Opinion of Mr Advocate General Sir Gordon Slynn delivered on 27 November 1986. - Acciaierie e Ferriere Lombarde Falck v Commission of the European Communities. - Communty rules for aids to the steel industry. - Case 304/85.



European Court reports 1987 Page 00871



Opinion of the Advocate-General

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My Lords,

In this application, Acciaierie e Ferriere Lombarde Falck SpA (" Falck "), an Italian steel manufacturer in the private sector, asks the Court to annul pursuant to Article 33(2 ) of the ECSC Treaty a Commission Decision dated 1 August 1985 which authorised Italy to grant certain State aids to steel producers . That Decision purported to be taken pursuant to Commission Decision 2320/81/ECSC (" the Second Aids Code")(Official Journal 1981, L*228, p.*14 ) as amended by Decision 1018/85/ECSC ( Official Journal 1985, L*110, p.*5 ) which, replacing Decision 257/80/ECSC ( Official Journal 1980, L*29, p.*5 ) established Community rules for aids to the steel industry in view of the prolonged and serious crisis existing in that industry .

By Article 2 of the Second Aids Code such aids may be considered compatible with the orderly functioning of the common market if the recipient is engaged in "the implementation of a systematic and specific restructuring programme covering the different aspects of restructuring ( modernization, reduction of capacity and, where necessary, financial restructuring ) which programme is capable of restoring its competitiveness and of making it financially viable without aid under normal market conditions"; "the said restructuring programme results in an overall reduction in the production capacity of the recipient" and "the aids in question do not entail distortions of competition and do not affect trading conditions to an extent contrary to the common interest ".

"2 . In its examination of the amount and intensity of planned aids the Commission may take account, to the extent to which this is compatible with the objectives of this Decision, of any other aids previously granted to the undertaking concerned and of any restructuring undertaken by it ."

Different criteria were laid down for different kinds of aid, for investment, for closures, for continued operation, for research and development and to cater for an emergency .

By Article 8 ( 1 ) plans to grant aids had to be notified by 30 September 1982 and by Article 2 ( subject to special provisions ) had to be approved by 1 July 1983 and must not lead to aid payments after 31 December 1985 .

Decision 1018/85 of 19 April 1985 recited that what had been done indicated that the objectives ( of adjusting Community production capacity better to suit demand and to improve the undertakings' structure so that by 1986, with market conditions having been put back on a healthier footing, they would be financially viable without aid ) will be achieved . The market situation had, however, led to a deterioration in the financial position of undertakings which was the more serious the less competitive their structure . Additional aids were required, though "additional aid may be authorized by the Commission only for carrying out financial restructuring to reduce debt-service charges to the level borne by undertakings that were profitable in 1984 or for covering costs occasioned by capacity reductions ". Accordingly, it was provided that plans for aids might be notified no later than 31 May 1985 ( rather than 30 September 1982 ) and they had to be approved by 1 August 1985 ( rather than 1 July 1983 ). Such aids must still not lead to payments after 31 December 1985 .

By letter dated 28 May 1985 ( i.e . within the time-limit specified ) the Italian minister responsible wrote, pursuant to Decision 1018/85, to inform the Commission of the Italian Government' s financial proposals necessary for the restructuring of the Italian steel industry in order to ensure its viability after 1985, being proposals for aids additional to those authorized ( subject to specified reductions of capacity in both the public and the private sectors ) by the Commission' s Decisions of 14 and 29 July 1983 . That letter gave details of proposed adjustments - an extra LIT*150*000 million for certain closures in the private sector and an additional LIT*2*985*000 million for Finsider, the State-owned steel producer . It then added that, if it became clear that further capacity reductions were required, the Italian Government would wish to discuss with the Commission a fuller and more radical rationalization of the sector . On that footing, and given that the Aids Code would not be extended after 31 December 1985, it proposed that it might be appropriate to consider formulating "important synergies" between the different Italian producers, also taking into account the objective of finally systematizing the problems concerning important strategic units . It concluded that this approach, even if not yet specific nor final as to its overall quantification, would have to be based on a decision to close further installations which would require, in financial terms, at least LIT*550*000 million .

The "important synergies" referred to in the letter of 28 May 1985 comprised the sharing out of capacity reductions and other restructuring efforts between publicly-owned and privately-owned undertakings and commercial cooperation to achieve that end . One proposal being discussed was that Falck, the only Italian producer of flat products apart from Finsider, should close its coil and strip mill at Sesto San Giovanni with a production capacity of 730*000 tonnes per annum and transfer its production quota to Finsider, which would then open its second modern furnace, decommissioned at the insistence of the Commission, at its hot wide-strip mill at Bagnoli . This would increase production at Bagnoli by, apparently, 800*000 tonnes per annum which would be offset by the closure of an old hoop facility at Bagnoli with a capacity of 400*000 tonnes per annum .

Falck had already, during 1984 and 1985, drawn to the attention of the Minister and of the Commission the problems it faced, the assistance it needed and what it considered to be discriminatory treatment, in favour of Finsider and to its detriment, in respect both of previous aids and capacity reductions which it contended distorted competition . It asked the Italian Government to propose to the Commission an aid of LIT*300*000 million for its financial restructuring .

After an exchange of telexes between the Government and the Commission in the early part of July, the Government, by telex of 22 July 1985, proposed that the Commission should approve two alternative plans : ( a ) if the synergy discussed was achieved then in addition to LIT*50*000 million for the private sector and LIT*2*985*000 million for Finsider, a further LIT*550*000 million necessary not only to facilitate the synergy by contributions to closures in the flat product sector but also for possible further closures in the long product sector and operations of financial restructuring in the private sector, in conformity with Decision 1018/85; ( b ) if synergy could not be achieved then the LIT*550*000 million should be reduced by that part referable to closures in the flat product sector which was said to be approximately half of the LIT*550*000 million .

By letter to the Italian Government dated 1 August 1985, the Commission gave its decision . If synergy was achieved aids of LIT*3*141*900 million for Finsider and LIT*600*000 million for the private sector were approved, subject to specified capacity reductions of 400*000 tonnes by Finsider, 600*000 tonnes of laminated products in the private sector and 330*000 tonnes as a result of synergy . If the synergy was not achieved, Finsider was to receive the same amount of aids but to reduce its capacity by 800*000 tonnes . Aids of LIT*50*000 million plus a further LIT*275*000 million, being half the amount intended to finance the closures in the event of synergy, were approved on the basis that further reductions outside those resulting from synergy were contemplated . Approval of this LIT*275*000 million was, however, conditional on the Italian Government satisfying the Commission that the sum was to be properly allocated and that reductions in capacity of 350*000 tonnes were achieved in the private sector . No precise reduction of capacity was specified for Falck if synergy was not achieved though Falck feared that further reductions would be imposed upon it . The Commission stated that the request in the telex of 22 July 1985 to use part or all of the LIT*275*000 million for financial restructuring was inadmissible because such a demand had not been mentioned in the letter of 28 May 1985 and this was out of time .

In the event, Falck did not accept the Italian Government' s proposal put to it and, its counter-proposals for a higher subsidy and a price for the transfer of the Sesto San Giovanni quota being rejected, no agreement was reached . Falck had already, by letter of 1 July 1985, informed the Commission that its viability depended on appropriate aids and if aids were not accorded to it the matter would be brought before the Court . Being dissatisfied with the Commission' s decision, Falck accordingly brought these proceedings .

Its first point is that the Decision of 1 August 1985 should be set aside because it amounted to a discriminatory application of the Second Aids Code as amended . On the one hand, the Commission refused to take account of the notification of a plan for aid for financial restructuring contained in the telex of 22 July 1985 because it was out of time, 31 May being the last date for such a notification; on the other hand, it treated as in time a proposal in the same telex to grant aid of LIT*275*000 million for closures in the private sector, a proposal which was not itself contained in the letter of 28 May 1985 .

The first question is, thus, whether these two proposals were out of time . As I read it the proposal for granting aid in the private sector outlined in the letter of 28 May 1985 is limited to that needed for plant closures . It does not cover financial restructuring at all . That proposal came for the first time in the telex of 22 July 1985 and was notified out of time . In the letter it is clear that aid for plant closures was contemplated but on the basis that it would result from cooperation between different producers . In the telex there are two alternatives . One was a proposal for aid for reductions in capacity if there was cooperation and one if there was not . It is the latter which was put into effect .

If a formalistic approach is to be adopted it can obviously be said that this second alternative was not expressly spelled out in the letter .

It seems to me that the Court' s decision in Case 214/83 Germany v Commission ( judgment 30 October 1985 ), however, indicates that a formalistic view is not to be taken . That case was concerned with the Second Aids Code but the position on this point must be the same in respect of the Second Aids Code as amended . The Court considered that :

"the 'plans' which were to be notified to the Commission no later than 30 September 1982 were programmes which, within the framework of a restructuring plan, identified the type, the aim and the proposed use of the aid; it was not necessary, at that stage, for the exact amount of aid requiring authorization to have been determined . Whilst it is true that the Commission cannot establish whether certain aid is compatible with the common market unless it is informed of the order of magnitude of the amounts of aid contemplated, knowledge of the exact figures is not necessary at the initial stage of the examination of the aid plans; exact figures could therefore be specified at a later stage .

Consequently, the fact that the amount of aid finally approved by the Commission exceeded the amount notified on 30 September 1982 does not in itself constitute a breach of Article 8 ( 1 ) of the Second Aids Code, unless the increase which took place after that date had the effect of changing the nature of the proposed aid and, as a result, the plan which was implemented was no longer that which was notified ." ( paragraphs 50 and 51 of the judgment ).

It can be said here that this case is the converse of the case brought by the Federal Republic of Germany . Here a figure of approximately LIT*550*000 million was given in the letter and the Commission accepted, in the light of the proposal in the telex, that if there was synergy, aid of LIT*550*000 million could be approved and that if there was no synergy, the amount of aid would be approximately half that amount . It can also be said that the letter of 28 May did not specify within the framework of a restructuring plan the type, the aim and the proposed use of the aid . On the other hand, it did "identify" that the aid was proposed for capacity reduction resulting from plant closures . What was contemplated was cooperation to achieve that reduction but the essential aim was capacity reduction from plant closures . When the proposals were put forward in the telex, capacity reduction was dealt with on alternative bases and the Commission accepted it in that way . Since the producers concerned were not able to agree aid was granted for capacity reduction other than by cooperation . It is unfortunate that cooperation could not be achieved but for my part I do not regard what happened subsequent to 31 May, even if a variation on the original proposal as to the way it was to be achieved, as having the effect of "changing the nature of the proposed aid" so that "the plan which was implemented was no longer that which was notified ". The substance of the matter was that aid should be given for capacity reduction resulting from plant closures . Accordingly, I do not accept that the proposal for aid for plant closures, even if cooperation could not be achieved, is to be treated as out of time .

Thus, I do not accept that there was discrimination against Falck in the way the time limits were applied .

If I had come to the opposite conclusion it would seem to follow that the authorization to grant aid of LIT*275*000 million should be quashed; if the decision that proposed aid for the financial reconstruction of Falck was out of time is set aside, it is now too late for the aid to be authorized or paid in accordance with the terms of the Second Aids Code as amended . Financial reconstruction is not a permitted category of aid under Commission Decision 3484/85 ( Official Journal 1985, L*340, p.*1 ) establishing Community rules for aid to the steel industry for the period 1 January 1986 to 31 December 1988 .

I do not in any event accept that there was inconsistency in the Commission' s decision in that the aid approved if there was co-operation included an amount for financial restructuring . The LIT*550*000 million asked for initially and approved was for capacity reduction only, even if the telex of 22 July is to be read as contemplating some part of that amount for financial restructuring .

The second point taken by Falck is that what was approved by the Commission violated the principles of equal treatment enshrined in Article 4 ( b ) of the ECSC Treaty and of fair competition . In particular, Falck relies on the eighth recital to the Second Aids Code which requires that when aid is assessed "no discrimination must be practised between undertakings, notably on account of their ownership, whether public or private ". Falck' s contention is that here the public sector was given large sums of aid whereas it got nothing . As a result, since in particular it is the only competitor of Finsider in respect of flat products, the power to compete is so seriously affected that it may not be able to continue .

The Commission seems to counter that it can only approve rather than initiate plans for aid and that if there is discrimination it is the fault of the Member State putting forward the plan . That, in my view, cannot be a complete answer . What is done by way of aids may favour one company and disfavour another but if there is patently discrimination between the public and the private sectors the Commission should not, in my view, approve the aids, any more than it should do so if it is satisfied that the aids entail distortions of competition or have an effect on trading conditions to an extent contrary to the common interest . That is particularly so in a case like the present, when the Italian Government proposed aid for Falck whether or not there was synergy, even if in the latter case on a basis including aid for financial restructuring .

Falck has given details of its production capacity ( to show that it is some 10% of the size of Finsider ), the cuts it has been required to make prior to the present Decision ( 75% of those made by Finsider ) and the aids it has received ( 1% of those made to Finsider ). It also complains that whereas Finsider' s previous reductions were taken into account by the Commission those of Falck were not .

In Germany v Commission ( supra ) the Court recognized that there is no one rule of thumb to be applied by the Commission in deciding whether aid should be granted and what the amount should be .

" ... the factors which are likely to influence the exact amount of aid to be authorized do not consist simply in the number of tonnes of production capacity having to be cut; there are other factors, too, which vary from one region of the Community to another such as the restructuring effort made before 1980, the regional and social problems occasioned by the crisis in the steel industry, technical change and the adaptation of undertakings to suit market requirements ."

It seems to me that it cannot be said, as Falck appears to be saying, simply that it should receive an amount proportionately equivalent to that granted to Finsider, or that fairness requires that it should receive an appropriate proportion of the aid accorded to Finsider in respect of financial restructuring, even if that application on behalf of Falck was notified out of time .

Although I am not persuaded by the Commission' s explanation as to why Falck' s earlier reductions were not to be taken into account, I do not consider that that is enough to establish a breach of the two principles relied on in respect of the present Decision . The position has to be seen as a whole . The Commission, to my mind, has put forward reasons which prima facie justify the decision taken . It is clear that if Falck had been able to agree proposals for cooperation it would have received substantial aid . Since it was not, for reasons which may be perfectly valid, it did not receive any aid but equally it was not ( unlike Finsider ) required to make any reductions in capacity .

The onus is on Falck to show that the principles of equal treatment and fair competition have been violated . On the material before the Court, I am not satisfied that that has been established . The granting of aids is likely to have some effect on competition; it has not been shown that there was such a distortion contrary to the common interest .

Falck takes as its third point the argument that there was no systematic and specific restructuring programme in existence so that the decision under attack was defective for lack of reasons . The Commission required to be informed of the outcome of the Italian Government' s proposals for cooperation by 30 October . Hence it could not see whether the conditions which the Second Aids Code required to be satisfied had been satisfied at the time it took its decision, not least since Finsider was to get the same sum whether synergy was achieved or not .

Thus in its application, Falck does not attack so much the contents of the letter of 28 May ( by saying that it was not a notification of plans to grant aid within the meaning of Article 8 ( 2 ) at all so that the whole proceedings were of no effect ) as the terms of the final decision on the basis of the information available at that stage .

Although the matter has not been argued, I am not for my part satisfied that a failure to give reasons necessarily grounds an application under Article 33 ( 2 ) of the ECSC Treaty . However, it still has to be considered whether there was a plan for the Commission to approve .

There is no doubt that the letter of 28 May was, save as to the proposal for Finsider, tentative and lacking in details . It does, however, indicate that the Government considered necessary a reduction in capacity by plant closures at a cost of LIT*550*000 million even if the precise closures were to be reached by cooperation . By the time of its decision, the Commission had further details of the alternative plans on which it could act . It was, in my view, entitled, since cooperation was still being discussed and was desirable if it could be achieved, to approve the plan in the alternative form and to make its approval subject to final details in respect of synergy being worked out by 31 October 1985 .

The Decision specifies in detail the changes to be made if synergy is achieved and it explains, in the light of previous reductions and aids, the effect on Finsider . It seems to me, however, unnecessary to consider in detail whether the precise terms of the approval of the "synergy hypothesis" were sufficient since in the event synergy was not achieved .

What is more important is whether the plan finally adopted, with no synergy, was sufficient .

The Decision specifies the reduction in capacity required and the amount of aid to be granted subject to the Commission being satisfied, in time for the aids payments to be made in the prescribed period, that the rules of the Second Aids Code would be observed . It does not give the details as to how such reductions are to be made or the aids allocated . It would have been very much more satisfactory if the proposals had been spelled out in detail from the beginning . However, the overall plan in the public and private sector, the type of aid, the aim and proposed use of the aid ( for reduction of capacity ) are stated . Although this is a borderline case on the application of the Code I would accept that in the light of previous decisions of the Commission in 1983 and the subsequent reductions in capacity and aid granted, the Commission was entitled to proceed to approve the further reduction of 350*000 tonnes and LIT*275*000 million plus LIT 50*000 million for the private sector subject to being satisfied by 31 October that the detailed application was to be in compliance with the Code . I do not consider that the Decision should be annulled on the basis of the third ground relied on .

In all the circumstances, it seems to me that this application should be dismissed and that Falck should pay the Commission' s costs .