**Case C-464/09 P**

**Holland Malt BV**

**v**

**European Commission**

(Appeal – State aid – Guidelines for aid in the agriculture sector – Point 4.2.5 – Malt market – No normal market outlets – Aid measure declared incompatible with the common market)

Summary of the Judgment

1.        *State aid – Prohibition – Derogations – Discretion of the Commission – Criteria for assessment – Effect of the guidelines
adopted by the Commission*

*(Art. 87(3), EC)*

2.        *State aid – Prohibition – Exceptions – Aid eligible for the derogation provided under Article 87(3)(c) EC – Investment aid
in the agricultural sector*

*(Art. 33 EC, 36, first para., EC and 87(3)(c), EC; Commission notice 2000/C 28/02)*

1.        In applying Article 87(3) EC the Commission enjoys a broad discretion, the exercise of which involves complex economic and
social assessments which must be made in a Community context. In adopting rules of conduct and announcing, by publishing them,
that they will be applied to the cases to which they relate, the Commission imposes a limit on the exercise of its discretion
and may not depart from those rules on pain of being found, should the case arise, to be in breach of general principles of
law, such as equal treatment or the protection of legitimate expectations. It follows that, in the specific area of State
aid, the Commission is bound by the guidelines and notices it issues, in so far as they do not depart from the rules of the
Treaty.

(see paras 46-47)

2.        The Commission can regard as incompatible with the common market a measure to promote the development of a region or an activity
when it is granted in a sector, such as that of the processing of agricultural products, in which any increase of production
in the absence of normal outlets can adversely affect intra‐Community trade to an extent contrary to the common interest,
irrespective of the beneficial effects for the region of the activity concerned.

Article 87(3)(c) EC must be interpreted as meaning that, in principle, when aid is granted in a market with overcapacity,
it is such as to affect trading conditions to an extent contrary to the common interest.

The fact that aid also has beneficial effects for the region or the economic sector concerned does not necessarily imply that
it must be considered to be compatible with the common market. It follows from Article 87(3)(c) EC that, when an aid measure
affects trading conditions to an extent contrary to the common interest, it may not be declared compatible with the common
market, irrespective of its possible beneficial effects. However, when assessing the effects on trade, the Commission must
take into consideration all the characteristics of the measure and the market concerned.

This interpretation of primary law applies to aid in the agricultural sector too. It follows from the first paragraph of Article
36 EC, which recognises that the common agricultural policy takes precedence over the objectives of the Treaty in the field
of competition, that any application in this field of the Treaty provisions is subject to account’s being taken of the objectives
set out in Article 33 EC, namely, those of the common agricultural policy. Therefore, when assessing the compatibility of
State aid granted in that sector, the Commission must take account of the requirements of that policy, which correspond to
those of the common market as a whole. Among those requirements is the control of production.

It follows that the rules of conduct in point 4.2.5 of the Community Guidelines for State aid in the agriculture sector, according
to which the Commission considers incompatible with the common market aid for investment in connection with the processing
and marketing of agricultural products granted in the absence of normal outlets, are compatible with the provisions of primary
law and in particular with Article 87(3)(c) EC, applied in compliance with the objectives of the common agricultural policy.

(see paras 48-53)


JUDGMENT OF THE COURT (Fourth Chamber)

2 December 2010 ([\*](#Footnote*))

(Appeal – State aid – Guidelines for aid in the agriculture sector – Point 4.2.5 – Malt market – No normal market outlets – Aid measure declared incompatible with the common market)

In Case C‐464/09 P,

APPEAL under Article 56 of the Statute of the Court of Justice, brought on 25 November 2009,

**Holland Malt BV,** established in Lieshout (Netherlands), represented by O. Brouwer, A. Stoffer and P. Schepens, advocaten,

appellant,

the other parties to the proceedings being:

**European Commission,** represented by L. Flynn and A. Stobiecka-Kuik, acting as Agents, with an address for service in Luxembourg,

defendant at first instance,

**Kingdom of the Netherlands,** represented by C. Wissels and Y. de Vries, acting as Agents,

intervener at first instance,

THE COURT (Fourth Chamber),

composed of J.‐C. Bonichot, President of the Chamber, K. Schiemann, L. Bay Larsen, C. Toader (Rapporteur) and A. Prechal,
Judges,

Advocate General: J. Mazák,

Registrar: L. Hewlett, Principal Administrator,

having regard to the written procedure and further to the hearing on 15 September 2010,

having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,

gives the following

**Judgment**

1        By its appeal, Holland Malt BV (‘Holland Malt’) seeks to have set aside the judgment of the Court of First Instance of the
European Communities (now ‘the General Court’) of 9 September 2009 in Case T‐369/06 *Holland Malt* v *Commission* [2009] ECR II‐3313 (‘the judgment under appeal’) dismissing its application for annulment of Commission Decision 2007/59/EC
of 26 September 2006 concerning the State aid granted by the Netherlands to Holland Malt BV (OJ 2007 L 32, p. 76; ‘the contested
decision’).

**Legal context**

2        Point 3.2 of the Community Guidelines for State aid in the agriculture sector (OJ 2000 C 28, p. 2, ‘the Guidelines’), included
in the part setting out the ‘General principles’, provides:

‘Although Articles 87 [EC], 88 [EC] and 89 [EC] are fully applicable to the sectors covered by the common organisations of
the market, their application nevertheless remains subordinate to the provisions established by the regulations concerned.
In other words recourse by a Member State to the provisions of Articles 87, 88 and 89 cannot receive priority over the provisions
of the regulation on the organisation of that sector of the market ... It follows that under no circumstances can the Commission
approve an aid which is incompatible with the provisions governing a common organisation of the market or which would interfere
with the proper functioning of the common organisation.’

3        Point 4.2.5 of the Guidelines, included in the part relating to ‘Aids for investments’, provides:

‘No aid may be granted [for investments in connection with the processing and marketing of agricultural products] unless sufficient
evidence can be produced that normal market outlets for the products concerned can be found. This must be assessed at the
appropriate level in relation to the products concerned, the types of investments, and existing and expected capacities. To
this end, any restrictions on production or limitations of Community support under the common market organisations must be
taken into account. In particular no aid may be granted in contravention of any prohibitions or restrictions laid down in
the common organisations of the market ...

...’

4        Finally, Point 4.2.6 of that part of the Guidelines provides:

‘Aids for investments with eligible expenses in excess of EUR 25 million, or where the actual amount of aid will exceed EUR
12 million must be specifically notified to the Commission in accordance with Article 88(3) of the Treaty.’

**Background to the dispute and the contested decision**

5        Holland Malt is a joint venture between Bavaria NV, a brewery which produces beer and soft drinks, and Agrifirm, a cooperative
of cereal producers in Germany and the northern Netherlands. It is the holder of a patent for the production and sale of HTST
(‘High Temperature, Short Time’) malt.

6        The Kingdom of the Netherlands adopted a regional investment scheme called ‘Regionale investeringsprojecten 2000’. The Commission,
by decision of 17 August 2000, approved that scheme and, by decision of 18 February 2002, also approved an amendment to that
scheme which extended its scope to include the sectors of processing and selling the agricultural products listed in Annex
I to the EC Treaty.

7        The Kingdom of the Netherlands granted Holland Malt investment aid of EUR 7 425 000 under that regional investment scheme.
That subsidy was intended for the construction of a malting plant in Eemshaven (Netherlands). Payment was conditional on the
investment being effected before 1 July 2005. However, the actual payment of the aid was suspended pending its approval by
the Commission.

8        By letter of 31 March 2004, the Kingdom of the Netherlands notified that aid measure to the Commission in accordance with
Article 88(3) EC and point 4.2.6 of the Guidelines. On 5 May 2005, the Commission initiated a procedure under Article 88(2)
EC. Since that procedure delayed payment of the subsidy beyond the deadline for implementation of the investment originally
set by the Kingdom of the Netherlands, Holland Malt requested an extension of time until the adoption by the Commission of
the decision on that subsidy.

9        On 26 September 2006, the Commission adopted the contested decision, in which it found that the measure at issue, which concerned
an investment to improve the quality of Holland Malt’s products and increase its production capacity, constituted State aid
within the meaning of Article 87(1) EC. It went on to consider whether that measure could nevertheless be declared compatible
with the common market pursuant to Article 87(3)(c) EC.

10      In that context, the Commission found that there was no separate market for HTST or for premium malt as opposed to ordinary
malt. Furthermore, given the overcapacity in the world and Community malt markets, it found that there was no evidence to
show the existence of normal market outlets for that product, within the meaning of point 4.2.5 of the Guidelines. Thus, although
it acknowledged, in paragraph 93 of the grounds of the contested decision, the importance of the aid for regional development,
the Commission found, in paragraph 94 of the grounds of that decision, that it did not satisfy an important condition established
by the Guidelines.

11      On the basis of those grounds, the Commission found, in Article 1 of the contested decision, that the State aid at issue was
incompatible with the common market. Under Article 2 of that decision, the Kingdom of the Netherlands was required to withdraw
the aid, and, under Article 3 of that decision, it had to recover from the recipient the aid unlawfully made available to
it. According to Article 4 of that decision, the Kingdom of the Netherlands was to inform the Commission of the measures taken
to comply with that decision.

**The procedure before the General Court and the judgment under appeal**

12      By application lodged at the Registry of the General Court on 7 December 2006, Holland Malt brought an action for annulment
of the contested decision.

13      By a document lodged at the Court Registry on 6 April 2007, the Kingdom of the Netherlands applied for leave to intervene
in the proceedings in support of Holland Malt. By order of 12 June 2007, the President of the Third Chamber of the General
Court granted leave to intervene.

14      In support of its action, Holland Malt put forward four pleas alleging infringement of Article 87(1)(1) and (3)(c) EC, breach
of the principle of sound administration, and breach of the duty to state reasons laid down in Article 253 EC.

15      The second part of the second plea concerning infringement of Article 87(3)(c) EC alleged a failure adequately to balance
the beneficial effects of the aid against its impact on intra-Community trading conditions.

16      By that second part, the appellant, in essence, alleged that the Commission had relied, in the contested decision, only on
point 4.2.5 of the Guidelines without weighing the beneficial effects of the subsidy at issue against its possible adverse
impact on trading conditions within the European Community, and had thereby infringed Article 87(3)(c) EC.

17      It observed that the fact that the Guidelines are based on Article 87(3) EC necessarily implies that the Commission cannot
limit the scope of its discretion to cover solely the criteria set out in those guidelines. In particular, it should interpret
point 4.2.5 of the Guidelines in the light of the general criterion laid down in the Treaty, so as to find incompatible with
the common market only that aid which adversely affects trading conditions to an extent contrary to the common interest.

18      According to Holland Malt, in the contested decision, the Commission did not assess whether, in view of the advantages that
the subsidy in question would have involved, the effect of that subsidy was really contrary to the common interest within
the meaning of Article 87(3) EC, but restricted itself to ruling out the compatibility of that subsidy on the basis of the
alleged lack of normal market outlets for the product concerned. On the contrary, the Commission should have found, first,
that the investment in question had an important beneficial effect on the achievement of the aims of the common agricultural
policy and in particular on the policy of rural development of the region concerned by that subsidy and, secondly, that it
was following the grant of that subsidy that the appellant had decided to bear the costs of opening its maltings at Eemshaven,
in an area in need of being economically developed, rather than in a more economically suitable area in another region of
the Netherlands.

19      By the judgment under appeal, the General Court dismissed the action and ordered the appellant to bear its own costs and to
pay those incurred by the Commission.

20      With regard to the second part of the second plea, the General Court, in paragraphs 166 to 180 of the judgment under appeal,
held that the contested decision had been adopted in application both of Article 87(1) and (3) EC and of the Guidelines, in
particular section 4.2.

21      It noted that, according to the case-law of the Court of Justice, when the Commission adopted guidelines, it was bound by
them and the European Union judicature must check that the Commission has observed the rules which it has adopted. It noted
that, in the present case, it followed from point 3.7 of the Guidelines that any positive aspect of the aid in question could
be considered only in the context of the application of the criteria laid down in the Guidelines.

22      In that regard, it held that, in accordance with point 4.2.5 of the Guidelines, the Commission, after having found that the
aid in question came within the scope of those guidelines, was required, first of all, to consider whether sufficient evidence
had been produced that normal market outlets for the products concerned could be found. According to the General Court, in
so far as, in the present case, that preliminary condition was not met, the Commission could not have approved the aid at
issue without infringing its own guidelines, so that an assessment of the objectives and beneficial effects of the aid was
superfluous.

23      Moreover, it held that the appellant could not legitimately claim that the non‐application of the Guidelines and the direct
application of Article 87(3)(c) EC would have entailed taking into account the objectives and beneficial effects of the aid
at issue for the purposes of finding that it was compatible with the common market. In that regard, it noted that, according
to Case 310/85 *Deufil* v *Commission* [1987] ECR 901, paragraph 18, in the application of Article 87(3) EC the Commission has a discretion the exercise of which
involves economic and social assessments which must be made in a Community context, and it does not exceed the limits of that
power by considering that the granting of aid for an investment which increases production capacity in a sector in which there
is already considerable overcapacity affects trading conditions to an extent contrary to the common interest and that aid
of that sort is not of such a nature as to promote the economic development of the region concerned.

24      The General Court added that that conclusion could not be affected by the applicant’s argument that the aid at issue had merely
compensated for the economic disadvantages resulting from its decision to open a factory in a less economically developed
area.

**Forms of order sought by the parties**

25      Holland Malt claims that the Court should:

–      set aside paragraphs 168 to 180 of the judgment under appeal;

–        refer the case back to the General Court or annul the contested decision, and

–        order the Commission to pay the costs.

26      The Commission contends that the Court should:

–        dismiss the appeal, and

–        order Holland Malt to pay the costs.

27      The Kingdom of the Netherlands, like the appellant, claims that the judgment under appeal should be set aside and that the
Commission should be ordered to pay the costs.

**The appeal**

28      In support of its appeal, Holland Malt raises two grounds relating to the findings of the General Court concerning the second
part of the second plea of the application at first instance.

29      The first ground of appeal alleges an error of law and inconsistent and inadequate reasoning in relation to the interpretation
and application both of Article 87(3)(c) EC and of the Guidelines. The second ground of appeal alleges procedural error on
account of the misreading and misrepresentation of the appellant’s arguments.

*The first ground of appeal, alleging an error of law and inconsistent and inadequate reasoning in relation to the interpretation
and application both of Article 87(3)(c) EC and of the Guidelines*

 Arguments of the parties

30      In support of its first ground, Holland Malt adduces three parts alleging respectively an error of law in the interpretation
and application of Article 87(3)(c) EC, an error of law in the interpretation and application of the Guidelines, and inconsistent
and inadequate reasoning in their interpretation and application.

–       The first part of the first ground of appeal

31      The appellant claims that the General Court erred in law in the interpretation and application of Article 87(3)(c) EC by inferring
from *Deufil* v *Commission* that the Commission should not take into consideration the beneficial effects of a subsidy in the assessment of the compatibility
of aid with the common market, where that subsidy leads to increased production capacity in a sector in which there is already
overcapacity on the market.

32      In that regard, it points out that the present case concerns a measure which is different from that at issue in *Deufil* v *Commission*. In that case, the subsidy granted was not of general interest, whereas in the contested decision the Commission acknowledged
the importance of the Holland Malt project for the development of the region. Furthermore, in that case there was significant
overcapacity on the market in the sector, with production capacity utilisation rates of 72% and 64%, whereas in the present
case the production capacity utilisation rate exceeds 90%.

33      The Kingdom of the Netherlands shares the appellant’s view that the General Court erred in finding that the Commission – by
failing to take into account the beneficial effects of the aid at issue – was not in breach of Article 87(3)(c) EC. It also
agrees with the criticisms of the General Court’s interpretation of *Deufil* v *Commission*. It maintains that, in the interests of the correct application of that provision, as well as to preserve its full effects,
the Commission was obliged to weigh the beneficial effects of the aid at issue against its negative effects, and that it was
not sufficient merely to conclude that there was no evidence of the existence of normal outlets on the malt market.

34      In response, the Commission contends that the starting point for any analysis of the rules applicable to State aid is that
Article 87(3) EC provides for exceptions to the general prohibition provided for in Article 87(1) EC, and these must be interpreted
restrictively. However, the Guidelines fix only absolute minimum standards which must be respected for aid in the agricultural
sector to be considered compatible with the common market. The Commission also notes that, in view of its wide margin of discretion
when assessing aid under Article 87(3)(c) EC, it may narrow that discretion by issuing guidelines as to how it will apply
that provision to a particular sector or type of aid, provided that those guidelines do not depart from the rules of the Treaty.
As a consequence, according to the Commission, once it has adopted such guidelines for a sector or type of aid, it may no
longer depart from them. This is because, by issuing guidelines, the Commission limits the exercise of its own discretion,
which consequently consists only in assessing the conditions set out in the guidelines.

35      In the present case, the Commission considers that it had to apply point 4.2.5 of the Guidelines, since the existence of normal
market outlets for malt was not sufficiently shown.

36      Concerning the argument alleging misinterpretation of *Deufil* v *Commission*, the Commission points out that in that case the evaluation of the compatibility of the aid measure was carried out directly
on the basis of Article 87(3)(c) EC, because at the time of the contested decision no other provisions were applicable to
the product which would have benefited from the aid. Furthermore, with regard to the factual differences relied on by the
appellant in relation to that case, the Commission contends that they are not relevant since, in the present case, the Guidelines
do not mention the requirement to establish that there is significant overcapacity in the sector, but merely the requirement
to show that there are normal market outlets.

–       The second part of the first ground of appeal

37      According to Holland Malt, the General Court’s interpretation of the Guidelines is not correct in that it introduces a preliminary
condition to the Commission’s assessment of the compatibility of the aid with the common market. The General Court held that
an aid measure falling within the scope of the Guidelines cannot be approved on the basis of the balancing test relating to
its disadvantages and beneficial effects, as provided for in Article 87(3)(c) EC, where the condition laid down in point 4.2.5
of the Guidelines is not met. By contrast, Article 87(3)(c) EC does not contain a condition that normal market outlets must
be available before the Commission can take into account the beneficial effects of the aid.

38      The Kingdom of the Netherlands takes the same view as the appellant. It states that, even though the General Court held that
the Guidelines could not be construed on the basis of their wording alone but must be interpreted in the light of Article
87 EC and of the objective sought by that provision, in actual fact it analysed those guidelines with reference only to their
literal terms. As a result of the General Court’s interpretation of the Guidelines, the test laid down in Article 87 EC is
reduced to the single question of whether normal outlets exist or not. Such a restricted interpretation, which relies solely
on a literal interpretation of the Guidelines, is incorrect and is detrimental to the correct application and full operation
of Article 87(3)(c) EC.

39      The Commission contends that the General Court’s findings are not vitiated by any error of law. The balancing test provided
for in Article 87(3)(c) EC is contained in the Guidelines and there is therefore no need to take into account other criteria
where the aid at issue is subject to the rules set out in the Guidelines. The Commission could not take into account objectives
other than those provided for in the Guidelines, if they go beyond what it established in the Guidelines. In the present case,
point 4.2.5 of the Guidelines unequivocally states that no aid may be granted for investments in connection with the processing
of agricultural products unless sufficient evidence is produced that normal market outlets for the products concerned can
be found. This means, according to the Commission, that if that condition is not met, the purported beneficial effects of
the aid at issue cannot be weighed against its impact on trading conditions.

–       The third part of the first ground of appeal

40      According to the appellant, the reasoning in the judgment under appeal is inconsistent and inadequate as regards the interpretation
of the Guidelines. In paragraphs 132 and 133 of that judgment, the General Court stated that the Guidelines cannot be understood
on the basis of their wording alone or interpreted in a way which reduces the scope of Articles 87 EC and 88 EC or contravenes
the aims of those provisions. On the other hand, in paragraphs 170 to 172 of the judgment under appeal, the General Court
stated that the Commission was required only to take account of the criteria laid down in point 4.2.5 of the Guidelines, without
interpreting them in the light of Article 87(3)(c) EC and therefore without assessing whether trading conditions were affected
by the aid at issue to an extent contrary to the common interest.

41      The Kingdom of the Netherlands shares the appellant’s point of view and states that the judgment under appeal is based on
inadequate reasoning in respect of the interpretation and application of the Guidelines.

42      The Commission contends that the grounds of the judgment under appeal are not in any way inadequate or inconsistent. It states,
in particular, that the General Court correctly pointed out, in paragraph 132 of the judgment under appeal, that the Guidelines
must always be interpreted in the light of the objective of undistorted competition in the common market and that it gave
clear reasons, in paragraphs 173 to 177 of that judgment, why the direct application of Article 87(3)(c) EC would not entail
taking account of the objectives and beneficial effects of the aid sought by Holland Malt. In that connection, the General
Court stated in paragraph 176 of its judgment that the criterion referred to in point 4.2.5 of the Guidelines reflects the
condition under Article 87(3)(c) EC to the effect that any aid adversely affecting trading conditions to an extent contrary
to the common interest cannot be compatible with the common market.

 Findings of the Court

43      The three parts of the first ground of appeal concern the scope and interpretation of the Guidelines and are directed at the
General Court’s assessment relating to the second part of the second plea of the application at first instance. It is therefore
appropriate to consider them together.

44      In that regard, it should be noted that in the contested decision the Commission, applying point 4.2.5 of the Guidelines,
held that the aid intended for Holland Malt was not compatible with the common market, in that there are no normal outlets
on the market at issue. By the judgment under appeal, the General Court held, first, that in so far as the condition provided
for in point 4.2.5 of the Guidelines was not fulfilled, the Commission could not have approved the contested aid. Secondly,
referring to *Deufil* v *Commission*, it confirmed that the non-application of the Guidelines and the application of only Article 87(3)(c) EC would not have meant
in the present case, contrary to the appellant’s claim, that the Commission was obliged to take into consideration the beneficial
effects of the aid at issue for the region concerned.

45      Those two findings are not vitiated by any error of law.

46      As is apparent from settled case-law, in the application of Article 87(3) EC the Commission enjoys wide discretion, the exercise
of which involves complex economic and social assessments which must be made in a Community context (see Joined Cases C‐75/05
P and C‐80/05 P *Germany and Others* v *Kronofrance* [2008] ECR I‐6619, paragraph 59 and the case-law cited). In adopting rules of conduct and announcing by publishing them that
they will apply to the cases to which they relate, the Commission imposes a limit on the exercise of its aforementioned discretion
and cannot depart from those rules under pain of being found, where appropriate, to be in breach of general principles of
law, such as equal treatment or the protection of legitimate expectations (see *Germany and Others* v *Kronofrance*, paragraph 60 and the case-law cited).

47      Therefore, according to that case-law, in the specific area of State aid, the Commission is bound by the guidelines and notices
that it issues, to the extent that they do not depart from the rules in the Treaty (see Case C‐288/96 *Germany* v *Commission* [2000] ECR I‐8237, paragraph 62, and *Germany and Others* v *Kronofrance*, paragraph 61).

48      In that regard, it should be noted that, as is apparent from *Deufil* v *Commission*, Article 87(3)(c) EC must be interpreted as meaning that, in principle, when aid is granted in a market with overcapacity,
it is such as to affect trading conditions to an extent contrary to the common interest.

49      Next, the fact that aid also has beneficial effects for the region or the economic sector concerned does not necessarily imply
that it must be considered to be compatible with the common market. It follows from Article 87(3)(c) EC that, where an aid
measure affects trading conditions to an extent contrary to the common interest, it cannot be declared compatible with the
common market, irrespective of its possible beneficial effects. However, when assessing the effects on trade, the Commission
must take into consideration all the characteristics of the measure and the market concerned (see Case 47/69 *France* v *Commission* [1970] ECR 487, paragraphs 7 to 9).

50      There is no ground for concluding that that interpretation of primary law should not also apply to aid in the agricultural
sector. It follows from the first paragraph of Article 36 EC, which acknowledges that the common agricultural policy takes
precedence over the objectives of the Treaty in the field of competition, that any application in this field of the Treaty
provisions is subject to account being taken of the objectives set out in Article 33 EC, namely those of the common agricultural
policy (see Case C‐311/94 *IJssel-Vliet* [1996] ECR I‐5023, paragraph 31).

51      Therefore, when assessing the compatibility of State aid granted in that sector, the Commission must take account of the requirements
of that policy, which correspond to those of the common market as a whole (see, to that effect, *IJssel‐Vliet*, paragraph 33). Among those requirements is the control of production. Thus, in particular, in the field of Community financial
aid, Council Regulation (EC) No 1257/1999 of 17 May 1999 on support for rural development from the European Agricultural Guidance
and Guarantee Fund (EAGGF) and amending and repealing certain Regulations (OJ 1999 L 160, p. 80), prohibits, in Article 6,
the grant of aid to investment which has as its objective an increase in production of products for which no normal market
outlets can be found.

52      In the present case, in point 4.2.5 of the Guidelines, the Commission determined that it considered as incompatible with the
common market aid in connection with the processing and marketing of agricultural products granted in the absence of normal
outlets. It follows from that point that, according to the Commission, such a measure is considered to be contrary to the
common interest, in the light of the characteristics of the sector it affects. Furthermore, the Commission provided, also
in point 4.2.5, that when assessing such aid measures it must take into consideration the market supply of the product in
question and also any restrictions on production or limits on Community support possibly provided for by the common organisation
of the market. It must therefore carry out a detailed analysis of that market.

53      Such rules of conduct are compatible with the provisions of primary law and in particular with Article 87(3)(c) EC, applied
in compliance with the objectives of the common agricultural policy. Aid granted in a market with overcapacity does indeed
adversely affect trading conditions to an extent contrary to the common interest. The Commission can therefore regard as incompatible
with the common market a measure to promote the development of a region or an activity where it is granted in a sector, such
as the processing of agricultural products, in which any increase of production in the absence of normal outlets can adversely
affect intra‐Community trade to an extent contrary to the common interest, irrespective of the beneficial effects for the
region of the activity concerned.

54      It follows that the General Court was correct to hold that, in the contested decision, the Commission correctly applied both
point 4.2.5 of the Guidelines and Article 87(3)(c) EC. Having found that there were no normal market outlets for malt on the
basis of a very detailed analysis of that market, the Commission was obliged to hold that the measure at issue was incompatible
with the common market.

55      Furthermore, the factual differences between the aid at issue in *Deufil* v *Commission* and that at issue in the present case, as referred to by the appellant, are not relevant to the interpretation of the rules
relating to the conditions of compatibility of aid provided for by Article 87(3)(c) EC.

56      In particular, the fact put forward by Holland Malt that the malt market does not have considerable overcapacity like the
market at issue in *Deufil* v *Commission* does not mean that the Commission should have declined to apply point 4.2.5 of the Guidelines. It follows from that point
that, with regard to the processing of agricultural products sector, an aid measure which involves even a minor increase in
production is, by reason of the characteristics of that economic sector and the constraints of the agricultural policy, considered
to be incompatible with the common market. Consequently, the judgment under appeal is not based on an incorrect assessment
of the applicable rules as interpreted by the Court in *Deufil* v *Commission*.

57      Finally, with regard to the alleged contradiction in the reasoning of the judgment under appeal, referred to in the third
part of the first ground of the appeal, it must be observed that, contrary to the appellant’s claim, the General Court, after
referring, in paragraphs 170 to 172 of the judgment under appeal, to the Commission’s obligation to comply with the Guidelines,
assessed the contested decision in the light of the provisions of primary law.

58      The General Court held that the contested decision, adopted on the basis of point 4.2.5 of the Guidelines, was not contrary
to the relevant Treaty rules. The General Court therefore held without contradiction in the reasoning that that decision,
which complies with the Guidelines, is not incompatible with a correct application of the Treaty rules.

59      Since the reasoning in the judgment under appeal is not contradictory, the third part of the first ground of appeal is also
unfounded.

60      It follows from the foregoing that the entirety of the first ground relied on by the appellant in support of its appeal must
be rejected.

*The second ground of appeal, alleging procedural error on account of the misreading and misrepresentation of the appellant’s
arguments*

 Arguments of the parties

61      The appellant claims that the General Court, in paragraph 168 of the judgment under appeal, incorrectly stated that in its
observations on the statement in intervention the appellant had not called into question the binding nature of the Guidelines
or their compatibility with the provisions of the Treaty. It submits that, on the contrary, it maintained in that pleading
that the Guidelines would fall short of the requirement under Article 87(3)(c) EC if they were interpreted as meaning that
the Commission was not obliged to conduct a balancing test of the effects of the aid. In that respect, it had stated that
‘in applying the provisions of its own Guidelines in a rigid and unbalanced manner, the Commission has clearly exceeded the
boundaries of its discretion under Article 87(3)(c) as interpreted in the case-law of the Community Courts’.

62      The appellant infers therefrom that that procedural error adversely affected its interests, since the General Court should
have reviewed its arguments to come to the conclusion that the Commission should have applied Article 87(3)(c) EC directly.

63      The Commission points out, to begin with, that even if the second ground of appeal was well founded, it can have no bearing
on the assessment of the reasoning of the General Court or the conclusions it reached. The General Court did, in fact, examine
whether the direct application of Article 87(3)(c) EC would have required the Commission to carry out an analysis different
from that made in the contested decision on the basis of point 4.2.5 of the Guidelines.

64      As to the substance, the Commission observes that Holland Malt expressly stated, as is apparent from the judgment under appeal,
that it did not contest that, by laying down its Guidelines, the Commission had limited its discretion.

 Findings of the Court

65      In that regard, it should be noted that, in paragraph 168 of the judgment under appeal, the General Court indeed stated that
the appellant, in its observations on the statement in intervention, did not call in question the binding nature of the Guidelines
or their compatibility with the provisions of the Treaty.

66      Nevertheless, in paragraphs 169 to 177 of the judgment under appeal, the General Court examined whether the contested decision
was compatible with the Guidelines and whether it infringed Article 87(3)(c) EC. In other words, it examined whether the contested
decision which ruled out the compatibility with the common market of the aid granted to Holland Malt solely on the basis of
the characteristics of the market concerned was contrary both to the Guidelines and to that Treaty provision.

67      The appellant cannot therefore successfully contend that the General Court did not respond to its argument that, by relying
on the Guidelines, the Commission had not correctly applied that Treaty provision.

68      It follows that the second ground of appeal is not well founded and must be rejected.

69      It follows from the foregoing that none of the grounds relied on by the appellant in support of its appeal can be accepted
and, accordingly, the appeal must be dismissed in its entirety.

**Costs**

70      Under Article 69(2) of the Rules of Procedure, which applies to appeal proceedings by virtue of Article 118 thereof, 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 Commission
has applied for costs and Holland Malt has been unsuccessful, the latter must be ordered to pay the costs.

On those grounds, the Court (Fourth Chamber) hereby:

1.      **Dismisses the appeal;**

2.      **Orders Holland Malt BV to pay the costs.**

[Signatures]

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[\*](#Footref*) Language of the case: English.