COMMISSION DECISION of 12 June 1996 on aid granted by the Region of Friuli-Venezia Giulia, Italy, in the form of reduced-interest loans for the purchase of reference quantities (milk quotas) (Only the Italian text is authentic) (96/616/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular Article 93 (2) thereof,

Having regard to Council Regulation (EEC) No 804/68 of 27 June 1968 on the common organization of the market in milk and milk products (1), as last amended by Regulation (EC) No 2931/95 (2), and in particular Article 23 thereof,

Having given the parties concerned an opportunity to make known their views (3),

Whereas:

I

By letter dated 13 February 1995 the Italian Permanent Representation to the European Union sent the Commission draft Regional Law No 77 of the Region of Friuli-Venezia Giulia which provides for the grant of subsidized loans for the purchase of reference quantities (milk quotas).

By letter of 3 May 1995, the Commission notified Italy of its decision to initiate the procedure under Article 93 (2) of the Treaty in respect of the abovementioned aid.

In its letter the Commission informed the Italian Government that it considered that the measure in question was likely to undermine the market organization for milk and milk products and was therefore incompatible with the common market.

The Commission thus believed that the aid was liable to distort competition and affect trade between Member States and met the requirements of Article 92 (1) of the Treaty but was not eligible for any of the derogations provided for in paragraphs 2 and 3 of that Article.

The Commission gave the Italian Government notice to submit its comments. It gave the other Member States and other interested parties notice to submit their comments as well.

The French Government submitted its comments by letter of 31 January 1996. These comments were forwarded to the Italian Government by letter of 27 February 1996.

II

Italy put forward the following arguments in a letter dated 22 June 1995:

1. Council Regulation (EEC) No 3950/92 (4) recognizes that milk quotas may be transferred definitively.

A milk quota is to be regarded as an intangible asset belonging to a holding which can be transferred by transfer agreement. It can be considered as a factor of production in the same way as labour, land or business capital.

The purchase of a milk quota is to be looked upon as a genuine investment made by a transferee that is entirely comparable with the purchase of any other factor of production. In the case under consideration, therefore, Regulation (EEC) No 2328/91 (5) applies and the draft Law notified complies with it.

2. The aid in question does not have the aim of raising overall milk production or of undermining the common organization of the market in the sector concerned.

According to the information contained in the abovementioned letter, the draft Law notified has been adopted meanwhile and is now Regional Law No 4/95. The aid has not been paid, however, pending a final decision by the Commission (letter from the Italian authorities of 9 February 1996).

The French Government has put forward the same arguments, referring in a more general way to 'specific Community rules for financing the acquisition of operating assets` (which is inaccurate since there are no such specific rules; the French Government appears to be referring in substance to Regulation (EC) No 2328/91) and adding:

(i) Regulation (EEC) No 3950/92 establishing the additional levy scheme and Regulation (EEC) No 804/68 introducing the market organization for milk products are quite distinct but equal in terms of the ranking of legal rules (Article 5 (c) of Regulation (EEC) No 804/68 provides 'The price system is established without prejudice to the implementation of the additional levy`.)

(ii) A quota can be transferred at the same time as a wide range of assets (land, farm buildings, livestock or dead stock). In a transaction the valuation of these various components may differ, according to whether they are accompanied by an individual reference quantity (quota). If there is no outside reference point for the value of an individual quota in directly comparable situations, it is not possible in practice in the financing of the purchase of such an asset to distinguish the respective proportion of each component.

III

For the above reasons, the aid in question is incompatible with the common market under Article 92 of the Treaty.

The Commission's views on the arguments put forward by Italy and supported by the French Government are as follows:

1. Applicability of Regulation (EEC) No 2328/91

The Commission does not agree with the assertion of the Italian authorities that the purchase of a milk quota is to be regarded as an investment similar to those referred to in Regulation (EEC) No 2328/91.

The financial value of a tangible investment is frequently determined by taking into account intangible assets linked with the investment property (e.g. rights, administrative authorizations, an owner's goodwill), which does not mean that these intangibles, which may nevertheless in certain cases be the subject of a separate transaction, can be regarded as investments under Regulation (EEC) No 2328/91.

Article 6 of Regulation (EEC) No 2328/91 (which sets out limits and prohibitions for the sectors for which there are no normal outlets) refers expressly to investments in the milk sector and provides that no investment will be permitted in the milk and milk products sector that has the effect of overshooting a reference quantity determined in accordance with the rules relating to the additional levy unless an additional reference quantity has been granted beforehand or obtained by means of a transfer under the same rules. The existence of a reference quantity is a prerequisite of an investment and cannot therefore be the subject of that investment.

This provision, which applies also where State aid for investments in farm holdings is being examined under Articles 92 and 93, provides therefore that the market organization arrangements apply in full and does not give grounds for any exception to the rules governing those arrangements in particular the prohibition contained in Article 24 of Regulation (EEC) No 804/68 (below).

2. Common organization of the market in milk and milk products

Articles 92, 93 and 94 of the Treaty are made applicable to the milk sector by Article 23 of Regulation (EC) No 804/68 on the common organization of the market in milk and milk products.

As the Commission said when initiating the procedure, the additional levy arrangements introduced by Council Regulation (EEC) No 856/84 (6) and renewed by Regulation (EEC) No 3950/92, with the aim of narrowing the gap between supply and demand for milk and milk products, and the resulting structural surpluses, are now one of the fundamental mechanisms of the market organization for milk and milk products.

Regulation (EEC) No 3950/92 in particular defines the flexibility which is given to Member States in applying the additional levy scheme so that the milk sector can be restructured. Adequate resources are available already under these arrangements to Member States to encourage restructuring and the improved effectiveness of production structures by applying the system of reserves and by designating producers who have submitted a plan for materially improving their holdings as referred to in Article 5 of Regulation (EEC) No 2328/91 as beneficiaries of the redistribution of production rights. These do not include the grant of loans for the purchase of quotas.

It should be pointed out here that, contrary to the French authorities' assertion under (i), the common market organization does not consist solely of the rules relating to the price arrangements but comprises several mechanisms and provisions which together constitute the full and exhaustive framework whose mandatory nature the Commission is continually reaffirming and which, according to the established case law of the Court of Justice, excludes any right by Member States to adopt measures which are likely to derogate from or undermine it.

The market organization for milk, like any common market organization, is based on the principle of the open market, freely accessible to all producers, whose operation is governed by the instruments provided for by that organization.

The aid concerned constitutes a breach of Article 24 of Regulation (EEC) No 804/68, which prohibits all aid the amount of which is fixed on the basis of the price or quantity of products covered by the common market organization introduced by that Regulation, subject to the provisions of Article 92 (2) of the Treaty.

Consequently, even if, as the Italian authorities assert, the measure in question does not aim to undermine the market organization, its effect (like that of any other measure liable to affect adversely the operating rules of the market for the sector in question) is precisely that.

In view of the above, the Commission cannot accept the arguments presented by Italy.

IV

The aid in question constitutes an infringement of the Community rules on the common organization of the market in the products referred to in Regulation (EEC) No 804/68 and cannot therefore be regarded as compatible with the common market.

It meets the requirements of Article 92 (1) of the Treaty but does not qualify for any of the exceptions contained in paragraphs 2 and 3 of that Article, for the reasons set out below.

Under Article 92 (1), any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods is incompatible with the common market.

Because of its direct and immediate effect on producers' production costs, the aid in question confers a benefit on them, as against producers of similar products in Italy or another Member State who do not have access to a comparable aid.

Consequently, the measure is likely to affect intra-Community trade in the agricultural products concerned, such trade being affected by any aid granted to promote national products. It is therefore a State aid which satisfies the requirements of Article 92 (1) of the Treaty.

Article 92 (1) provides that aids which meet the criteria it sets out are in principle incompatible with the common market. Paragraphs 2 and 3 of that Article lay down exceptions to that incompatibility.

Under Article 24 of Regulation (EEC) No 804/68 only the exceptions provided for in Article 92 (2) would apply in the case under consideration. It is obvious that those exceptions are not applicable.

The aids are consequently incompatible with the common market,

HAS ADOPTED THIS DECISION:

Article 1

The aid provided for in Regional Law No 4/95 of the Region of Friuli-Venezia Giulia is incompatible with the common market in accordance with Article 92 (1) of the Treaty.

Article 2

Italy shall abolish the aid referred to in Article 1 within two months of the date of notification of this Decision.

Article 3

Italy shall inform the Commission within two months of the date of notification of this Decision of the measures taken to comply with it.

Article 4

This Decision is addressed to the Italian Republic.

Done at Brussels, 12 June 1996.

For the Commission

Franz FISCHLER

Member of the Commission

(1) OJ No L 148, 28. 6. 1968, p. 13.

(2) OJ No L 307, 20. 12. 1995, p. 10.

(3) OJ No C 342, 20. 12. 1995, p. 9.

(4) OJ No L 405, 31. 12. 1992, p. 1. Regulation last amended by Regulation (EEC) No 1552/95 (OJ No L 148, 30. 6. 1995, p. 43).

(5) OJ No L 218, 6. 8. 1991, p. 1. Regulation last amended by Regulation (EC) No 2387/95 (OJ No L 244, 12. 10. 1995, p. 50).

(6) OJ No L 90, 1. 4. 1984, p. 10.