CELEX: 62002TJ0357(01)
State aid
Aid granted by the authorities of the Free State of Saxony
Aid for coaching, participation in fairs, cooperation and design promotion
Decision declaring the aid scheme in part compatible and in part incompatible with the common market
Aid scheme for small and medium-sized enterprises
Failure to exercise discretion
Obligation to state reasons

Background to the dispute
In the context of a programme of the Ministry of the Economy and Labour of the Land of Saxony designed to improve the performance
of small and medium-sized enterprises established on its territory, the Land granted persons exercising a profession in that
territory and small and medium-sized enterprises with a registered office or place of business there non-refundable subsidies
for projects to promote the economy. Those subsidies were provided for in an aid scheme which was first notified to the Commission
of the European Communities in 1992, authorised by the Commission and extended on several occasions following new authorisations.
The aid was intended to improve the production capacities and competitiveness of small and medium-sized enterprises.
By letter of 29 December 2000, received at the Commission on 3 January 2001, the Federal Republic of Germany notified a new
version of that aid scheme.
On 12 January 2001, the Commission adopted Regulation (EC) No 70/2001 on the application of Articles 87 [EC] and 88 [EC] to
State aid to small and medium‑sized enterprises (OJ 2001 L 10, p. 33; ‘the Regulation exempting SMEs’), which entered into
force on 2 February 2001. Upon entering into force, the Regulation exempting SMEs repealed and replaced the Community guidelines
on State aid for small and medium-sized enterprises (OJ 1996 C 213, p. 4). It defines the criteria that individual aid and
aid schemes for small and medium‑sized enterprises must meet in order to be compatible with the common market, within the
meaning of Article 87(3) EC, and exempts qualifying aid from the obligation to notify laid down in Article 88(3) EC. Recital
4 to that regulation states that ‘[t]his Regulation is without prejudice to the possibility for Member States of notifying
aid to small and medium-sized enterprises. Such notifications will be assessed by the Commission in particular in the light
of the criteria set out in this Regulation. The guidelines on State aid for small and medium-sized enterprises [adopted by
the Commission] should be abolished from the date of entry into force of this Regulation, since their contents are replaced
by [it].’
Furthermore, recital 16 to the Regulation exempting SMEs states the following: ‘In the light of the World Trade Organisation
(WTO) Agreement on Subsidies and Countervailing Measures, this Regulation should not exempt export aid or aid favouring domestic
over imported products. Aid towards the costs of participation in trade fairs or of studies or consultancy services needed
for the launch of a new or existing product on a new market does not normally constitute export aid.’
By letter of 5 February 2001, the Commission questioned the German authorities about the application of the Regulation exempting
SMEs and informed them that the aid scheme in question would not be examined under the accelerated procedure.
In December 2001, the Commission initiated a formal investigation procedure with regard to some of the measures provided for
by the notified aid scheme, namely the measures provided for by the subprogrammes ‘Coaching’, ‘Participation in fairs’, ‘Cooperation’
and ‘Design promotion’ (together ‘the four subprogrammes at issue’). Conversely, the Commission decided not to raise any objections
with respect to the other notified measures.
Following its investigation, the Commission adopted, on 24 September 2002, Decision 2003/226/EC on an aid scheme which the
Federal Republic of Germany is planning to implement – ‘Guidelines on assistance for SMEs – Improving business efficiency
in Saxony’: Subprogrammes 1 (Coaching), 4 (Participation in fairs), 5 (Cooperation) and 7 (Design promotion) (OJ 2003 L 91,
p. 13; ‘the contested decision’). In the first place, the Commission considered that the measures envisaged by the four subprogrammes
at issue constituted State aid. In the second place, the Commission stated that, in order to be considered compatible with
the common market, that aid must come within the scope of the Regulation exempting SMEs and observe the thresholds laid down
in that regulation, with the exception of the operating aid provided for in the subprogramme ‘Cooperation’, which it considered
to be incompatible with the common market.
By its judgment of 3 May 2007 in Case T‑357/02
Freistaat Sachsen
v
Commission
[2007] ECR II‑1261, this Court granted the application of the applicant, Freistaat Sachsen, for annulment of a number of provisions
of the contested decision (the second paragraph of Article 2 and Articles 3 and 4).
On appeal by the Commission, the Court of Justice, by judgment of 11 December 2008 in Case C‑334/07 P
Commission
v
Freistaat Sachsen
[2008] ECR I‑9465, set aside the judgment of this Court and referred the case back to it.

Procedure and forms of order sought by the parties following referral of the case
The case was allocated to the Fourth Chamber (Extended Composition) of the Court.
Pursuant to Article 119(1)(a) and (b) of the Rules of Procedure of the General Court, the applicant and the Commission lodged
statements of written observations.
On hearing the report of the Judge-Rapporteur, the Court decided to open the oral procedure and, by way of measures of organisation
of procedure provided for in Article 64 of the Rules of Procedure, requested the parties to reply in writing to certain questions.
The parties complied with that request within the period prescribed.
The parties presented oral argument and answered the questions put by the Court at the hearing on 30 June 2010.
The applicant claims that the Court should annul the contested decision.
The Commission contends that the Court should dismiss the action as unfounded.
In their written submissions lodged after referral of the case, the parties did not address the question of costs. In their
written submissions at first instance, the applicant had claimed that the Court should order the Commission to pay the costs
and the Commission had claimed that the applicant should be ordered to pay the costs.

Pleas in law and arguments of the parties
In support of its action, the applicant initially put forward five pleas in law, alleging:
–        first, the procedural irregularity of the contested decision, which follows from the fact that the Commission did not apply
the accelerated clearance procedure to the aid scheme at issue;
–        second, the material irregularity of the contested decision, stemming from the fact that the Regulation exempting SMEs was
not applicable in the present case;
–        third, that the aid scheme at issue could be authorised under the Community guidelines on State aid for small and medium-sized
enterprises;
–        fourth, failure by the Commission to exercise its discretion during the investigation of the aid scheme at issue, and also
breach of the obligation to state reasons; and
–        fifth, that the Commission has not demonstrated that competition was actually or potentially distorted by the aid scheme at
issue, and also breach of the obligation to state reasons.
By its judgment in
Freistaat Sachsen
v
Commission
, this Court rejected the first plea, upheld the second plea and decided that there was no need to examine the last three
pleas.
In its judgment in
Commission
v
Freistaat Sachsen
, the Court of Justice considered that, since the plea alleging that the application of the Regulation exempting SMEs to the
contested decision was retroactive in nature was unfounded, it was appropriate to rule solely on the fourth and fifth pleas
put forward by the applicant before this Court. The Court of Justice therefore referred the case back to this Court for judgment
on the latter two pleas.
Since the fifth plea relates to the characterisation of the measures at issue as State aid and the fourth plea relates to
the compatibility of the measures characterised as State aid with the common market, the fifth plea will be examined before
the fourth plea.

Law

Fifth plea, alleging failure by the Commission to demonstrate that competition was actually or potentially distorted by the
aid scheme at issue, and also breach of the obligation to state reasons
Arguments of the parties
The applicant claims that the Commission ought, pursuant to Article 87(1) EC, to have shown what the distortion of competition
in the present case consisted of. The contested decision, however, contains no assertion from which it might be concluded
that the aid scheme at issue was liable to distort competition in the circumstances of the present case or on the basis of
which it might be positively asserted that the ingredients of such a change of competition were present. The Commission states
only that the notified measures are, as aid, liable to distort competition (recital 52 to the contested decision) and that
aid intensity in excess of 50% would cause a ‘disproportionate distortion of competition’ (recital 60 to the contested decision).
In support of that assertion, the applicant relies on Joined Cases T‑254/00, T‑270/00 and T‑277/00
Hôtel Cipriani and Others
v
Commission
[2008] ECR II‑3269 and, in particular, paragraph 230 of that judgment, which states that, ‘with regard to multisectoral aid
schemes, it is clear from the case-law that the Commission may merely study the characteristics of the programme at issue
in order to assess whether, by reason of the large amounts or high percentage of the aid, the characteristics of the investments
being supported or other arrangements provided for under the programme, the latter gave an appreciable advantage to recipients
in relation to their competitors and was likely to benefit in particular undertakings engaged in trade between Member States’.
In the applicant’s submission, the Commission claims that the obligation to bear half of the costs contributes to the efficiency
and feasibility of the measure and concludes that trading conditions would be altered in the presence of a higher aid intensity
(recitals 60, 67 and 71 to the contested decision). In fact, such an assertion, based on an aid ceiling of 50%, could be transposed
to any subsidy ceiling whatsoever and cannot therefore support the Commission’s findings.
In basing that assessment on the Regulation exempting SMEs, the Commission fails to demonstrate to the requisite standard
the existence of a distortion of competition, whereas, according to the case-law of the Court of Justice, not only is such
demonstration necessary in order to satisfy the requirement to state reasons for the purpose of Article 253 EC but it also
constitutes an application of the criteria laid down in Article 87(1) EC.
The Commission’s failure to develop sufficiently the criterion of distorted competition also constitutes an infringement of
Article 253 EC that justifies the annulment of the contested decision.
The Commission disputes the arguments put forward by the applicant.
Findings of the Court
In the context of the present plea, the applicant raises two closely linked arguments. First, the Commission failed to state
sufficient reasons for its finding that competition was actually or potentially distorted by the aid scheme at issue and,
second, the reasoning set out in the contested decision (in particular at recital 52) does not permit such a conclusion to
be drawn.
In the first place, as regards the question whether the reasoning set out in the contested decision with respect to one of
the ingredients of State aid is sufficient, it should be borne in mind that, according to consistent case-law, the statement
of reasons required by Article 253 EC must be appropriate to the measure at issue and must disclose in a clear and unequivocal
fashion the reasoning followed by the institution which adopted the measure, in such a way as to enable the persons concerned
to ascertain the reasons for the measure and to enable the competent Court to exercise its power of review. The requirements
to be satisfied by the statement of reasons depend on the circumstances of each case, in particular the content of the measure
in question, the nature of the reasons given and the interest which the addressees of the measure, or other parties to whom
it is of direct and individual concern, may have in obtaining explanations. It is not necessary for the reasoning to go into
all the relevant facts and points of law, since the question whether the statement of reasons meets the requirements of Article
253 EC must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the
matter in question (see Joined Cases T‑309/04, T‑317/04, T‑329/04 and T‑336/04
TV 2/Danmark and Others
v
Commission
[2008] ECR II‑2935, paragraph 178 and the case-law cited).
It should also be observed that, at recital 52 to the contested decision, the Commission states that:
‘The four subprogrammes … fall within the scope of Article 87(1) [EC] … for the following reasons: they provide for the granting
of aid from State resources to firms involved in producing goods or providing services involved in intra‑Community trade.
These grants enable recipients to improve their overall financial situation and to enhance their market position. It must
therefore be assumed that the measures under scrutiny are liable to distort competition and thereby affect trade between Member
States. Germany has not challenged this finding.’
Thus, that recital requires that all the constituent elements of State aid are satisfied in the present case and, in particular,
infers the existence of distortion of competition from the fact that the recipient undertakings are involved in ‘producing
goods or providing services involved in intra-Community trade and [that] [t]hese grants enable recipients to improve their
overall financial situation and to enhance their market position’.
In the second place, as regards the question whether the Commission was correct to find the existence of a restriction of
competition in the present case, it is appropriate to recall that, according to the case-law, for the purpose of categorising
a national measure as State aid, it is not necessary to demonstrate that the aid has a real effect on trade between Member
States and that competition is actually being distorted, but only to examine whether that aid is liable to affect such trade
and distort competition (Case C‑494/06 P
Commission
v
Italy and Wam
[2009] ECR I‑3639, paragraph 50).
More particularly, in the case of an aid programme, like the one at issue in the present case, the Commission may confine
itself to examining the characteristics of the programme in question in order to determine whether, by reason of the high
amounts or percentages of aid, the nature of the investments for which aid is granted or other terms of the programme, it
gives an appreciable advantage to recipients in relation to their competitors and is likely to benefit in particular undertakings
engaged in trade between Member States (Case 248/84
Germany
v
Commission
[1987] ECR 4013, paragraph 18).
According to recital 52 to the contested decision, read in conjunction with Part 2 ‘Description of the measure’ and Part 3
‘Grounds for initiating the procedure’, the intensity of the proposed aid was between 50 and 80%, depending on the subprogramme
and depending on the area in which the recipient undertaking was situated. According to Article 5 of the Regulation exempting
SMEs, however, aid to small and medium-sized enterprises is to be compatible with the common market if it does not exceed
50% of the costs of the services received. It is clear, therefore, that aid of such intensity is capable of distorting intra-Community
trade.
Consequently, in the light of all the foregoing, the present plea must be rejected in its entirety.

Fourth plea, alleging failure by the Commission to exercise its discretion when examining the aid scheme at issue, and also
breach of the obligation to state reasons
The present plea consists of five parts. By the first part, the applicant maintains that the contested decision is illegal
on the ground that the Commission merely assessed the compatibility of the aid scheme at issue by reference to the criteria
set out in the Regulation exempting SMEs. By the second, third, fourth and fifth parts, the applicant takes issue with the
Commission for having incorrectly assessed the four subprogrammes concerned, thus also committing a breach of its obligation
to state reasons.
First part, relating to the assessment of the compatibility of the aid scheme at issue solely by reference to the Regulation
exempting SMEs
–       Arguments of the parties
The applicant claims that the Commission cannot refrain from exercising its discretion. Thus, without disputing the extent
of the Commission’s discretion when it examines the compatibility with the common market of aid schemes notified to it by
a Member State, the applicant maintains that that examination is subject to certain limits, foremost among which is the obligation
to exercise that discretion. In support of its argument, the applicant refers to the concept of non‑exercise of discretion
in German law, known as ‘Ermessenausfall’ or ‘Ermessensnichtgebrauch’, which constitutes an illegality, as it does in Austrian
administrative law. In France, such a situation corresponds to an ‘excès du pouvoir négatif’, whereas at common law failure
to exercise discretion on the part of an authority which, taking the view that it is bound by its own practice or by guidelines,
fails to examine each individual case, is covered by the ‘
ultra vires
doctrine’. The Commission’s obligation to exercise its discretion is not extinguished with the adoption of provisions imposing
rules on it.
In the present case, the applicant takes issue with the Commission for having examined the various aid measures solely by
reference to the criteria laid down in the Regulation exempting SMEs, as though that regulation exhaustively governed all
aid schemes in favour of small and medium-sized enterprises. In considering that the level of intensity of the aid of the
subprogrammes was too high, the Commission merely applied the provisions of the Regulation exempting SMEs instead of also
exercising its own discretion. Thus, it reinforced the conditions applicable to aid to SMEs by setting the maximum amount
of recoverable costs at 50% and at the same time departing from its previous practice in taking decisions. In relying solely
on the general considerations of the Regulation exempting SMEs, without taking account of the particular circumstances of
the present case, the Commission therefore failed to use its discretion.
In that regard, the applicant submits that it follows from recital 4 to the Regulation exempting SMEs that that regulation
is not intended to govern aid to small and medium-sized enterprises exhaustively. The objective of that regulation is therefore
not to reduce the Commission’s discretion and to freeze the criteria applicable to those aid measures. The Regulation exempting
SMEs is designed solely to simplify the procedure for monitoring such measures and make it more effective.
In acting in that way, the Commission goes against its practice in taking decisions relating to cases which, by their object,
come under the Regulation exempting SMEs but do not qualify for the exemption defined in that regulation. It follows from
that practice that the Commission regularly rules, by means of individual exemptions and pursuant to Article 87(3)(c) EC,
on isolated situations or on aid measures which do not come under the Regulation exempting SMEs. In such cases, the Commission
confirms, in particular, and sometimes expressly, that examination on a case-by-case basis must not be limited to an exemption
under the Regulation exempting SMEs applied by analogy, but must be carried out directly on the basis of Article 87(3)(c) EC.
The applicant also observes that, in view of the particular economic situation of Saxony, a former territory of the German
Democratic Republic, the Commission ought to have examined the aid measures without reference to the conditions defined in
the Regulation exempting SMEs or, at least, to have explained why its examination did not disregard those conditions. On that
point, the applicant takes issue with the Commission for having failed to adopt a position on the detailed considerations
put forward during the administrative procedure.
Consequently, the Commission ought to have authorised the notified aid scheme by examining it directly in the light of the
criteria defined in Article 87(3) EC.
The Commission disputes the arguments put forward by the applicant.
–       Findings of the Court
First of all, it must be emphasised that the object of the Regulation exempting SMEs is to declare compatible with the common
market by reference to Article 87(3) EC, and thus to exempt from the obligation to notify laid down in Article 88(3) EC, all
individual aid and aid schemes in favour of small and medium-sized enterprises which satisfy the conditions defined in that
regulation. That does not mean that no aid in favour of small and medium-sized enterprises can be declared compatible with
the common market following an examination by the Commission by reference to the criteria defined in Article 87(3) EC, following
notification by a Member State pursuant to Article 88(3) EC.
That possibility is expressly stated at recital 4 to the Regulation exempting SMEs, according to which ‘[t]his Regulation
is without prejudice to the possibility for Member States of notifying aid to small and medium-sized enterprises’ and ‘[s]uch
notifications will be assessed by the Commission in particular in the light of the criteria set out in this Regulation’. The
use of the adverbial phrase ‘in particular’ clearly indicates that the criteria defined in the Regulation exempting SMEs are
not the only ones by reference to which the Commission may assess aid projects notified to it, which, moreover is confirmed
by expressions used in the French and German versions of that recital (‘notamment’ and ‘in erster Linie’ respectively).
It should also be observed that, while the Commission can establish general implementing measures which structure the way
in which it exercises the discretion conferred on it by Article 87(3) EC, it cannot wholly deprive itself of that discretion
where it assesses a specific case, and that is particularly so in relation to cases which it has not expressly referred to,
or indeed has not regulated, in those general implementing rules. That discretion is therefore not exhausted by the adoption
of such general rules and there is in principle no obstacle to an individual assessment outside the context of those rules,
provided, however, that the Commission complies with the higher rules of law, such as the rules of the Treaty and the general
principles of Community law (judgment of 20 September 2007 in Case T‑375/03
Fachvereinigung Mineralfaserindustrie
v
Commission
, not published in the ECR, paragraph 141).
Consequently, following the notification of the aid measures at issue by the Federal Republic of Germany, the Commission was
under an obligation to examine the compatibility of those measures with the common market and in doing so to exercise the
discretion conferred on it by the Treaty.
In that regard, it must be held that the Commission did exercise its discretion in the context of the contested decision,
in particular when it examined the compatibility of the subprogramme ‘Coaching’ with the common market, by reference to the
criteria defined in the Regulation exempting SMEs and also on the basis of Article 87(3)(a) and (c) EC (recitals 57 to 65
to the contested decision).
That analysis, which is based on the Commission’s experience in that sphere at the time when the contested decision was adopted,
namely in September 2002, cannot be called in question on the ground that the Commission may have subsequently adopted decisions
in which considerations other than those set out in the contested decision were taken into consideration, notably in cases
involving notified aid not falling within the scope of the Regulation exempting SMEs.
It follows from the foregoing that the applicant cannot claim that the Commission refused, in the present case, to use its
discretion to examine the various arguments that may have been submitted during the administrative procedure in order to establish
the compatibility of the various aid measures with the common market. The arguments relating to the outcome of that examination
and the reasons provided in that regard will be examined in the context of the other parts of this plea.
Consequently, the first part of the fourth plea must be rejected.
Second part, alleging incorrect assessment of the subprogramme ‘Coaching’ and breach of the obligation to state reasons
–       Arguments of the parties
The applicant takes issue with the Commission for having considered that the subprogramme ‘Coaching’ was incompatible with
the common market within the meaning of Article 87(3)(c) EC on the ground that the aid ceiling for small enterprises was fixed
at 65%, without undertaking any assessment of the particular circumstances existing in Saxony and of the notified aid scheme.
Nor, likewise, did the Commission explain how requiring that the undertakings assume half of the costs would increase the
effectiveness and profitability of the notified aid. The applicant claims that only nine months before the notification of
the aid scheme at issue the Commission authorised aid measures comparable to those awarded by the Land of Thuringia under
the programme ‘Richtlinien des Freistaates Thüringen zur einzelbetrieblichen Technologieförderung’ (OJ 2000 C 266, p. 4).
The use of its discretion implies that the Commission should explain in detail what new experiences led it to alter its practice
in taking decisions. Although it clamed to use its wide discretion in ascertaining whether an aid ceiling of 65% could be
authorised, it rejected that option immediately on the sole ground that an intensity in excess of 50% would exceed the amount
necessary to encourage undertakings to incur costs in relation to ‘coaching’.
The applicant maintains that the aid ceiling of 50% provided for in Article 5 of the Regulation exempting SMEs does not exhaustively
govern aid for consultancy to small and medium-sized enterprises and that according to recital 11 to that regulation small
enterprises and medium-sized enterprises cannot be subject to the same criteria. Whereas Article 5(a) of the Regulation exempting
SMEs provides for an aid intensity of 50% for medium-sized enterprises, higher reimbursements for small enterprises should
be authorised by the Commission in application of its discretion. In maintaining that recital 11 refers solely to the specific
situation of the grant of investment aid outside assisted regions, the Commission does not explain why differentiation between
small enterprises and medium-sized enterprises should not be possible in relation to the services of outside consultants.
In the applicant’s submission, in taking the view that the financial burden borne by the undertakings was modest, the Commission
disregarded the fact that a large number of Saxony undertakings have only very limited capital and have problems in securing
loans, which the Commission itself has acknowledged.
The applicant maintains that the fact that the Commission did not take account of the fact that the amount of aid that could
be authorised by the aid scheme at issue was limited to the sum of EUR 400, or even EUR 500, per working day for young undertakings,
could facilitate the ‘incorrect grant’ of certain aid. The contested decision thus encourages recourse to more expensive aid
instead of permitting the more differentiated approach permitted by the programme at issue.
The Commission disputes the arguments put forward by the applicant.
–       Findings of the Court
By this part of the present plea, the applicant takes issue with the Commission, in substance, for not having carried out
an assessment of the programme in question in spite of the considerable evidence put forward in that regard. It should be
observed, at the outset, that such an assessment must necessarily be based on the facts, economic analyses and evidence submitted
by the applicant at the stage of the administrative procedure preceding the adoption of the contested decision. According
to consistent case-law, moreover, review by the Community judicature of complex economic assessments made by the Commission,
such as those in this case, must necessarily be confined to verifying whether the rules on procedure and on the statement
of reasons have been complied with, whether the facts have been accurately stated and whether there has been any manifest
error of assessment of the facts or misuse of powers (Joined Cases C‑204/00 P, C‑205/00 P, C‑211/00 P, C‑213/00 P, C‑217/00 P
and C‑219/00 P
Aalborg Portland and Others
v
Commission
[2004] ECR I‑123, paragraph 279, and Joined Cases C‑501/06 P, C‑513/06 P, C‑515/06 P and C‑519/06 P
GlaxoSmithKline Services
v
Commission
[2009] ECR I‑9291, paragraph 85).
As regards the inadequacy of the statement of reasons, on which the applicant also relies, it should be borne in mind that,
as already stated at paragraph 27 above, the statement of reasons required by Article 253 EC must be appropriate to the measure
at issue and must disclose the reasoning followed by the institution. It is not necessary for the reasoning to go into all
the relevant facts and points of law and the reasoning must be assessed with regard not only to its wording but also to its
context and to all the legal rules governing the matter in question (see
TV 2/Danmark and Others
v
Commission
, paragraph 178 and the case-law cited).
In the present case, it was stated at recital 35 to the contested decision that the Commission examined the subprogramme ‘Coaching’,
in so far as it provides for aid intensities of up to 65% for small enterprises in areas facing particular problems, whereas
the Regulation exempting SMEs provides for a maximum aid intensity of 50% of the gross cost (Article 5(a) of that regulation).
The Federal Republic of Germany’s observations are analysed in detail at recitals 57 to 65 to the contested decision. The
Commission states there that the subprogramme was assessed not only by reference to its compatibility with the Regulation
exempting SMEs but also on the basis of Article 87(3)(c) EC. During its assessment, the Commission observed that, in its experience,
an aid intensity in excess of 50% would exceed the amount necessary to provide enterprises with an incentive to incur the
expenditure in question and that such a single rate was appropriate for all small and medium-sized enterprises, whether small
enterprises or medium-sized enterprises, whether or not they were situated in the assisted regions. The Commission observes
that, unlike aid for investment, aid for ‘coaching’ does not have either a direct or a long-lasting effect on regional development
or job creation, with the consequence that it is not necessary to authorise higher aid intensities in assisted areas. In any
event, the Commission states that differentiation between small and medium-sized enterprises is possible within the limits
of intensity provided for in the Regulation exempting SMEs.
The considerations thus expressed by the Commission clearly reflect its reasoning and thus satisfy the criteria established
in the consistent case-law concerning the obligation to state reasons referred to at paragraph 27 above.
As regards the example relating to the aid authorised in the Land of Thuringia, it is appropriate to take into consideration
the information provided by the Commission with respect to the time (30 months) that elapsed between the adoption of the two
decisions concerned. The Commission is correct, moreover, to indicate that the two cases are not comparable, since the authorised
aid measure did not relate to ‘coaching’ and, in particular, in view of the fact that the Regulation exempting SMEs, which
contains the assessment criteria applied in the contested decision, was not yet in force on the date of adoption of the decision
relating to the aid provided by the Land of Thuringia.
As regards the interpretation which the applicant puts on Article 5(a) of the Regulation exempting SMEs, read with recital
11 to that regulation, it must be held that there is nothing in the wording of that recital to suggest that, in order to ensure
differentiation of treatment between small enterprises and medium-sized enterprises, it is necessary or permissible to exceed
the aid intensity fixed by the Regulation exempting SMEs. As the Commission correctly states, differentiation between small
and medium-sized enterprises is possible without the margin of 50% being exceeded if only small enterprises receive aid of
such intensity. In any event, since, as stated at paragraph 48 above, the Commission did not base its assessment solely on
the Regulation exempting SMEs, that argument of the applicant must be rejected as ineffective.
As regards the applicant’s argument that the contested decision encourages recourse to more expensive aid (see paragraph 53
above), it should be observed that that argument is not only economically illogical but it also contradicts the applicant’s
argument relating to the inadequacy of the funds of small and medium‑sized Saxony enterprises. In fact, an enterprise with
inadequate funds will not be induced to choose, from between two offers of the same quality, the more expensive service, in
view of the fact that it will be required to pay at least 50% of the price.
Consequently, it must be held that the applicant has not supplied the evidence and elements on the basis of which it would
be possible to conclude that the aid in question, even if it is manifestly in excess of the aid intensities provided for in
the Regulation exempting SMEs, can, owing to specific circumstances, be considered to be compatible with the common market
within the meaning of Article 87(3) EC.
The Commission therefore did not make a manifest error of assessment in considering that aid intensities higher than those
provided for in the Regulation exempting SMEs cannot be deemed compatible with the common market under Article 87(3)(c) EC.
The second part of the fourth plea must therefore be rejected in its entirety.
Third part, alleging incorrect assessment of the subprogramme ‘Participation in fairs’ and breach of the obligation to state
reasons
–       Arguments of the parties
The applicant takes issue with the Commission for having considered that the subprogramme ‘Participation in fairs’ was incompatible
with the common market in so far as it provided that participation in a fair could benefit from aid up to three times. The
Commission based that finding on Article 5(b) of the Regulation exempting SMEs, which provided for an exemption only for an
undertaking’s first participation in a given fair or exhibition, with the consequence that such repeated aid would be incompatible
with the common market.
The applicant submits that the Commission failed to use its discretion, in so far as it allowed itself to be guided by the
provisions of the Regulation exempting SMEs without providing the slightest explanation of how repeated participation in fairs
could not be eligible even in exceptional cases. The use of the formula ‘exercising once again in full its margin of discretion
would in no way alter this finding’ at recital 67 to the contested decision shows, in the applicant’s submission, that the
Commission did not use that power.
The applicant also claims that the Commission misinterpreted the concept of ‘market proximity’. Thus, in the case of State
aid for research and development, the Commission determines the authorised aid intensity according to the degree of market
proximity. Where the market is distant, an aid intensity of 100% could be allowed. The reference to the alleged ‘market proximity’
of participation in fairs does not suffice to justify limiting the aid to a single participation. The Commission ought to
have ruled on the degree of market proximity of participation in fairs in the context of a comparison with other situations
giving rise to aid, in order to exercise its discretion in the light of those factors.
Nor is limiting the aid to a single participation in fairs and exhibitions justified from an economic viewpoint. The applicant
takes issue with the Commission for not having given further consideration to the evidence supplied, which showed that only
repeated participation in the same fair or exhibition could enhance the exhibitor’s prospects on the market, particularly
in cases where the objective of such participation is to penetrate foreign markets. Small and medium-sized Saxony enterprises
generally do not have the necessary capital to participate in a fair. Thus aid limited to a single participation is not sufficient
to achieve the objective of the aid referred to in the Regulation exempting SMEs, namely access to potential markets (recital
5). Sixty per cent of enterprises which participated in fairs within the framework of common German stands would not have
done so without the aid. The need for Saxony enterprises to participate in fairs is also justified by export rates, which
are appreciably below the national average.
Owing to the transition from a planned economy to a market economy, Saxony enterprises must, in the applicant’s submission,
overcome numerous barriers to market entry. Promoting the participation of small and medium-sized enterprises in foreign fairs
is therefore, from the aspect of economic policy, an essential objective of the notified aid scheme, which has enabled enterprises
to have access to world markets.
In the contested decision, the Commission refers to none of the arguments submitted by the applicant and by the Federal Republic
of Germany, nor did it take the particular economic situation of Saxony into account.
The Commission disputes the arguments put forward by the applicant.
–       Findings of the Court
The parties are divided on the question of the financing of repeated participation in fairs. The applicant observes that in
considering the financing of such participation up to three times, as envisaged by the subprogramme in question, to be incompatible
with the common market, the Commission failed to make use of its discretion. The applicant also claims that the Commission
did not state why repeated financing could not be compatible with the common market, even in exceptional cases.
In that regard, it should be observed that the Commission applied the criteria set out in the Regulation exempting SMEs and
concluded that the subprogramme in question was not compatible with Article 5(b) of the Regulation exempting SMEs and could
not be deemed compatible with the common market under Article 87(3)(c) EC either.
The applicant, for its part, submitted that the aid was necessary on account of the difficulties caused by the transition,
in Saxony, to a market economy, which are reflected in the lack of capital necessary for small and medium-sized enterprises
and also by export rates, which are appreciably below the national average. The objective of repeated participation in fairs
or exhibitions is to penetrate foreign markets.
As regards the applicant’s arguments concerning the transition to a market economy, it should be observed that they are confined
to general references to the difficult economic situation in Saxony.
It should also be borne in mind that similar arguments have been put forward in numerous cases concerning Article 87(2)(c) EC,
which concerns the aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division
of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division.
However, the Court of Justice has interpreted that provision narrowly, stating that ‘Article [87](2)(c) [EC] cannot, without
disregarding both the nature of that provision as a derogation and its context and objectives, permit full compensation for
the undeniable economic backwardness suffered by the new
Länder
’ and that ‘the economic disadvantages caused by the division of Germany could only mean the economic disadvantages caused
in certain areas of Germany by the isolation which the establishment of a physical frontier entailed, such as the breaking
of communication links or the loss of markets as a result of the breaking-off of commercial relations between the two parts
of German territory’ (Joined Cases C‑57/00 P and C‑61/00 P
Freistaat Sachsen and Others
v
Commission
[2003] ECR I‑9975, paragraphs 23 and 42).
As that specific provision of the Treaty has been interpreted restrictively, general references to the economic consequences
of the division of Germany cannot serve to justify the compatibility with Article 87(3)(c) EC of aid the intensity of which
exceeds that provided for in the Regulation exempting SMEs.
As for the applicant’s argument that the Commission ought to have compared the degree of market proximity of the fairs at
issue in the present case and that of other situations giving rise to aid, it should be observed that such comparison is not
strictly necessary. Market proximity is an objective criterion, not a relative one. In that regard, it should be observed
that fairs are commercial events, which not only offer a wide choice of goods and services but are also often accompanied
by a varied programme of activities and offer a large number of services to the public in order to attract a large number
of visitors. Consequently, fairs are closely linked with the market, and indeed are confused with it.
It follows that the Commission was correct to describe the measures in question, in the contested decision, as ‘directly serving
the market’.
Thus, as the Commission observes at recital 66 to the contested decision, the recipient of the aid, after having participated
in such an event, must be in a position to decide in full knowledge of the facts whether it would be useful to participate
again at its own expense.
As regards the applicant’s arguments concerning the rate of exports, which are below the national average, and the need to
conquer international markets, it should be borne in mind that even though, as stated at recital 16, the Regulation exempting
SMEs does not exempt export aid generally, the costs of participating in commercial fairs are not normally regarded as export
aid (see paragraph 4 above). The aid in question is therefore compatible in principle with the Regulation exempting SMEs.
None the less, even though it is clear that small and medium-sized enterprises participate in fairs in order to promote their
products and that participation in such events allows them, where appropriate, to increase the rate of exports, which is possible
in the present context, the general references to the low rate of exports of the Land of Saxony cannot justify higher aid
intensities than that provided for in the Regulation exempting SMEs.
Consequently, the Commission was correct to take the view that aid intensities higher than that provided for in the Regulation
exempting SMEs cannot be deemed compatible with the common market under Article 87(3)(c) EC.
As regards the obligation to state reasons, it should be borne in mind that at recitals 66 and 67 to the contested decision
the Commission stated that the subprogramme in question was not in line with Article 5(b) of the Regulation exempting SMEs,
according to which the exemption is to apply only to the first participation of an enterprise in a particular fair or exhibition
and the gross aid is not to exceed 50% of the costs. The Commission explains that limitation by the need to ensure the incentive
effect of the aid, since, after a first jointly financed participation, it is reasonable to expect that a small or medium-sized
enterprise will be in a position to assess whether it will be useful to repeat the participation at its own expense. The Commission
also explains that a measure directly serving the market, such as participation in a fair or an exhibition, which exceeds
the 50% aid ceiling cannot be deemed to be compatible with the common market under Article 87(3)(c) EC.
Those considerations of the Commission clearly reflect its reasoning and thus satisfy the criteria laid down in the consistent
case-law on the obligation to state reasons referred to at paragraph 27 above.
The third part of the fourth plea must therefore be rejected.
Fourth part, alleging incorrect assessment of the subprogramme ‘Cooperation’ and breach of the obligation to state reasons
–       Arguments of the parties
The applicant takes issue with the Commission for having considered that the subprogramme ‘Cooperation’ envisaged operating
aid and should therefore be examined in the light of the Guidelines on national regional aid (OJ 1998 C 74, p. 9; ‘the Guidelines’),
which require, in particular, that such aid be limited in time and progressively reduced (point 4.17).
Contrary to the Commission’s contention, promotion measures do not entail operating aid, since the possibility of assuming
the cost of the rent for cooperation offices or the wages of staff does not replace operating resources and does not generally
reduce current expenditure. In the applicant’s submission, the measures envisaged subsidise only new additional costs connected
with cooperation outside the enterprise.
In that regard, the applicant submits that the Commission acted inconsistently with its normal practice, since already in
the programme notified in 1992 aid for ‘staff costs, materials and travel’ of the body that was to implement the measures
and common establishments had been reimbursed ‘to a fair degree’.
The applicant maintains that the progressive reduction is intended to maintain the incentive nature of the aid without creating
dependency. In the present case, the aid was so limited that it was incapable of creating any dependency. Thus, by continuing
with the reduction of the amounts, the aid would lose its incentive nature.
Furthermore, the Commission has never applied point 4.17 of the Guidelines strictly, as it has taken account of other factors
that allowed it not to apply a progressive reduction.
The applicant refers to the conditions set out at recital 16 to and in Article 1(2)(b) of the Regulation exempting SMEs and
claims that the setting-up of an enterprise pool abroad is not the same as the establishment and operation of a distribution
network within the meaning of that regulation, since the principal objective of those pools was to assess the prospects of
success on new markets. The investigation of new markets and the establishment of initial business contacts, through an enterprise
pool, should be authorised in so far as the promotion of the introduction of products is not regarded as export aid. The ‘direct
nature’ necessary to the existence of export aid is absent, moreover.
The Commission also made an error of assessment in confining the permissible aid intensity to 50%. The applicant refers to
the arguments which it developed in the context of the preceding complaints and emphasises that the Commission did not analyse
the specific features of the Saxony economy, the structure of which is characterised by the existence of small enterprises.
The applicant also disputes the Commission’s considerations that the measures provided for in the context of the subprogramme
‘Cooperation’ were ‘directly serving the market’. The applicant states that the feasibility studies constitute only prospective
studies intended to assess the potential of cooperation.
The applicant submits that the Commission cannot declare that the establishment of enterprise pools abroad is incompatible
with the common market in reliance on its previous practice in taking decisions, since it has authorised measures much closer
to distribution, in the strict sense, abroad, since those measures directly supported the conclusion of contracts, than the
measures envisaged in the present case.
As regards the Commission’s observation at recital 69 to the contested decision that the Federal Republic of Germany ‘is free
to support the measure “establishment of cooperation offices in Germany”‘as
de minimis
aid, the applicant submits that such an approach is unhelpful, specifically where it is a question of promoting cooperation,
since, for example, the circle of potential beneficiaries wishing to cooperate is subject to permanent variations and is generally
not sufficiently known or definable at the beginning of the promotion. A case-by-case approach is therefore inappropriate
and that question too ought to have been the subject of reflection by the Commission.
The Commission disputes the arguments put forward by the applicant.
–       Findings of the Court
The applicant’s principal argument concerns the operations and activities envisaged by the cooperation offices and the enterprise
pools. The applicant observes that those pools must be distinguished from commercial representations and that the aid envisaged
by the subprogramme at issue relating to the enterprise pools cannot be regarded as operating aid.
It should also be observed that the parties have submitted no factual elements concerning the establishment, geographic location,
type of activities and results achieved by the cooperation offices and enterprise pools.
It is none the less unlikely that a small or medium-sized enterprise in the area, which still suffers difficulties associated
with the transition to a market economy and which lacks its own funds, would invest in a cooperation office or an enterprise
pool whose activities were not directly concerned with winning new markets.
Furthermore, it follows clearly from the documents supplied by the Commission in the annexes to the answers to the initial
questions put by the Court that the purpose of establishing those offices was to promote exports, the financing of which is
illegal not only under the Treaty but also under the WTO Agreement on Subsidies and Countervailing Measures, as stated at
recital 70 to the contested decision.
As regards the characterisation of the aid in question as operating aid, it should be observed that winning new markets and
also efforts to remain on the market are part of the normal strategy of each enterprise wishing to maintain a lasting presence
on the market. Expenditure is necessary in order to permit that continuous and extended presence on the market and State aid
granted for those purposes will necessarily reduce the current expenditure of the small and medium-sized enterprises. Those
contributions therefore come within the category of operating aid.
Last, as regards the possibility, invoked by the applicant, that the aid in question will be authorised if practice is taken
into account, the information provided by the Commission, in particular that the menu of regional aid in Germany expired on
31 December 2003, whereas the programme at issue was to end later, must be considered sufficient. In addition, in previous
decisions the Commission also explained that it derogated only exceptionally from the principle of progressive reduction.
As regards the applicant’s argument relating to the
de minimis
rule, it must be rejected as ineffective, since the Commission’s reference to that rule in the contested decision was made
purely for the sake of completeness.
When all the preceding considerations are taken into account, it must be held that the Commission was correct to consider
that higher aid intensities than that provided for in the Regulation exempting SMEs cannot be deemed compatible with the common
market under Article 87(3)(c) EC either. In addition, the Commission was correct to consider that, in so far as the subprogramme
‘Cooperation’ envisaged operating aid, it was incompatible with the common market.
As regards the reasoning in the contested decision relating to the subprogramme ‘Cooperation’, and in so far as the applicant
does not put forward any specific argument in that regard, it must be observed that the Commission analysed the aid for the
creation and operation of cooperation offices in Germany and the aid for the creation of enterprise pools inside and outside
the Community separately. In the first place, the Commission characterised the aid for the establishment and operation of
cooperation offices in Germany as operating aid that must be examined in the light of the Guidelines and satisfy all their
conditions without exception, in particular the conditions of point 4.17. The Commission then explained the reasons why those
conditions are not satisfied. In the second place, the Commission characterised the aid for the creation of enterprise pools,
responsible for assisting small and medium-sized enterprises in studying foreign markets and penetrating those markets, as
export aid, which is excluded from the scope of the Regulation exempting SMEs by Article 1(2)(b) of that regulation. The Commission
added that maximum aid intensities of 80% to promote, in the context of that subprogramme, measures directly serving the market
altered trading conditions to a degree contrary to the common interest and that that aspect of the measure could not be deemed
compatible with the common market pursuant to Article 87(3)(c) EC.
Those considerations clearly reflect the Commission’s reasoning and thus satisfy the criteria laid down in the consistent
case-law concerning the obligation to state reasons referred to at paragraph 27 above.
The fourth part of the fourth plea must therefore be rejected in its entirety.
Fifth part, alleging incorrect assessment of the subprogramme ‘Design promotion’ and breach of the obligation to state reasons
–       Arguments of the parties
As regards the subprogramme ‘Design promotion’, the applicant claims that the Commission also takes as the sole criterion
the aid intensity provided for in the Regulation exempting SMEs and refers to the arguments developed on the same subject
in relation to the other subprogrammes. The applicant maintains that the Commission wrongly failed to use its discretion.
The Commission disputes the arguments put forward by the applicant.
–       Findings of the Court
The applicant has put forward no specific arguments in the context of the present part, but confines itself to making reference
to its arguments in relation to the other subprogrammes.
Consequently, as the applicant’s arguments in the context of the preceding parts have been rejected, in view of the fact that
the Commission considers that the subprogramme at issue is incompatible with the common market for ‘reasons similar’ to those
applied in the case of the other subprogrammes, it must also be held, with respect to the present part, that the Commission
was correct to take the view that higher aid intensities than that provided for in the Regulation exempting SMEs cannot be
deemed compatible with the common market under Article 87(3)(c) EC either.
As regards the reasons stated in the contested decision for the subprogramme in question, it should be observed that the Commission
stated at recital 41 that ‘the subprogramme … basically [fell] within the scope of Article 5 (consultancy and other services
and activities) of [the] Regulation [exempting SMEs] but, since here too the aid intensities exceed[ed] the ceiling of 50%
gross laid down in Article 5(b), the Commission had serious doubts as to its compatibility with the common market’. The Commission
also considered at recital 73 to the contested decision that, for reasons similar to those applicable to the other subprogrammes,
the subprogramme ‘Design promotion’ was not in line with the Regulation exempting SMEs and was incompatible with the common
market in so far as it provided for consultancy services that exceeded the ceiling of 50% gross.
In the absence of any specific arguments put forward by the applicant, it must be held that the abovementioned considerations
of the Commission clearly reflect its reasoning and thus satisfy the criteria laid down in the case-law on the obligation
to state reasons referred to at paragraph 27 above.
The fifth part of the fourth plea must therefore be rejected.
In the light of all the foregoing considerations, the contested decision, read as a whole, contains the analysis of the compatibility
of the subprogrammes in question with the Treaty and states to the requisite legal standard the reasons on which it is based.
Consequently, the fourth plea must be rejected in its entirety.
Taking account of all the foregoing, the action must be dismissed in its entirety.

Costs
In the judgment of this Court, the Commission was ordered to pay the costs. In the judgment of the Court of Justice costs
were reserved. It is therefore for this Court to determine, in the present judgment, all the costs relating to the various
proceedings, in accordance with Article 121 of the Rules of Procedure.
Under Article 87(2) 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. Since the applicant has been unsuccessful, it must be ordered to pay the
costs, in accordance with the form of order sought by the Commission.
On those grounds,
THE GENERAL COURT (Fourth Chamber, Extended Composition)
hereby:
1.
Dismisses the action;
2.
Orders Freistaat Sachsen (Germany) to bear its own costs and to pay those incurred by the European Commission, both before
the General Court and before the Court of Justice.
Czúcz
Cremona
Labucka
Frimodt Nielsen

O’Higgins
Delivered in open court in Luxembourg on 14 July 2011.
[Signatures]
*
Language of the case: German.