1999/183/EC: Commission Decision of 20 May 1998 concerning State aid for the processing and marketing of German agricultural products which might be granted on the basis of existing regional aid schemes (notified under document number C(1998) 1712) (Only the German text is authentic)
Date: 1998-05-20
Institutions: European Commission
Subjects: Germany, State aid, agricultural product, agro-industry, marketing, regional aid

9. 3. 1999

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Official Journal of the European Communities

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 20 May 1998

concerning State aid for the processing and marketing of German agricultural
products which might be granted on the basis of existing regional aid schemes

(notified under document number C(1998) 1712)

(Only the German text is authentic)

(1999/183/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

which applied or would continue to apply after 1
January 1996.

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

(3)

Having given the parties concerned the opportunity to
submit their comments, in accordance with the above-
mentioned Article,

Whereas:

I. PROCEDURE

(1)

(2)

By letter SG(95) D/13086 of 20 October 1995, the
Commission proposed to the Member States,
pursuant to Article 93(1) of the Treaty, guidelines
and appropriate measures for State aid in connec-
in the processing and
tion with investments
(hereinafter
marketing of agricultural products (1)
referred to as the ‘guidelines and appropriate meas-
ures').

By the same letter, the Commission informed the
German authorities (and the other Member States)
that it would authorize no further aid measure for
investment
in the processing and marketing of
agricultural products notified to it under Article
93(3) of the Treaty which did not comply with
these guidelines and appropriate measures and

(1) OJ C 29, 2. 2. 1996, p. 4.

The Commission also requested the German
authorities (and the other Member States) pursuant
to Article 93(1) to confirm within two months of
the date of the said letter that they would comply
no later than 1 January 1996 with the guidelines
and appropriate measures in question by amending
their existing aids, where such aids did not comply
with the guidelines and appropriate measures. The
Commission indicated that if it did not receive
such confirmation, it would reserve the right to
commence the procedure under Article 93(2) of the
Treaty.

(4)

In reply to the Commission letter of 20 October
1995,
the German authorities, by letters of 11
January and 14 February 1996:

(a) confirmed that with regard to sectoral aid, they
would comply with the appropriate measures in
question as from 1 January 1996, amending
existing aid schemes if necessary;

(b) stated that with regard to regional aid, more
flexibility was needed on the appropriate meas-
ures, given that conditions and agricultural
structures in the Community varied from one
region to another.

(5)

(6)

(7)

(8)

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By letter dated 1 July 1996 (SG(96) D/6026) the
Commission informed Germany of its decision of
12 June 1996 to initiate the procedure provided for
in Article 93(2) of the Treaty in respect of State aid
for the processing and marketing of agricultural
products which might be granted in Germany on
the basis of existing regional aid schemes (1).

that the application of the guidelines and appro-
priate measures ‘would entail a restriction on State
regional aid which would appreciably impair the
development opportunities for rural areas'.

1. Observations of a legal nature

(11)

In the course of the procedure, the Commission
examined the arguments submitted by Germany to
justify its refusal to agree to the application to
regional aid schemes of the guidelines proposed by
the Commission in its letter of 20 October 1995.
After examining those comments, the Commission
concluded at that stage that there were no grounds
for accepting Germany’s refusal.

By the abovementioned letter,
the Commission
gave the German Government notice to submit its
comments within one month of the date of the
letter. In accordance with Article 93(2), the other
Member
parties were
informed by publication of the letter in the Official
Journal of the European Communities and were
requested to submit their comments.

interested

States

and

The German Government
communicated its
comments to the Commission under the procedure
by letter dated 31 July 1996. In that letter the
German Government
also referred to further
comments which had been transmitted to the
Commission by letter of 24 May 1996. For tech-
nical reasons, these latter comments had not been
taken into consideration by the Commission in its
decision of 12 June 1996 to open the procedure
under Article 93(2) of the Treaty.

(9)

No comments were submitted by the other
Member States or from interested parties.

II. GERMANY’S OBSERVATIONS

the

that

opinion

expresses

In its letter of 24 May 1996, the German Govern-
ment
existing
Community rules, read in conjunction with the
various communications of the Commission, and
the letter approving the 23rd Federal framework
plan for the improvement of regional economic
structures (SG(94) D/11038 of 1 August 1994),
entail neither an indirect nor a direct restriction on
possible State aid measures
the
processing or marketing of agricultural products in
connection with eligible investment projects under
the joint scheme ‘Improving the regional economic
structure'.

in favour of

for

joint

improving

the processing

(12) According to the German authorities, Council
Regulation (EEC) No 866/90 of 29 March 1990 on
improving the processing and marketing condi-
tions for agricultural products (2) cannot be used to
justify a restriction on State aid measures on
processing or marketing Annex II products under
the
scheme. That Regulation merely
stipulates how and under what conditions the
Guidance Section of
the European Agricultural
Guidance and Guarantee Fund can contribute to
measures
and
marketing conditions for agricultural products. The
Council states in the preamble to the Regulation
that ‘the types of investments eligible for a contri-
bution from the EAGGF Guidance Section (herein-
after referred to as the “Fund”) should be defined,
taking account of the current situation both on the
agricultural markets and in the agriculture and food
sector, as well as the prospects for developing
outlets for agricultural products'. Thus Germany
contends that the Regulation seeks no more than,
first, to guarantee consistency between Community
intervention and the common agricultural policy
and, secondly, to coordinate the interventions of
the different Structural Funds between themselves,
on the one hand, and, on the other, to balance
those interventions with those of
the European
Investment Bank and other existing financial
instruments.

(10)

In their communications of 24 May 1996 and 31
July 1996, the German Government has raised two
series of objections to the application of the guide-
lines and appropriate measures to regional aid
schemes. The first series of objections concerns
legal considerations arising from the manner in
which the guidelines and appropriate measures
were adopted. The second is based on the argument

(1) OJ C 36, 5. 2. 1997, p. 13.

(13) According to the German authorities,

it follows
that the power given to the Commission by the
Council by way of Article 8(3) of the above Regula-
tion only permits the Commission to determine
the selection criteria for designating those invest-
ments in which the Community Fund may partici-
pate. The Commission made use of that power in

(2) OJ L 91, 6. 4. 1990, p. 1; this Regulation has subsequently
been replaced by Council Regulation (EC) No 951/97 of 20
May 1997 on improving the processing and marketing condi-
tions for agricultural products; OJ L 142, 2. 6. 1997, p. 22.

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Decision 94/173/EC of 22 March 1994 on the
selection criteria to be adopted for investments for
improving the processing and marketing condi-
tions for agricultural and forestry products and
repealing Decision 90/342/EEC (1). That Decision
seems to have no restrictive effect on national aid
schemes and in favour of financing from the Fund.

(14)

The German authorities also take the view that the
1994 Commission Communication to the Member
States regarding State aid for investments in the
processing and marketing of agricultural prod-
ucts (2) does not bar the granting of State aid to
sectors which are excluded from Community co-
financing by virtue of the abovementioned deci-
sions. Paragraph 1 of that Communication states
that
the Commission generally applies sectoral
restrictions governing the part-financing by the
investments at processing and
Community of
marketing level
‘by analogy [...] when assessing
State aid for such investments'. The Commun-
ication is not an ‘appropriate measure' within the
meaning of the second sentence of Article 93(1) of
the Treaty because extension of
the restrictive
effect to State aid by analogy was not carried out
using the procedure laid down by the second
sentence of Article 93(1) of the Treaty (proposal for
an appropriate measure). In terms of the legislative
forms laid down in Article 189 of the Treaty, that
Communication is neither a regulation, a directive
nor a decision; it can only be regarded as a recom-
mendation, and as such is not binding.

ication cannot result in a legally binding restriction
on the possibility of State aid measures.

(16)

(17)

The German Government believes that no preclu-
sion of State aid measures for the processing and
marketing of Annex II products may be inferred
from the Commission letter approving the 23rd
framework plan for the joint scheme (SG(94) D/
11038 of 1 August 1994). The end of that letter
contains a passage whereby the Commission draws
the Federal Government’s attention to the need to
take account of Community law provisions and
conditions and the resultant obligations when
applying the intended measures, particularly with
regard to the prior notification of individual cases
which apply (a) to the cumulation of aid under
in certain sectors of
different Objectives,
(b)
industry (including the provisions of
the ECSC
Treaty), agriculture and fisheries, and (c) for agricul-
tural undertakings operating on an industrial scale.

The German Government stresses that the approval
letter requires that Community law shall contain
an obligation not to grant unrestricted State aid in
certain sectors. However,
in its opinion, neither
Regulation (EEC) No 866/90 nor the establishment
of
the selection criteria by the Commission
pursuant to Article 8(3) of that Regulation, nor the
content of the 1994 Commission Communication
entail an obligation not to apply State aid measures
to the processing and marketing of agricultural
products.

(15) Moreover, the German Government argues that the
analogy drawn in the Communication runs up
against substantial legal objections with regard to
the basic Regulation (EEC) No 866/90. It is the
wish of the legislature, as expressed in Article 16(5)
of that Regulation, (now Article 16(5) of Regulation
(EC) No 951/97) that national aid measures should
they
be expressly permitted on condition that
comply with Articles 92 and 94 of the Treaty. The
Commission Communication places a sectoral
restriction on the scope of Article 92(3) of the
the legislature.
the wishes of
Treaty,
Furthermore, according to Article 1(1) of Regula-
tion (EEC) No 866/90 the measures laid down in
the Regulation should serve the implementation of
regional policy objectives. The Federal German
Government therefore claims that the Commun-

against

(1) OJ L 79, 23. 3. 1994, p. 29.
(2) OJ C 189, 12. 7. 1994, p. 5.

legislators

(18) Moreover, the German Government maintains that
no restrictive effect may be found in the rules
themselves
adopted by the national
under the joint scheme. They concede that Part 1,
point 10.3 of the 23rd plan refers to the Commis-
sion’s determination of the selection criteria for
investments
in improving the processing and
marketing conditions for agricultural and forestry
products. However, they emphasize that that does
not mean that the Commission’s position at that
time had been communicated to the German
authorities or that it had been accepted in some
kind of voluntarily binding form. The German
authorities point out that the determination of the
selection criteria by the Commission is only
referred to in Part 1 of the framework plan. That
Part, however, contains only non-binding general
references to the structure and objectives of the
plan and to various secondary aspects, including
the monitoring of aid by the Commission. The

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communications

Federal Government also stresses that the listing of
various
and
regulations,
Community guidelines does not
automatically
signify that aid is expressly excluded in those
sectors. Rather, Part 2 states that the following rules
are to be taken into account in decisions on aid
applications. The list therefore only serves to alert
the approval authorities
imple-
menting the joint scheme in the L(cid:132)nder to the
various rules that might play a role in a decision on
a specific aid application. The German authorities
therefore hold the view that mentioning the deter-
mination of selection criteria represents only a
non-binding reference to coordination with the
Commission’s agricultural policy.

responsible for

2. Observations concerning the effect of the

guidelines on regional aid schemes

that

secondary products of

shipping devices. Decision 94/173/EC and its
implementation through the guidelines provides
broad categories of exclusion. In the cereals and
rice sectors, all investments relating to cereal-starch
plants, mills, maltings and semolina mills and to
the
industry are
excluded, apart from products for innovative non-
food applications. The list of exclusions also lays
down that in some Objective 1 regions aid can only
there is a demonstrable lack of
be granted if
capacity. The questions as to (a) when such a lack
of capacity is to be assumed, and (b) what evidence
for it is required are not answered either in the
Community proposal or in the above Commission
proposed
Decision. The
Community measure received to date from the
implementing the joint
L(cid:132)nder
scheme all ask the Government
the
for an appropriate measure regarding
proposal
regional aid. All the positions state that the grant of
regional aid for the processing and marketing of
agricultural products by commercial companies
(industry, services)
for
assisting rural regions with inadequate structures.

is an indispensable tool

responsible for

to reject

positions

the

on

(19)

(20)

the

the German Government has,

In their Communications of 24 May 1996 and 31
July 1996,
in
substance, maintained the same position as that
previously expressed in their letters of 11 January
1996 and 14 February 1996. According
to
Germany,
the Community provisions may not
result in excessive restrictions on national aids for
jeopardise the chances of
regions, which might
the
developing
rural environment,
sectors
is
handling agricultural products which are best
suited for the redeployment of farmers who have
had to quit their profession in the course of struc-
tural change. If
the agricultural
large areas of
processing and marketing sector were to be system-
atically excluded from national aid, the scope of
regional measures, particularly in connection with
the joint scheme for improving regional economic
structures, could be reduced in rural areas to an
unacceptable level'.

the industrial

environment.

rural
it

‘In

current Commission proposal

In its letter of 24 May 1996, the German Govern-
ment argues that employment opportunities in
rural areas for farmers forced to give up their
profession because of structural conversion can best
be created in agriculture-related industrial sectors.
The
to adopt
Community guidelines regarding the processing
and marketing of Annex II products is considered
to result in an unjustifiable reduction in regional
aid to rural areas. Points 3(a)(iii) and (iv) of the
guidelines and appropriate measures contain very
of
wide-ranging
and
processing
marketing. Processing,
instance, covers any
for
actual operation affecting an agricultural product
falling within Annex II of
the Treaty and
marketing covers, for example, the packaging of
Annex II products or the construction of trans-

definitions

(21)

letter of 31 July 1996,

In their
the German
Government contests the premise that the intro-
duction of Community guidelines would improve
consistency with the common organisation of agri-
cultural markets. It argues that the Community
guidelines do not cover the production of agricul-
tural products but rather the industrial processing
and commercial marketing of existing Annex II
products. Germany therefore contends that the way
in which price and quantity are regulated under the
common market organisation cannot be influenced
by
or
marketing. Agricultural surpluses are not encour-
aged by the maintenance of competitive processing
capacities but by production incentives under the
agricultural market organisations
in question.
Employment policy considerations provide a legit-
imate interest in a competitive industry processing
agricultural products in less-favoured rural areas,
irrespective of whether or not the primary agricul-
tural products used are produced by the domestic
agricultural sector or are imported.

restrictions

processing

industrial

on

(22)

In addition, the German authorities refer to the text
of the Community Support Framework 1994-1999
on Objective 1 Structural Fund assistance, empha-
sizing the following:

‘A competitive processing industry is essential to
give an economic boost to the agricultural sector
and the countryside as a whole. The EAGGF

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aid benefiting companies

Guidance Section will therefore have a share in
investment
in the
processing and marketing sector on the basis of
Regulations (EEC) Nos 866/90 and 867/90.' (Point
198, p. 2 and p. 3)

‘With respect to the processing and marketing of
animal products the Fund will complement the
this
value-added chains above all. The aim of
strategy is to produce high value, high-quality
products. The Commission believes this is the only
way to safeguard the agricultural sector in eastern
(Point 199, in fine).
Germany in the long term.'

— in Rhineland-Palatinate,

since 1994 alone
around 200 permanent jobs have been created
through regional support for a total of seven
companies,

— in Saxony-Anhalt, 28 applications for assistance
under the Joint Scheme involving investment
of around DEM 220 million plan to safeguard
and create around 1 150 jobs in total. There is a
clear shift in investment away from large-scale
concerns
and medium-sized
small
enterprises, which generally concentrate on
investments in processing products typical of or
specific to the region,

towards

(23)

In the light of those statements highlighting the
need for Community-scale financial participation
in competitive industrial companies employed in
the processing and marketing of agricultural prod-
ucts, the German Government cannot understand
why national measures promoting competitive
prohibited
processing
industries
completely in some
current
German legislation prohibits the granting of aid to
companies which are not competitive in the long
term.

have
cases. Moreover,

been

(24) At the request of the Commission, the German
Government provided a number of examples to
demonstrate the specific impact of the appropriate
measures in the sector of
the processing and
marketing of agricultural products:

— in Schleswig-Holstein, two projects will safe-
guard a total of almost 500 permanent jobs in
the Bockling and Großenbrode rural areas,

— in Saxony an aid scheme is about to be imple-
mented in the processing sector
involving
around 40 rural jobs. Since 1990 around 300
jobs have been created or safe-
permanent
guarded through 20 rural projects,

— in Lower Saxony more than DEM 560 million
has been invested in the processing and
marketing of agricultural products since 1993,
with financial aid accounting for around DEM
62 million. Lower Saxony therefore has a share
of around 12 % of the total volume of invest-
ment in receipt of financial aid. These measures
have created more than l 240 new permanent
jobs and safeguarded 606 jobs,

— in North Rhine-Westphalia, 86 investment
projects are set to create 2 474 new jobs and
safeguard 599 permanent jobs. An additional
three projects are currently in receipt of aid;
these are set to create 168 new jobs,

— in Mecklenburg-Western Pomerania the food
industry is the main source of employment,
accounting for 21,8 % of all those employed in
processing and 23,8 % of processing enter-
prises. The continuing importance of the food
processing industry in Mecklenburg-Western
Pomerania in the future can be seen from the
number of applications for funding under the
Joint Scheme. In July 1996, 55 applications
investment of
involving total
were pending,
DEM 354 million for creating or safeguarding a
total of around 2 400 permanent jobs. Again, it
from the regional
is particularly important
the planned
policy viewpoint
investment
severely disad-
intended for
vantaged rural areas, with a focus on creating
employment opportunities for women. Invest-
ment could therefore also help resolve qualita-
tive structural deficits.

that much of

is

(25)

In conclusion,
the German Government em-
phasises that the possibility of providing purely
national aid to support a competitive processing
industry and a competitive marketing sector must
be retained both for legal reasons and in order to
support regional policy.

III. ASSESSMENT OF THE OBSERVATIONS

AND COMMENTS RECEIVED

1. General

(26) Article 93(1) of the EC Treaty provides that the
Commission shall,
in cooperation with Member
States, keep under constant review all systems of
aid existing in those States. It shall propose to the
latter any appropriate measures required by the
progressive development or by the functioning of
the common market.

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(27)

In the same letter,

By letter SG(95) D/13086 of 20 October 1995, the
Commission proposed to Germany, pursuant
to
Article 93(1) of the Treaty, guidelines and appro-
priate measures for State aid in connection with
investments in the processing and marketing of
agricultural products.
the
Commission informed the German authorities that
it would authorise no new aid scheme which did
not comply with these guidelines and appropriate
measures which applied or would continue to apply
after 1 January 1996. It also requested Germany
and the other Member States to confirm, within
two months of the date of the said letter, that they
would comply with the guidelines and appropriate
measures by amending their existing aid schemes.

(30)

(28) At no stage during the procedure have the German
authorities contested the right of the Commission
to make such a proposal. Indeed, they have indi-
cated to the Commission that they are prepared to
accept the proposal for sectoral aid schemes while
insisting on the need for greater flexibility in
respect of regional aid schemes. It is the refusal of
the German authorities to accept the application of
the guidelines and appropriate measures in respect
of State aid granted in the framework of regional
aid schemes, and the refusal of the German author-
ities to amend existing regional aid schemes to
bring them into line with the guidelines and
appropriate measures, which are the subject of this
procedure.

2. Examination of the legal objections put

forward by Germany

(29)

The German authorities argue that the provisions
of Council Regulation (EEC) No 866/90 cannot be
used to justify restrictions on State aid measures,
since that Regulation is solely concerned with
whether, and under what conditions, the EAGGF
improving the
can contribute to measures
processing and marketing of agricultural products.
Moreover, Article 16(5) of the Regulation expressly
permits the granting of State aid which are subject
to conditions or rules which differ from those
in the Regulation, or where the
provided for
amounts of aid exceed the ceilings
specified
therein, on condition that these measures comply
with Articles 92, 93 and 94 of the Treaty. There-

for

fore, while Commission Decision 90/342/EEC of 7
June 1990 on the selection criteria to be adopted
for investments for improving the processing and
marketing conditions for agricultural and forestry
products (1), and subsequently Decision 94/173/EC,
may restrict the range of investments which are
eligible for support from the Community’s struc-
tural funds, they have no effect on the range of
investments which are eligible for regional State aid
funded by the Member States alone.

The Commission cannot accept this argument. It is
correct that Article 16(5) of Regulation (EEC) No
866/90 permits the granting of State aid which are
subject to conditions or rules which differ from
those provided for in the Regulation, or where the
amounts of aid exceed the ceilings
specified
therein. However, this possibility is expressly stated
to be subject to the condition that the aids comply
with Articles 92, 93 and 94 of the Treaty. Article 42
of the Treaty, which constitutes one of the legal
bases of Regulation (EEC) No 866/90, provides that
the provisions of the Chapter on competition shall
apply to production of and trade in agricultural
products only to the extent determined by the
Council. The Council therefore has the option of
limiting the application of State aid rules in the
sector of the processing and marketing of agricul-
tural products (2). However, instead of availing itself
of that option, the Council has expressly stated in
Article 16(5) of the Regulation that Articles 92, 93
and 94 of the Treaty shall apply to such measures.
It must
therefore be concluded that Regulation
(EEC) No 866/90 does not contain any express or
implied restriction on the discretionary powers
which are conferred on the Commission by Article
92(3) of
the Treaty to determine whether aid
may be considered compatible with the common
market. The question which remains outstanding
therefore, is whether the Commission is entitled,
when considering the compatibility of State aid for
the processing and marketing of agricultural prod-
ucts with Article 92 of the Treaty, granted under
regional development schemes, to apply by analogy
the same sectoral
limitations which it uses for
Community funded measures in accordance with
Regulation (EEC) No 866/90. This question is
considered in recitals 35 to 56 below.

(31)

Secondly, the German authorities argue that the
1994 Commission communication to the Member
States regarding State aid for investments in the
processing and marketing of agricultural products

(1) OJ L 163, 29. 6. 1990, p. 71.
(2) See,

in particular, Regulation 26 of 4 April 1962 on the
production and marketing of agricultural products (OJ 30, 20.
4. 1962, p. 993/62).

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does not rule out the granting of State aid to sectors
which are excluded from Community co-financing,
since that Communication did not observe the
forms laid down in Article 93(1) of the Treaty.

(35)

(32)

(33)

for

relevant

the purposes of

The Commission considers that this argument is
the present
not
decision, which is exclusively concerned with the
refusal of Germany to implement the proposal for
appropriate measures which was addressed to that
country by letter SG(95) D/13086 of 20 October
1995. At no stage in the procedure has Germany
suggested that the Commission failed to respect the
procedures laid down in the Treaty when making
that proposal.

is apparent

Thirdly, the German Government argues that no
exclusion of the possibility of State aid measures
for the processing and marketing of Annex II prod-
ucts
from the Commission letter
approving the 23rd framework plan for the joint
scheme (SG(94) D/11038 of 1 August 1994). In
particular, Germany argues that the passage at the
end of that letter whereby the Commission draws
the German Government’s attention to the need to
take account of the provisions of Community law
relating to certain sectors of industry (including
agriculture) and industrially organised agribusi-
nesses in implementing the framework plan has no
legal effect, since, at the relevant time, Community
law did not contain an obligation not to apply State
aid measures to the processing and marketing of
agricultural products.

(34) However, the Commission would point out that
forward for
the
this argument cannot be put
since the matters
purposes of
this Decision,
referred to took place before the date of
the
Commission’s proposal for appropriate measures.
Nevertheless, the Commission reserves the right to
open the procedure provided for in Article 93(2) of
the Treaty should it appear that aids have been paid
out for the processing and marketing of Annex II
products
in contravention of Community law
within the framework of the 23rd framework plan
for the joint scheme, or within the framework of
any other regional aid scheme in Germany.

3. The development of Commission policy on
State aid for investments in the processing
and marketing of agricultural products

In the guidelines and appropriate measures for
State aid in connection with investments in the
processing and marketing of agricultural products,
the Commission explained the philosophy under-
lying its policy to State aid in this sector in the
following terms.

‘To the extent that State aid granted in connection
with investments in the processing and marketing
of agricultural products distorts or threatens to
distort competition by favouring certain undertak-
ings or certain types of production, it is, in so far as
it affects trade between the Member States, incom-
patible with the common market under Article
92(1) of the EC Treaty.

While State aid in connection with investments in
the processing and marketing of agricultural prod-
ucts may of course benefit from one of the excep-
tions provided for in Article 92(3), it is established
in certain
Commission policy to ensure that
specific sectors of agricultural production, State aid
may not enjoy one of these exceptions and that in
other sectors it may enjoy such an exception only
where certain strict conditions are met.

These sectoral restrictions,
introduced following
analysis of representative markets at Community
level, are applied by the Commission in assessing
whether any public aid in connection with invest-
ment
in this field, whether at Community or
national level, is in the Community interest. In this
way, the Commission seeks to ensure consistency
between the common agricultural policy and State
aid policy so that investment is not encouraged
where, for structural reasons, it is contrary to the
Community interest.

This basic philosophy remains valid and is thus
applied in the context of
these guidelines and
appropriate measures.'

(36)

The new guidelines and appropriate measures
which were communicated to the Member States
by the Commission’s letter of 20 October 1995 do
not constitute a major change from previous
Commission policy, but rather the adjustment of
an existing policy to changed market conditions. In
fact, it has been established Commission policy for
many years to exclude or restrict State aid for
investments for the processing and marketing of
agricultural products in sectors which are suffering
from over-capacity. The reason for this policy is

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9. 3. 1999

that State aid for investments in such sectors are
likely to have an unfavourable impact on economic
operators who are not in receipt of such aids. More-
over such aids are unlikely to bring about a lasting
improvement to the sector concerned,
structural
but are likely to have a deleterious effect on trade,
and are likely to cancel each other out by counter-
acting the efforts made by both national and
Community authorities to remedy the structural
difficulties in the sectors concerned. Thus, these
aids will affect
trading conditions to an extent
which is contrary to the common interest. Such
aids therefore cannot be considered to be compat-
ible with the common market either within the
meaning of Article 92(3)(a) or within the meaning
of Article 92(3)(c).

In this context, the Commission also refers to the
judgment of the Court of Justice of 14 January
1997 in Case C-169/95 (Spain v. Commission) (1).
After reviewing the difference in wording between
Article 92(3)(a) and Article 92(3)(c), the Court went
on to conclude that ‘that difference in wording
cannot lead to the conclusion that the Commission
should take no account of the Community interest
when applying Article 92(3)(a), and that it 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. It has consistently been
held that Article 92(3) gives the Commission a
discretion the exercise of which involves economic
and social assessments which must be made in a
Community context... The Commission has on a
number of occasions informed the Member States
of the policy which, in accordance with the powers
thus vested in it by Article 92 et seq. of the Treaty,
it intended to apply with respect to regional aid
schemes — inter alia, in its 1988 communication
on the method for
the application of Article
92(3)(a) and (c) to regional aid. It is clear from that
policy that the application of both Article 92(3)(a)
and Article 92(3)(c) presupposes the need to take
into consideration not only the regional implica-
tions 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.'

(recitals 17 to 20).

(37)

In order to ensure a coherent approach to measures
to support the development of the sector of the
processing and marketing of agricultural products,
the Commission considers that the same limita-
tions of a sectoral nature which are placed on the

(1)

[1997] ECR I-135.

granting of such aids must apply both to invest-
ment aids which are financed by the Community
and to measures which are solely financed by
Member States.
the Commission
In this way,
endeavours to guarantee compatibility between the
common agricultural policy and policy on State aid
so that an investment is not encouraged where, for
structural reasons, it is contrary to the Community
interest. Clearly, efforts at Community level
to
reduce or eliminate structural over-capacity would
be undermined if Member States were free to give
aid at the national level.

(38) At

first,

the Commission applied such sectoral
limitations on the basis of specific measures taken
in respect of
the individual sectors concerned
iso-glucose, dairy products). However,
(sugar,
following the adoption of Decision 90/342/EEC,
the Commission began to apply the Decision by
analogy to new State aid in order to ensure that
the
excluded from
Community aid were also excluded from State aid.

categories of

investment

(39)

This development of Commission policy through
the introduction of sectoral limitations to aids for
investment for the processing and marketing of
agricultural products is clearly outlined in the
Annual Commission Reports on Competition
Policy. Both the XXth Report (1990) (2) and the
XXIst Report (1991) (3) refer to the application of
individual product
limits. The XXIInd
sector
Report (1992) explicitly states (4):

‘In structures policy for investments at processing
and marketing level, Council Regulation (EEC) No
866/90 allows Member States in principle to intro-
duce unilateral measures, under
the terms of
Articles 92 and 93,
in all areas covered by the
Regulation.

investments which are

In practice, this freedom is circumscribed by the
Commission policy of excluding from State aid the
excluded from
same
the
Community co-financing under point 2 of
Annex to Commission Decision 90/342/EEC of 7
June 1990.'

This position was restated in similar terms in the
(1993) (5) and in the XXIVth
XXIIIrd Report
Report (1994) (6).

(2) Paragraph 337.
(3) Paragraph 317.
(4) Paragraph 506.
(5) Paragraph 550.
(6) Paragraph 371.

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(40)

Furthermore, this policy was explicitly commun-
icated to the German Government in the context
of specific decisions on individual aid schemes
which had been notified to the Commission. For
example, by letter of 30 March 1993 (SG(93) D/
5076)
the Commission informed the German
Government of its decision to open the procedure
laid down in Article 93(2) of the Treaty in respect
of aids which Germany has decided to grant for the
modernisation of a grain mill in Dresden (C 6/93).
In that letter, the Commission wrote:

‘In assessing State aid to investments for processing
and marketing, it is established Commission policy
to apply the sector specific selection criteria in
point 2 of the Annex of the Commission Decision
(“sector limits”) by analogy, given
[90/342/EEC]
that
the
Community market situation.'

they are designed to take account of

A statement in identical terms was included in the
Commission’s letter of 28 June 1993 (SG(93) D/
10681) opening the procedure in respect of aid to
modernize grain mills in Saxony (C 15/93).

(41)

Following the adoption of Decision 94/173/EC
which updated the selection criteria and the cat-
egories of investment excluded from Community
aid to current market conditions, in particular as a
result of the reform of the common agricultural
policy, it was clear that the Commission had to
amend its State aid policy. In a Communication to
Member States of 1 July 1994, the Commission
announced that it intended to review its practice in
this area as soon as the necessary preparatory work
with the Member States had been completed.
However,
the
Commission would continue to apply the sectoral
limitations as set out in Decision 90/342/EEC until
the preparatory work was completed. In the same
communication, the Commission restated its basic
philosophy of applying the same sectoral limita-
to measures which are funded by the
tions
Community and to measures which are exclusively
funded from State aid.

reasons of

certainty,

legal

for

the
Agriculture at a meeting on 3 May 1995,
Commission approved the guidelines and appro-
priate measures in question by decision of 19 July
1995.

(43) While

confirming its

established practice of
applying by analogy the sectoral restrictions on
Community part-financing of such investments
under Regulation (EEC) No 866/90, the following
amendments were introduced as compared with
the provisions applicable up to 31 December 1995:

— application of the sectoral restrictions laid down
in points 1.2. (second and third indents) and 2
of the Annex to Decision 94/173/EC instead of
those referred to in point 2 of the Annex to
Decision 90/342/EEC,

— the automatic adjustment of the guidelines and
appropriate measures to take account of future
to Commission Decision 94/
amendments
173/EC,

— fixing of maximum levels for public aid in

terms of gross rates,

— application of the guidelines and appropriate
measures also to aids for investment
in the
processing and marketing of agricultural prod-
ucts at farm level,

— where a State aid subject to the special condi-
tions referred to in point 2 of the Annex to
Decision 94/173/EC is granted under a general
regional or sectoral aid scheme to which the
Commission has raised no objection under
Articles 92 and 93 of the EC Treaty, possible
requirement that an annual report be submitted
to the Commission enabling it to check that
each of the conditions for the grant of such an
aid referred to in point 2 of the Annex to
Decision 94/173/EC has been met,

— repeal of certain instruments whose provisions
have been incorporated into the guidelines and
appropriate measures in question.

4. Application of the guidelines and appro-
priate measures to regional aid schemes

(42)

The Commission embarked on its
review by
approving, on 30 November 1994, a first draft of
the guidelines for this type of aid, which was sent
to the Member States by letter of 13 February 1995.
After consulting the Member States within the
Working Group on Conditions of Competition in

(44)

the procedure,
in substance

the German
In the course of
contested the
Government has
application of
to regional aid
the guidelines
schemes. In the first instance, it argues that if large
areas of the agricultural processing and marketing

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9. 3. 1999

sector were to be systematically excluded from
national aid, the scope of regional measures for
improving regional economic structures could be
reduced in rural areas to an unacceptable level. In
other words, Germany argues that the application
of national regional aid schemes should be given
priority over
the
common agricultural policy.

the specific requirements of

The Commission cannot accept this position. The
common agricultural policy, the establishment of
which is required under Article 3(e) of the EC
Treaty, is based on the development, through the
common organisations of the market and through
structural measures, of
specific support mech-
anisms which take account of the needs of the
particular sectors concerned and which therefore
differ considerably from one sector to another. This
policy has been developed at the Community level,
in accordance with the procedures laid down in
Article 43 of the Treaty, and it is managed and
implemented at Community level. It follows that
when designing and implementing their national
aid schemes, Member States must take account of
the objectives of the common agricultural policy,
and in particular of the specific restrictions which
financial
have been placed on the granting of
support for certain sectors, whether at the stage of
primary production, or at the stage of processing
and marketing of agricultural products. It is for this
reason that the Commission has always insisted
that national
take
account of the specific rules applicable to the agri-
cultural sector.

regional aid schemes must

(45)

Furthermore, the Commission cannot accept the
distinction made by the German Government
between sectoral and regional aid schemes. In
assessing the compatibility of national aid measures
with Article 92(3) of the Treaty, the Commission
must consider the economic effects of the measure,
and in particular the extent to which it is likely to
trading conditions to an extent
adversely affect
contrary to the common interest. The classification
which is given by the Member State to the aid is, at
best, of secondary importance. Otherwise, it would
be easy for a Member State to escape the applica-
tion of a restrictive policy in respect of certain
types of aid by reclassifying a ‘sectoral aid' measure
as ‘regional aid', or by relocating an investment
from an area which is not eligible for regional aid
to one which is. In such circumstances, any restric-
tions which are imposed by the Commission on
the granting of aids to sectors with proven over-
capacity would serve no purpose.

is an important sector of the European economy.
In particular, investments in this sector are likely to
promote the economic development of rural areas,
and the creation of employment in those areas.
Investments in the processing and marketing of
agricultural products are also likely to assist farmers
to find new outlets for their products. For this
reason, the Community provides substantial finan-
cial support for such investments through Regula-
tion (EEC) No 866/90. The Commission has always
taken a favourable approach to State aid in this
sector, currently allowing aids of up to 55 %, or
75 % in Objective l regions (1).

(47) Moreover, it should be noted that the Community
guidelines take account of the particular needs of
regional aid schemes in so far as they allow for a
higher aid rate than that mentioned above, where
this is the rate applicable in the regional aid
scheme concerned. Point 4(b)(ii) of the guidelines
and appropriate measures reads:

‘Regional aid schemes which include aid for invest-
ment in the processing and marketing of agricul-
tural products are subject to these guidelines and
appropriate measures as far as such investments are
concerned. The implementation of a regional aid
scheme will be subject to the intensity of the aid
approved under that scheme.'

(48)

it

are

excluded

to assist

unconditionally

The German Government asserts that Decision 94/
173/EC excludes large numbers of investments in
the processing and marketing of agricultural prod-
ucts. It is true that a significant number of types of
investment
by
Decision 94/173/EC. However,
should be
emphasised that the Commission has in fact taken
account of regional diversities in the sectoral limits
themselves, both in the 1990 and the 1994
versions, by providing for a whole series of deroga-
tions from the prohibitions laid down in the
in
restrictions
less-developed regions,
the
particular Objective 1 areas. For example,
sectoral
investments
which would otherwise be excluded, in Objective l
regions with a proven shortage of production
there is no overall
capacity, or provided that
increase in production capacity. Even in sectors
where there are no derogations in favour of the less
favoured areas, in many cases not all investments
are prohibited. In particular, investments to update
animal
production facilities
welfare or environmental requirements are often
allowed providing that there is no overall increase
in production capacity, or subject to a reduction in
production capacity.

sometimes permit

to meet hygiene,

limits

(46)

The Commission accepts that the sector of the
processing and marketing of agricultural products

(1) Annex to the Guidelines for State aid in connection with
in the processing and marketing of agricultural

investment
products.

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(49) Germany also objects that no guidance is given in
the Commission Decision as to when such a lack
of capacity is to be assumed, or what evidence is
required to show it. However, the second subpara-
graph of point 3(b) of the guidelines states: ‘Where
State aid subject to the special conditions referred
to in point 2 of the Annex to Decision 94/173/EC
is granted in the framework of a general regional or
sectoral aid scheme to which the Commission has
raised no objection... an annual report is to be
provided to the Commission giving details of any
instance of grant of such aid during the year in
question and in particular containing all informa-
tion necessary to enable the Commission to
conclude without recourse to additional enquiry,
that each of the conditions attached to the grant of
such aid referred to in point 2 of the Annex to
Decision 94/173/EC has in fact been met.' It
follows that the primary responsibility for deter-
mining whether
in
Decision 94/173/EC have in fact been met lies
with the competent authorities of
the Member
the competent authorities are in any
States. If
criteria
doubt
concerned,
they can always obtain clarification
from the Commission in accordance with Article 5
of the Treaty.

application of

conditions

about

out

the

the

the

set

(50)

Furthermore, the German Government has failed
to provide details of the precise manner in which
the application of the sectoral limitations contained
in Decision 94/173/EC interferes with its regional
aid policy. In its letter of 31 July 1996, Germany
has provided the Commission with a general
description of the importance of State aid for the
processing and marketing of agricultural products,
but it has not specified in detail the nature of the
investments concerned, or the extent to which the
measures concerned are covered by the sectoral
limitations contained in Decision 94/173/EC.

(51) Given that 14 Member States have accepted the
application of the sectoral limitations to regional
aid schemes and given the absence of a detailed
explanation from the German Government as to
why it considers that
these
sectoral limitations will result in an unacceptable
restriction of regional aid policy, the Commission
the position taken by
has
Germany is not justified.

the application of

to conclude that

(52)

the sectoral

limitations set out
it

Should the German Government consider that one
in
or more of
Decision 94/173/EC is unduly restrictive,
is
always free to ask the Commission to review, and if
necessary amend the provisions of the decision in
question. This would have the advantage of
allowing not only State aid, but also Community
financial support through the structural funds to be

(53)

(54)

granted to the activities in question, and would also
enable the Commission to maintain a coherent
approach between the common agricultural policy
and State aid policy.

industrial

processing

The German Government also contests the premise
the introduction of Community guidelines
that
should improve consistency with the common
organisation of agricultural markets. The guidelines
and appropriate measures in question do not cover
the production of agricultural products but rather
the
commercial
marketing of existing Annex II products. The
German authorities therefore argue that the way in
which price and quantity are regulated under the
common market organisation cannot be influenced
by
or
marketing. Agricultural surpluses are not encour-
aged by the presence of competitive processing
capacities but by production incentives under the
agricultural market organisations in question.

restrictions

processing

industrial

and

on

result

in over-capacity

common market organisations,

The Commission does not accept the rigid distinc-
tion which the German authorities seek to draw
between the primary production sectors, covered by
the
and the
processing and marketing of agricultural products.
The experience acquired in the operation of the
common agricultural policy shows that the creation
of new capacity for the processing and marketing
of certain types of agricultural products will tend to
encourage farmers to produce more of the products
concerned. Conversely, measures which are taken
to reduce primary agricultural production in certain
sectors may
in the
processing and marketing industries for the prod-
ucts concerned unless commensurate reductions
are made in the capacity of
those industries.
Indeed, Regulation (EEC) No 866/90 is specifically
based upon this
relationship
between primary agricultural production and the
processing and transformation of agricultural prod-
ucts. In particular the Regulation is based on the
principle that investments should be made condi-
tional on the inclusion of such investments in
sectoral plans containing an in-depth analysis of
the situation in the sector concerned and the
proposed improvement. Moreover,
it must be
ensured that
investments are viable, and that
farmers have a fair share in the economic benefits
of
actions undertaken. The Commission
considers that it is also entitled to give considera-
tion to the close economic relationship between
primary production and the processing
and
marketing of agricultural products when deter-
mining whether State aid can be considered
compatible with the common market in accord-
ance with Article 92(3) of the Treaty.

economic

close

the

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(55)

(56)

Furthermore, the Commission would point out that
its objective in determining its policy for State aid
for investments for the processing and marketing
of agricultural products is to ensure coherence
between competition policy and the common agri-
cultural policy as a whole. In order to ensure
consistency, the Commission seeks to ensure that
the same sectoral limitations apply to all public
investments in this sector, whether financed by the
Member States or by the Community. However, it
is important to emphasise that the sectoral limita-
tions set out
in Decision 90/342/EEC and the
changes made by Decision 94/173/EC were intro-
duced following an extensive analysis of repres-
entative markets at the level of the processing and
the
marketing industries themselves and not at
level of primary production. For example,
the
exclusion of investments relating to starch produc-
tion are based on the continuing existence of over-
capacity in the starch production sector, not on any
possible over-capacity in the production of potatoes
or cereals for use as raw materials in starch produc-
tion. Similarly,
the restrictions on investments
relating to the slaughter of cattle, pigs, sheep and
poultry are based on over-capacity in the slaughter-
house sector, and not on levels of primary produc-
tion. The other sectoral limitations are also based
on the existence of over-capacity in the processing
and marketing sectors.

investments

the German Government argues that

Lastly,
it
should be possible to grant State aid irrespective of
whether or not the primary agricultural products
used are produced by the domestic agricultural
sector or are imported. Pursuant to Article 13 of
951/97 (1), Community
Regulation (EC) No
financing of
in the processing or
marketing of products from third countries is
excluded. However, the guidelines and appropriate
measures on State aid in connection with invest-
ments in the processing and marketing of agricul-
tural products do not explicitly exclude State aid
for investments for the processing and marketing
of products which are imported from third coun-
tries, and the Commission would not raise objec-
tions to such aid, provided that all the other condi-
tions laid down in the guidelines and appropriate
measures are met, in particular the sectoral limita-
tions imposed by Decision 94/173/EC. The reason
for this difference of approach is that the Commis-
sion considers that it is necessary to ensure that
Community funding is used to ensure the develop-
ment of processing and marketing capacity for
products of Community origin. On the other hand,

(1) See footnote 3.

the Commission considers that Member States can
be left with a discretion to decide whether to grant
State aid for
the processing and marketing of
imported agricultural products, subject of course to
compliance with Articles 92 and 93 of the Treaty,
in order to take account of the specific situation at
national level. For these reasons, this argument of
the German Government is not founded.

IV. CONCLUSION

(57)

the foregoing,

the arguments and
In view of
submissions put forward by the German Govern-
ment do not
to agree to the
application of the guidelines and appropriate meas-
ures to regional aid schemes as proposed by the
Commission.

justify its refusal

(58) All the other Member States have agreed uncondi-
tionally to the introduction of the guidelines and
only
appropriate measures. Germany
Member State which has not done so. In the
absence of a clear justification by the Member State
concerned,
the
non-application of the guidelines and appropriate
measures to regional aid schemes in only one of
the Member States.

the Commission cannot accept

the

is

(59)

In view of Germany’s refusal to comply with these
guidelines and appropriate measures, the Commis-
sion, having initiated and carried out the procedure
laid down in Article 93(2), is entitled by way of a
decision taken pursuant to that provision and on
the basis of the considerations set out in Section
III, to require existing aid schemes to be altered by
placing Germany under an obligation to comply
with the guidelines for State aid in connection with
investments in the processing and marketing of
agricultural products. In order to achieve this result,
it is necessary to require that Germany amend its
existing aid schemes to bring them into line with
Decision 94/173/EC,

HAS ADOPTED THIS DECISION:

Article 1

National regional aid schemes in Germany are incompat-
ible with the common market within the meaning of
Article 92(1) of the EC Treaty, in so far as they do not
comply with the guidelines and appropriate measures for
in the
State
processing and marketing of agricultural products which
were communicated to Germany by letter SG(95) D/
13086 of 20 October 1995.

aid in connection with investments

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Article 2

Article 3

Within two months of the date of this Decision Germany
shall amend, or where necessary abolish, existing aids and
existing aid schemes in order to ensure that they are
compatible with the common market. In particular, in
accordance with point 3(b) of the guidelines referred to in
Article 1, Germany shall ensure that:

1. no State aid for investments in the processing and
marketing of agricultural products shall be granted in
respect of any of the investments which are referred to
in the second and third indents of point 1.2 of the
Annex to Decision 94/173/EC or which are excluded
unconditionally by point 2 of that Annex;

2. no State aid for investments in the processing and
marketing of agricultural products shall be granted in
respect of the other investments referred to in point 2
of the Annex to Decision 94/173/EC unless they meet
the special conditions laid down in that Annex.

Germany shall inform the Commission of the measures
taken to comply with this Decision within two months of
notification thereof.

Article 4

This Decision is addressed to the Federal Republic of
Germany.

Done at Brussels, 20 May 1998.

For the Commission

Franz FISCHLER

Member of the Commission