Judgment of the Court of First Instance (Second Chamber, extended composition) of 15 December 1999. - Freistaat Sachsen, Volkswagen AG and Volkswagen Sachsen GmbH v Commission of the European Communities. - State aid - Compensation for economic disadvantages caused by the division of Germany - Serious disturbance in the economy of a Member State - Regional economic development - Community Framework on State Aid to the Motor Vehicle Industry. - Joined cases T-132/96 and T-143/96.



European Court reports 1999 Page II-03663



Summary

Parties

Grounds

Decision on costs

Operative part



Keywords

1 Actions for annulment - Natural or legal persons - Measures of direct and individual concern to them - Commission decision, addressed to a Member State, finding that aid is incompatible with the common market - Action brought by the regional authority which had granted the aid - Whether admissible

(EC Treaty, Art. 173 (now, after amendment, Art. 230 EC))

2 State aid - Prohibited - Derogations - Aid for regions affected by the division of Germany - Scope of the derogation - To be narrowly construed - Economic disadvantages caused by the isolation entailed by the establishment of a border between East and West

(EC Treaty, Art. 92(2)(c) (now, after amendment, Art. 87(2)(c) EC))

3 State aid - Prohibited - Derogations - Member State seeking derogation under a duty to cooperate

(EC Treaty, Art. 92(2) (now, after amendment, Art. 87(2) EC))

4 Acts of the institutions - Statement of reasons - Obligation - Scope - Where the decision is consistent with previous decisions - Summary statement of reasons is sufficient

(EC Treaty, Art. 190 (now Art. 253 EC))

5 State aid - Prohibited - Derogations - Aid which may be regarded as compatible with the common market - Aid to remedy serious disturbance in the economy of a Member State - To be narrowly construed - The disturbance must affect the whole of the economy of the Member State concerned

(EC Treaty, Art. 92(3)(b) (now, after amendment, Art. 87(3)(b) EC))

6 State aid - Prohibited - Derogations - Aid which may be regarded as compatible with the common market - Discretion enjoyed by the Commission - Judicial review - Limits

(EC Treaty, Art. 92(3) (now, after amendment, Art. 87(3) EC))

7 State aid - Prohibited - Derogations - Aid which may be regarded as compatible with the common market - Aid for the development of certain regions - Assessment by the Commission - Obligation to take into account the repercussions of the aid at Community level

(EC Treaty, Art. 92(3)(a) and (c) (now, after amendment, Art. 87(3)(a) and (c) EC))

8 State aid - Investigation by the Commission - Establishment of an aid framework for a particular economic sector - No binding effect in the absence of an agreement between the Member States - Whether the framework may be taken into consideration by the Commission in order to apply Article 92 of the Treaty (now, after amendment, Article 87 EC) and Article 93 of the Treaty (now Article 88 EC) - Permissible

(EC Treaty, Art. 92 (now, after amendment, Art. 87 EC) and Art. 93 (now Art. 88 EC))

9 State aid - Commission decision - Legality to be assessed in the light of the information available at the time of adopting the decision - Foreseeable development of competition must be taken into account

(EC Treaty, Arts 92(1) and 173 (now, after amendment, Arts 87(1) EC and 230 EC))

10 State aid - Investigation by the Commission - Commission must take a position within a reasonable period - Where it fails to do so, an action may be brought for failure to act

(EC Treaty, Art. 92 (now, after amendment, Art. 87 EC) and Arts 93 and 175 (now Arts 88 EC and 232 EC))

11 State aid - Investigation by the Commission - Pre-established operational criteria may be used - Whether the Council's prerogatives are thereby encroached upon - No such encroachment - Distinction between greenfield investments and extensions of existing capacity - Classification to be made in the context of Community law

(EC Treaty, Art. 92 (now, after amendment, Art. 87 EC) and Art. 93 (now Art. 88 EC))

Summary

1 Where a territorial entity within a Member State has legal personality under the law of that State, it may bring an action under the fourth paragraph of Article 173 of the Treaty (now, after amendment, Article 230 EC) for annulment of a decision addressed to that entity and against any decision which, albeit in the form of a regulation or a decision addressed to another person, is of direct and individual concern to that entity.

A Commission decision, addressed to a Member State, finding that certain forms of State aid are incompatible with the common market is of individual concern to a territorial entity within that State, where it was that entity which granted the aid in question, partly from its own resources, and which, by virtue of the decision, is prevented from exercising its autonomous powers as it would wish and obliged to initiate the administrative procedure for recovering the aid from recipients, a procedure which it alone has the power to implement at national level.

That territorial entity must be regarded as directly concerned by the decision where the national authorities to which the decision was addressed have not exercised any discretion when communicating it to the entity.

Furthermore, the interest which that territorial entity has in challenging the decision is distinct from that of the Member State of which that entity forms part.

2 In view of the fact that both the Maastricht Treaty and the Amsterdam Treaty retained Article 92(2)(c) of the Treaty (now, after amendment, Article 87(2)(c) EC), under which aid compatible with the common market includes `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', and that an identical provision was inserted in Article 61(2)(c) of the Agreement on the European Economic Area, it cannot be assumed that Article 92(2)(c) has become devoid of purpose since the reunification of Germany.

Nevertheless, since Article 92(2)(c) is a derogation from the general principle laid down in Article 92(1) of the Treaty that State aid is incompatible with the common market, it must be interpreted narrowly. Moreover, in interpreting it, it is necessary to consider not only its wording but also its context and the aims of the rules of which it forms part.

For instance, since the phrase `division of Germany' refers historically to the establishment in 1948 of a dividing line between the Eastern and the Western zones, the `economic disadvantages caused by that division' can only mean the economic disadvantages caused by the isolation which the establishment or maintenance of that border entailed, such as the encirclement of certain areas, the breaking of communication links, or the loss of the natural markets of certain undertakings, which therefore need support, either to be able to adapt to new conditions or to be able to survive that disadvantage.

To construe Article 92(2)(c) of the Treaty as permitting full compensation for the undeniable economic backwardness suffered by the new Länder, until such time as they reach a level of development comparable with that of the original Länder, would be to disregard both the nature of that provision as a derogation and its context and aims. Indeed, the differences in development between the original Länder and the new Länder are explained by causes other than the division of Germany as such, and in particular by the different politico-economic systems established on either side of the frontier.

3 A Member State which seeks to be allowed to grant aid by way of derogation from the Treaty rules has a duty to cooperate with the Commission, requiring it in particular to provide all the information to enable the Commission to verify that the conditions for the derogation sought are fulfilled.

4 The statement of reasons required by Article 190 of the EC Treaty (now Article 253 EC) must clearly and unequivocally show the reasoning of the institution which adopted the measure, so as to enable the Community judicature to exercise its power of review and the persons concerned to know the grounds on which the measure was adopted.

Nevertheless, a decision which has been adopted in a context well known to the parties and which forms part of a consistent line of decision-making practice may be supported by a summary statement of reasons.

The reasons given for a measure must be assessed, in particular, by reference to the interest which the addressee or other persons concerned may have in receiving explanations, particularly where they played an active part in the procedure prior to the adoption of the contested measure and knew the reasons of fact and law which led the Commission to take its decision.

Moreover, the Commission is not required, in stating its reasons for a decision, to reply to all the issues of fact and law raised by the interested parties, provided it takes account of all the circumstances and all the relevant factors of the case. Consequently, in the case of a decision on State aid, where the applicants have been closely associated with the administrative procedure which led to the drawing up of that decision, neither the fact that the decision does not reproduce the detailed figures of the cost-benefit analysis of the planned investment nor the fact that the analysis was not annexed to the decision constitutes a breach of the duty to state reasons.

5 It follows from the context and general scheme of Article 92(3)(b) of the Treaty (now, after amendment, Article 87(3)(b) EC) - under which aid to remedy a serious disturbance in the economy of a Member State may be regarded as compatible with the common market - that the disturbance in question must affect the whole of the economy of the Member State concerned, not merely the economy of one of its regions or areas of territory. This, moreover, is in conformity with the need to interpret strictly a derogating provision such as Article 92(3)(b) of the Treaty.

6 When reviewing the Commission's exercise of its discretion under Article 92(3) of the Treaty (now, after amendment, Article 87(3) EC), which involves the making of complex assessments of an economic and social nature within a Community context, the Community judicature must confine itself to verifying whether the rules on procedure and the statement of reasons have been complied with, that the facts are materially accurate, and that there has been no manifest error of assessment and no misuse of powers. In particular, it is not for the Community judicature to substitute its economic assessment for that of the Commission.

7 The difference in wording between subparagraphs (a) and (c) of Article 92(3) of the Treaty (now, after amendment, Article 87(3) EC) cannot lead to the conclusion that the Commission should take no account of the Community interest when applying Article 92(3)(a) and must confine itself to verifying the regional specificity of the measures involved, without assessing their impact on the relevant market or markets in the Community as a whole.

The application of both Article 92(3)(a) and Article 92(3)(c) presupposes the need to take into consideration not only the regional implications of the aid covered by those provisions but also, in the light of Article 92(1), its impact on trade between Member States and thus the sectoral repercussions to which it might give rise at Community level.

8 Although the rules of the Community framework for State aid in certain sectors of industry - being appropriate measures proposed by the Commission to the Member States on the basis of Article 93(1) of the Treaty (now Article 88(1) EC) - are entirely devoid of binding force and bind Member States only if the latter have consented to them, there is nothing to prevent the Commission from examining the aid which must be notified to it in the light of those rules when exercising the wide discretion which it enjoys for the purposes of applying Article 92 of the Treaty (now, after amendment, Article 87 EC) and Article 93 of the Treaty.

9 The legality of a decision concerning aid is to be assessed in the light of the information available to the Commission when the decision was adopted.

When the Commission establishes the existence of aid within the meaning of Article 92(1) of the Treaty (now, after amendment, Article 87(1) EC), it is not strictly bound by the conditions of competition existing at the date on which its decision is adopted. It must carry out an assessment in a dynamic perspective and take account of the foreseeable development of competition and the effects which the aid in question will have upon it.

The Commission cannot therefore be criticised for having taken account of factors arising after the adoption of a plan to grant or alter aid. The fact that the Member State concerned implemented the proposed measures before the investigation procedure resulted in a final decision, in breach of its obligations under Article 93(3) of the Treaty (now Article 88(3) EC), is of no relevance to that question.

10 Whilst the preliminary investigation procedure under Article 93(3) of the Treaty (now Article 88(3) EC) is intended to allow the Commission sufficient time, the Commission must, nevertheless, act diligently and take account of the interest of the Member States in being informed of the position quickly in spheres where the need to intervene may be urgent by reason of the effect that the Member States expect from the planned incentive measures. The Commission must therefore take a position within a reasonable period, which the Court of Justice has assessed at two months.

Moreover, the Commission is bound by the same general duty of diligence where it decides to initiate the inter partes investigation procedure laid down by Article 93(2) of the Treaty, and its failure to act in the matter may in appropriate cases be disapproved by the Community judicature in proceedings under Article 175 of the EC Treaty (now Article 232 EC).

11 The power to make any appropriate regulations for the application of Article 92 of the Treaty (now, after amendment, Article 87 EC) and Article 93 of the Treaty (now Article 88 EC), conferred on the Council by Article 94 of the Treaty (now Article 89 EC), is in no way called into question by the fact that the Commission uses pre-established operational criteria, such as those underlying the distinction between greenfield investments and extensions of existing capacity, when exercising the wide discretion which it enjoys in applying those provisions.

Classification of an investment as an extension of existing capacity or, on the other hand, as a greenfield investment is made in a Community context, irrespective of the classification under the accounting or tax law of the Member State to which the beneficiary undertaking is subject.

Parties

In Joined Cases T-132/96 and T-143/96,

Freistaat Sachsen, represented by Karl Pfeiffer and Jochim Sedemund, Rechtsanwälte, Berlin, with an address for service in Luxembourg at the Chambers of Aloyse May, 31 Grand-Rue,

and

Volkswagen AG and Volkswagen Sachsen GmbH, companies incorporated under German law, established in Wolfsburg (Germany) and Mosel (Germany) respectively, represented by Michael Schütte, Rechtsanwalt, Berlin, and Martina Maier, Rechtsanwalt, Düsseldorf, with an address for service in Luxembourg at the Chambers of Bonn and Schmitt, 62 Avenue Guillaume,

applicants,

supported by

Federal Republic of Germany, represented initially by Ernst Röder and subsequently by Wolf-Dieter Plessing, Ministerialräte at the Federal Ministry of Finance, acting as Agents, assisted by Thomas Oppermann, Professor at the University of Tübingen, Graurheindorferstraße 108, Bonn (Germany),

intervener,

v

Commission of the European Communities, represented initially by Paul Nemitz and Anders Jessen, of its Legal Service, and, subsequently, by Paul Nemitz alone, acting as Agents, assisted by Hans-Jürgen Rabe, Georg Berrisch and Marco Nuñez Müller, Rechtsanwälte, Hamburg, with an address for service in Luxembourg at the office of Carlos Gómez de la Cruz, of its Legal Service, Wagner Centre, Kirchberg,

defendant,

supported by

United Kingdom of Great Britain and Northern Ireland, represented by John Collins, of the Treasury Solicitor's Department, acting as Agent, assisted by Sarah Moore, Barrister, of the Bar of England and Wales, with an address for service in Luxembourg at the Embassy of the United Kingdom, 14 Boulevard Roosevelt,

intervener,

APPLICATION for the partial annulment of Commission Decision 96/666/EC of 26 June 1996 concerning aid granted by Germany to the Volkswagen Group for works in Mosel and Chemnitz (OJ 1996 L 308, p. 46),

THE COURT OF FIRST INSTANCE OF THE EUROPEAN COMMUNITIES

(Second Chamber, Extended Composition),

composed of: A. Potocki, President, K. Lenaerts, C.W. Bellamy, J. Azizi and A.W.H. Meij, Judges,

Registrar: A. Mair, Administrator,

having regard to the written procedure and further to the hearing on 30 June 1999,

gives the following

Judgment

Grounds

Legal background

1 By letter of 31 December 1988, the Commission informed Member States that, during its meeting of 22 December 1988 and following its decision of 19 July 1988 to establish a Community framework on State aid to the motor vehicle industry (`Community framework'), based on Article 93(1) of the EC Treaty (now Article 88(1) EC), it had laid down the conditions for implementing that framework, reproduced in a document attached to the letter. It asked Member States to inform it of their acceptance of that framework within one month.

2 The Community framework was the subject of a notice (89/C 123/03) published in the Official Journal of the European Communities (OJ 1989 C 123, p. 3). Point 2.5 thereof provided that it was to `enter into force on 1 January 1989' and to be `valid for two years'.

3 According to the fourth paragraph of Point 1, a major objective of the framework was to impose stricter discipline on the granting of aid in the motor vehicle industry in order to ensure that the competitiveness of the Community industry was not distorted by unfair competition. The Commission stated that it could operate an effective policy only if it were able to take a position on individual cases before aid was granted.

4 Under the first paragraph of Point 2.2 of the Community framework:

`All aid measures to be granted by public authorities within the scope of an approved aid scheme to (an) undertaking(s) operating in the motor vehicle sector as defined above, where the cost of the project to be aided exceeds ECU 12 million are subject to prior notification on the basis of Article 93(3) of the EEC Treaty. As regards aid to be granted outside the scope of an approved aid scheme, any such project, whatever its cost and aid intensity, is of course subject without exception to the obligation of notification pursuant to Article 93(3) of the EEC Treaty. Where aid is not directly linked to a particular project, all proposed aid must be notified, even if paid under schemes already approved by the Commission. Member States shall inform the Commission, in sufficient time to enable it to submit its comments, of any plan to grant or alter aid.'

5 In Point 3 of the Community framework, concerning guidelines for the assessment of aid cases, the Commission stated, inter alia, as follows:

`- Regional Aid

[...]

The Commission acknowledges the valuable contribution to regional development which can be made by the implantation of new motor vehicle and component production facilities and/or the expansion of such existing activities in disadvantaged regions. For this reason the Commission has a generally positive attitude towards investment aid granted in order to help overcome structural handicaps in disadvantaged parts of the Community.

[Such] aid is usually granted automatically in accordance with [detailed rules] previously approved by the Commission. By requiring prior notification of such aids in future, the Commission should give itself an opportunity to assess the regional development benefits (i.e. the promotion of a lasting development of the region by creating viable jobs, linkages into [the] local and Community economy) against possible adverse effects on the sector as a whole (such as the creation of [significant] overcapacity). Such an evaluation does not seek to deny the central importance of regional aid for the achievement of cohesion within the Community but rather to ensure that other aspects of Community interest such as the development of the Community's industry are also taken into account.

[...]'

6 Since the German Government indicated to the Commission that it had decided not to apply the Community framework, the Commission adopted, in accordance with Article 93(2) of the Treaty, Decision 90/381/EEC of 21 February 1990 concerning German aid schemes for the motor vehicle industry (OJ 1990 L 188, p. 55). Article 1 of that decision provides:

`1. From 1 May 1990, the Federal Republic of Germany shall notify to the Commission pursuant to Article 93(3) of the EEC Treaty all aid measures to be granted for projects costing more than ECU 12 million under the aid schemes set out in the Annex hereto to undertakings operating in the motor vehicle sector as defined in sub-section 2.1 of the Community framework for State aid to the motor vehicle industry. Such notification shall be effected in conformity with the requirements laid down in sub-sections 2.2 and 2.3. The Federal Republic of Germany shall, moreover, provide annual reports as required by the framework.

2. Further to the list of aid schemes set out in the Annex to this Decision (which list is not exhaustive), the Federal Republic of Germany shall also comply with the obligations of Article 1(1) with regard to all other aid schemes capable of benefiting the motor vehicle industry.

3. Aid to undertakings in the motor vehicle industry operating in Berlin which are granted under the Berlin Förderungsgesetz are excluded from the prior notification obligation provided for in the framework but shall be included in the annual reports required by that framework.'

7 By letter of 2 October 1990 addressed to the German Government, the Commission approved the regional aid scheme laid down for 1991 by the Nineteenth Outline Plan adopted pursuant to the German Law of 6 October 1969 on the Joint Task [between the Federal Government and the Länder] of `Improving the regional economic structure' (Gesetz über die Gemeinschaftsaufgabe `Verbesserung der regionalen Wirtschaftsstruktur'; hereinafter `the Joint Task Law'), whilst at the same time issuing a reminder of the need, when implementing the measures envisaged, to take account of the Community framework existing in certain sectors of industry. The Nineteenth Outline Plan itself indicates (Part I, point 9.3, p. 43) that the Commission:

`has taken decisions which prohibit the implementation of State aid granted in certain sectors even if it were granted in the context of approved programmes (regional aid for example), or which make its implementation subject to the need for prior authorisation of each of the projects which it is intended to benefit ...

Such rules exist in the following areas:

(a) ...

- the motor-vehicle industry, in so far as the cost of an operation which it is intended to benefit exceeds 12 million ecus.'

8 The political reunification of Germany was declared on 3 October 1990, entailing the accession to the Federal Republic of Germany of five new Länder from the former German Democratic Republic, including the Freistaat Sachsen (Free State of Saxony).

9 By letter of 31 December 1990, the Commission informed Member States that it considered it necessary to extend the Community framework.

10 That Commission decision also formed the subject-matter of a notice (91/C 81/05) published in the Official Journal of the European Communities (OJ 1991 C 81, p. 4). That notice stated, inter alia, as follows:

`[...] the Commission believes it necessary to renew the framework on State aid to the motor vehicle industry [...]. The only modification which the Commission has decided extends the prior notification obligation for the Federal Republic of Germany to Berlin (West) and the territory of the former GDR (Article 1(3) of the Commission's Decision of 21 February 1990, as published in OJ No L 188 of 20 July 1990, is no longer valid as from 1 January 1991).

After two years the framework shall be reviewed by the Commission. If modifications appear necessary (or the possible repeal of the framework) these shall be decided upon by the Commission following consultation with the Member States.'

11 By letters to the German Government of 5 December 1990 and 11 April 1991, the Commission approved the application of the Joint Task Law to the new Länder, whilst reiterating the need, when implementing the measures in question, to take account of the Community framework existing in certain sectors of industry. Similarly, by letter of 9 January 1991, it approved the extension of existing regional aid schemes to the new Länder, stating that the provisions of the Community framework had to be complied with.

12 On 23 December 1992, the Commission decided that `the [Community] framework will not be modified', and that it would remain valid until a subsequent review to be organised by the Commission. That decision formed the subject-matter of a notice (93/C 36/06) published in the Official Journal of the European Communities (OJ 1993 C 36, p. 17).

13 In its judgment of 29 June 1995 in Case C-135/93 Spain v Commission [1995] ECR I-1651, at paragraph 39, the Court of Justice held that that decision should be interpreted as `having extended the framework only until its next review, which, like the previous ones, had to take place at the end of a further period of application of two years', expiring on 31 December 1994.

14 Following the delivery of that judgment, by letter of 6 July 1995, the Commission informed Member States that, in the Community interest, it had decided on 5 July 1995 to prolong retroactively from 1 January 1995 its decision of 23 December 1992, thereby making the Community framework apply without interruption. The Commission stated that that prolongation would come to an end once the procedure under Article 93(1) of the Treaty, which it had simultaneously decided to open, had concluded (see paragraph 15 below). That decision, which formed the subject-matter of a notice (95/C 284/03) published in the Official Journal of the European Communities (OJ 1995 C 284, p. 3), was annulled by the judgment of the Court of Justice of 15 April 1997 in Case C-292/95 Spain v Commission [1997] ECR I-1931.

15 By a second letter of 6 July 1995, the Commission further informed the Member States of its decision of 5 July 1995 to propose to them, in the light of the judgment in Spain v Commission, to reintroduce the Community framework for a period of two years whilst making a number of amendments thereto, in particular the raising of the notification threshold to 17 million ecus (see Notice 95/C 284/03, cited above). The new text of the proposed Community framework provided, at Point 2.5, that: `The appropriate measures shall enter into force when all Member States have signalled their agreement or at the latest by 1 January 1996. All aid projects, which have not yet received a final approval by the competent authority by that date, shall be subject to prior notification.' The German Government gave its approval to that reintroduction of the Community framework by letter of 15 August 1995.

Factual background

16 The entry into force of the economic, monetary and social union between the Federal Republic of Germany and the German Democratic Republic on 1 July 1990 brought with it the collapse of demand for, and production of, Trabant vehicles in Saxony. In order to safeguard the motor-vehicle industry in that region, Volkswagen AG (`Volkswagen') entered into negotiations with the Treuhandanstalt (`THA'), the public-law body entrusted with restructuring the businesses of the former German Democratic Republic, which led to an agreement in principle in October 1990. That agreement provided, inter alia:

- for the joint creation of Sächsische Automobilbau GmbH (`SAB'), a company entrusted with the responsibility for maintaining jobs (`Beschäftigungsgesellschaft'), 87.5% of whose capital was initially held by the THA and 12.5% by Volkswagen;

- for the reopening by SAB of the existing paint workshop (then under construction) and the final assembly workshop on the Mosel site (`Mosel I');

- for the reopening by Volkswagen Sachsen GmbH (`VW Sachsen'), a wholly-owned subsidiary of Volkswagen, of an existing vehicle-production plant on the Chemnitz site (`Chemnitz I');

- for the resumption by VW Sachsen of cylinder-head production at the Eisenach site; and

- for the creation by VW Sachsen of a new motor vehicle construction plant in Mosel, comprising the four main activities of manufacture, namely metal pressing, skeleton bodywork, painting and final assembly (`Mosel II') and a new vehicle-production plant in Chemnitz (`Chemnitz II').

17 It was initially agreed that the reopening and restructuring of Mosel I and Chemnitz I constituted a temporary solution, designed to avoid unemployment of the existing workforce, pending the entry into service of Mosel II and Chemnitz II, scheduled for 1994.

18 By letter of 19 September 1990, the Commission asked the German Government to notify it, in accordance with the Community framework, of State aid for those investment projects. By letters of 14 December 1990 and 14 March 1991, the Commission insisted that that aid could not be put into effect without having been notified to the Commission and received its approval. That question was also entered on the agenda of two bilateral meetings held in Bonn on 31 January and 7 February 1991.

19 On 22 March 1991, on the basis of the Joint Task Law, the Saxon Ministry of the Economy and Employment adopted two decrees providing for the grant of certain investment grants to VW Sachsen in relation to Mosel II and Chemnitz II (`the 1991 decrees'). The amount envisaged for those grants totalled DEM 757 million for Mosel II, with payments spread out between 1991 and 1994, and DEM 147 million for Chemnitz II, with payments spread out between 1991 and 1996.

20 On 18 March 1991, the Finanzamt (Tax Office) Zwickau-Land addressed a decision to VW Sachsen providing for the grant of certain investment allowances in accordance with the German law on investment allowances (Investitionszulagengesetz) of 1991.

21 The Volkswagen group also sought the possibility of making special depreciation write-offs, in accordance with the German Assisted Areas Law (Fördergebietsgesetz) of 1991.

22 By letter of 25 March 1991, the German authorities supplied the Commission with certain information concerning the aid referred to in paragraphs 19 to 21 above, whilst indicating that they did not yet have more precise information and that it was intended to grant it in the context of the aid schemes approved by the Commission for the new Länder. By letter of 17 April 1991, the Commission indicated that the letter from the German authorities of 25 March 1991 constituted a notification pursuant to Article 93(3) of the Treaty, but that further information was necessary.

23 By letter of 29 May 1991, the German authorities argued, inter alia, that the Community framework was not applicable to the new Länder between 1 January and 31 March 1991. In the submission of those authorities, since the aid in question had been approved before 31 March 1991, the various files related thereto could henceforth be examined by the Commission only by reference to the regional aids scheme (see paragraph 7 above). The Commission rejected the arguments of the German authorities at a meeting on 10 July 1991 and requested further detailed information by letter of 16 July 1991. Following the reply of the German Government of 17 September 1991, the Commission raised a new series of questions by letter of 27 November 1991.

24 In October and December 1991, the Volkswagen group received investment grants amounting to DEM 360.8 million and investment allowances amounting to DEM 10.6 million in relation to Mosel II and Chemnitz II.

25 By decision of 18 December 1991 (OJ 1992 C 68, p. 14; `the decision to review'), notified to the German Government on 14 January 1992, the Commission opened the procedure under Article 93(2) of the Treaty for reviewing the compatibility of the various aids for financing the investments in Mosel I and II, Chemnitz I and II and the Eisenach factory with the common market.

26 In that decision, the Commission concluded, inter alia:

`[...] the aids proposed by [the German] authorities give rise to major concern for the following reasons.

- they have not been properly notified to the Commission according to the procedure of Article 93(3) of the EEC Treaty;

- the apparent high aid intensity proposed to a plan involving significant expansion of capacity within the European car market could give rise to unfair distortion of competition;

- not enough evidence has been presented to date which justifies the combination of the relatively high intensity of regional aid, the granting of indirect investment aid by the THA and the granting of a temporary operating aid also by THA by reference to the structural and economic problems which VW undoubtedly faces in the new Länder; on the contrary, the global aid intensity could be disproportionately high and incompatible with the criteria of the Community framework on State aid to the sector.'

27 By letter of 29 January 1992, the German Government declared itself willing to suspend all aid payments until the review procedure was terminated.

28 By letter of 24 April 1992, the Commission asked the German authorities, the THA and Volkswagen for further information. Further to a meeting of 28 April 1992 and the Commission's letters of 14 May, 5 June, 21 August and 17 November 1992, the German authorities provided additional information by letters of 20 May, 3 and 12 June, 20 and 29 July, 8 and 25 September, 16 and 21 October, and 4 and 25 November 1992; Volkswagen gave additional information by letters of 15 June and 30 October 1992, and 12 and 20 June 1993. The parties also met on 16 June, 9 September, 12 and 16 October and 3 December 1992, and on 8 and 11 June 1993.

29 On 13 January 1993, Volkswagen decided to postpone a large part of the investments initially intended for the Mosel and Chemnitz factories. The paint workshop and final assembly line of Mosel II were henceforth to become operational only in 1997, and the vehicle-production unit at Chemnitz II was not to enter into service until 1996. The Commission agreed to review its assessment on the basis of Volkswagen's new investment projects.

30 On 30 March 1993, the Saxon Ministry of the Economy and Employment adopted two decrees amending the 1991 decrees (`the 1993 decrees'). The total amount of the investment grants thenceforth envisaged amounted to DEM 708 million for Mosel II, with payments spread between 1991 and 1997, and DEM 195 million for Chemnitz II, with payments spread between 1992 and 1997.

31 Certain details of Volkswagen's new investment projects were submitted to the Commission during an interview which took place on 5 May 1993. By letter of 6 June 1993, Germany also communicated certain information on those projects, which Volkswagen supplemented by letters of 24 June and 6 July 1993 and a fax message of 10 November 1993. That new information was also examined during interviews which took place on 18 May, 10 June, 2 and 22 July 1993. Fresh information of the production capacities envisaged by Volkswagen was supplied in a letter from the German Government of 15 February and a fax message of 25 February 1994.

32 The Commission also collected new information on those projects on a visit to the sites at the beginning of April 1994 and during interviews which took place on 11 May and 2, 7 and 24 June 1994. In addition, documents were submitted to it on the occasion of those interviews and others were sent to it by the German authorities and by Volkswagen on 10 May, 30 June and 4 and 12 July 1994.

33 On 24 May 1994, the Saxon Ministry of the Economy and Employment adopted two decrees amending the 1991 and 1993 decrees (`the 1994 decrees'). The total amount of the investment grants thenceforth envisaged amounted to DEM 648 million for Mosel II, with payments spread between 1991 and 1997, and DEM 167 million for Chemnitz II, with payments spread between 1992 and 1997.

34 By an agreement of 21 June 1994, supplemented by an annex of 1 November 1994, Volkswagen acquired from the THA the 87.5% of the shares in SAB which it did not already own.

35 On 27 July 1994, the Commission adopted Decision 94/1068/EC of 27 July 1994 concerning aid granted to the Volkswagen Group for investments in the new German Länder (OJ 1994 L 385, p. 1; `the Mosel I decision'). In that decision, the Commission found, inter alia, as follows (Point IV, fourth paragraph, of the recitals):

`On opening the procedure the Commission had regarded all Volkswagen's investment plans in Saxony as a single project and therefore intended to decide on all elements of State aid together. Even after its decision in 1993 to postpone investment in the new plants, Volkswagen initially argued that this did not affect the production technology, the labour input and other crucial variables. This year, however, on the basis of information collected during a site visit and through new expert advice, it became obvious that this view could no longer be maintained. Volkswagen also acknowledged to the Commission that their former plans had become obsolete and that they were being reworked. The new plans for the new car and engine plants Mosel II and Chemnitz II will now be closely linked to the development of the Golf A4 that will be put into production at the same time as Mosel II is now planned to come on stream, i.e. in 1997. A final version of the new plans will only be available at the end of 1994. On the basis of current information these new plans will include significant changes in technology and production structure. Under these circumstances it is obvious that the original link between the investment projects in the existing former THA plants and the new greenfield projects has been severed. The Commission has therefore decided to limit its current decision to the restructuring aid for the existing plants, on which it can form a clear opinion on the basis of the available information, and to postpone the decision on the aid to the greenfield projects until Volkswagen and Germany are able to present their definitive investment and aid plans.'

36 The Mosel I decision shows that the paint and final assembly workshops of Mosel I were modernised and altered in accordance with the agreement concluded with the THA (see paragraph 16 above). In an initial period to 1992, Mosel I was used for the final assembly of the VW Polo and Golf A2 models, the parts for which were manufactured elsewhere by other plants of the Volkswagen group and delivered to Mosel in separate pieces. From July 1992, the combined use of the paint and final assembly workshops of Mosel I, the alteration of which had just been completed, and of the new body workshop of Mosel II, which had just come into service, allowed the production launch of the Golf A3 model at Mosel, pressing work being carried out elsewhere. As a result, logistics were transferred from the Wolfsburg site to Mosel I in January 1993, and new supplier undertakings, capable of supplying the necessary parts to Mosel I and Chemnitz I, were established in the proximity. The new press shop of Mosel II started to function in March 1994, close to Mosel I.

37 It was in those circumstances that, in Article 1 of the Mosel I decision, the Commission declared various aids granted up to the end of 1993 (the date on which the restructuring was to be completed), and amounting to DEM 487.3 million for Mosel I and DEM 84.8 million for Chemnitz I, compatible with the common market. However, certain aid granted subsequently was declared incompatible with the common market, particularly that categorised as aid for replacement and modernisation investments, which according to the Mosel I decision could not be authorised under the Community framework (see the Mosel I decision, Points IX and X).

38 Subsequently, the German Government verbally informed the Commission, a number of times, of delays occurring in the creation of Mosel II and Chemnitz II. In a letter of 12 April 1995, the Commission reminded the German authorities that they were required to notify it of Volkswagen's projects for those new plants, so that it could carry out a review of the aids concerned. That letter received no reply. By letter of 4 August 1995, the Commission requested that the necessary information be communicated to it as soon as possible, stating that, if Germany did not comply with that request, it would adopt a provisional decision, followed by a definitive one, on the basis of the information it already had. In reply to that letter, the German Government informed the Commission, by letter of 22 August 1995, that Volkswagen's investment projects were still not finalised.

39 On 31 October 1995, the Commission adopted Decision 96/179/EC, enjoining the German Government to provide all documentation, information and data on the new investment projects of the Volkswagen Group in the new German Länder and on the aid to be granted to them (OJ 1996 L 53, p. 50).

40 Following that decision, certain information concerning those projects and on the subject of production capacity was communicated to the Commission during an interview on 20 November 1995. That information was confirmed by letter of 13 December 1995 and clarified on a visit to the sites on 21 and 22 December 1995. On 15 January 1996, the Commission put other questions to the German authorities. After an interview on 23 January 1996, most of the missing information was communicated to the Commission by letters of 1 and 12 February 1996.

41 On 21 February 1996, the Saxon Ministry of the Economy and Employment adopted two decrees amending the 1991, 1993 and 1994 decrees (`the 1996 decrees'). The total amount of the investment grants thenceforth envisaged amounted to DEM 499 million for Mosel II, with payments spread between 1991 and 1997, and DEM 109 million for Chemnitz II, with payments spread between 1992 and 1997.

42 By letter of 23 February 1996, the Commission reminded the German authorities that it still lacked certain information. That information was communicated to it at an interview on 25 March 1996 and was subsequently discussed on 2 and 11 April 1996. A further interview took place on 29 May 1996.

43 On 26 June 1996, the Commission adopted Decision 96/666/EC concerning aid granted by Germany to the Volkswagen Group in Mosel and Chemnitz (OJ 1996 L 308, p. 46; `the Decision'), the operative part of which reads as follows:

`Article 1

The following aid proposed by Germany for the various investment projects of Volkswagen AG in Saxony is compatible with Article 92(3)(c) of the EC Treaty and Article 61(3)(c) of the EEA Agreement:

- aid granted by Germany to [the Volkswagen group] for [its] investment projects in Mosel (Mosel II) and Chemnitz (Chemnitz II) in the form of investment grants (Investitionszuschüsse) of up to DEM 418.7 million,

- aid granted by Germany to [the Volkswagen group] for [its] investment projects in Mosel (Mosel II) and Chemnitz (Chemnitz II) in the form of investment allowances (Investitionszulagen) of up to DEM 120.4 million.

Article 2

The following aid proposed by Germany for the various investment projects of Volkswagen AG in Saxony is incompatible with Article 92(3)(c) of the EC Treaty and Article 61(3)(c) of the EEA Agreement and may not be granted:

- the proposed investment aid for [the Volkswagen group] for [its] investment projects in Mosel II and Chemnitz II in the form of special depreciation on investment under the Assisted Areas Law (Fördergebietsgesetz) with a nominal value of DEM 51.67 million,

- the proposed investment aid to [the Volkswagen group] for [its] investment project in Mosel II in the form of investment grants (Investitionszuschüsse) in excess of the amount specified in the first indent of Article 1 and constituting an additional DEM 189.1 million.

Article 3

Germany shall ensure that the capacity of the Mosel plants in 1997 does not exceed a level of 432 units per day [...]

Furthermore, Germany shall send to, and discuss with, the Commission an annual report on the realisation on the DEM 2 654.1 million of eligible investments in Mosel II and Chemnitz II and the actual payments of aid so as to ensure that the combined effective aid intensity expressed in gross grant equivalent does not exceed 22.3% for Mosel II and 20.8% for Chemnitz II [...]

Article 4

Germany shall inform the Commission within one month of the notification of this Decision of the measures taken to comply herewith.

Article 5

This Decision is addressed to the Federal Republic of Germany.'

44 Following a letter sent by the chairman of Volkswagen to the first minister of the Free State of Saxony on 8 July 1996, the Free State of Saxony paid Volkswagen, in July 1996, DEM 90.7 million in investment grants which the Commission had declared in its Decision to be incompatible with the common market.

Procedure

45 By applications lodged at the Registry of the Court of First Instance on 26 August and 13 September 1996, the Free State of Saxony, of the one part, and Volkswagen and VW Sachsen, of the other part, brought two actions for the partial annulment of the Decision, which were registered under case numbers T-132/96 and T-143/96 respectively.

46 By application lodged at the Registry of the Court of Justice on 16 September 1996, the Federal Republic of Germany brought an action, registered under case number C-301/96, for the partial annulment of the Decision.

47 By application lodged at the Registry of the Court of Justice on 16 September 1996, the Commission brought an action against the Federal Republic of Germany for failure to fulfil its obligations, following the payment by the Free State of Saxony of DEM 90.7 million in aids which had been declared by the Decision to be incompatible with the common market. That action was registered under case number C-302/96.

48 By a separate application, lodged at the Registry of the Court of First Instance on 8 November 1996, the Commission raised an objection of inadmissibility under Article 114(1) of the Rules of Procedure in Case T-132/96.

49 By order of 4 February 1997, the Court of Justice stayed proceedings in Case C-301/96 Germany v Commission until the delivery of judgments by the Court of First Instance.

50 By applications lodged at the Registry of the Court of First Instance on 13 and 19 February 1997 respectively, the Federal Republic of Germany and the United Kingdom applied for leave to intervene in Cases T-132/96 and T-143/96.

51 By letters of 10 April and 17 July 1997 and 26 May 1998, the applicants requested that certain information be treated as confidential in relation to the United Kingdom.

52 By order of 26 March 1998, the President of the Court of Justice removed Case C-302/96 from the register.

53 On 29 June 1998, the Court of First Instance (Second Chamber, Extended Composition) held an informal meeting with the parties.

54 By order of 30 June 1998, the Court of First Instance (Second Chamber, Extended Composition) joined the objection of inadmissibility raised by the Commission to the substance of the case.

55 By orders of 1 and 3 July 1998, the President of the Second Chamber, Extended Composition, of the Court of First Instance granted leave to the Federal Republic of Germany and the United Kingdom to intervene in Cases T-132/96 and T-143/96 in support of the applicants and the Commission respectively. The President also partially allowed the applications for confidential treatment.

56 By order of 7 July 1998, the President of the Second Chamber, Extended Composition, of the Court of First Instance joined Cases T-132/96 and T-143/96 for the purposes of the written procedure, the oral procedure and the judgment.

57 By letters received between 17 and 22 July 1998 in reply to a question by the Court of First Instance (Second Chamber, Extended Composition) in the context of measures of organisation of procedure, the main parties and the Federal Republic of Germany stated their view of the likely consequences for the further conduct of Cases T-132/96 and T-143/96, with particular reference to the subject-matter of the dispute, of the amicable settlement which had occurred in Case C-302/96.

58 On hearing the report of the Judge-Rapporteur, the Court of First Instance (Second Chamber, Extended Composition) decided to open the oral procedure. With the exception of the United Kingdom, which was excused, the parties presented oral argument and replied to the oral questions of the Court of First Instance at the hearing in open court on 30 June 1999.

Forms of order sought by the parties

59 The Free State of Saxony claims that the Court should:

- annul Article 2 of the Decision;

- order the Commission to pay the costs.

60 Volkswagen and VW Sachsen claim that the Court should:

- annul Article 2 of the Decision;

- annul Article 3 of the Decision in so far as the aids intensity expressed in gross grant equivalent is limited to 22.3% for Mosel II and 20.8% for Chemnitz II;

- annul Article 1 of the Decision in so far as the amount of investment grants declared compatible with the common market is limited to DEM 418.7 million;

- order the Commission to pay the costs.

61 The Federal Republic of Germany supports the form of order sought by the applicants.

62 The Commission contends in Case T-132/96 that the Court should:

- dismiss the application as inadmissible and, in the alternative, as unfounded;

- order the Free State of Saxony to pay the costs.

63 The Commission contends in Case T-143/96 that the Court should:

- dismiss the application as unfounded;

- hold Volkswagen and VW Sachsen jointly and severally liable for the costs.

64 The United Kingdom supports the form of order sought by the Commission.

65 At the hearing on 30 June 1999, the applicants in Case T-143/96 asked the Court to hold that the action had become devoid of subject-matter in so far as it sought the annulment of the first indent of Article 2 of the Decision, declaring investment aid in the form of special depreciation on investment incompatible with the common market, and to apply Article 87(6) of the Rules of Procedure in that respect. The Court also took formal notice of the fact that, in the Commission's submission, that request must be interpreted as a partial discontinuance and entail the application of Article 87(5) of the Rules of Procedure.

The admissibility of the application in Case T-132/96

Arguments of the parties

66 In support of its objection of inadmissibility, the Commission argues, first, that a territorial entity such as the Free State of Saxony does not, a priori, have the capacity to bring an action under Article 173 of the EC Treaty (now, after amendment, Article 230 EC) in the context of the State-aid regime, since it is only the Member States which Article 93 of the Treaty envisages as legal persons vis-à-vis the Community.

67 The Commission states in particular that Article 92 of the EC Treaty (now, after amendment, Article 87 EC) refers in paragraph (1), as does Article 93(2), to aid `granted by a Member State or through State resources'; that the duty of notification in Article 93(3) of the Treaty applies only to the Member State concerned; that only that State is involved in the procedure implemented pursuant to Article 93(2) of the Treaty; that, if the Commission decides that an aid is incompatible with the common market, the obligation to withdraw or amend it falls on the Member State only, and that, where that obligation is not complied with, the action by the Commission under the second subparagraph of Article 93(2) of the Treaty is directed solely against the Member State.

68 In those circumstances, to recognise a territorial entity as having a right of action would call into question the exclusive responsibility of the Member State as regards aid financed through public resources, and could give rise to conflicts of interest between the territorial entity and the Member State concerned, which neither the Commission nor the Community judicature would have power to resolve.

69 In any event, from the point of view of Community law, the Free State of Saxony and the Federal Republic of Germany are partially identical, and the former cannot be regarded as a different person from the latter without altering the system of remedies established by Article 173 of the Treaty.

70 The Commission adds that if the action were held to be admissible, this would necessarily entail a proliferation of such actions, increase legal uncertainty, endanger the system laid down by Articles 92 and 93 of the Treaty, and thus jeopardise the implementation of the Commission's decisions in the field of State aid.

71 The Commission argues, secondly, that the Free State of Saxony has no interest in bringing an action under the fourth paragraph of Article 173 of the Treaty for the twofold reason that, on the one hand, the aid granted by it in this case was prescribed by federal laws and, on the other, the Federal Republic of Germany has a right of action under the second paragraph of Article 173. In the Commission's submission, therefore, the Free State of Saxony cannot be regarded as having an interest in bringing an action which is distinct from that of Germany, which has moreover also brought an action for the annulment of the Decision (Case C-301/96).

72 The fact that the Free State of Saxony has the status of a `Land' in accordance with the internal constitution of the Federal Republic of Germany is, the Commission submits, of no relevance in Community law. The EC Treaty confers no individual rights on the Länder, save those which may be conferred upon them by Article 198a of the EC Treaty (now, after amendment, Article 263 EC) in the context of the 8 Committee of the Regions. It does not follow therefore, that the Free State of Saxony, as a legal person, automatically has standing to bring an action in Community law (see the Opinion of Advocate General Lenz in Case 62/87 Exécutif Régional Wallon and Glaverbel v Commission [1988] ECR 1573, 1581, paragraph 13; Opinion of Advocate General Van Gerven in Case C-70/88 Parliament v Council [1990] ECR I-2041, I-2063; Opinion of Advocate General Lenz in Case C-298/89 Gibraltar v Council [1993] ECR I-3605, I-3621, paragraphs 38 to 51).

73 Moreover, investment aid in the form of special depreciation granted under the law known as the Fördergebietsgesetz was based solely on a federal law, the Gesetz über Sonderabschreibungen und Abzugsbeträge im Fördergebiet, the application of which, pursuant to Article 87 of the Basic Law, falls to the tax authorities. The Commission submits that the same applies as regards tax allowances for investment (Investitionszulagengesetz, 1993). Similarly, the Joint Task Law, on which the investment grants in question were based, was a federal law based on Article 91a of the Basic Law, which in principle entrusted the various Länder with `the improvement of regional economic structures', but in close cooperation with the Federation (see Case 248/84 Germany v Commission [1987] ECR 4013, paragraph 2 et seq.), which bore half the expenses. Moreover, according to Article 85 of the Basic Law, the Federal Government could adopt general administrative provisions, issue instructions to the authorities of the Land and send representatives to them, and require reports and communication of the file. That shows, first, that the action of the Federation continues to be exercised at the stage of the implementation of the joint tasks and, secondly, that the Federation and the Länder have identical interests when it comes to improving regional economic structures. The Free State of Saxony is therefore unable to show in what way its interests are distinct from those of Germany (see Case 282/85 DEFI v Commission [1986] ECR 2469, paragraph 18). In this case, legal protection is ensured by the fact that the Federal Republic of Germany has itself brought an action.

74 Thirdly, the Commission maintains that the Free State of Saxony is neither directly nor individually concerned by the Decision.

75 It is not directly concerned because, first, it did not at any time participate in the administrative procedure, unlike the other applicants, and, secondly, its obligation to award investment grants is based on a federal law. The fact that, under Article 9 of the Joint Task Law, implementation of the outline plan is entrusted to the Länder, with the Federation reimbursing half the expenses, does nothing to alter than assessment. In any event, the Decision concerns not merely investment grants but also other subsidies granted by the Federation. It is a single decision, on the whole of the aid, addressed to the Federal Republic of Germany only.

76 Nor, the Commission submits, is the Free State of Saxony individually concerned. It is not in a factual situation differentiating it from all other persons, and thereby distinguishing it individually just as in the case of the person addressed (see the Opinion of Advocate General Lenz in Case 222/83 Municipality of Differdange v Commission [1984] ECR 2889, 2898, 2905).

77 Finally, the Commission argues that the situation in this case is equivalent to that identified by the Court of First Instance in its order in Case T-238/97 Comunidad Autónoma de Cantabria v Council [1998] ECR II-2271. By contrast, the judgments of the Court of First Instance in Case T-214/95 Vlaams Gewest v Commission [1998] ECR II-717 and Case T-288/97 Regione Autonoma Friuli Venezia Giulia v Commission [1999] ECR II-1871 cannot be transposed to this case because, first, investment aid in the form of exceptional write-offs are granted by the federal authorities and under federal law; secondly, investment grants are based on federal law, the Free State of Saxony not exercising any competence of its own and having no discretion in the matter; and, thirdly, the Decision does not require the Free State of Saxony to claim repayment of the aid in question but merely prohibits its payment.

78 The United Kingdom essentially supports the Commission's arguments.

79 The Free State of Saxony contests the Commission's arguments. It maintains, essentially, that the Commission encouraged it to bring the action, that the decisions to grant the aid in question fall within its exclusive competence under German law, that that aid was at least partially financed by it, that its representatives took part in the administrative procedure, and that it is in any event directly and individually concerned by the Decision.

80 The Federal Republic of Germany essentially supports the arguments of the Free State of Saxony.

Findings of the Court of First Instance

81 As a preliminary point, it must be observed that, since the Free State of Saxony has legal personality under German law, it may bring an action for annulment under the fourth paragraph of Article 173 of the Treaty, whereby any natural or legal person may institute proceedings against a decision addressed to that person and against decisions which, although in the form of a regulation or a decision addressed to another person, are of direct and individual concern to the former (Vlaams Gewest, paragraph 28 and case-law cited therein; order in Comunidad Autónoma de Cantabria, cited above, paragraph 43).

82 Since the Decision was addressed to the Federal Republic of Germany, it is therefore necessary to ascertain whether it is of direct and individual concern to the Free State of Saxony.

83 In that respect, it should be recalled that persons other than those to whom a decision is addressed may only claim to be individually concerned within the meaning of the fourth paragraph of Article 173 of the Treaty if that decision affects them by reason of certain attributes which are peculiar to them, or by reason of circumstances in which they are differentiated from all other persons, and by virtue of these factors distinguishes them individually just as in the case of the person addressed (Case 25/62 Plaumann v Commission [1963] ECR 95, 107; Case 169/84 Cofaz v Commission [1986] ECR 391, paragraph 22). The purpose of that provision is to ensure that legal protection is also available to a person who, whilst not the person to whom the contested measure is addressed, is in fact affected by it in the same way as is the addressee (Municipality of Differdange, cited above, paragraph 9).

84 In this case, the Decision is concerned with aid granted by the Free State of Saxony, partly from its own resources. It not only affects measures of which the Free State of Saxony is the author, namely the decrees of 1991, 1993, 1994 and 1996, but also prevents it from exercising its autonomous powers as it would wish (see the judgments in Vlaams Gewest, paragraph 29, and Regione Autonoma Friuli Venezia Giulia, paragraph 31).

85 As to those powers, paragraphs 2 to 4 of the judgment in Case 248/84 Germany v Commission, cited in paragraph 73 above and relied on by the Commission, show that, in the Federal Republic of Germany, regional aid is as a general rule granted by the various Länder, even though, since an amendment to the Basic Law in 1969, a new Article 91a provides that the Federation is also to contribute to the improvement of regional economic structures. Under the Joint Task Law adopted on the basis of Article 91a, aid programmes have been established since 1972 in the form of framework plans adopted regularly on a joint basis between the Federation and the Länder. Aid paid in implementation of those framework plans are financed both by the Federal State and by the Länder. In parallel with the framework plans adopted pursuant to the Joint Task Law, the Länder may also maintain regional aid programmes for the benefit of undertakings investing within their territory.

86 Furthermore, the Decision has the effect of obliging the Free State of Saxony to initiate the administrative procedure for recovering the aid from recipients, a procedure which it alone has the power to implement at national level. In that respect, formal notice was taken at the hearing, at the Commission's request, of the fact that part of the aid had been repaid to the Free State of Saxony itself.

87 Contrary to what the Commission maintains, the situation of the Free State of Saxony cannot be compared with that of the Comunidad Autónoma de Cantabria which gave rise to the order in Case T-238/97, cited above, since that regional body claimed to be distinguished individually merely on the basis of the socio-economic repercussions of the contested measure in its territory.

88 It follows that the Free State of Saxony is individually concerned by the Decision within the meaning of the fourth paragraph of Article 173 of the Treaty.

89 Moreover, even though the Decision was addressed to the Federal Republic of Germany, the national authorities did not exercise any discretion when communicating it to the Free State of Saxony.

90 The latter is therefore also directly concerned by the contested measure within the meaning of the fourth paragraph of Article 173 of the Treaty (see Joined Cases 41/70, 42/70, 43/70 and 44/70 International Fruit Company and Others v Commission [1971] ECR 411, paragraphs 26 to 28; Case 113/77 NTN Toyo Bearing Company and Others v Council [1979] ECR 1185, paragraph 11; Case 207/86 Apesco v Commission [1988] ECR 2151, paragraph 12).

91 As for the question whether the interest of the Free State of Saxony in contesting the Decision is subsumed within the interest of the German State (see Regione Autonoma Friuli Venezia Giulia, paragraph 34), it follows from the above that its position cannot be compared with that of the applicant in the case which gave rise to the judgment in DEFI, cited in paragraph 73 above. In that case, the French Government had the power to determine the management and policy of the DEFI Committee and thus also to determine the interests which the DEFI should defend. By contrast, the investment grants at issue in this case constitute measures taken by the Free State of Saxony pursuant to the financial and legislative autonomy which it enjoys directly by virtue of the German constitution.

92 It follows that the Free State of Saxony has an interest in challenging the Decision which is distinct from that of the German State, and, therefore, that it is entitled to take action against that decision under the fourth paragraph of Article 173 of the Treaty.

93 As for the other pleas and arguments raised by the Commission in support of its objection of inadmissibility, these must be rejected for reasons identical to those set out in paragraphs 37 to 49 of the judgment in Regione Autonoma Friuli Venezia Giulia.

94 For all those reasons, the Commission's objection of inadmissibility must be dismissed.

Substance

95 In support of their claims in Case T-143/96, Volkswagen and VW Sachsen raise essentially four pleas in law, alleging, respectively, distortion of the facts, which they claim amounts to an infringement of essential procedural requirements within the meaning of Article 173 of the Treaty, infringement of Article 92(2)(c) of the Treaty, various infringements of Article 92(3) of the Treaty and infringement of the principle of the protection of legitimate expectations. They also claim that the reasoning in the Decision is defective in a number of respects. In support of its claims in Case T-132/96, the Free State of Saxony puts forward two pleas in law alleging, respectively, infringement of Article 92(2)(c) of the Treaty and infringement of Article 92(3) of the Treaty.

96 It must be observed, however, that the plea alleging distortion of the facts by the Commission, as set out by the applicants, has no independent content in relation to the other pleas in the action. Moreover, a distortion of the facts cannot be characterised as an `infringement of essential procedural requirements' within the meaning of Article 173 of the Treaty. Furthermore, the Court is not bound by the parties' characterisation of their pleas and arguments.

97 In this case, it is necessary to examine the whole of the pleas and arguments in the actions under three main headings, concerning the alleged infringements, first, of Article 92(2)(c) of the Treaty, secondly, of Article 92(3) of the Treaty, and, thirdly, of the principle of the protection of legitimate expectations. The complaints concerning distortion of the facts and the plea alleging defects in the reasoning for the Decision can in any event be exhaustively examined whilst at the same time being formally attached to one or other of those three headings, as the applicants acknowledged in their written observations on the Report for the Hearing.

I - Infringement of Article 92(2)(c) of the Treaty

Arguments of the parties

98 According to the applicants, the Commission infringed Article 92(2)(c) of the Treaty by indicating, in the third paragraph of Point X of the Decision, that the derogation provided for therein `should be interpreted narrowly and should not be applied to regional aid for new investment projects'. The Commission thus declined to examine whether the conditions for applying that provision were met in this case and contented itself with a reference to considerations of appropriateness, whereas, in the matter of a legal derogation from the prohibition of State aid laid down in Article 92(1) of the Treaty, it had no margin of discretion (see Case 730/79 Philip Morris v Commission [1980] ECR 2671, paragraph 17; Opinion of Advocate General Tesauro in Case C-142/87 Belgium v Commission [1990] ECR I-959, I-979, paragraph 19 (hereinafter `Tubemeuse II)'; Opinion of Advocate General Lenz in Case 102/87 France v Commission [1988] ECR 4067, 4075, paragraph 25).

99 First, the applicants argue that Article 92(2)(c) of the Treaty continued to apply after the reunification of Germany in 1990, even in regions not adjacent to the former frontier.

100 Secondly, they maintain that Article 92(2)(c) of the Treaty was applicable to the new Länder. That provision made general reference to regions affected by the division of Germany, without making any distinction between East and West.

101 The applicants emphasise that Article 92(2)(c) of the Treaty was not abrogated at the time of the signature of the Maastricht Treaty, that an equivalent provision was inserted in the Agreement on the European Economic Area, and that, at the conclusion of the Amsterdam Treaty, that provision was repeated without amendment in the new Article 87(2)(c) EC. According to the Free State of Saxony, the only obvious interpretation of the intention thus manifested by the High Contracting Parties is that that provision should apply to all of those regions of Germany which, by reason of the economic damage caused there by the Communist regime, remain significantly behind other regions of the Federal Republic from the point of view of economic development.

102 In that respect, the Free State of Saxony challenges the Commission's persistent refusal to apply Article 92(2)(c) of the Treaty to the new Länder since 1990. It points to the contradiction between that position and the position taken by the Commission in its decision of 11 December 1964 concerning aids designed to facilitate the integration of the Saarland into the economy of the Federal Republic of Germany (Bulletin of the European Economic Community No 2-1965, p. 33; `the Saar decision').

103 Thirdly, the applicants point out that the German Government claimed during the administrative procedure that Article 92(2)(c) of the Treaty should be applied (see Point V, first paragraph, subparagraph 1 of the Decision). Since that provision is a legal derogation from the prohibition laid down in Article 92(1) of the Treaty, they maintain that the onus was on the Commission to establish that the conditions for applying the derogation were not met in this case, and not on the German Government to prove the opposite. Yet the Commission refused to take cognisance of more detailed information or to consider that question, despite a letter from Commission Member Sir Leon Brittan to the German Government of 1 June 1992, indicating that the possibility of applying Article 92(2)(c) of the Treaty would be examined by the Commission's departments. By so doing, the Commission also failed to fulfil its obligation to research the relevant facts itself (Joined Cases 56/64 and 58/64 Consten and Grundig v Commission [1966] ECR 299; Case 27/76 United Brands v Commission [1978] ECR 207, paragraphs 267 and 268; Case T-9/89 Hüls v Commission [1992] ECR II-499, paragraphs 66 to 68).

104 Fourthly, the reasoning of the Decision on that point (Point X, third paragraph) does not comply with the requirements of the case-law of the Court of Justice and is therefore insufficient to justify the failure to apply Article 92(2)(c) of the Treaty in this case (see, in particular, Case 24/62 Germany v Commission [1963] ECR 131, 155; Joined Cases 296/82 and 318/82 Netherlands and Leeuwarder Papierwarenfabriek v Commission [1985] ECR 809, paragraphs 23 and 24; Case C-364/90 Italy v Commission [1993] ECR I-2097, paragraphs 44 and 45; and Joined Cases C-329/93, C-62/95 and C-63/95 Germany v Commission [1996] ECR I-5151, paragraphs 36 and 53). In that regard, the applicants maintain that the fact that the addressee of a decision has the possibility of finding the reasons for it in previous decisions is not sufficient (Case 294/81 Control Data Belgium v Commission [1983] ECR 911, 932).

105 The applicants argue that the deficiency in reasoning affecting the Decision on this point cannot be corrected in the defence, since the Decision does not contain reasons, even in rudimentary form (Case 195/80 Michel v Parliament [1981] ECR 2861, paragraph 22; Case 183/83 Krupp v Commission [1985] ECR 3609, paragraph 21; Case T-61/89 Dansk Pelsdyravlerforening v Commission [1992] ECR II-1931, paragraphs 131 and 137). In any event, the line of argument put forward in the defence, to the effect that application of Article 92(2)(c) of the Treaty in the new Länder is excluded for territorial reasons, conflicts with that adopted in the Decision.

106 Fifthly, the applicants maintain that the reasoning for the Decision is itself contradictory, in so far as, in the Decision, the Commission excludes the application of Article 92(2)(c) of the Treaty on the ground that this case concerns a `new investment project', whilst indicating in its investigation of the aid pursuant to Article 92(3)(c) of the Treaty that this was not a `new investment' but an extension of existing capacity.

107 Sixthly, the applicants argue that the Free State of Saxony, especially in the part of its territory including the cities of Zwickau and Chemnitz, fulfilled the conditions laid down by Article 92(2)(c) of the Treaty in that it was entirely cut off from West Germany from the economic point of view. In that respect, the Free State of Saxony refers to an expert report by Von Dohnanyi and Pohl, establishing that the poor economic situation of the new Länder results from the division of Germany.

108 In order to determine the disadvantages resulting from that partition, the applicants maintain that it is necessary to compare the economic situation of Saxony before and after that partition. By contrast, they argue that the consequences of the political and economic system established in the German Democratic Republic are irrelevant for the purposes of this action.

109 Before the division of Germany, a large motor-vehicle industry, and particularly Auto Union AG, had been set up in the region, at Zwickau and Chemnitz. By reason of the partition, sales of vehicles on the traditional markets, situated in West Germany and the rest of Europe, were entirely broken off. Auto Union AG then set up new factories at Ingolstadt, in Bavaria. Subsequently, despite the existence of limited openings in eastern Europe, production of vehicles and engines in Zwickau and Chemnitz collapsed. Without the division of Germany, Auto Union AG, which subsequently became Audi, would have been able to remain in the region and would be as prosperous as it is now.

110 In those circumstances, the applicants argue, all the aid at issue, intended to facilitate the establishment of a motor vehicle construction plant and an engine construction plant in Saxony, is `necessary' within the meaning of Article 92(2)(c) of the Treaty to the extent that the disadvantages resulting from the division of Germany continue. In this case, only the prospect of receiving all that aid gave Volkswagen the incentive to invest in the re-establishment of a motor vehicle industry comparable in size to that which existed in the region before partition. Volkswagen's investments were, moreover, a signal aimed at encouraging other undertakings to invest in the region.

111 Seventhly, the applicants argue that the Commission's refusal to apply Article 92(2)(c) of the Treaty in the Mosel I decision is irrelevant, since neither the German Government nor Volkswagen had the opportunity to challenge that decision in law, the main part of the aid in question having been declared compatible with the common market.

112 The Commission was therefore wrong in the Decision to apply the criteria of Article 92(3) of the Treaty, and particularly those of the Community framework, which differ fundamentally from those which it should have applied under Article 92(2)(c) of the Treaty.

113 The Federal Republic of Germany essentially supports the arguments of the applicants and also refers to its written submissions in Case C-301/96.

114 In a letter of 9 December 1992 concerning this case, the Federal Chancellor, Mr Kohl, told the President of the Commission, Mr Delors, that the German Government `[regarded] Article 92(2)(c) of the EEC Treaty as the determining factor as regards matters currently pending before the Commission of the European Communities'. Notwithstanding its difference with the Commission concerning the application of that provision to the new Länder, the Federal Republic of Germany had cooperated with the Commission in the context of the administrative procedure, given that, in other matters, the Commission had shown understanding of the difficult economic situation in those Länder, making compromises possible. The German Government had, however, expressly stated a reservation in order to emphasise that, in its opinion, on a correct interpretation of the Treaty Article 92(2)(c) should be applied.

115 The Federal Republic of Germany insists that this is a legal derogation and that, where the factors envisaged by Article 92(2)(c) of the Treaty are present, the aid is automatically compatible with the common market. Moreover, under Article 93(2) of the Treaty, the Commission's investigation should be limited to verifying that the national authorities which granted the aid did not `misuse' the criteria of Article 92(2)(c) of the Treaty.

116 Unlike Article 92(2)(b) of the Treaty, concerning aid in cases of natural disaster and similar occurrences, Article 92(2)(c) does not aim to `make good damage' but to `compensate' for the consequences of the division of Germany. That more flexible formulation takes account of the complex economic situation connected with the disadvantages caused by that partition, and envisaged the whole of the measures intended to create economic and social structures in the new Länder comparable with those existing in the other regions of Germany.

117 According to the German Government, Article 92(2)(c) of the Treaty covers all the territory of the new Länder. The `economic disadvantages' at issue in this case were clearly `caused' by the division of Germany, as is shown by comparing the percentage of German motor-vehicle production carried on in Saxony before 1939 (about 27% in 1936) with that achieved in 1990 (about 5%). That decline was primarily due to the loss of traditional market openings in the West and their forced replacement by those of Comecon in an inefficient form of economy.

118 Finally, the German Government emphasises that Volkswagen's investments in Saxony amounted in 1996 to a total of approximately DEM 3.5 billion and generated about 23 000 jobs. Such investments were thus of crucial importance for reconstruction works in the new Länder.

119 The Commission maintains that it did in fact verify whether Article 92(2)(c) of the Treaty was applicable in this case. It was however entitled to decline to apply it, giving the same reasoning as adopted in the Mosel I decision.

120 First, the German Government did not discharge its duty during the administrative procedure of providing all the information making it possible to determine whether the conditions for the requested derogation were fulfilled (Philip Morris, paragraph 18, and the Opinion of Advocate General Capotorti in that case, p. 2693, paragraph 6; Italy v Commission, paragraph 20; Opinion of Advocate General Darmon in Germany v Commission, p. 4025, paragraph 8). Neither the German Government nor Volkswagen claimed the benefit of Article 92(2)(c) of the Treaty after February 1993, and they did not at any time submit concrete evidence that the conditions required by that provision were met, even after the Commission disapplied it in this case in the Mosel I decision.

121 Secondly, being a derogating provision, Article 92(2)(c) of the Treaty should be interpreted narrowly (Joined Cases 3/58 to 18/58, 25/58 and 26/58 Barbara Erzbergbau and Others v High Authority [1960] ECR 366, 408 and 409).

122 Thirdly, the Commission argues that Article 92(2)(c) of the Treaty requires a direct causal link between the economic disadvantage to be compensated for and the division of Germany. Since reunification, the direct consequences of that division had practically disappeared, rail and road links having been re-established and traditional market openings being once again accessible. Since 1990, therefore, that provision has applied only in certain exceptional cases.

123 The Commission argues that the retention of the provision in Article 92(2)(c) of the Treaty in the Maastricht and Amsterdam Treaties is explained by the veto put forward by the Federal Republic of Germany against its removal. Neither the Treaty on European Union nor the Amsterdam Treaty reveal any intention to give the new Article 87(2)(c) EC any meaning other than that of Article 92(2)(c) of the Treaty in its initial interpretation. Nor, moreover, do the applicants explain why that provision should henceforth cover not only the consequences of the division of Germany but also the repercussions of the planned economy of the German Democratic Republic and the consequences of the introduction of a market economy after the reunification of the country.

124 Fourthly, the Commission argues that, even before the reunification of Germany, only certain regions of the former Federal Republic which were disadvantaged by reason of their immediate proximity to the frontier were capable of benefiting from aids pursuant to Article 92(2)(c) of the Treaty. These were primarily regions bordering on the eastern zone (`Zonenrand') and West Berlin. The reunification of Germany did not alter that principle in any way. Even if, in certain exceptional cases, application of Article 92(2)(c) of the Treaty might be justified in relation to border regions situated on both sides of the former frontier and thus to the `Zonenrand' of the former German Democratic Republic, the Commission maintains that that provision does not permit general and widespread support for the development of the new Länder.

125 Fifthly, the Commission emphasises the consistency of its decision-making practice. Since the reunification of Germany, it based only two decisions on Article 92(2)(c) of the Treaty [Commission Decision 92/465/EEC of 14 April 1992 concerning aid granted by the Land of Berlin (Germany) to Daimler-Benz AG (OJ 1992 L 263, p. 15; the `Daimler-Benz decision') and a Commission decision of 13 April 1994 concerning aid to producers of glass containers and porcelain in Tettau (OJ 1994 C 178, p. 24; the `Tettau decision')], concerning cases in which the direct consequences of the line of the frontier between the two zones continued to be felt. In its other decisions concerning aid to the new Länder, the Commission did not use Article 92(2)(c) of the Treaty. As for the decision concerning the Saarland, the Commission points out that that was already a Land at the time the EEC Treaty entered into force. Moreover, on a reading of EEC Bulletin No 2-1965, there was nothing to support the conclusion that the aid in question was authorised pursuant to Article 92(2)(c) of the Treaty rather than Article 92(2)(b).

126 Sixthly, the poor general economic situation of the new Länder was a direct consequence not of the division of Germany but of the political system of the former German Democratic Republic and of the reunification itself, especially the loss of the markets of those Länder in the context of Comecon and relations with the former USSR, the entry into force of German monetary, economic and social union, the alignment of East German salary levels with those of West Germany and legal uncertainty concerning, in particular, real-property rights.

127 In any event, the motor vehicle industry established in Zwickau and Chemnitz suffered a decline before the end of the Second World War, as moreover did that of other European countries.

128 Finally, knowing that its decision-making practice had never been challenged, the Commission had no cause to state further grounds in the Decision as to the inapplicability of Article 92(2)(c) of the Treaty.

Findings of the Court of First Instance

129 Under Article 92(2)(c) of the Treaty, aid compatible with the common market includes `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'.

130 Far from being implicitly repealed following German reunification, that provision was retained by both the Maastricht Treaty concluded on 7 February 1992 and the Amsterdam Treaty concluded on 2 October 1997. Moreover, an identical provision was inserted into Article 61(2)(c) of the Agreement on the European Economic Area concluded on 2 May 1992 (OJ 1994 L 1, p. 3).

131 Having regard to the objective scope of the rules of Community law, the authority and effectiveness of which must be preserved, it cannot therefore be assumed that that provision has become devoid of purpose since the reunification of Germany, as the Commission maintained at the hearing, contradicting its own administrative practice (see, in particular, the Daimler-Benz and Tettau decisions).

132 It should, nevertheless, be emphasised that, since it is a derogation from the general principle laid down in Article 92(1) of the Treaty that State aid is incompatible with the common market, Article 92(2)(c) of the Treaty must be interpreted narrowly.

133 Moreover, as the Court of Justice has emphasised, in interpreting a provision of Community law it is necessary to consider not only its wording but also the context in which it occurs and the aims of the rules of which it forms part (Case 292/83 Merck v Hauptzollamt Hamburg-Jonas [1983] ECR 3781, 3792; Case 337/82 St. Nikolaus Brennerei v Hauptzollamt Krefeld [1984] ECR 1051, 1062).

134 In this case, the phrase `division of Germany' refers historically to the establishment of the dividing line between the two zones in 1948. Therefore, the `economic disadvantages caused by that division' can only mean the economic disadvantages caused by the isolation which the establishment or maintenance of that frontier entailed, such as, for example, the encirclement of certain areas (see the Daimler-Benz decision), the breaking of communication links (see the Tettau decision), or the loss of the natural markets of certain undertakings, which therefore need support, either to be able to adapt to new conditions or to be able to survive that disadvantage (on that point, but in relation to the fourth paragraph of Article 70 of the ECSC Treaty, see Barbara Erzbergbau, p. 409).

135 By contrast, the conception of the applicants and the German Government, according to which Article 92(2)(c) of the Treaty permits full compensation for the undeniable economic backwardness suffered by the new Länder, until such time as they reach a level of development comparable with that of the original Länder, disregards both the nature of that provision as a derogation and its context and aims.

136 The economic disadvantages suffered by the new Länder as a whole have not been caused by the division of Germany within the meaning of Article 92(2)(c) of the Treaty. As such, the division of Germany has had only marginal consequences on

the economic development of either zone, which, moreover, it affected equally at the outset, and it has not prevented the economies of the original Länder from developing favourably thereafter.

137 It follows that the differences in development between the original and the new Länder are explained by causes other than the division of Germany as such, and in particular by the different politico-economic systems established in each State on either side of the frontier.

138 It also follows from the above that the Commission did not make any error of law by stating generally, in the third paragraph of Point X of the Decision, that the derogation laid down in Article 92(2)(c) of the Treaty should not be applied to regional aid for new investment projects and that the derogations provided for in Article 92(3)(a) and (c) of the Treaty and the Community framework were sufficient to deal with the problems faced by the new Länder.

139 In that respect, the applicants are wrong to accuse the Commission of contradictory reasoning in its description of the disputed investments at other points in the Decision as extensions of existing capacity. The expression `regional aid for new investment projects' is used in reply to a general argument raised by the German Government (see Point V, first paragraph, subparagraph 1 of the Decision) and thus concerns not aid to Volkswagen's investment plans at Mosel II and Chemnitz II specifically, but the whole of the aid intended to promote general economic development of the new Länder.

140 Moreover, as regards the question whether, apart from its character as aid for the economic development of the Free State of Saxony, the aid in question is specifically designed to compensate for the disadvantages caused by the division of Germany, it should be borne in mind that a Member State which seeks to be allowed to grant aid by way of derogation from the Treaty rules has a duty to collaborate with the Commission, requiring it in particular to provide all the information to enable the Commission to verify that the conditions for the derogation sought are fulfilled (Italy v Commission, paragraph 20).

141 On that point, there is nothing in the documents before the Court to show that the German Government or the applicants put forward specific arguments during the administrative procedure in order to prove a causal link between the situation of the motor-vehicle industry in Saxony after German reunification and the division of Germany.

142 The Commission is therefore right in maintaining that the parties have not put forward specific evidence capable of justifying the application of Article 92(2)(c) of the Treaty to this case.

143 Before the Court, the applicants, and the German Government, which refers on those questions to its written submissions in Case C-301/96, have argued that proof of the economic disadvantages caused to Saxony by the division of Germany arose from a comparison between German motor-vehicle production carried on in that region before 1939 and that achieved in 1990. According to those parties, the relative decline of the motor-vehicle industry in Saxony, compared with that of West Germany in general, was caused in particular by the partition of the German market and the corresponding loss of that industry's traditional outlets to the West, following that partition.

144 In so far as that argument is capable of being raised before the Court of First Instance, given that it was not raised during the administrative procedure (see Joined Cases C-278/92, C-279/82 and C-280/82 Spain v Commission [1994] ECR I-4103, paragraph 31; Case T-37/97 Forges de Clabecq v Commission [1999] ECR II-859, paragraph 93), it must be rejected.

145 Even if there were obstacles to inter-German trade, entailing the loss of traditional outlets for the motor-vehicle industry in Saxony, that would not automatically mean that the poor economic situation of that industry in 1990 was a direct consequence of that loss of outlets caused, ex hypothesi, by the division of Germany in 1948. The difficulties referred to by the applicants are primarily the result of the different economic organisation of the East German regime itself, which was not `caused by the division of Germany' within the meaning of Article 92(2)(c) of the Treaty.

146 A comparison between the position of the motor-vehicle industry in Saxony before 1939 and that in 1990 is not therefore in itself enough to establish the existence of a sufficiently direct link between the economic disadvantages suffered by that industry at the time of the granting of the aid in dispute and the `division of Germany' within the meaning of Article 92(2)(c).

147 As for the decision concerning the Saarland, none of the parties have produced or requested it in these proceedings. The applicants have failed to show that the latter decision reflected a different approach by the Commission in the past and that such an approach, if it were established, would call into question the validity of the legal assessments made in 1996.

148 In those circumstances, the applicants and the Federal Republic of Germany have not adduced sufficient evidence to support the conclusion that the Commission exceeded the limits of its discretion by holding that the aid in question did not comply with the conditions for benefiting from the derogation laid down in Article 92(2)(c) of the Treaty.

149 As for the complaint of insufficient reasoning, it should be recalled that the statement of reasons required by Article 190 of the EC Treaty (now Article 253 EC) must clearly and unequivocally show the reasoning of the institution which adopted the measure, so as to enable the Community judicature to exercise its power of review and the persons concerned to know the grounds on which the measure was adopted (see, for example, Case T-84/96 Cipeke v Commission [1997] ECR II-2081, paragraph 46).

150 In this case, the Decision contains only a brief summary of the grounds for the Commission's refusal to apply the derogation in Article 92(2)(c) of the Treaty to the facts of the case.

151 Nevertheless, the Decision was adopted in a context that was well known to the German Government and the applicants and forms part of a consistent line of decision-making practice, particularly in relation to those parties. Such a decision may be supported by a summary statement of reasons (Case 73/74 Papiers Peints v Commission [1975] ECR 1491, paragraph 31; Case T-34/92 Fiatagri and New Holland Ford v Commission [1994] ECR II-905, paragraph 35).

152 Since 1990, in its relations with the Commission, the German Government has referred many times to Article 92(2)(c) of the Treaty, insisting on the importance of that provision for the recovery of the former East Germany (see, in particular, the letter from Chancellor Kohl to President Delors of 9 December 1992, cited above).

153 The arguments put forward by the German Government in that regard were rejected in various letters or decisions of the Commission [see, in particular, the Commission notice pursuant to Article 93(2) of the EEC Treaty to other Member States and other parties concerned regarding the proposal by the German Government to award State aid to the Opel group in support of its investment plans in the new Länder (OJ 1993 C 43, p. 14); the Commission notice pursuant to Article 93(2) of the EEC Treaty to other Member States and interested parties concerning aid which Germany proposes to grant Rhône-Poulenc Rhotex GmbH (OJ 1993 C 210, p. 11); Commission Decision 94/266/EC of 21 December 1993 on the proposal to award aid to SST-Garngesellschaft mbH, Thüringen (OJ 1994 L 114, p. 21); the Mosel I decision; and Commission Decision 94/1074/EC of 5 December 1994 on the German authorities' proposal to award aid to Textilwerke Deggendorf GmbH, Thüringen (OJ 1994 L 386, p. 13)].

154 In that respect, particular importance should be accorded to the Mosel I decision, in which the Commission declared some of the aid in question, amounting to DEM 125.2 million, incompatible with the common market after excluding, on grounds identical to those used in the Decision, the possibility that that aid might be covered by Article 92(2)(c) of the Treaty. It should be noted, moreover, that neither the applicants nor the German authorities have brought any action against that earlier decision.

155 Even though, between the adoption of the Mosel I decision and the adoption of the Decision, the Commission, the German authorities and the applicants have had numerous contacts revealing their continuing differences of opinion concerning the applicability of Article 92(2)(c) of the Treaty to the aid in question (see Points V and VI of the Decision), it should also be noted that no specific or new argument has been put forward in that context, particularly as to the existence of a causal link between the position of the motor-vehicle industry in Saxony after German reunification and the division of Germany (see paragraph 141 above).

156 In those circumstances, the Court finds that the applicants and the Federal Republic of Germany were sufficiently informed of the grounds for the Decision and that, in the absence of more specific arguments, the Commission was not obliged to state the grounds for it more extensively.

157 It follows from the above considerations as a whole that the complaints alleging infringement of Article 92(2)(c) of the Treaty and an insufficient statement of reasons must be rejected.

II - Infringement of Article 92(3) of the Treaty

158 The applicants claim that there have been a number of infringements of Article 92(3) of the Treaty, some arising from the general tenor of that article and others relating specifically, and respectively, to subparagraphs (a) and (b) of that provision. It is appropriate to begin by considering whether there has been infringement of Article 92(3)(b).

Infringement of Article 92(3)(b) of the Treaty

Arguments of the parties

159 The applicants maintain that the Commission has infringed Article 92(3)(b) of the Treaty by not examining the conditions for applying that provision. They refer to the second paragraph of Point X of the Decision, according to which:

`The derogation in Article 92(3)(b) can certainly not be applied to Germany. It is true that German unification has had negative effects on the German economy, but these alone are not sufficient to apply that provision to an aid scheme. Recently, the Commission took the view that an aid scheme remedied a serious disturbance in the economy of a Member State when, in 1991, aid was approved for a privatisation programme in Greece. In its decision the Commission noted that the privatisation programme was an integral part of the undertakings given pursuant to Council Decision 91/306/EEC of 4 March 1991 in connection with the consolidation of the national economy as a whole. The German situation is clearly different.'

160 The applicants submit, first, that such a statement of reasons is insufficient. The Commission merely repeated a standard formula appearing in previous decisions (see, in particular, the Mosel I decision). The Decision did not touch in any way on the decisive question, namely whether, in the particular circumstances of the case, the aid was designed to remedy a serious disturbance in the economy of the Federal Republic of Germany. Nor did the Decision explain what the differences were between the present case and the privatisation programme in Greece, which in the Commission's argument justified the non-application of Article 92(3)(b) of the Treaty.

161 Secondly, the Commission did not seriously examine the question of the applicability of Article 92(3)(b) of the Treaty, even though the German Government had relied on it a number of times during the administrative procedure, arguing that the problems of integrating the former planned economy of the new Länder and transforming it into a market economy ca