sou · GWB338d2 · 2009-01-01 00:00:00 — 120.It is not possible to rely on Art. 86(2) EC if the development of trade would be adversely affected contrary to the interests of the Community.136 According to the Courts jurisprudence, it is the Commissions responsibility, under the supervision of the Court, to define the interests of the Community according to which the development of trade can be assessed.137 This also implies that the burden of proving that this condition is met rests on the Commission or any other party challenging the applicability of the exemption.138 139 Yet, when looking at the case law of the Community Courts and the decision-making practice of the Commission, this condition has, maybe sur- prisingly, not been of major importance so far. It was pleaded by the Commission in a number of cases relating to the electri- city sector,140 but it has never succeeded in proving the existence of this condition to the standard required by the ECJ. Conse- quently, as long as the Commission or another party has not proven that the condition is fulfilled, an adverse development of trade contrary to the Community interest cannot be assumed. 121.In the absence of any Court ruling endorsing a Commissions finding of adverse development of trade contrary to the Community interest or more generally laying down standards for this criterion, it is reasonable to argue that the Commission or another party would not be successful in proving the existence of this condition in the present case. This all the more so as the facts of this case suggest that no such adverse development 136The interpretation of the second sentence of Art. 86(2) EC is inconsistent. Views diverge as to whether the second sentence represents an independent condition or whether it is a clarification of the condition in the first sentence (the proportionality principle). (See Buendia Sierra, Exlusive Rights and State Monopolies under EC law, (1999) , paras 8.262 et seq.) 137Case C-157/94 Commission v [1997] ECR I-5699, Case C-159/94 Com- mission v [1997] ECR I-5815, Case C-158 Commission v [1997] ECR I-5699. 138Buendia Sierra, Exlusive Rights and State Monopolies under EC law, (1999) , para. 139It should be remembered that because Art. 86(2) has direct effect other parties, such as EPF, may challenge the applicability of this exemption as well. 140Case C-157/94 Commission v [1997] ECR I-5699, paras 66–72, Case C-159/94 Commission v [1997] ECR I-5815, paras 113-125, Case C-158 Com- mission v [1997] ECR I-5699, paras 65–67. The ECJ held that the Commission had failed to define the Community interest in relation to which the development of trade must be assessed. Further, the ECJ emphasised that the Commission had to take care how trade might have taken place. (Slot and , An introduction to Competition , (2006), p. When assessing whether the utility value system re- sults in an adverse effect on trade contrary to the Community interest, the information available to me suggests that the Swedish regulation on the utility value system did not prevent foreign companies to invest extensively in the Swedish housing market and did therefore not result in an adverse effect on trade.141 Despite the limited profitability due to the regulated rent levels, this does not appear to have resulted in any obstacles to or in any kind of discrimination against foreign companies.142 Thus, additional to the high burden of proof resting on the Commission to show an adverse effect on trade, it seems doubtful whether trade was indeed affected by the utility value system and even less so to an extent contrary to the Community interest. 122.In conclusion, however, the cannot be exempted pursuant to Art. 86(2) EC for having adopted an anti-com- petitive State measure in the form of the utility value system as the public housing companies were not entrusted with the performance of a SGEI according to the standard required by the Court and Commission. It therefore bears responsibility for the State measure according to Art. 86(1) EC. d.Liability for independent conduct of the undertakings 123.As indicated above, the finding that a can or cannot be held liable for the adoption of an anti-competitive State measure does not conclude the analysis according to Art. 86 EC as it still needs to be determined whether the public housing companies engaged in independent conduct beyond that required by the Swedish regulation, i.e. anti-competitive conduct which cannot be directly attributed to the State measure. 141An adverse effect on trade might have been brought about by State subsidies granted to public housing companies which could make it more difficult for foreign investors to enter the market. This will be examined in the section on State aid. 142Response by the to the second complaint from of , p. The risk of investing in the Swedish housing market due to low profitability may have further decreased since the ruling by the of Appeal which excludes rents as comparison material for other apartments if the rents are significantly lower than the prime costs of the , i.e. if the has been under-priced due to municipal subsidies or a transfer of costs within the housing stock. If that is the case, the rules do not act as a legal shield and do not release the undertakings from liability for their behaviour.143 124.It seems difficult to imagine, however, in which way the public housing companies could abuse their dominant position beyond what is required by the principles on prime cost and utility value, for example by lowering the rents to an extent that would be impossible for private competitors to match. The public housing companies have very leeway in setting the rents at an unreasonably low level in order to force private com- panies out of the market. This has been rendered even more difficult by the ruling of the of Appeal in the case. Here, the court decided that rents which essentially deviate from the prime costs of the have to be set aside as utility value. Thus, the possibilities for public housing companies to engage in anti-competitive conduct pursuant to Art. 82 EC are very limited if non-existent. 125.From the above analysis, it can be concluded that the public housing companies cannot be held liable for an infringement of the competition rules pertaining to the conduct of individual undertakings. Given the absence of an agreement or any other kind of collusion between the undertakings, Art. 81 EC was not applicable. Furthermore, as regards the application of Art. 82 EC, the Swedish rules on prime cost and utility value, in combination with the ruling of the of Appeal in the , case do not leave any room for independent con- duct which could result in an abuse on the part of the public housing companies according to Art. 82 EC. 126.As regards the rules adopted by the , the provisions on unlawful government intervention pursuant to Art. 81 in conjunction with Art. 10, 3(g) EC are not applicable in the present case due to the absence of an agreement or collusive practice. Art. 86(1) EC, on the other hand, applies if we assume the existence of two separate housing markets and if the requirements for judicial review as laid down by the ECJ in 143 See Case C-198/01 Consorzio Industrie Fiammiferi () v Autorità Garante della Concorrenza e del Mercato [2003] ECR I-8055. its judgment are not fulfilled.144 The rules in force can be said to result in a conflict of interest for the public housing companies and confer a competitive advantage on them over their private competitors. In contrast, an infringement of Art. 86(1) EC cannot be found if we assume the existence of only one housing market in line with the objective of achieving overall cohesion which characterises the Swedish housing market.145 Proceeding on the assumption that Art. 86(1) EC applies, the government conduct could be exempted according to Art. 86(2) EC if the legislation explicitly entrusted the public housing companies with their housing mission. 127.In the remaining part of this report, I will examine the com- patibility of a number of measures with the EC rules on State aid. These support measures have been brought forward by in two complaints to Commission in which it alleges the granting of unlawful State aid to the public housing companies distorting competition on the Swedish housing market. 8.Compatibility of the Swedish housing market with Art. 87 EC a.Overview of the State aid provisions in the i.Criteria for finding State aid 128.Before turning to the specific instances of financial assistance that are alleged to be State aid granted to the public housing companies in this case, it is important to have a clear overview of the criteria by which financial assistance by a is to be considered as State aid under the law of Community. Art. 87(1) EC, the key provision in the chapter on State aid of the , provides: Save as otherwise provided in this Treaty, any aid granted by a through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods, shall, in so far as it affects trade between Member States, be incompatible with the common market. 144Supra paras 89 et seq. 145Supra paras 92 et seq. The scope of Art. 87 EC has been defined by the ECJ as follows: The aim of Article 92 (now Article 87) is to prevent trade be- tween Member States from being affected by benefits granted by the public authorities who, in various forms, distort or threaten to distort competition by favouring certain undertakings or the production of certain goods. Accordingly, Article 92 (now Article 87) does not distinguish between the measures of state intervention concerned by reference to their causes or aims but defines them in relation to their effects.146 130.In order to fall within the scope of Art. 87 as defined by the ECJ and for a measure to constitute State aid, the following conditions must be met: the measure has to (i) involve a transfer of state resources, (ii) confer an economic advantage, (iii) be selective, and (iv) affect competition and trade. 131.The Commission decisions and the case law of the ECJ devote considerable attention to these important criteria and their interpretation. From these sources, a clear picture of the criteria by reference to which a measure can be considered to be aid has emerged. In the following paragraphs, I will discuss the conditions in more detail. (i) Transfer of State resources 132.State aid rules cover only measures involving a transfer of State resources147 (including national, regional or local authorities, public banks and foundations, etc.). Furthermore, the aid does not necessarily need to be granted by the State itself. It may also be granted by a private or public intermediate body appointed by the State. The latter could apply in cases where a private bank is given responsibility for managing a State- funded Small and () scheme, for example. Art. 87 EC covers a broad range of benefits: direct subsidies, interest subsidies, low-interest loans, interest-free loans, capital injections, grants, asset revaluation, compensation for government-imposed financial burdens, the foregoing of recovery of sums due, preferential terms, price reductions, 146Case C-173/73 v Commission [1974] ECR 709, para. 147See Cases C-72/91 and C-73/91 Sloman [1993] ECR I-887. State participation in capital, tax concessions, the foregoing of State revenue, etc. (ii) Economic advantage 133.To constitute State aid, the measure must confer an economic advantage on the aid recipient. This is determined, firstly, by reference to the so-called Market Economy Investor Principle (MEIP) and secondly, according to the Altmark148 criteria. 134.The MEIP principle states that government actions which take place under market terms and conditions do not give rise to the application of Art. 87(1) EC. In short, if the provision of funds by the State is similar to that of a private investor, such action will not be considered as aid.149 135.The Commission has attempted to clarify and refine the appli- cation of the MEIP principle, for example in its Communica- tion of October 1991 on the application of Art. 87 and 88 EC and Article 5 of Commission Directive 80/723 to public enter- prises in the manufacturing sector.150 It stated that it is not the intention of the Commission to replace the investors judgment with its own and that it recognizes that the investor has a wide of judgment. Only where there are no objective justifications for the investment, will the Commission consider Art. 87(1) EC to be applicable. 136.Furthermore, State aid which merely compensates an under- taking for the provision of a public service does not confer an economic advantage on the recipient. This has been stipulated and further defined by the ECJ in its Altmark ruling which will be further examined below. 148Case C-280/00 Altmark Trans und Regierungspräsidium [2003] ECR I-7747. 149See, for example, Commission Decision concerning the price for gas used by industry as a raw material, dated , OJ 1994 C 35/6, where the Commission held that in its examination of the decision by Gasunie to grant the discounts in question, the Commission has been unable to detect any behaviour on the part of the Dutch authorities that went beyond that of a private shareholder. In view of the situation on the ammonia and nitrogenous fertiliser market, the Commission considers that, in providing support for an important group of whose survival is manifestly in jeopardy, Gasunie has acted out of purely commercial considerations. 150Commission Notice, October 1991, OJ 1991 C 273/2. The Commissions Notice has been annulled by the ECJ in Case C-325/91 v Commission [1993] ECR I-3283. The Commission has incorporated the rules in Commission Directive 93/84/EEC, amending Directive 80/723/EEC, OJ 1993 L 254/16. (iii) Selectivity 137.The prohibition in Art. 87 EC does not apply if all relevant undertakings within a benefit from the assistance, without any distinction being made between them. To be State aid, the measure must therefore affect the balance between cer- tain firms and their competitors. General measures of economic policy, such as the lowering of the tax rate applicable to cor- porate profits, fall outside the scope of Art. 87 EC. 138.The distinction between general and specific measures is not always easy to apply. For example, an Italian reduction in the rate of social security contributions was deemed to constitute State aid because it benefited the Italian textile industry dis- proportionately.151 139.Certain criteria have emerged from the application of the notion of selectivity which helps to clarify matters. Thus, a scheme is considered to be selective if the authorities admi- nistering the scheme enjoy a degree of discretionary power. The selectivity criterion is also satisfied if the scheme applies to only part of the territory of a Member State (this is the case for all regional and sectoral aid schemes). (iv) Effect on competition and trade 140.The granting of benefits must result in a distortion of com- petition in order to be caught by Art. 87(1) EC. For this purpose it is necessary to consider whether the aid strengthens the position of the beneficiary enterprise compared with other enterprises operating in the same line of trade. It is, however, not necessary for the Commission to produce a full fledged analysis of the relevant product and geographical market along the lines of the analysis required by Art. 81 and 82 EC.152 Nevertheless, the Commission must produce something more than a statement that competition has been or may be dis- torted.153 Thus, the Commission will have to show that the aid will have an impact on trade between the Member States. 151Case C-173/73 v Commission [1974] ECR 709. 152See Case 730/79 v Commission [1980] ECR 2671. 153See Joined Cases 296 and 318/82 Kingdom of the and Leeuwarder Papier- warenfabriek BV v Commission [1985] ECR 809. 141.In its guidelines on State aids for small and medium-sized enter- prises, the Commission has taken the view that while all financial assistance affects competitive conditions to some extent: []not all aid has a perceptible impact on trade and competition between Member-States. This is so especially for aid provided in very small amounts, mainly though not exclusively to SMEs, and often under schemes run by local or regional authorities.154 This position has since been confirmed by the Commission Regulation on de minimis aid.155 142.It should further be noted that in practice the effects on com- petition and those on trade between the Member States will coincide. It is therefore common practice to employ these two concepts interchangeably even though there is a theoretical difference. 143.Once it has been established that a measure is aid, such a measure is prima facie incompatible with the Common Market and should therefore be prohibited. However, such prohibition is not automatic, as there are limited exceptions which may be applied by the Commission alone in order to allow it to declare such aid compatible. (i) Aid that is compatible with the Common Market – Art. 87(2) EC 144.This provision provides for three categories of aid which shall be compatible with the Common Market. The word shall is taken to imply that the Commission does not enjoy discretion to decide whether or not the exemption applies. Similar wording is used in Art. 73 EC. Art. 87(2)(a) EC refers to aid having a social character and Art. 87(2)(c) EC allows for aid granted to the economy of the Federal Republic of affected by the division of . 154Community for Small and , dated 23July 1996, OJ 1996 C 213. 155Commission Regulation (EC) No 69/2001 on the application of Articles 87 and 88 of the to de minimis aid, dated 12 January 2001, OJ 2001 L 10/30. (ii)Aid that may be compatible with the Common Market – Art. 87(3) EC 145.This provision lists four categories of aid that, at the discretion of the Commission, may be exempted. It is important to note that this provision, as an exemption from the general principles of the , has been interpreted in a restrictive . Thus, in its judgment in ,156 the ECJ supported the Commissions interpretation according to which State aid can only be allowed to the extent that it is necessary for the achievement of the objectives accepted under Art. 87(3) EC: (i)the aid must promote or further a project that is in the Community interest as a whole; (ii)the aid must be necessary for the achievement of this result, and the objective could not have been obtained in the absence of this measure; (iii)the duration, intensity and scope of the aid must be proportionate to the importance of the intended result.157 The second element has been specified by the Commission as follows: [] State aids are in principle incompatible with the common market. The discretionary power of the Commission should only be exercised when the aids proposed by Member States contribute to the achievement of the Community objectives and interests set out in Article 87(3). The national interest of a or the benefits obtained by the recipient of the aid is contributing to the national interest do not by themselves justify the positive exercise of the Commissions discretionary powers.158 146.The ECJ accepted the validity of this compensatory justifica- tion principle in the judgment. These principles of interpretation have strengthened the Commissions hand considerably. 147.In order to provide guidance as to how it will apply the exemp- tions of Art. 87(3) EC, the Commission has published guide- lines, codes, frameworks, communications and notifications. Although the designations are not consistent these instruments 156Case 730/79 v Commission [1980] ECR 2671. 157European Commission, 12th Report on Competition Policy (1982), para 160. all serve the same purpose. They can be classified as rules for sectoral, general or specific, regional and other horizontal aid. iii.Procedure for the granting, notification and exemption of State aid 148.For the sake of completeness, it may also be useful at this juncture to provide a brief overview of the correct procedure to be followed in the granting, notification and exemption of State aid. The procedural rules of Union are embodied in Regulation 659/1999159 (the Regulation). They highlight that it is crucial to distinguish between existing aid and new aid, as the control of the former is ex post whilst the control of the latter is ex ante. (i) Existing aid 149.According to Art. 88(1) EC, existing aid in Member States must be kept under review by the Commission. According to Art. 18 of the Regulation, the Commission should propose to the Member States appropriate measures if the aid is not, or is no longer, compatible with the Common Market. Member States shall be bound by the Commissions proposals if they accept them. If the does not accept the proposals, the Commission is entitled to proceed with the formal examination procedure of Art. 88(2) EC. Existing aid is defined in Art. 1 of the Regulation. The most important categories are aid which has been authorized by the Com- mission, aid applied in a before the entry into force of the EC Treaty160 or aid granted before accession of the . 150.Existing aid cannot be challenged in national courts. However, it can be challenged by bringing a complaint to the Commission. 159Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the , dated 22 1999, OJ 1999 L 83. 160An example can be found in Case C-44/93 Namur-Les [1994] ECR I-3829, OJ 1998 C 74/9. This case also demonstrates how difficult the distinction between the two categories can be. (ii) New aid 151.New aid, i.e. any plans to grant or alter aid, must, under Art. 88(3) EC, be notified to the Commission in sufficient time to enable the Commission to communicate its comments. On the basis of Art. 88(3) EC, the Commission may, after summary examination, either conclude that the aid is com- patible with the Common Market or open the procedure pro- vided for in Art. 88(2) EC. This preliminary examination pro- cedure is specified in Art. 4 of the Regulation. New aid which is notified may not, according to Art. 88(3) EC last sentence, be put into effect until this procedure, i.e. the procedure of Art. 88(3) and/or Art. 88(2) EC, has resulted in a final decision. This is the so-called standstill . 152.Under the preliminary procedure the Commission has a period of two months to reach a conclusion. If it finds that the aid is compatible with the Common Market it will inform the concerned accordingly. Such a decision may be reviewed either by the ECJ, where the appeal is brought by a , or by the Court of First Instance (CFI) if the appeal is brought by a natural or legal person.161 153.If the Commission is of the opinion that it needs more time to complete the review of the State aid, it must open the pro- cedure of Art. 88(2) EC. The decision to open the Art. 88(2) EC procedure is a contestable act within the meaning of Art. 230 EC.162 154.If the Commission fails to act, the concerned may, according to Art. 4(6) of the Regulation, implement the aid, after giving notice to the Commission, the aid then becoming existing aid.163 155.The Art. 88(2) EC procedure is laid down in Art. 6 and 7 of the Regulation. It is known as the formal investigation procedure. It is a contentious procedure, which means that the parties concerned may submit comments. The Commission will publish a notice in the OJ C-series describing the aid plans and in- viting comments. In practice, it is quite common for Member 161This may be the intended beneficiary of the aid or a competitor which manifests itself clearly: Case C-198/91 v Commission [1993] ECR I-2487. 162Cases C-312/90 v Commission [1992] ECR I-4117, and C-47/91 v Com- mission [1992] ECR I-4145. 163Case 120/73 v [1973] ECR 1471.