CELEX: 62015TJ0139
EAGGF
Guarantee Section
EAGF
Sugar
Temporary scheme for the restructuring of the sugar industry in the European Community
Regulation (EC) No 320/2006
Regulation (EC) No 968/2006
Expenditure excluded from financing
Expenditure incurred by Hungary
Conditions for granting aid for full dismantling and aid for partial dismantling
Concept of ‘production facilities’
Assessment of the use of silos on the date of submission of the application for aid
Concept of ‘full dismantling’
Annex 2 to Document VI/5330/97
Problems in interpreting EU legislation
Sincere cooperation

Legal framework
Regulation (EC) No 320/2006
The Council of the European Union adopted Regulation (EC) No 320/2006 of 20 February 2006 establishing a temporary scheme for the restructuring of the sugar industry in the Community and amending Regulation (EC) No 1290/2005 on the financing of the common agricultural policy (
OJ 2006 L 58, p. 42
). Regulation No 320/2006 was amended several times, on the last occasion by Council Regulation (EC) No 72/2009 of 19 January 2009 on modifications to the Common Agricultural Policy by amending Regulations (EC) No 247/2006, (EC) No 320/2006, (EC) No 1405/2006, (EC) No 1234/2007, (EC) No 3/2008 and (EC) No 479/2008 and repealing Regulations (EEC) No 1883/78, (EEC) No 1254/89, (EEC) No 2247/89, (EEC) No 2055/93, (EC) No 1868/94, (EC) No 2596/97, (EC) No 1182/2005 and (EC) No 315/2007 (
OJ 2009 L 30, p. 1
). Regulation No 320/2006, as amended by Regulation No 72/2009, is applicable to the facts at issue in this case.
Recitals 1 and 5 of Regulation No 320/2006 state:
‘(1)
… To bring the Community system of sugar production and trading in line with international requirements and ensure its competitiveness in the future it is necessary to launch a profound restructuring process leading to a significant reduction of unprofitable production capacity in the Community. To this end, as a precondition for the implementation of a functioning new common market organisation for sugar a separate and autonomous temporary scheme for the restructuring of the sugar industry in the Community should be established. …
(5)
An important economic incentive for sugar undertakings with the lowest productivity to give up their quota production in the form of an adequate restructuring aid should be introduced. To this effect, a restructuring aid should be set up that creates an incentive to abandon sugar quota production and renounce the quotas concerned, at the same time allowing to take into due account the respect of social and environmental commitments linked to the abandoning of production. The aid should be available during four marketing years with the aim to reduce production to the extent necessary to reach a balanced market situation in the Community.’
Article 1 of Regulation No 320/2006, entitled ‘Temporary restructuring fund’, provides:
‘1.   The temporary fund for the restructuring of the sugar industry in the Community (hereinafter referred to as “restructuring fund”) is hereby established. …
The restructuring fund shall form part of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund. As from 1 January 2007 it shall form part of the European Agricultural Guarantee Fund (EAGF).
2.   The restructuring fund shall finance the expenditure resulting from the measures provided for under Articles 3, 6, 7, 8 and 9.
…
4.   This Regulation shall not apply to the outermost regions referred to in Article 299(2) of the Treaty.’
Article 3 of Regulation No 320/2006, headed ‘Restructuring aid’, provides:
‘1.   Any undertaking producing sugar, isoglucose or inulin syrup to which a quota has been allocated by 1 July 2006 … shall be entitled to a restructuring aid per tonne of quota renounced, provided that during one of the marketing years 2006/2007, 2007/2008, 2008/2009 and 2009/2010 it:
(a)
renounces the quota assigned by it to one or more of its factories and fully dismantles the production facilities of the factories concerned;
or
(b)
renounces the quota assigned by it to one or more of its factories, partially dismantles the production facilities of the factories concerned and does not use the remaining production facilities of the factories concerned for the production of products covered by the common market organisation for sugar,
…
3.   Full dismantling of production facilities shall require:
(a)
the definitive and total cessation of the production of sugar, isoglucose and inulin syrup by the production facilities concerned;
(b)
the closure of the factory or the factories and the dismantling of the production facilities thereof within the period referred to in point (d) of Article 4(2),
and
(c)
the restoring of the good environmental conditions of the factory site and the facilitation of redeployment of the workforce within the period referred to in point (f) of Article 4(2). …
4.   Partial dismantling of production facilities shall require:
(a)
the definitive and total cessation of the production of sugar, isoglucose and inulin syrup by the production facilities concerned;
(b)
the dismantling of the production facilities that will not be used for the new production and were destined … for the production of the products mentioned under (a), …;
(c)
the restoring of the good environmental conditions of the factory site and the facilitation of redeployment of the workforce within the period referred to in point (f) of Article 4(2), …
5.   The amount of restructuring aid per tonne of renounced quota shall be:
(a)
in the case referred to in point (a) of paragraph 1:
–
EUR 730,00 for the marketing year 2006/2007,
–
EUR 730,00 for the marketing year 2007/2008,
–
EUR 625,00 for the marketing year 2008/2009,
–
EUR 520,00 for the marketing year 2009/2010;
(b)
in the case referred to in point (b) of paragraph 1:
–
EUR 547,50 for the marketing year 2006/2007,
–
EUR 547,50 for the marketing year 2007/2008,
–
EUR 468,75 for the marketing year 2008/2009,
–
EUR 390,00 for the marketing year 2009/2010 …’
In addition, under Article 4 of Regulation No 320/2006, entitled ‘Application for restructuring aid’:
‘1.   Applications for restructuring aid shall be submitted to the Member State concerned by 31 January preceding the marketing year during which the quota is to be renounced.
…
2.   Applications for restructuring aid shall include:
(a)
a restructuring plan;
…
(c)
a commitment to renounce the relevant quota in the marketing year concerned;
(d)
in the case referred to in Article 3(1)(a), a commitment to fully dismantle the production facilities within the period to be determined by the Member State concerned;
(e)
in the case referred to in Article 3(1)(b), a commitment to partially dismantle the production facilities within the period to be determined by the Member State concerned and not to use the production site and the remaining production facilities for the production of products covered by the common market organisation for sugar;
…
3.   The restructuring plan referred to in paragraph 2(a) shall include at least the following elements:
…
(c)
a complete technical description of the production facilities concerned;
(d)
a business plan detailing the modalities, timetable and costs for the closure of the factory or factories and the full or partial dismantling of the production facilities;
…
(h)
a financial plan detailing all the costs in relation to the restructuring plan.’
Article 5 of Regulation No 320/2006, headed ‘Decision on the restructuring aid and controls’, provides:
‘1.   By the end of February preceding the marketing year referred to in Article 3(2), Member States shall decide on the granting of the restructuring aid. However, the decision for the marketing year 2006/2007 shall be adopted by 30 September 2006.
…
2.   The restructuring aid shall be granted if the Member State has established after thorough verification that:
–
the application contains the elements referred to in Article 4(2),
–
the restructuring plan contains the elements referred to in Article 4(3),
–
the measures and actions described in the restructuring plan are in conformity with the relevant Community and national legislation;
–
…
3.   If one or more of the conditions laid down in the first three indents of paragraph 2 are not respected, the application for the restructuring aid shall be returned to the applicant. The applicant shall be informed of the conditions that are not respected. The applicant may then either withdraw or complete his application …’
Regulation (EC) No 968/2006
The European Commission adopted Regulation (EC) No 968/2006 of 27 June 2006 laying down detailed rules for the implementation of Regulation No 320/2006 (
OJ 2006 L 176, p. 32
). Regulation No 968/2006 was amended several times, on the last occasion by Commission Implementing Regulation (EU) No 672/2011 of 13 July 2011 amending Regulation No 968/2006 (
OJ 2011 L 184, p. 1
). Regulation No 968/2006, as amended by Regulation No 672/2011, is applicable to the facts at issue in this case.
Recital 4 of Regulation No 968/2006 provides:
‘In relation to the renunciation of quotas, Article 3 of Regulation … No 320/2006 sets out the options of full or partial dismantling of the production facilities, which give rise to different amounts of restructuring aid. While the conditions applicable to those two options should take into account that a higher amount of restructuring aid is granted to full dismantling, because of the higher costs involved, it is considered appropriate to allow for the possibility to keep parts of the factory which are not part of the production line, if they can be used for other purposes foreseen in the restructuring plan, especially when such use creates employment. On the other hand, installations not directly linked to sugar production should be dismantled if there is no alternative use for them within a reasonable period of time and maintaining them would be harmful to the environment.’
Article 4 of Regulation No 968/2006, entitled ‘Dismantling of production facilities’, provides:
‘1.   In the case of full dismantling referred to in Article 3(1)(a) of Regulation … No 320/2006, the requirement to dismantle the production facilities shall concern:
(a)
all facilities which are necessary to produce sugar, isoglucose or inulin syrup, as for example: facilities to store, analyse, wash and cut sugar beet, cane, cereals or chicory; all facilities which are necessary to extract and process or concentrate sugar from sugar beet or cane, starch from cereals, glucose from starch or inulin from chicory;
(b)
the part of the facilities other than those referred to in point (a) which are directly related to the production of sugar, isoglucose or inulin syrup and necessary to deal with production under the quota renounced, even if it could be used in relation with the production of other products, such as: facilities for heating or processing water, or for producing energy; facilities to deal with sugar beet pulp or molasses; facilities for internal transport;
(c)
all other facilities, such as packaging facilities, left unused and to be dismantled and removed for environmental reasons.
2.   In the case of partial dismantling referred to in Article 3(1)(b) of Regulation … No 320/2006, the requirement to dismantle the production facilities shall concern the facilities referred to in paragraph 1 of this Article that are not intended to be used for other production or other use of the factory site in accordance with the restructuring plan.’
Under Article 6 of Regulation No 968/2006, headed ‘Member States obligations’:
‘1.   20 days after it has received a copy of the invitation to the consultation referred to in Article 2(3) at the latest, the Member State shall inform the parties involved in the restructuring plan of its decision on:
…
(b)
the period, expiring on 30 September 2010 at the latest, for dismantling production facilities and for complying with the social and environmental commitments referred to in Articles 3(3)(c) and 3(4)(c) of Regulation … No 320/2006;
…
By way of derogation from point (b) of [paragraph 1], upon a motivated request of the undertaking concerned, the Member States can grant an extension of the deadline fixed in that point until 31 March 2012 at the latest. In such case, the undertaking shall submit an amended restructuring plan according to Article 11 [of Regulation No 968/2006] …’
Article 9 of Regulation No 968/2006, entitled ‘Eligibility for the restructuring aid’, provides:
‘…
2.   For the application to be considered eligible, the restructuring plan shall:
(a)
include a summary of the main objectives, the measures and actions as well as the estimated costs of these measures and actions, the financial plan and the time schedules;
(b)
specify for each factory concerned the amount of quota to be renounced, which shall be lower than or equal to the production capacity to be fully or partially dismantled;
(c)
include an attestation that the production facilities will be fully or partially dismantled and removed from the production site;
…
(e)
clearly determine all the actions and costs financed by the restructuring fund and, if appropriate, the other related elements intended to be financed by other Community funds.
3.   If the conditions set out in paragraph 2 are not satisfied, the Member State shall inform the applicant of the reasons for this and fix a deadline within the time limit referred to in Article 4(1) of Regulation … No 320/2006, by which the restructuring plan may be adjusted accordingly.
The Member State shall decide on the eligibility of the adjusted application within 15 working days after the deadline referred to in the first subparagraph, but at least 10 working days before the deadline provided for in Article 5(1) of Regulation … No 320/2006.
If the adjusted application is not presented in due time or is considered ineligible, the application for restructuring aid shall be rejected and the Member State shall inform the applicant and the Commission thereof within five working days. The lodging of a new application from the same applicant shall be subject to the chronological order referred to in Article 8 …’
Article 11 of Regulation No 968/2006, headed ‘Amendments to the restructuring plan’, provides:
‘1.   As soon as the restructuring aid is granted, the beneficiary shall carry out all measures detailed in the approved restructuring plan and respect the commitments included in its application for restructuring aid.
2.   Any amendment to an approved restructuring plan shall be agreed by the Member State on the basis of a request from the undertaking concerned:
(a)
explaining the reasons and implementing problems encountered;
(b)
presenting the adjustments or new measures proposed and the expected effects;
(c)
detailing the financial and the timing implications.
The amendments may not modify the total amount of the restructuring aid to be granted or the temporary restructuring amounts to be paid in accordance with Article 11 of Regulation … No 320/2006.
The Member State shall notify the amended restructuring plan to the Commission.’
Article 16 of Regulation No 968/2006, entitled ‘Payment of the restructuring aid’, states:
‘1.   The payment of … each instalment of the restructuring aid, as referred to in Article 10(4) of Regulation … No 320/2006, shall be subject to the lodging of a security of an amount equal to 120% of the amount of the instalment concerned.
…’
Under Article 22 of Regulation No 968/2006, headed ‘Release of securities’:
‘1.   The securities referred to in Articles 16(1), … and 18(2) shall be released provided that:
(a)
all of the measures and actions foreseen in the restructuring plan, the national restructuring programmes and the business plan, as appropriate, have been implemented;
(b)
the final report referred to in Article 23(2) has been submitted;
(c)
the Member States have carried out the controls referred to [in] Article 25;
…
3.   Except in the case of force majeure, the security shall be forfeited if the conditions set out in paragraph 1 have not been fulfilled on 30 September 2012 at the latest.’
Article 25 of Regulation No 968/2006, entitled ‘Controls’, provides as follows:
‘1.   Each undertaking and production site in respect of which an aid is received under the restructuring fund shall be inspected by the competent authority of the Member State within three months after the deadline referred to in Article 23(2).
The inspection shall check that the restructuring plan or business plan is being complied with and shall verify the accuracy and completeness of the information given by the undertaking in the progress report. The first inspection under a restructuring plan shall also verify any additional information given by the undertaking in its application for restructuring aid, in particular the confirmation referred to in Article 4(2)(b) of Regulation … No 320/2006.
2.   The inspection shall in all cases cover the elements of the restructuring plan referred to in Article 4(3) of Regulation … No 320/2006 …’.
In addition, Article 26 of Regulation No 968/2006, entitled ‘Recovery’, provides:
‘1.   Without prejudice to paragraph 3, if a beneficiary does not comply with one or more of his commitments under the restructuring plan, the business plan or a national restructuring programme, as appropriate, the part of the aid granted in respect of the commitment(s) concerned shall be recovered except in the case of force majeure …’
Finally, under Article 27 of Regulation No 968/2006, entitled ‘Penalties’:
‘1.   If a beneficiary does not comply with one or more of his commitments under the restructuring plan, the business plan or the national restructuring programme, as appropriate, it shall be required to pay an amount equal to 10% of the amount to be recovered under Article 26 …’
Background to the dispute
Between 16 and 19 March 2010, the Commission services conducted an audit in Hungary at three of the four former sugar production sites in receipt of restructuring aid for full dismantling under Article 3 of Regulation No 320/2006, in the version applicable at that time.
Following the audit, the Commission, by letter of 20 July 2010 (‘the first communication of 20 July 2010’), notified the Hungarian authorities of its outcome and stated that that communication was sent pursuant to Article 11 of Commission Regulation (EC) No 885/2006 of 21 June 2006 laying down detailed rules for the application of Council Regulation (EC) No 1290/2005 as regards the accreditation of paying agencies and other bodies and the clearance of the accounts of the EAGF and of the EAFRD (
OJ 2006 L 171, p. 90
).
It is apparent from the first communication of 20 July 2010 that, in the Commission’s view, the Hungarian authorities had not complied in all respects with the requirements laid down in the EU rules governing the conditions for granting aid for the restructuring of the sugar industry for the marketing years 2007/2008 and 2008/2009. It found that since silos had been retained at the industrial sites it had visited, owned by the company Eastern Sugar in Kaba (Hungary) and the company Matra Cukor in Szolnok (Hungary), those companies did not qualify for restructuring aid for full dismantling, but only restructuring aid for partial dismantling, which is 25% lower than restructuring aid for full dismantling. The Commission stated that the companies were not eligible for restructuring aid for full dismantling if they failed to implement the restructuring plan in its entirety and if the other buildings related to the production business, including the silos at issue, were not demolished. Lastly, the Commission asked the Hungarian authorities to provide information on the buildings still in place at the sugar production sites which its officials had not visited.
By letter of 20 September 2010, the Hungarian authorities replied to the objections set out in the first communication of 20 July 2010 and informed the Commission that the silos located at the production site of Eastern Sugar in Kaba had been leased for the storage of sugar in bulk so that it could be packaged.
At a bilateral meeting between the Commission services and the Hungarian authorities which took place in Brussels (Belgium) on 6 December 2010, the latter stated, among other things, that silos still existed at the sites of Eastern Sugar in Kaba and of Magyar Cukor at Petőháza (Hungary) and that the silos at Matra Cukor’s site in Szolnok were in the process of being demolished. They also submitted, in essence, that there was no legal basis for the silo dismantling obligation and that the renunciation of the production quota and the dismantling of the production facilities were sufficient for the Hungarian sugar undertakings to qualify for restructuring aid for full dismantling.
The Commission conceded that although Regulations No 320/2006 and No 968/2006 did not refer to the dismantling of silos, it followed from the scheme of the relevant legislation that silos, in so far as they formed an integral part of the production facilities, had to be dismantled. Furthermore, it observed that the sugar undertakings that had applied for restructuring aid for full dismantling could have opted for partial dismantling, which would have resulted in 25% less aid than the amount granted in the case of full dismantling. Lastly, the Commission informed the Hungarian authorities that they had until September 2011 to regularise the situation and retain the benefit of restructuring aid for full dismantling.
On 3 March 2011, the Hungarian authorities submitted their observations on the minutes of the bilateral meeting of 6 December 2010. They stated in particular that only the sugar undertakings in receipt of restructuring aid for full dismantling could request an extension of the deadline for completion of the dismantling, which they had not, however, done.
By letter of 8 November 2012, sent under the third subparagraph of Article 11(2) of Regulation No 885/2006, the Commission informed the Hungarian authorities that it intended to exclude EUR 11709400 from EU financing, that amount having been calculated on the basis of the difference between the amount of aid granted in the case of full dismantling and that granted in the case of partial dismantling.
On 18 December 2012, the Hungarian authorities requested that a conciliation procedure be initiated under Article 16 of Regulation No 885/2006.
On 25 April 2013, the conciliation body issued a report in which it found, first, that conciliation between the parties had failed and that the central issue in dispute between them was pending before the Court. Next, it stated, in essence, that the Commission had, on a number of occasions, failed to inform the Hungarian authorities of the silo dismantling obligation and that several Member States, as well as the Commission itself, had experienced difficulties in interpreting the relevant legislation. Finally, it invited the Commission to take account of the fact that, in accordance with Commission Document VI/5330/97 of 23 December 1997, entitled ‘Guidelines for the calculation of financial consequences when preparing the decision regarding the clearance of the accounts of the EAGGF Guarantee’ (‘Document VI/5330/97’), ‘where the irregularities may be attributed to the interpretation of Community rules, … this mitigating factor may be taken into account and a lower rate or no correction may be proposed’.
By judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), the Court held, in essence, that the concept of ‘production facilities’ within the meaning of Articles 3 and 4 of Regulation No 320/2006 and Article 4(1)(b) of Regulation No 968/2006 covered silos intended to store the restructuring aid beneficiary’s sugar. However, the Court held that this was not the case in two situations: first, where it was shown that the silos were used only to store sugar, produced under quota, from other producers or bought from those producers, and, secondly, where those silos were used only for packaging or packing sugar produced elsewhere for the purposes of marketing it.
By letter of 8 January 2014 sent to the Commission, the Hungarian authorities restated their reasons for considering, in the light of the judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), that the silos retained at the former sugar production sites of Eastern Sugar in Kaba and of Magyar Cukor in Petőháza (‘the silos at issue’) were not covered by the concept of ‘production facilities’.
By letter of 28 March 2014, the Commission gave the Hungarian authorities two months to submit persuasive evidence that, before the applications for restructuring aid were made, the silos at issue were used solely for storing and packaging sugar produced under quota by other producers.
By letter of 26 May 2014, the Hungarian authorities challenged the Commission’s view that, in order to assess whether the silos at issue were covered by the concept of ‘production facilities’, it was necessary to consider how they were used at the time of the application for restructuring aid.
Since the Commission considered that the Hungarian authorities had not put forward evidence from which it could be inferred that, when the application for restructuring aid was made, the silos at issue were used exclusively to store and package sugar produced under quota by other producers, the Commission sent the Hungarian authorities a letter dated 6 October 2014 reiterating the view set out in its previous letter of 8 November 2012.
In the summary report presented at the meeting of 18 November 2014 of the Committee on the Agricultural Funds, consulted in accordance with Article 31(1) and Article 41(3) of Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural policy (
OJ 2005 L 209, p. 1
), the Commission stated that its position remained unchanged as regards the failures identified.
It was against that background that the Commission adopted Implementing Decision (EU) 2015/103 of 16 January 2015 excluding from European Union financing certain expenditure incurred by the Member States under the European Agricultural Guarantee Fund (EAGF) and under the European Agricultural Fund for Rural Development (EAFRD) (
OJ 2015 L 16, p. 33
; ‘the contested decision’), including expenditure incurred by Hungary in the amount of EUR 11709400 in respect of aid for the restructuring of the sugar industry, at issue in the present case.
Procedure and forms of order sought by the parties
By application lodged at the Court Registry on 27 March 2015, Hungary brought the present action.
By documents lodged at the Court Registry on 22 June and 3 July 2015, respectively, the French Republic and the Italian Republic sought leave to intervene in these proceedings in support of the form of order sought by Hungary. By decision of 21 August 2015, the President of the Second Chamber of the General Court granted leave to intervene. The French Republic lodged its statement in intervention at the Court Registry on 21 October 2015.
The Commission and Hungary lodged their observations on the statement in intervention of the French Republic on 16 December 2015 and 6 January 2016, respectively.
Hungary claims that the Court should:
–
annul the contested decision in part, in so far as it excluded EUR 11709400 from financing, by the EAGF, in restructuring aid in the sugar sector granted by Hungary;
–
order the Commission to pay the costs.
The Commission contends that the Court should:
–
dismiss the action;
–
order Hungary to pay the costs.
The French Republic claims that the Court should:
–
annul the contested decision;
–
order the Commission to pay the costs.
On a proposal from the Judge-Rapporteur, the General Court (Fourth Chamber) decided to open the oral part of the procedure and, by way of measures of organisation of procedure pursuant to Article 89 of its Rules of Procedure, put questions in writing to the parties and invited them to lodge certain documents. Except for the Italian Republic, the parties complied with the measures of organisation of procedure within the prescribed period.
At the hearing on 8 May 2017, the parties presented oral argument and replied to the oral questions put by the Court.
Since the Italian Republic was not present at the hearing, the oral part of the procedure remained open so that it could submit its observations in writing within one week from notification of the minutes of the hearing. The Italian Republic submitted its written observations within the prescribed period, in which it argued that the action brought by Hungary should be upheld.
On 16 June 2017, Hungary and the Commission lodged at the Court Registry their observations on the observations submitted by the Italian Republic after the hearing.
Law
In support of its action, Hungary essentially relies on two pleas in law alleging, first, infringement of Articles 3 and 4 of Regulation No 320/2006 and Article 4 of Regulation No 968/2006, and, secondly, infringement of the guidelines set out in Document VI/5330/97 and the principle of sincere cooperation.
First plea in law: infringement of Articles 3 and 4 of Regulation No 320/2006 and Article 4 of Regulation No 968/2006
Hungary, supported by the French Republic and the Italian Republic, submits, in essence, that the contested decision infringes Articles 3 and 4 of Regulation No 320/2006 and Article 4 of Regulation No 968/2006 in so far as the Commission found that the Hungarian sugar undertakings did not satisfy the conditions in order to qualify for restructuring aid for full dismantling because they had retained silos and, therefore, had not dismantled all their production facilities. In that regard, Hungary contends that the Commission erred in finding that, for the purpose of assessing whether the silos were production facilities within the meaning of Regulation No 320/2006 and, consequently, whether or not they fell within the exceptions laid down by the Court in the judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), it was necessary to consider the use made of them when the application for restructuring aid was made (‘the criterion laid down by the Commission’). In addition, Hungary claims, in essence, that the obligation to dismantle the production facilities in full may be met even if the silos are sold instead of demolished, provided that the sugar quota was renounced and, after completion of the restructuring process, the facilities that were retained can no longer be used by the aid beneficiary for the production of sugar.
The Commission disputes the arguments of Hungary, the French Republic and the Italian Republic.
As a preliminary point, it should be recalled that in its judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), after finding that the concept of ‘production facilities’ was not defined by Regulations No 320/2006 and No 968/2006, the Court, first of all, pointed out that the concept of ‘production’ could also encompass other steps in the production of a product upstream or downstream of the chemical or physical transformation process and could therefore include the storage of sugar which is not packed immediately after its extraction from the raw material. It thus concluded that storage could be ‘directly related to the production of sugar’ within the meaning of Article 4(1)(b) of Regulation No 968/2006 (judgment of 14 November 2013, SFIR and Others,
C‑187/12 to C‑189/12
,
EU:C:2013:737
, paragraph
). Secondly, the Court found that silos were capable of having a direct impact on the quantities of sugar which may be produced and on the production process, which were dependent on the proximity of a storage facility, in so far as they enabled, in particular, the sale of what is produced in a given sugar marketing year to be partially or totally deferred and, accordingly, influenced the market situation within the meaning of recital 5 of Regulation No 320/2006 (judgment of 14 November 2013, SFIR and Others,
C‑187/12 to C‑189/12
,
EU:C:2013:737
, paragraphs
to
). Thirdly, the Court took the view, in essence, that it followed from Article 3(3)(a) and (b) of Regulation No 320/2006 that, in principle, in order to be eligible for restructuring aid for full dismantling, the industrial complex concerned had to be put out of operation in its entirety and that the option to refrain from dismantling or to continue using in the future the facilities other than production facilities, while retaining the right to the full amount of aid, constituted an exception which had to be interpreted narrowly (judgment of 14 November 2013, SFIR and Others,
C‑187/12 to C‑189/12
,
EU:C:2013:737
, paragraph
).
In the light of the foregoing considerations, in paragraph 31 of the judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), the Court ruled that silos intended to store the aid beneficiary’s sugar had to be classified as production facilities, irrespective of whether they were also used for other purposes.
However, the Court allowed two exceptions to that principle. It essentially held that silos could not be classified as ‘production facilities’ and, thus, were not subject to the dismantling obligation where, first, it was shown that they were used only to store sugar, produced under quota, from other producers or bought from those producers (judgment of 14 November 2013, SFIR and Others,
C‑187/12 to C‑189/12
,
EU:C:2013:737
, paragraphs
and
), and, secondly, they were used only for packaging or packing sugar produced elsewhere for the purposes of marketing it (judgment of 14 November 2013, SFIR and Others,
C‑187/12 to C‑189/12
,
EU:C:2013:737
, paragraphs
and
) (‘the exceptions laid down by the Court’).
In the present case, Hungary, the French Republic and the Italian Republic do not deny that, at the time of the application for restructuring aid for full dismantling, the silos at issue did not fall under one of the exceptions laid down by the Court. Furthermore, Hungary does not dispute that, after completion of the restructuring process, the silos at issue were retained at the production sites of the Hungarian sugar undertakings which had received restructuring aid for full dismantling.
Hungary argues, however, that the Commission erred in finding that the abovementioned circumstances justified the financial correction of 25% which was applied to it. According to Hungary, supported by the French Republic and the Italian Republic, what matters is that, at the end of the restructuring process, the silos were no longer facilities related to the production of sugar. Therefore, the Commission was wrong to find that the question of whether the silos fell under one of the exceptions laid down by the Court had to be assessed when the application for restructuring aid was made.
Hungary’s line of argument, which is also supported by the French Republic and the Italian Republic, is not, however, consistent with the relevant legislation.
As a preliminary point, it is apparent from recitals 1 and 5 of Regulation No 320/2006 that the objective of the relevant legislation is to reduce unprofitable sugar production capacity in the European Union by encouraging undertakings with the lowest productivity to abandon sugar quota production and renounce the quotas concerned.
It is also apparent from recital 5 of Regulation No 320/2006 that the restructuring scheme is dependent on the voluntary participation of the sugar undertakings since it seeks to introduce an important economic incentive in the form of an adequate restructuring aid (see, to that effect, judgment of 14 November 2013, SFIR and Others,
C‑187/12 to C‑189/12
,
EU:C:2013:737
, paragraph
).
In order to achieve the objective of reducing unprofitable sugar production capacity in the European Union, pursued by the relevant legislation, the EU legislature established two different restructuring schemes depending on the type of dismantling carried out, namely full dismantling or partial dismantling, giving rise to different amounts of restructuring aid, as is apparent from Article 3(5)(a) and (b) of Regulation No 320/2006, read in conjunction with recital 4 of Regulation No 968/2006.
First, as regards the conditions to be met for the grant of restructuring aid for full dismantling, Article 3(1)(a) and (3)(b) of Regulation No 320/2006 requires the applicant sugar undertaking to renounce the quota assigned by it to one or more of its factories, to close the factory and to dismantle in full the production facilities. However, for the grant of restructuring aid for partial dismantling, Article 3(1)(b) and (4)(b) of Regulation No 320/2006 requires the applicant sugar undertaking to renounce the quota assigned to one or more of its factories, to dismantle in part the production facilities of the factories concerned and to stop using the remaining production facilities for the production of products covered by the common market organisation for sugar (‘the CMO for sugar’).
Secondly, the scope of the obligation to dismantle production facilities was clarified by Article 4 of Regulation No 968/2006.
Under Article 4(1) of Regulation No 968/2006, the obligation of full dismantling, referred to in Article 3(1)(a) of Regulation No 320/2006, applies to facilities which are necessary for the production of sugar, isoglucose or inulin syrup (Article 4(1)(a) of Regulation No 968/2006), facilities which are directly related to the production of sugar, isoglucose or inulin syrup and necessary for production under the quota renounced, even if they could be used for the production of other products (Article 4(1)(b) of Regulation No 968/2006), and all other facilities, such as packaging facilities, left unused and to be dismantled and removed for environmental reasons (Article 4(1)(c) of Regulation No 968/2006).
In accordance with Article 4(1)(c) of Regulation No 968/2006, read in conjunction with Article 3(1)(a) of Regulation No 320/2006 and recital 4 of Regulation No 968/2006, all facilities which are not necessary for the production of sugar, isoglucose or inulin syrup or which are not directly related to their production, such as packaging facilities, may therefore be exceptionally maintained in the case of full dismantling provided that they are used and are not intended to be dismantled and removed for environmental reasons.
Furthermore, Article 4(2) of Regulation No 968/2006 provides that, in the case of partial dismantling, the dismantling obligation applies to the facilities referred to in paragraph 1 of that article (see paragraph 59 above) which are not intended to be used for other production or other use of the factory site in accordance with the restructuring plan. In addition, it is apparent from Article 3(1)(b) of Regulation No 320/2006 that the production facilities which may be retained must no longer be used for the production of products covered by the CMO for sugar. Accordingly, under Article 4(2) of Regulation No 968/2006, read in conjunction with Article 3(1)(b) of Regulation No 320/2006, facilities which are necessary for the production of sugar, isoglucose or inulin syrup or which are directly related to their production may be retained, provided that they are no longer used for the production of products covered by the CMO for sugar and are intended to be used for other production or other use of the factory site in accordance with the restructuring plan.
Thirdly, the choice between full and partial dismantling must be made by the sugar undertakings when applying for restructuring aid.
It follows from a combined reading of Article 4(2)(a), (c), (d) and (e) and Article 4(3)(c) and (h) of Regulation No 320/2006, and of Article 9(2)(a) and (c) of Regulation No 968/2006, that an application for restructuring aid must include, in particular, a commitment to renounce the relevant quota and to dismantle the production facilities in full or in part within a period to be determined by the Member State concerned, together with a restructuring plan containing, among other things, a complete technical description of the production facilities concerned, a summary of the measures and actions and their estimated cost, the financial plan, and the time schedules for carrying out the different measures planned.
Pursuant to the provisions mentioned in paragraph 63 above, the beneficiary of the aid must thus have identified all the production facilities that it undertakes to dismantle in accordance with the restructuring plan no later than the date of the application for restructuring aid for full or partial dismantling. As regards silos, this therefore requires a determination to be made, when the aid application is submitted, as to whether they constitute production facilities the dismantling of which must necessarily be prescribed by the restructuring plan where restructuring aid for full dismantling is applied for, or whether they fall within the exceptions laid down by the Court.
Any other interpretation would deprive the requirements laid down in Article 4 of Regulation No 320/2006 and Article 9 of Regulation No 968/2006 of their substance and, furthermore, would disregard the distinction drawn in the relevant legislation between partial and full dismantling.
If, at the time of applying for restructuring aid, the sugar undertakings did not know whether or not the silos at their production sites constituted production facilities, those silos would not be mentioned in the restructuring plan as production facilities that were required to be dismantled, in breach of Article 4(3)(c) of Regulation No 320/2006.
In addition, the commitment to dismantle the production facilities in their entirety, which must be attached to the application for restructuring aid for full dismantling (see paragraph 63 above), would be invalidated because, by definition, it would not cover all production facilities existing on the date on which that commitment was made.
Moreover, if the classification of silos as production facilities was assessed at the end of the restructuring process, it would be possible, in the case of full and partial dismantling alike, to retain silos which, at the time the aid application was made, constituted production facilities because, after the restructuring, they would no longer be used as sugar production facilities. Therefore, the possibility of retaining part of the production facilities would no longer be characteristic of partial dismantling, but would also extend to full dismantling, even though, in the latter case, operators receive 25% more restructuring aid than that granted in the case of partial dismantling due to the high costs involved, as is clear from Article 3(5)(a) and (b) of Regulation No 320/2006 and recital 4 of Regulation No 968/2006.
In the light of the above, where a silo constitutes a production facility at the time of the application for restructuring aid for full dismantling, that silo must be mentioned in the application and dismantled in accordance with the restructuring plan, otherwise the conditions for granting such aid will not be met.
Therefore, contrary to the assertions made by Hungary, the French Republic and the Italian Republic, the Commission did not err in taking the view that the classification of silos is to be assessed at the time of the application for restructuring aid.
That conclusion cannot be called into question by the arguments put forward by Hungary, the French Republic and the Italian Republic.
In the first place, Hungary claims, in essence, that the criterion laid down by the Commission is inconsistent with the overall structure of the scheme for the restructuring of the sugar industry. It asserts that the decisive factor for the achievement of the objective inherent in restructuring aid is that, after completion of the restructuring process, there are no longer any production facilities capable of being used for the production of sugar.
It is apparent from paragraphs 56, 57 and 68 above that, in order to achieve the objective of reducing unprofitable sugar production capacity in the European Union pursued by the relevant legislation, the EU legislature established two different restructuring schemes depending on the type of dismantling carried out, giving rise to different amounts of restructuring aid. Furthermore, as stated in paragraphs 62 to 64 above, the choice between partial and full dismantling requires the undertaking seeking restructuring aid to identify, when making the aid application, all of the production facilities at the site concerned which it undertakes to demolish in full or in part at the end of the restructuring process.
In the light of the foregoing, the criterion laid down by the Commission falls within the logic of the system established by the EU legislature and is not inconsistent with the overall structure of the scheme for the restructuring of the sugar industry.
Hungary’s argument must therefore be rejected.
In the second place, the French Republic states that the Commission cannot infer from the requirement to include in aid applications the commitment to dismantle production facilities within a period determined by the Member State, set out in Article 4(2) of Regulation No 320/2006, that the point in time at which the use of the silos is to be assessed is when the aid application is made. It claims that that provision relates not to the conditions for granting restructuring aid, but only to the content of applications for restructuring aid and the date by which they should be submitted.
It is clear from the wording of Article 9 of Regulation No 968/2006 that the conditions laid down in Article 4 of Regulation No 320/2006 concern the admissibility of applications for restructuring aid. Moreover, the conditions for admissibility differ from the substantive conditions governing the grant of restructuring aid for full dismantling set out in Article 3(1)(a) of Regulation No 320/2006, namely, first, renunciation of the quota assigned to one or more of the aid beneficiary’s factories and, secondly, full or partial dismantling of the production facilities and closure of the factories concerned (see paragraph 57 above).
However, if the application for restructuring aid for full dismantling does not identify all the production facilities to be dismantled in accordance with the restructuring plan, it is not only the admissibility of that application which could be challenged, but also the entitlement of the applicant undertaking to receive such aid. If a facility or building is not mentioned in the restructuring plan as a production facility, the restructuring plan will not make provision for its dismantling and, in consequence, the condition of full dismantling referred to in Article 3(1)(a) of Regulation No 320/2006 will not be satisfied.
In any event, if the French Republic’s argument were accepted, it would mean that the Member State’s review of applications for restructuring aid would be limited to ensuring that the conditions for the admissibility of those applications were met. This cannot be permitted since, under Article 5(2) of Regulation No 320/2006, the grant of restructuring aid for full dismantling is decided on by the Member State following that initial review. Article 5(2) of Regulation No 320/2006 states that, before granting restructuring aid, the Member State must carry out a ‘thorough verification’ of the content of the aid application and the restructuring plan and of the conformity of the measures and actions described in the restructuring plan with EU law and the relevant national legislation. Thus, when considering an application for restructuring aid for full dismantling, the Member State cannot confine itself to a mere formal review limited to finding that the aid application and the restructuring plan contain the various requisite elements; it must also determine whether those elements support the conclusion that the conditions for the grant of restructuring aid for full dismantling are, at least prima facie, met and, therefore, that there will no longer be any production facilities at the dismantled site after completion of the restructuring.
Moreover, it is clear from a combined reading of Articles 25 and 26 of Regulation No 968/2006 that the controls carried out at the end of the restructuring process under Article 25 of that regulation are intended to check that the restructuring plan has been implemented correctly, not that the substantive conditions for the grant of restructuring aid have been met, since these are checked ex-ante, that is to say before the aid is granted.
Accordingly, the French Republic’s argument must be rejected.
In the third place, Hungary claims, in essence, that the criterion laid down by the Commission renders Article 4(1)(c) of Regulation No 968/2006 ineffective, since it prevents the retention of silos intended to store sugar for packing if they were previously used by the aid beneficiary to store its own production.
As stated in paragraphs 59 and 60 above, it is apparent from Article 4(1)(c) of Regulation No 968/2006, read in conjunction with Article 3(1)(a) of Regulation No 320/2006 and recital 4 of Regulation No 968/2006, that all facilities other than those which are necessary for the production of sugar, isoglucose or inulin syrup or which are directly related to their production, such as packaging facilities, may be exceptionally retained in the case of full dismantling provided that they are used and are not intended to be dismantled and removed for environmental reasons.
Furthermore, it should be recalled that in its judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), the Court held that a silo used to store the aid beneficiary’s sugar was a facility directly related to the production of sugar within the meaning of Article 4(1)(b) of Regulation No 968/2006 (judgment of 14 November 2013, SFIR and Others,
C‑187/12 to C‑189/12
,
EU:C:2013:737
, paragraphs
and
) and thus did not come under the other facilities, such as packaging facilities, referred to in Article 4(1)(c) of Regulation No 968/2006, the retention of which may be permitted in the case of full dismantling provided that they are used and are not intended to be dismantled and removed for environmental reasons.
Accordingly, contrary to Hungary’s assertions, Article 4(1)(c) of Regulation No 968/2006 cannot permit the retention of a silo that was used to store the aid beneficiary’s production, since such retention may occur only in the case of partial dismantling and provided that, after completion of the restructuring, the silo in question is no longer used for the production of products covered by the CMO for sugar.
In view of the above, it is necessary to reject Hungary’s argument and the argument it invoked in its reply to the written question put by the Court to the effect that recital 4 of Regulation No 968/2006 identifies, within production facilities as a whole, a subgroup of facilities ‘which are not part of the production line’, including sugar storage silos, the retention of which is permitted irrespective of whether full or partial dismantling takes place.
In the fourth place, Hungary, supported by the French Republic, argues, in essence, that the criterion laid down by the Commission is not apparent from the judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), nor does it follow from the reasoning applied by the Court in that judgment.
First of all, it should be pointed out that in the judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), the Court did not take a position on when the assessment of whether the silos constituted production facilities subject to the dismantling obligation had to be carried out. In that case, the Court simply answered the questions referred to it by the Consiglio di Stato (Council of State, Italy), which concerned, first, the criteria for determining whether silos constituted production facilities and, secondly, the validity of Articles 3 and 4 of Regulation No 320/2006 and Article 4 of Regulation No 968/2006 in the light of the higher rules and principles of EU primary law.
That being so, the fact that, in its judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), the Court did not adjudicate on when the use of the silos had to be assessed cannot affect the lawfulness of the criterion laid down by the Commission, bearing in mind that that criterion follows implicitly, but necessarily, from a combined reading of Article 3(1), (3), (4) and (5) of Regulation No 320/2006, Article 4(2) and (3) of Regulation No 320/2006, Article 5(2) and (3) thereof, Article 4 of Regulation No 968/2006 and Article 9(2) and (3) thereof (see paragraphs 57 to 68 above).
Accordingly, the argument put forward by Hungary and the French Republic must be rejected.
In the fifth place, the Italian Republic claims, in essence, that the criterion laid down by the Commission undermines the objective of preserving employment pursued by the relevant legislation, in so far as it results in the demolition of silos which, before the application for restructuring aid was made, were also lawfully used for the packing and packaging of sugar produced on site, thus leading to job losses.
It should be noted that several provisions of Regulations No 320/2006 and No 968/2006 demonstrate the importance that the EU legislature has attached to the employment situation in the regions affected by the restructuring of the sugar industry. For example, it follows from Article 3(3)(c) and (4)(c) of Regulation No 320/2006 that the full and partial dismantling of production facilities requires the adoption of measures to facilitate the redeployment of the workforce. Furthermore, in cases of partial dismantling, Article 4(2) of Regulation No 968/2006, read in conjunction with Article 3(1)(b) of Regulation No 320/2006, allows production facilities to be retained for the purpose of reallocating them to the manufacture of products other than those covered by the CMO for sugar (see paragraph 61 above), thereby saving jobs at former sugar production sites. Similarly, Article 4(1)(c) of Regulation No 968/2006, read in the light of recital 4 of that regulation, permits the maintenance, in the case of full dismantling, of facilities other than those which are necessary for the production of sugar, isoglucose or inulin syrup or which are directly related to their production, such as packaging facilities, provided that they are used and are not intended to be dismantled and removed for environmental reasons (see paragraph 60 above).
That being so, the objective of protecting employment and the business of undertakings affected by the restructuring must be assessed alongside the main objective pursued by the relevant legislation, namely to reduce unprofitable sugar capacity in the European Union, in accordance with recitals 1 and 5 of Regulation No 320/2006 (see paragraph 54 above).
In addition, the considerations of a social nature invoked by the Italian Republic cannot justify its proposed interpretation of the relevant legislation, which undermines the fundamental distinction that the EU legislature sought to draw between full and partial dismantling (see paragraphs 56, 57 and 68 above) and, consequently, is contrary to that legislation.
The Italian Republic’s argument must therefore be rejected.
In the sixth place, Hungary, supported by the French Republic, contends that the criterion laid down by the Commission ignores the seasonal nature of sugar production and calls into question the practical applicability of the exceptions laid down by the Court. It recalls that applications for restructuring aid had to be submitted to the Member State by 31 January preceding the marketing year during which the quota was to be renounced, in accordance with Article 4(1) of Regulation No 320/2006. Since that date fell within the seasonal cycle for the production of sugar, it was very likely that the silos were still being used at that time to produce the sugar quota of the applicant for restructuring aid, given their operating and usage characteristics. Thus, Hungary submits that, in order to qualify for restructuring aid for full dismantling while retaining the silos in order to use them in the future to store sugar produced elsewhere, undertakings should either store in the silos sugar produced elsewhere, from the marketing year preceding the renunciation of the quota, or put the silos out of operation, if necessary by terminating production of their own sugar even before renouncing the production quota. The French Republic adds that it is uncommon for an undertaking to have, in one place, a facility for the production of sugar under its quota and silos used to store, package or pack sugar produced under quota by other producers.
The fact that the conditions set forth in the exceptions laid down by the Court may be difficult to satisfy at the time of the application for restructuring aid does not mean that those conditions cannot be satisfied. The Commission referred to judgment no 2966 of 15 June 2015 of the Consiglio di Stato (Council of State), which shows that, of the three silos in existence on the date of the application for restructuring aid for full dismantling in question, one was used to store sugar produced at the production site of the undertaking in receipt of the aid while the other two silos were used to store and pack sugar produced by other producers.
Furthermore, as the Commission rightly pointed out, the retention of silos that do not constitute production facilities is an exception to the rule, mentioned by the Court in paragraph 30 of its judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), under which the industrial complex concerned must be put out of service in its entirety if restructuring aid for full dismantling is to be granted. Therefore, the fact that the assessment of the use of the silos when the application for restructuring aid is made rarely precludes them from being classified as production facilities is merely the consequence of the fact that the option not to dismantle or even to continue using in the future facilities other than production facilities, while retaining the right to restructuring aid for full dismantling, constitutes an exception to the rule referred to by the Court which must be interpreted narrowly (see, to that effect, judgment of 14 November 2013, SFIR and Others,
C‑187/12 to C‑189/12
,
EU:C:2013:737
, paragraph
).
Accordingly, the arguments of Hungary and the French Republic must be rejected.
In the seventh place, Hungary, supported by the Italian Republic, disputes the logic of the Commission’s argument that it is inappropriate to consider the use of the silos at the end of the restructuring process since, by definition, at that point in time, the restructuring has been completed and there is therefore no longer any sugar production under the quota renounced: it essentially presupposes that the objective of the restructuring has been achieved even before the restructuring has started.
As explained in paragraphs 57 to 68 above, the purpose of verifying the use of the silos when the application for restructuring aid is made is to determine whether the silos are facilities related to production which must necessarily be dismantled if restructuring aid for full dismantling is to be granted, or whether they are facilities not related to the production of sugar which the aid beneficiary may choose to retain or dismantle. Contrary to Hungary’s assertions, the fact that the use of the silos is checked when the aid application is made in no way presupposes that the objective of the restructuring has already been achieved and that the silos have already been dismantled as of that date. Moreover, under Article 6 of Regulation No 968/2006, the deadline by which the production facilities had to be dismantled expired on 31 March 2012. Therefore, if a silo was a sugar production facility at the time of the aid application, it did not actually have to be dismantled immediately; dismantling could take place at a future date, by 31 March 2012 at the latest.
In any event, it is apparent from paragraphs 57 to 60 above that, at the end of the restructuring, there can no longer be any production facilities at a fully dismantled site, including silos that were used to store sugar produced by the aid beneficiary, unless the restructuring plan has not been implemented correctly, which would expose the beneficiary to recovery of the aid in accordance with Article 26 of Regulation No 968/2006 and the penalties laid down in Article 27 thereof.
Hungary’s argument must therefore be rejected.
In view of the considerations set out in paragraphs 101 and 102 above, the Court must also reject the argument of the French Republic that it is likewise uncertain that, at the end of the restructuring, the retained silos would necessarily fall under the exceptions laid down by the Court.
In the eighth place, Hungary argues, in essence, that the criterion laid down by the Commission is at variance with the leeway in the drawing up and implementation of restructuring plans enjoyed by sugar undertakings under the applicable legislation, in particular Article 4(1)(c) of Regulation No 968/2006. The French Republic claims that the possibility of amending the restructuring plan provided for in Article 11 of Regulation No 968/2006 implies that the precise use made of the silos which are retained may change during the dismantling process. Thus, in its view, the changing nature of the dismantling process precludes an assessment of the use of the silos at the time of the aid application.
First, the leeway in drawing up restructuring plans enjoyed by aid beneficiaries and the power to amend them in accordance with Article 11 of Regulation No 968/2006 cannot undermine the provisions of Regulations No 320/2006 and No 968/2006 and, in particular, the central obligation to dismantle production facilities laid down in Article 3(1)(a) and (b) of Regulation No 320/2006, which, in the case of full dismantling, entails the demolition of all production facilities existing on the date of the aid application.
Secondly, the arguments of Hungary and the French Republic do not take account of the distinction between full and partial dismantling, which is, however, an integral part of the relevant legislation (see paragraphs 56, 57 and 68 above). The possibility of retaining the production facilities, including silos, arises only in the case of partial dismantling and entails a lower amount of aid than that granted where all production facilities are dismantled.
Accordingly, the arguments of Hungary and the French Republic must be rejected.
In the ninth place, the French Republic submits, in essence, that it follows from the use of the future indicative in the French version of the expression ‘production facilities that will not be used’ (‘installations de production qui ne seront pas utilisées’) in Article 3(4)(b) of Regulation No 320/2006 that the condition relating to the use of facilities retained at a production site cannot be assessed when the application for restructuring aid is made.
It should be recalled that, under Article 3(4)(b) of Regulation No 320/2006, in the case of partial dismantling, it is permissible to retain part of the production facilities and to dismantle those which, by definition, will no longer be used by the aid beneficiary after completion of the restructuring. In addition, Article 4(2) of Regulation No 968/2006 states that all facilities ‘that are not intended to be used for other production or other use of the factory site in accordance with the restructuring plan’ must be dismantled.
It therefore follows from a combined reading of the provisions mentioned in paragraph 110 above that the beneficiary of restructuring aid for partial dismantling must know, when the application for restructuring aid is made, which production facilities it no longer intends to use after completion of the restructuring and must refer to them in the restructuring plan.
Against that background, the use of the future indicative in the French version of Article 3(4)(b) of Regulation No 320/2006 does not prevent the criterion laid down by the Commission from being applied.
Accordingly, the French Republic’s argument must be rejected.
In the tenth and last place, Hungary claims that the judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), leaves some uncertainty as to the possibility of storing in a silo sugar produced by the aid beneficiary under a quota other than the quota renounced without that silo being classified as a production facility. It maintains, in essence, that the findings of the Court in paragraphs 32 and 40 of its judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), are not consistent with one another, unless the view is taken that silos which have been retained may be used for the production of products covered by the CMO for sugar, for example in so far as they are used to store sugar produced by the aid beneficiary at another production site under another quota.
First, the findings of the Court in paragraphs 32 and 40 of its judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), are completely consistent. In paragraph 32 of that judgment, the Court considers the situation where silos do not constitute production facilities inasmuch as they are used exclusively for storing sugar produced under quota by other producers or bought from those producers. By contrast, in paragraph 40 of the judgment, the Court refers to the case in which a silo, which constitutes a production facility when the aid application is made, continues to be used for storing sugar produced by the beneficiary at its other production sites under another quota. In that regard, the Court stated that the producer ‘is not entitled, as a matter of course, to [restructuring] aid’ because of the prohibition, laid down in Article 3(1)(b) of Regulation No 320/2006, on using, in the case of partial dismantling, non-dismantled production facilities for the production of products covered by the CMO for sugar.
Secondly, the question whether the concept of ‘production facilities’ covers silos used for storing sugar produced by the beneficiary at its other production sites under another production quota has no bearing on the determination of when the use of the silos should be assessed.
Hungary’s argument must therefore be rejected.
Since none of the arguments put forward by Hungary, the French Republic and the Italian Republic is well founded, the first plea must be rejected.
Second plea in law: infringement of the guidelines set out in Document VI/5330/97 and breach of the principle of sincere cooperation
The second plea put forward by Hungary is essentially divided into two parts alleging, first, infringement of the guidelines set out in Document VI/5330/97 and, secondly, breach of the principle of sincere cooperation.
It should be stated at the outset that, in the first part of the second plea, Hungary submits, in essence, that in view of the interpretation difficulties raised by the relevant legislation, the Commission should not have applied a financial correction or should have applied a lower correction rate in accordance with Document VI/5330/97. On the other hand, in the second part, it criticises the Commission for not having informed it, during the implementation of the scheme for the restructuring of the sugar industry, of that institution’s interpretation of the relevant legislation, particularly in the light of the obligation to dismantle the silos in order to receive restructuring aid for full dismantling, thereby infringing the principle of sincere cooperation.
First part alleging infringement of the guidelines set out in Document VI/5330/97
Hungary, supported by the French Republic, complains that the Commission infringed the guidelines set out in Document VI/5330/97 on the ground, in essence, that in the light of, first, the difficulties in interpreting Regulations No 320/2006 and No 968/2006 as regards the treatment to be accorded to silos in the case of full dismantling of a production site and the difficulties in interpreting the judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), and, secondly, the Commission’s failure to provide timely information on its interpretation of the relevant legislation, the Commission should have reduced the amount of the financial correction relating to the restructuring of the sugar industry or should not have made any financial correction at all, in accordance with the guidelines set out in Document VI/5330/97.
The Commission disputes Hungary’s arguments.
According to Annex 2 to Document VI/5330/97, entitled ‘Financial consequences, within the framework of the clearance of accounts of the Guarantee Section of the EAGGF, of deficiencies in controls carried out by the Member States’, financial corrections must be applied when the Commission finds that Member States have not carried out the controls specifically required by the applicable regulations or, in any event, the controls that are essential to ensure the regularity of expenditure under the Guarantee Section of the EAGGF.
The second paragraph under the heading ‘Borderline cases’ in Annex 2 to Document VI/5330/97 (‘the borderline case provided for in Annex 2 to Document VI/5330/97’) provides:
‘Where the deficiencies arose from difficulties in the interpretation of Community texts, except in cases where it should reasonably be expected that the Member State raise such difficulties with the Commission, and when the national authorities took effective steps to remedy the deficiencies as soon as they were brought to light, this mitigating factor may be taken into account and a lower rate or no correction may be proposed.’
As a preliminary point, it should be recalled that by adopting rules of administrative conduct designed to produce external effects, such as the guidelines forming the subject matter of Document VI/5330/97, and announcing by publishing them or by notifying them to the Member States, as here, that it will henceforth apply them to the cases to which they relate, the institution in question, in this case the Commission, imposes a limit on the exercise of its own discretion and cannot depart from those rules if it is not to be found, in some circumstances, to be in breach of general principles of law, such as the principles of equal treatment, of legal certainty or of the protection of legitimate expectations. It cannot therefore be ruled out that, on certain conditions and depending on their content, such rules of conduct of general application may produce legal effects and that, in particular, the administration may not depart from them in an individual case without giving reasons that are compatible with the general principles of law, such as the principles of equal treatment or of the protection of legitimate expectations, provided that such an approach is not contrary to other superior rules of Union law (see, to that effect, judgments of 9 September 2011, Greece v Commission,
T‑344/05
, not published,
EU:T:2011:440
, paragraph
; of 16 September 2013, Spain v Commission,
T‑3/07
, not published,
EU:T:2013:473
, paragraph
and the case-law cited; and of 10 July 2014, Greece v Commission,
T‑376/12
,
EU:T:2014:623
, paragraph
, not published).
In addition, it must be pointed out, as the Commission did, that the borderline case provided for in Annex 2 to Document VI/5330/97 is a weighting factor which does not automatically give rise to an entitlement that it be applied. Indeed, as evidenced by the wording of Document VI/5330/97 providing for the borderline case, its application is subject to the condition, first, that the deficiency identified by the Commission during the clearance procedure must be the result of difficulties in interpreting EU legislation, and, secondly, that the national authorities must have taken the necessary steps to remedy the deficiency as soon as it was brought to light by the Commission.
As regards the first condition for the application of the borderline case provided for in Annex 2 to Document VI/5330/97, first of all, it should be noted that the Commission does not dispute the French Republic’s claim that nine Member States experienced difficulties as regards the interpretation of the concept of ‘production facilities’ and the question of retaining storage silos in the context of the full dismantling of a sugar production site. Next, in its report of 25 April 2013, the conciliation body explicitly recognised that not only the Member States, but also the Commission services had had problems in interpreting the relevant legislation (see paragraph 27 above). Finally, it must be stated that in its judgment of 14 November 2013, SFIR and Others (
C‑187/12 to C‑189/12
,
EU:C:2013:737
), the Court dealt only with the circumstances in which a silo could not be classified as a production facility subject to the dismantling obligation. It did not rule on when the use of the silos had to be assessed or on whether the dismantling obligation necessarily entailed demolition of the production facilities.
In the light of the circumstances referred to in paragraph 127 above, and contrary to the Commission’s claims, it is clear that the relevant legislation raised problems of interpretation as regards the retention of silos in the case of full dismantling.
That finding is not invalidated by the Commission’s argument that it has always provided completely consistent information on the silo dismantling obligation to the Member States that so requested. Not only is the Commission’s argument unsubstantiated, it is, in any event, factually incorrect because, in the rejoinder, the Commission admitted that it never replied to the letter the Hungarian authorities sent to it in November 2006, a letter which it had received on 15 December 2006 and in which the Hungarian authorities specifically raised the question of retaining silos in the case of full dismantling.
In the instant case, the first condition for the application of the borderline case provided for in Annex 2 to Document VI/5330/97 is therefore satisfied.
Concerning the second condition for applying the borderline case provided for in Annex 2 to Document VI/5330/97, according to which the Member State must have taken measures to correct the deficiency as soon as it was discovered, Hungary essentially argues in its pleadings that, in the absence of certainty as to the proper interpretation of the relevant legislation, it could not be expected to take corrective measures immediately.
In reply to a question put by the Court at the hearing, Hungary confirmed that it did not adopt any measures to correct the deficiency identified by the Commission in the first communication of 20 July 2010.
In order to satisfy the second condition for the application of the borderline case provided for in Annex 2 to Document VI/5330/97, Hungary did not necessarily have to demolish the silos at issue. Nonetheless, it could have cooperated with the Commission, by taking measures in respect of the beneficiaries of restructuring aid to correct the deficiency or, at least, to prevent further loss to the Fund due to that deficiency, particularly by refusing to release the securities lodged by the beneficiaries of restructuring aid pursuant to Article 16 of Regulation No 968/2006. It did not do so.
Since the second condition for the application of the borderline case provided for in Annex 2 to Document VI/5330/97 was not met, the Commission was under no obligation to refrain from making a financial correction or to reduce the amount of any correction, contrary to the submissions put forward by Hungary, with the support of the French Republic.
The first part of the second plea must therefore be rejected.
Second part, alleging breach of the principle of sincere cooperation
Hungary, supported by the French Republic, claims that in the light of the difficulties in interpreting the relevant legislation, the Commission – pursuant to the principle of sincere cooperation – should have made its position clear to all Member States, particularly by replying to questions raised during the start-up phase of the restructuring scheme, and should have drawn their attention to the existence of a possible risk that retention of the silos might not be compatible with the obligation of full dismantling, which it did not do. In addition, Hungary complains that the Commission never replied to the letter it sent in November 2006 enquiring whether the dismantling obligation covered silos.
The Commission disputes Hungary’s arguments. First, it states that most Member States did not experience any problems in interpreting the relevant legislation and that those which did and which raised the matter with the Commission always received a clear and consistent answer from it. Secondly, concerning the letter that Hungary sent to it in November 2006, it submits that that letter did not reach the competent administrative unit and that even though a failure to reply to a letter it received is an ‘inexcusable omission’, Hungary should have exercised caution by forwarding its queries to the Commission again.
Under Article 4(3) TEU, pursuant to the principle of sincere cooperation, the European Union and the Member States are, in full mutual respect, to assist each other in carrying out tasks which flow from the Treaties.
The principle of sincere cooperation is reciprocal in nature. It obliges the Member States to take all the measures necessary to guarantee the application and effectiveness of EU law and imposes on the EU institutions reciprocal duties of sincere cooperation with the Member States (judgments of 16 October 2003, Ireland v Commission,
C‑339/00
,
EU:C:2003:545
, paragraphs
and
, and of 6 November 2014, Greece v Commission,
T‑632/11
, not published,
EU:T:2014:934
, paragraph
).
In the first place, it follows from the case-law cited in paragraph 139 above that, pursuant to the principle of sincere cooperation, it was for the Member States to ensure that any doubt as to the correct application of the relevant legislation was removed, where appropriate by asking the Commission whether restructuring aid for full dismantling could be granted to undertakings that intended to keep the silos.
Furthermore, the Commission stated, without being challenged by Hungary, that of the 23 Member States that participated in the restructuring scheme, only 6, including Hungary, had asked questions concerning the silos. Therefore, the Commission could reasonably take the view that the vast majority of Member States had understood that the relevant legislation required the silos to be demolished in order for restructuring aid for full dismantling to be granted and, therefore, that it was not necessary for it to inform all Member States of its interpretation of the relevant legislation.
Consequently, contrary to the assertions of Hungary and the French Republic, the Commission could not be required, pursuant to the principle of sincere cooperation, to inform all Member States of its position on the silo dismantling obligation.
In the second place, while it may be unfortunate that the Commission did not reply to Hungary’s letter of November 2006, that absence of a response, which the Commission itself describes as an ‘inexcusable omission’, does not amount to a breach of the principle of sincere cooperation in the circumstances of the present case.
In accordance with the principle of sincere cooperation, it was for Hungary to ensure that any doubt concerning the obligation to dismantle the silos in order to receive restructuring aid for full dismantling was removed, where appropriate by raising the matter again with the Commission, either in writing or at the monthly meetings of the competent management committee, which it did not do.
In any event, the absence of a response from the Commission following Hungary’s letter of November 2006 cannot be treated in the same way as a position taken by the institution approving the Hungarian authorities’ interpretation of the relevant legislation. Only an explicit and clear statement by the Commission would have enabled the Hungarian authorities to conclude that that institution had approved the retention of the silos at issue in the case of full dismantling (see, to that effect and by analogy, judgment of 14 December 2011, Spain v Commission,
T‑106/10
, not published,
EU:T:2011:740
, paragraph
and the case-law cited).
In the third place, it must be stated that in the first communication of 20 July 2010, the Commission informed Hungary that since the silos were directly related to the production of sugar, they had to be dismantled at the industrial sites in respect of which an application for restructuring aid for full dismantling had been made.
In the first communication of 20 July 2010, the Commission expressly reminded Hungary that the Hungarian sugar undertakings were not eligible for restructuring aid for full dismantling if the restructuring plans were not implemented in their entirety and if the buildings related to the sugar production business, particularly the silos, were not demolished. It recalled that the deadline for completion of the dismantling operations set out in the second subparagraph of Article 6(1) of Regulation No 968/2006, in the version then applicable, expired on 30 September 2011.
Therefore, after receiving the first communication of 20 July 2010, it was still open to Hungary to prevent the disputed correction by requiring the Hungarian sugar undertakings to comply with the relevant legislation, as interpreted by the Commission.
However, even though it was by then aware of the Commission’s position on the question of dismantling silos, Hungary took no action to bring itself into line with that position. On the contrary, as is apparent from paragraph 3.2.2 of the summary report presented at the meeting of the Committee on the Agricultural Funds of 18 November 2014 (see paragraph 33 above), Hungary continued to apply its own interpretation of the relevant legislation as, two days after the bilateral meeting between the Commission and Hungary of 6 December 2010 (see paragraph 22 above), Hungary, pursuant to Article 22 of Regulation No 968/2006, released the last two securities lodged by the beneficiaries of restructuring aid for full dismantling even though silos were still present at the former sugar production sites belonging to them.
In the light of the foregoing, the Court must reject the second part of the second plea alleging that the Commission infringed the principle of sincere cooperation.
Since none of the pleas in law relied on by Hungary is well founded, the action must be dismissed in its entirety.
Costs
Under Article 134(1) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings.
However, according to Article 135(1) of the Rules of Procedure, exceptionally, if equity so requires, the Court may decide that an unsuccessful party is to pay only a proportion of the costs of the other party in addition to bearing his own. Furthermore, according to Article 135(2) of those rules, the Court may order a party, even if successful, to pay some or all of the costs, if this appears justified by the conduct of that party, including before the proceedings were brought.
Hungary has failed in its pleas. However, in paragraph 143 above, it was found that the Commission failed to reply to Hungary’s letter of November 2006. In those circumstances, the Court considers it just and equitable to order Hungary to bear, in addition to its own costs, only half of the costs incurred by the Commission and to order the Commission to bear half of its own costs.
Finally, under Article 138(1) of the Rules of Procedure, Member States which intervene in the proceedings are to bear their own costs.
Consequently, the French Republic and the Italian Republic shall bear their own costs.

On those grounds,
THE GENERAL COURT (Fourth Chamber)
hereby:

1.
Dismisses the action;

2.
Orders Hungary to bear its own costs and to pay half of the costs incurred by the European Commission;

3.
Orders the Commission to bear half of its own costs;

4.
Orders the French Republic and the Italian Republic to bear their own costs.

Kanninen
Schwarcz
Iliopoulos
Delivered in open court in Luxembourg on 12 March 2019.
[Signatures]
Table of contents

Legal framework

Regulation (EC) No 320/2006

Regulation (EC) No 968/2006

Background to the dispute

Procedure and forms of order sought by the parties

Law

First plea in law: infringement of Articles 3 and 4 of Regulation No 320/2006 and Article 4 of Regulation No 968/2006

Second plea in law: infringement of the guidelines set out in Document VI/5330/97 and breach of the principle of sincere cooperation

First part alleging infringement of the guidelines set out in Document VI/5330/97

Second part, alleging breach of the principle of sincere cooperation

Costs
(
*1
)	Language of the case: Hungarian.