia and Others v Commission [1980] ECR 907, paragraph 55, the Court of Justice held '[i]f theneed for a compromise between the various objectives is imperative in a normalmarket situation, it must be accepted a fortiori in the state of crisis justifying theadoption of exceptional measures which derogate from the normal rules governingthe working of the common market in steel and which clearly entail non-compliancewith certain objectives laid down by Article 3, if only that objective (contained inparagraph (c)) which requires that the establishment of the lowest prices beensured‘.

87.

    In this case, the Court finds that the contested decisions reconcile various objectivesof the Treaty, with a view to safeguarding important interests. The rationalization

of the European steel industry through the restructuring of certain groups, theclosure of obsolete or uncompetitive plant, the reduction of excess capacity,privatization of certain undertakings in order to ensure their viability and theshedding of jobs — to use the Commission's words — within 'reasonable‘ limits,mentioned in those decisions contribute to attainment of the objectives of theTreaty, having regard to the sensitive nature of the steel industry and the fact thatcontinuation, or indeed aggravation, of the crisis was liable to give rise to extremelyserious and enduring disturbances of the economies of the Member Statesconcerned. It is not disputed that the industry is of essential importance in anumber of Member States by reason of the location of steel plants in regions wherethere is low employment and the importance of the economic interests at stake. In those circumstances, any decisions to close plant and shed jobs, and the transferof control of the undertakings concerned to private companies acting exclusively inaccordance with the logic of the market, would have been likely to create, withoutsupport measures by the public authorities, difficulties of the gravest publicimportance, particularly by exacerbating the problem of unemployment andcreating the risk of a major economic and social crisis.

88.

    In those circumstances the contested decisions, by seeking to resolve thosedifficulties by reorganizing the steel groups in question, are incontestably designedto safeguard 'continuity of employment‘ and to avoid provoking 'fundamental andpersistent disturbances in the economies of the Member States‘, as required by thesecond paragraph of Article 2 of the Treaty. Moreover, they pursue the objectivesembodied in Article 3 concerning, inter alia, 'maintenance of conditions which willencourage undertakings to expand and improve their production potential‘(paragraph (d)) and the promotion of 'orderly expansion and modernization ofproduction, and the improvement of quality, with no protection against competingindustries‘ (paragraph (g)). They are designed to rationalize the European steelindustry, in particular through definitive closure of obsolete or uncompetitive plantand the irreversible reduction of production capacity for certain products with aview to dealing with excess capacity (see Article 2 of the contested decisions). They form part of a comprehensive programme for restructuring the steel industryon an enduring basis and reduction of production capacity in the Community (seeparagraphs 4 to 6 above). Accordingly, it must be emphasized that the aim of theaid in question is not simply to ensure the survival of the beneficiary undertaking— which would run counter to the common interest — but to restore its viabilitywhilst keeping the impact of the aid on competition to a minimum and ensuringcompliance with the rules of fair competition.

89.

    It follows that the contested decisions are intended to safeguard the commoninterests, in accordance with the objectives of the Treaty. The applicant's view thatthose decisions are incompatible with most of the objectives defined in Articles 2and 3 of the Treaty must therefore be rejected.

90.

    As regards the applicant's argument that the aid in question is unnecessary for theattainment of the objectives pursued, it too must be rejected. It is apparent from

the file that the five contested decisions form part of an overall restructuringprogramme for the steel industry and for reduction of production capacity in theCommunity (see paragraphs 4 to 6 above). The Commission cannot be criticizedfor failing, within the framework of that programme, to use other means involvingallegedly less distortion of competition than the aid at issue, with a view to re-establishing the viability of the undertakings concerned. Even if alternativesolutions were evisageable and practicable, which has not been established, theexistence of such options is not in itself sufficient to show that the aid in questionwas not necessary within the meaning of the first paragraph of Article 95 of theTreaty and to vitiate the contested decisions, since the course followed by theCommission is not affected by any manifest error of assessment or any misuse ofpowers. It is not for the Court of First Instance to review the appropriateness ofthe choice made by the Commission, since to do so might involve substituting itsown assessment of the facts for that made by the Commission.

91.

    It follows from the foregoing that the applicant has not put forward any convincingargument such as to render it questionable whether the contested decisions wereadopted in accordance with the conditions laid down by the first and secondparagraphs of Article 95 of the Treaty.

— The alleged breach of the principle of non-discrimination

92.

    According to the applicant, the discriminatory nature of the contested decisionsderives in particular from the fact that, first, they do not impose sufficient capacityreductions in return for the aid in question and, secondly, they enable thebeneficiary undertakings to reduce their indebtedness.

93.

    As regards, first, the capacity reductions, it must be borne in mind that, as held bythe Court of Justice, no 'exact quantitative ratio‘ has to be established between the'amount of the aid and the size of the required cuts in production capacity‘ (see,to that effect, Germany v Commission, cited above, paragraph 33). On thecontrary, the factors which are liable to influence the exact amount of the aid tobe authorized 'do not consist simply in a number of tonnes of production capacityhaving to be cut; there are other factors, too, which vary from one region of theCommunity to another,‘ such as the restructuring effort made, the regional andsocial problems occasioned by the crisis in the steel industry, technical change andthe adaptation of undertakings to suit market requirements (ibid., paragraph 34). It follows that the Commission's assessment cannot be subjected to a review basedsolely on economic criteria. The Commission may legitimately take account of awide variety of political, economic and social considerations in exercising itsdiscretion under Article 95 of the Treaty.

94.

    In this case, it must be held that, in the five contested decisions, the Commissionexpressly emphasizes that the aid in question must be limited to what is strictly

necessary so as not to change conditions of competition to an extent contrary to thecommon interest. From this it infers that it is important to lay down adequatecounterpart measures, commensurate with the amount of aid being exceptionallyapproved, so that a major contribution is made to the structural adjustmentrequired in the sector.

95.

    Accordingly, in point V of the grounds of the contested decisions it determines theextent, the arrangements and the timetable for the plant closures and capacityreductions imposed on the beneficiary undertakings, referring where necessary tothe restructuring plan notified by the Member State concerned. It should be notedin that connection that the applicant has put forward no argument to show that theclosures or capacity reductions in question are inadequate having regard to thelevel of aid authorized and the objectives pursued.

96.

    In particular, the applicant's comparison between the capacity reduction of 750 000tonnes per year per ECU 1 000 million of aid paid, in the contested decisions, onthe one hand, and that of 516 000 tonnes for ECU 400 000 of aid, adopted in thediscussions between the Commission and the Italian State-owned steel undertakingBresciani, on the other, is irrelevant, because it takes no account of the specialcircumstances of the undertakings in receipt of the aid in this case and the specificfeatures of the contested decisions, which were adopted to cope with an exceptionalcrisis, on the basis of the first paragraph of Article 95 of the Treaty, as already held(see paragraphs 87 and 89 above). Similarly, the complaint that most of theclosures were scheduled, in the decisions, for the end of the period of payment ofthe aid is unfounded. In determining the time-limit for closure, the Commissioncould legitimately take account of the purpose of the aid, which was to restore theviability of the undertakings in question. Moreover, and in any event, the requisiteclosures were carried out, for example, by Sidenor in their entirety and as to two-thirds by Ilva, at a time when the aid paid was still of a very limited level, accordingto the details given by the Commission which were not challenged by the applicant.

97.

    As regards the arguments concerning the increase of capacity of CSI allegedlyresulting from the new investments, the Court finds that that argument, linked withthe proposed creation of hot-rolling capacity at Sestão referred to by the applicantin connection with CSI's increase of capacity, is unconnected with the restructuringplan supported by the aid authorized in the contested decision relating to thatundertaking (first paragraph of point V of the grounds of that decision). Asregards the increase of capacity of Siderurgia Nacional, it is clear from Article 2 ofthe decision relating to it that, as explained by the Commission, the replacementof the Seixal blast furnace by an electric arc furnace with a capacity of 900 000tonnes has no effect on that undertaking's obligation to reduce its productioncapacity by 140 000 tonnes of hot-rolled products.

98.

    Finally, the argument that Ilva's capacity reductions are, as far as 300 000 tonnesper year are concerned, purely theoretical must also be rejected. It is clear fromthe information provided by the Commission that, as regards closure of the Bagnoli

plant — whose maximum production capacity was 1.25 million tonnes per year — itdecided on a capacity reduction of 300 000 tonnes per year on the ground thatproduction there had ceased. In the absence of any indication to the contrary, thatcapacity reduction cannot be regarded as ineffective since capacity reductions mustbe determined not on the basis of the actual production of the undertaking, whichis a reflection of the prevailing economic situation, but on the basis of the actualproduction capacity which can be rapidly mobilized at moderate cost.

99.

    In those circumstances, there is no reason to infer that the capacity reductionsimposed in the contested decisions do not represent an appropriate counterpart forthe grant of the aid in question having regard, first, to the amount of the aid and,second, to both the economic and social objectives pursued by those decisions andthe need to reduce production capacity as part of the overall programme forrestructuring of the steel industry approved by the Council, mentioned above.

100.

    As regards, secondly, the impact of the aid in question on competition, it must beborne in mind that, whilst any aid is liable to favour one undertaking rather thananother, the Commission nevertheless may not authorize aid involving 'distortionof competition to an extent contrary to the common interest‘ (Falck v Commission,cited above, paragraph 27). Specifically, the Commission's obligation to act in thecommon interest does not mean, according to the case-law of the Court of Justice,that that institution must 'act in the interest of all those involved without exception,for its function does not entail an obligation to act only on condition that nointerest is affected. On the other hand, when taking action it must weigh up thevarious interests, avoiding harmful consequences where the decision to be takenreasonably so permits. The Commission may, in the general interest, exercise itsdecision-making power according to the requirements of the situation, even to thedetriment of certain individual interests‘ (Valsabbia and Others v Commission, citedabove, paragraph 49).

101.

    In the present case, the Court finds that the contested decisions approve the grantof aid intended in particular to rectify the excessive indebtedness of theundertakings concerned, so as to enable their viability to be restored (see point IIof the grounds of the contested decisions). They limit the financial restructuringmeasures to the amounts strictly necessary, so as not to 'affect the conditions oftrade in the Community steel industry to an extent which is incompatible with thecommon interest‘ (point VI of the grounds of the contested decision). Inparticular, in order not to provide the beneficiary undertakings with an undueadvantage over other undertakings in the industry, the Commission took care in thecontested decisions in particular to ensure that the undertakings concerned did notat the outset have their net financial charges reduced below 3.5% of annualturnover (3.2% in the case of AST, Acciai Speciali Terni) which, as the partiesagree, represents the average indebtedness for Community steel undertakings. More generally, Article 2 of the contested decisions imposes certain conditionsintended to ensure that the financing aid is limited to what is strictly necessary.

102.

    In those circumstances, the fact of reducing the beneficiary undertakings'indebtedness to a level corresponding to the average indebtedness of Communitysteel undertakings cannot be regarded as contrary to the common interest. In itsassessment of the various interests at stake, the Commission took account of therequirements associated with the financial reorganization of the undertakingsconcerned, which was necessary in order to restore them to viability, whilst at thesame time avoiding adverse consequences for other economic operators to theextent to which the very subject-matter and purpose of the contested decisions soallowed.

103.

    It follows that the complaint concerning breach of the principle of non-discrimination is unfounded.

104.

    It follows that the first plea in law must be rejected.

The second plea in law: the allegedly retroactive effect of the contested decision

Arguments of the parties

105.

    The applicant maintains that the contested decisions, adopted on 12 April 1994 andpublished on 3 May 1994, are retroactive in that authorization for the aid inquestion was deemed to have been given following the assent given by the Councilon 17 December 1993 and the Member States concerned implemented their aidprogrammes as from that date. That fact, it submits, is evidenced in particular bythe fact that those decisions provide for submission, by 15 March 1994, by each ofthe Member States of the first report concerning the beneficiary undertaking andits reorganization. That retroactivity, for which the Commission has provided nosatisfactory explanation, adversely affects the rights of defence since the applicant'sopportunity to bring an action was held back four months. Moreover, sinceapplications for annulment do not, under Article 39 of the Treaty, have suspensoryeffect, the Member States concerned could, according to the applicant, invoke theprinciple of the protection of legitimate expectations to oppose any application forreimbursement.

106.

    The Commission contends that the delay between 17 December 1993 and 12 April1994 was attributable solely to administrative reasons, which explains why the firstreport from the Member States concerned was fixed for 15 March 1994, asindicated in the draft decisions placed before the Council in December 1993. Moreover, the Commission considers that the fact that the decisions were notadopted until 12 April 1994 had no repercussions for the applicant, since it wasopen to it to contest their legality before the national courts by virtue of the directeffect of Article 4(c) of the Treaty (Joined Cases 7/54 and 9/54 Groupement desIndustries Sidérurgiques Luxembourgeoises v High Authority [1956] ECR 175). TheCommission also contends that, if the contested decisions are annulled by the Courtof First Instance, it would be required to demand the repayment of the aid in

question in order to ensure the effectiveness of the Court's judgment in accordancewith Article 34 of the Treaty (see Case C-313/90 CIRFS and Others v Commission[1993] ECR I-1125). In any event, the plea alleging that the retroactivity of thecontested decisions is unlawful is irrelevant to this case, which is concerned onlywith the legality of the decisions and not with the possibility of the Commissionbeing liable.

Findings of the Court

107.

    It is not disputed that there was a considerable delay in adopting the contesteddecisions after the Council had given its assent: it did so on 22 December 1993,whereas the decisions were adopted on 12 April 1994. Referring only to'administrative reasons‘, the Commission has provided no detailed explanation inthat regard.

108.

    It is therefore necessary to determine whether that delay adversely affected theapplicant's rights.

109.

    EISA submits that the delay compelled it to bring its action for annulment againstthe contested decisions only after the aid had almost certainly already been grantedby the Member States following the Council's assent. However, even if the aid hadbeen paid immediately after the Council gave its assent, which may or may not bethe case, the applicant was not thereby deprived of appropriate protection of itsrights. As the Commission rightly observes, the Court of Justice has longrecognized the direct effect of the prohibition of State aid laid down in Article 4(c)of the Treaty (see Groupement des Industries Sidérurgiques Luxembourgeoises v High Authority, cited above, p. 196), and the applicant could have relied on that factbefore the national courts in order to secure a finding that the grant of State aidbefore authorization thereof by the Commission was illegal. Moreover, by virtueof the case-law of the Community judicature, individuals are entitled to obtainredress where their rights have been impaired by a breach of Community law onthe part of a Member State, even where provisions have direct effect (see JoinedCases C-46/93 and C-48/93 Factortame [1996] ECR I-1029, paragraphs 20 to 36,and Joined Cases C-178/94, C-179/94, C-188/94, C-189/94 and C-190/94 Dillenkoferand Others v Germany [1996] ECR I-4845, paragraphs 20 to 29). The applicantthus enjoyed appropriate legal protection.

110.

    Moreover, there is no basis for the applicant's argument that the alleged paymentof the aid in question before the adoption of the contested decisions caused thebeneficiary undertakings to entertain a legitimate expectation that such aid wascompatible with the Treaty, an expectation on which they might rely if, in the eventof annulment of the contested decisions by the Court of First Instance, theCommission called on the Member States to recover the aid. That argument is

irrelevant in this case because it has no bearing on the legality of the contesteddecisions.

111.

    It follows that the contested decisions are not unlawful as a result of theCommission's delay in adopting them.

112.

    It follows from the foregoing that the application has become devoid of purposeas regards Decision 94/256 and, for the rest, must be dismissed.

Costs

113.

    Under Article 87(2) of the Rules of Procedure, the unsuccessful party is to beordered to pay the costs if they have been applied for in the successful party'spleadings. With the sole exception of its claim for annulment of Decision 94/256,which has become devoid of purpose, EISA has been unsuccessful in its claims forannulment of the contested decisions. Since the Commission and, intervening inits support, Ilva have applied for costs, EISA should in principle be ordered to paytheir costs.

114.

    The Court has held, on the basis of Article 87(6) of the Rules of Procedure, thatno decision need be given on the claim for annulment of Decision 94/256. On thebasis of that provision, the Court may award costs at its discretion, having regardin particular to the fact that the contested decision was withdrawn by the defendantafter the proceedings for annulment were commenced and the fact that theapplicant did not accept that it was inappropriate to persist in its application onthat point and, not having discontinued the proceedings, did not apply for the coststo be borne in part by the Commission because of the latter's conduct (see the firstparagraph of Article 87(5) of the Rules of Procedure).

115.

    It follows that, if it is assumed that the six decisions contested by the applicant wereregarded by it as being of the same importance, the applicant should be orderedto pay five-sixths of the costs of the Commission, as defendant, and all Ilva's costs.

116.

    Under Article 87(4) of the Rules of Procedure, the Member States and institutionswhich intervened in the proceedings are to bear their own costs. It follows that theCouncil, the Federal Republic of Germany and the Italian Republic, as interveners,must bear their own costs.

On those grounds,

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

hereby:

1.    Declares that there is no need to adjudicate on the application forannulment of Commission Decision 94/256/ECSC of 12 April 1994concerning aid to be granted by Germany to the steel company EKO StahlAG, Eisenhüttenstadt;

2.    Dismisses the application in all other respects;

3.    Orders the applicant to pay five-sixths of the defendant's costs and all thecosts of the intervener, Ilva Laminati Piani SpA;

4.    Orders the Council, the Federal Republic of Germany and the ItalianRepublic to bear their own costs.

SaggioKalogeropoulos Tiili Potocki Moura Ramos

Delivered in open court in Luxembourg on 24 October 1997.

H. Jung

A. Saggio

Registrar

President

1: Language of the case: French.

ECR