2000/206/EC: Commission Decision of 20 July 1999 on an aid scheme applied in Greece to cotton by the Greek Cotton Board (notified under document number C(1999) 2536) (Only the Greek text is authentic)
Date: 1999-07-20
Institutions: European Commission
Subjects: Greece, aid system, cotton, financing of aid, import tax

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 20 July 1999

on an aid scheme applied in Greece to cotton by the Greek Cotton Board

(notified under document number C(1999) 2536)

(Only the Greek text is authentic)

(2000/206/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

Having under the first subparagraph of Article 88(2) of the
Treaty given notice to interested parties to submit
their
comments (1) and having regard to these,

Whereas:

I

(1)

(2)

Following a complaint the Commission sent the Greek
authorities by fax of 8 December 1992 a request for
information on parafiscal charges levied for use by the
Greek Cotton Board. The Greek authorities replied by
letter of 17 March 1993 and by letter of 19 July 1993
sent further information.

According to the information available the Greek Cotton
Board is a public non-profit-making body the sole
purpose of which is to foster development of the cotton
sector.
It provides services covering cotton growing,
processing and marketing as follows:

(a) technical assistance;

(b) advice on suitable profitable varieties;

(c) guaranteeing of certified inspected seed and inspec-

tion of imported seed;

(d) monitoring

of

technological

development

throughout the world and technology transfer;

(e) monitoring of application of Council Regulation
(EEC) No 389/82 of 15 February 1982 on producer
groups and associations
in the cotton
sector (2), as last amended by Regulation (EEC) No
3808/89 (3);

thereof

(f) trials, technology transfer and training in the areas
of phytosanitary protection and restriction of input
use;

(g) planning and setting up research programmes;

(h) training and advisory services;

(i) technical assistance to ginners;

(j) studies of general

interest on cotton processing

units and their modernisation;

(k) grants

to

ginning

units

under

structural

programmes;

(l) grading and standardisation of ginned cotton;

(m) links with world cotton exchanges and international

organisations;

(1) OJ C 278, 24.10.1995, p. 4.

(2) OJ L 51, 23.2.1982, p. 1.
(3) OJ L 371, 20.12.1989, p. 1.

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(n) monitoring of application of Community regula-

tions on the common market organisation;

(o) quality control and laboratory analysis for seed for

oil production;

(p) quality control and laboratory analysis for fibre,

yarn and fabric;

(q) technical assistance services for specialised labora-

tories;

(r) issue of quality certificates for cotton products;

(s) checks on machines and instruments.

To be able to provide its services without additional
charging of operators in the primary, secondary or
tertiary sectors the Board collects a levy and a special
charge.

Article 30(1) of Greek law No 2040/92 imposes on
ginning plants a 1 % levy of the price paid to the grower
per kilogram of delivered unginned cotton grown in
Greece. Article 30(3) imposes a special charge of 1 % on
the price of imported ginned cotton.

The complaints made to the Commission stated that the
levy on unginned cotton grown in Greece was calculated
not only on the cotton price agreed between grower and
ginner but also on the direct Community aid granted
under Council Regulation (EEC) No 2169/81 of 27 July
1981 laying down the general rules for the system of aid
for cotton (1). The complainants also stated that
the
bank security required in connection with the direct aid
was blocked until proof was given of payment of the
levy.

In that letter the Commission also informed Greece that
it had decided to raise no objection to the following
activities: technical assistance, advisory services, training,
outlet seeking (I(2)(a), (b), (h), (l), (m) and (k)); grading
and standardisation of all ginned cotton (I(2)(1)); aid for
research in the cotton sector (I(2)(d), (f), (g) and (j)).

The Commission initiated the procedure provided for in
Article 88(2) of the Treaty in respect of certification and
quality control (I(2)(c), (o), (p) and (r)) and investment
aid (point I(2)(k)). It also decided to open the Article
88(2) procedure in respect of the aids as a whole, given
their financing by a special charge affecting goods from
other Member States and member countries of the Euro-
pean Economic Area.

On quality controls the Commission, in the absence of
information from the Greek authorities on whether
these were compulsory or not, expressed doubt as to
their compatibility with the common market in that
they might be operating aid with no durable effect on
the sector. It therefore asked the Greek authorities to
send additional information on the nature and rate of
aids for quality controls and attestations and on compa-
tibility of these controls with Community rules. It also
asked them for evidence that controls carried out in
other Member States were recognised and their imported
products not
than equivalent
subjected to stricter
requirements.

In the absence of clarification by the Greek authorities
on aid for investment by ginning units under structural
programmes, the Commission expressed doubt as to its
compatibility with the common market and asked for
information on the nature and rate of the aid.

II

(1)

On examining the functions of the Greek Cotton Board
the Commission found that those indicated at I(2)(e), (n)
and (s) were State functions thus not involving aid to
enterprises. The Greek authorities were
individual
informed accordingly by letter SG(95) D/874 of 27
January 1995.

Since all the aids in question are financed by parafiscal
charges (compulsory payments imposed by law)
the
Commission examined this financing mechanism. The
Court of
the European Communities has
deemed (2) the financing of a State aid by a compulsory
charge to be an essential element of that aid and in
consequence the Commission had to examine against
Community law both the aid and its financing.

Justice of

(1) OJ L 211, 21.7.1981, p 2. Replaced by Regulation (EC) No 1554/

(2) See Judgment of 25 June 1970 in Case 47/69, France v. Commis-

95 (OJ L 148, 30.6.1995, p. 48).

sion, [1969-1971] ECR 341.

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Thus even if aid was compatible as to both form and
objective, in the Court's view its financing by charges
also applied to products imported from other Member
States and European Economic Area countries has a
protective effect going beyond the actual aid itself.

In point of fact, even if the aid financed by the Greek
Cotton Board conferred some benefit in the case of
imported products, the fact remained that it did not
result in equality of advantage to all parties since, so the
Commission considered, in practice the aid was by its
nature more favourable to national operators.

requirement

The Commission also considered that imposition of an
additional
the parafiscal
charge) not included in the Community aid payment
rules was an infringement of Regulation (EEC) No 2169/
81 of 27 July 1981.

(payment of

the Commission considered that

the special
Lastly,
charge contravened Article 5 of Protocol 4 annexed to
the Act of Accession of Greece prohibiting any restric-
tion on cotton imports from third countries. In addition,
since the charge was levied only on imports it infringed
Article 25 of the Treaty prohibiting charges of equiva-
lent effect to customs duties.

The Commission by letter No SG(95) D/874 of 27
January 1995 gave the Greek Government notice to
submit its comments, and in the Official Journal of the
European Communities (1) gave the other Member States
and other interested parties notice to do likewise.

III

(1)

The Greek Government presented its comments in a
letter of 12 April 1995.

(a) On the points on which the Commission doubted
compatibility with the common market, the Greek
authorities said that the tasks indicated at I(2)(c),
namely production of certified inspected seed, certi-
fication of
seed produced and inspection of
imported seed, were compulsory under Greek legis-
lation. They added that expenditure on these services
was financed from the Ministry of Agriculture's
budget and not by a 1 % levy.

(q) and (r)
On the tasks indicated at I(2)(d),
(quality control and laboratory analysis for seed for
industrial processing, processing, quality control and
laboratory analysis for fibre, yarn and fabric, tech-

(p),

(1) See footnote 1.

nical assistance to specialised laboratories, and
quality certification for cotton products) the Greek
authorities
the control and analysis
involved was not compulsory and these services
were paid for at a rate calculated to cover the labora-
tories' operating costs.

stated that

(b) On the subsidies to ginning plants under structural
programmes, the Greek authorities stated that up to
26 February 1992 investments had been made under
Regulation (EEC) No 389/82. The Greek Cotton
Board had then drawn up an investment programme
for
sector approved by the national and
Community authorities. It had not however granted
subsidies to ginning plants or
levied funds for
drawing up the sectoral programme.

the

(c) On the mode of

financing the Greek authorities
pointed to the pre-existence of the levies referred to
in paragraphs 1 and 3 of Law 2040/92. These provi-
sions were an adjustment and consolidation of
Article 10 of Law 3853/58 and Article 1 of Law
675/77 whereby a charge levied in drachmas was
converted into a percentage. This was an improve-
ment providing automatic adjustment
to market
fluctuations.

According to the Greek authorities the charge was
made on both imported and domestic cotton and
the purpose of taxing imported cotton was not to
finance activities within Greece that directly or indir-
ectly fostered production and marketing of domestic
cotton. The charge was collected from ginning
plants, this being the appropriate point for deter-
mining the taxable product.

They added that
the charge was levied with no
discrimination between imported cotton or cotton
from other Member States and that produced in
Greece and that there was no intention of levying a
charge of effect equivalent to a quantitative restric-
tion.

(d) The Greek authorities considered that imposition of
a special charge on non-domestic cotton did not
constitute a national aid within the meaning of
Article 87(1) of the Treaty, since the Greek Cotton
Board was not an undertaking and the purpose of
the charge on cotton imported from third countries
was to finance research on improving the quality of
cotton produced in the Community, the findings of
which were publicised and so accessible to all.

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(2)

The Commission received no comments from other
Member States.

(3)

The main comments received from other interested
parties were the following.

(a) The activities of the Greek Cotton Board financed by
levies are State aid as defined in Article 87(1) of the
Treaty. Greek ginners have never in reality benefited
from the services provided by the Cotton Board. Part
of the aid appears to be operating aid not justifiable
under Article 87 of the Treaty.

(b) Imposition of a special charge on cotton imported
from other Member States infringes Articles 23 and
25 of the Treaty and is therefore incompatible with
the common market.

(c) Imposition of a compensatory levy of 1 % on not
merely the commercial value of the cotton but also
the aid granted by the EAGGF is against Community
rules, hence incompatible with the common market.

(d) Direct

linkage of

release of bank security and
payment of
the levy and special charge is not
provided for in the Community rules on the cotton
market organisation and hence incompatible with
the common market.

(e) Imposition of a special charge on imports to Greece
of cotton products originating in third countries
violates obligations arising from the Act of Acces-
sion of Greece to the European Union and obliga-
tions under GATT rules.

(f) The tasks of the Greek Cotton Board as described are
its official ones but the description is not an accurate
reflection of the services actually rendered to ginning
plants. The Board's main activity is day-to-day
management of the Community cotton system.

(g) A substantial proportion of the services provided by
the Board must be considered operating aids to
cotton producers. The Greek authorities have not
transmitted enough information to permit cost-
benefit analysis of these services.

(h) As regards the financing of aid, the charge imposed
on imported products is protectionist and discrimi-
natory, since it applies by virtue of the mere fact that
they cross the Greek frontier in intra-Community

trade and they derive no economic benefit from the
levy, which therefore infringes Article 25 of
the
Treaty prohibiting Member States from introducing
between themselves any customs duties on imports
or exports or charges of equivalent effect. It breaches
Article 5 of Protocol 4 annexed to the Act of Acces-
sion of Greece stating that the Community trading
system with third countries may not be affected and
that
in particular no measure restricting imports
may be laid down.

(4)

The Commission received no comments from the Greek
Government on those of interested third parties.

IV

(1)

As regards the Greek Government's comments:

(a) The Commission notes that the tasks of the Greek
Cotton Board indicated at I(2)(c) above, i.e. control
of seed quality, are compulsory under Greek legisla-
tion.

The Commission's fixed practice on national aids for
quality control, which stems from the proposal on
appropriate measures on the matter of aid granted
by Member States in the livestock sector (1),
is to
accept such measures up to 100 % of eligible expen-
diture
compulsory under
controls
the
Community or national

legislation.

are

if

The Commission notes that the tasks indicated at
I(2)(o) to I(2)(r) above, involving quality control at
the processing stage, are services paid for at a rate
sufficient
to cover costs. The Commission must
therefore consider that these tasks are not State aid
favouring undertakings as defined in Article 87(1) of
the Treaty.

i.e. financial grants to
In the case of task I(2)(k),
the Commission has accepted the
ginning units,
Greek authorities' statement
these subsidies
that
were granted up to 1992 under Community rules
and that no investment aid has been granted since
then. This statement coincides with the claims of the
interested third parties that no financing has been
granted to ginning units.

its

compatibility or

(b) On the first argument advanced, i.e. pre-existence of
the aid scheme, the Commission points out in the
first place that pre-existence of a charge does not
affect
incompatibility with
Community legislation, and in the second that the
parafiscal charges in question cannot be considered
the
‘existing aids’ as meant by Article 88(1) of
Treaty, which covers only pre-accession aids and
aids authorised by the Commission.

(1) Commission letter
September 1975.

to Member States No S 75294/6 of 19

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Even if a tax on cotton was in force before Greece's
accession to the Community, the information trans-
mitted by the Greek authorities shows that
the
arrangements were adjusted and consolidated by
Law 2040/92. All the national provisions on cotton
were consolidated and the parafiscal charge signifi-
cantly modified to become a percentage of the total
quantity purchased by ginners instead of a fixed
amount.

The Commission considers therefore that Greece
introduced the arrangements set out in Law 2040/92
in violation of the provisions of Article 88(3) of the
Treaty and that the State aids financed with the
charges levied must be considered new aids.

(2)

(3)

In general an aid cannot be financed by parafiscal
charges that also apply to products imported from
other Member States. In particular, in the absence of
an arrangement associating the producers of all
Member States
and effectively guaranteeing at
Community level that the proceeds of the charge are
assigned so as to confer the resultant benefits on
exactly the same terms for both imported and
national products, obligatory levies on imported
products will be classed, as appropriate, either as a
charge of equivalent effect to a customs duty prohib-
ited by Articles 23 and 25 of the EC Treaty (if no
benefit results for certain products or product cate-
gories, e.g. by reason of the actual purpose of the
aid) or as a discriminatory internal charge prohibited
under Article 90 of the Treaty (if the advantage
conferred by the aid offsets the charge on certain
imported products less than for national products,
e.g. by reason of the details of the aid scheme) (see
Judgments of the Court of Justice of the European
Communities on 27 October 1993 in Case C-72/92,
Scharbatke (1) and on 20 August 1993 in Case C-
266/91, Celbi (2)). Such financing has a protective
effect going beyond the aid in itself in that even if
equality of treatment is provided for in the rules
between national and imported products, at
the
practical level a more favourable situation arises for
national operators since the measures implemented
are prompted by national specialisations, needs and
lacunae. The aids indicated at I(2)(a), (b), (d), (g), (i),

(1) [1993] ECR I-5509.
(2) [1993] ECR I-4337.

(k) and (q) are aimed at supporting national

(j),
production and confer no benefit on imports.

(c) The Greek authorities have not replied to the claim
that the 1 % special charge on cotton imported from
third countries is incompatible with Article 5 of
Protocol 4 to the Act of Accession of Greece. The
Commission therefore maintains the position it took
on initiating the procedure.

The Commission treated under an infringement proce-
dure the question of compatibility with the market
organisation for cotton of
the 1 % levy on Greek
domestic production and on the Community aid paid to
Greek growers. Since Regulation (EC) No 1554/95 does
not specifically exclude such a levy, the Commission
decided on 2 December 1998 to close this dossier.

Comments made to the Commission under the proce-
dure provided for in Article 88(2) of the Treaty show
that the parafiscal charges in question present some
degree of cross-subsidy, being levied at ginning plant
level to finance measures mainly addressed to farmers.
The Commission's established practice on parafiscal
charges is to agree to their being collected at a different
stage from the production process (e.g. from slaughter-
houses to finance action against epizootics). In the case
in point it does not appear possible, given the market
organisation mechanisms,
to transfer
payment of the charge to farmers.

ginners

for

In view of the foregoing the Commission concludes that
since the method of financing the aid by a 1 % levy on
domestic production and on Community aid paid to
Greek producers is consonant with the market organ-
isation it has no reason under Articles 87 to 89 of the
Treaty to object to the financing method.

V

Under Article 87(1) of the Treaty any aid granted by Member
States or through State resources in any form whatsoever that
distorts or threatens to distort competition by favouring certain
undertakings or the production of certain goods is incompat-
ible with the common market.

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The aids in question fall within the Article 87(1) definition.

Nor are they a means of remedying a serious disturbance in the
economy of the Member State concerned within the meaning
of that provision.

Since they improve the economic situation of
recipients
compared to their competitors they distort or threaten to
distort trade in the way indicated.

Given on the one hand the value of trade in cotton (in 1995
Greek exports to the rest of the EC worth ECU 309,6 million
and imports from the rest of
the EC into Greece worth
ECU 106,4 million) (1) and on the other Greek production of
1,25 million tonnes against that of the other Member States of
1,35 million tonnes it is evident that the aid is liable to affect
trade between the Member States in favouring national produc-
tion to the disadvantage of that of other Member States.

Even the relatively small size of an aid or of the recipient
undertaking does not automatically exclude the possibility of
an impact on trade between Member States.

Nor were they notified as having a regional objective under
Article 87(3)(a).

Aid to facilitate the development of certain economic activities
or of certain economic areas can be considered compatible by
the Commission only if it does not adversely affect trading
conditions to an extent contrary to the common interest
(Article 87(3)(c)).

For such aid to be considered compatible with the common
it must not adversely affect
market under Article 87(3)(c)
trading conditions to an extent contrary to the common
interest and must
certain
economic activities or certain economic areas.

the development of

facilitate

On the basis of the foregoing the aid in question is State aid as
meant by Article 87(1) of the Treaty.

There are however exceptions to the incompatibility principle
laid down in Article 87(1).

The aids granted by the Greek Cotton Board in the form of
technical assistance, advisory services, training and research are
liable to affect trade and distort competition (Article 87(1)) but
are intended to facilitate development of the cotton sector and
by their nature are not likely to affect trade to an extent
contrary to the common interest. They could therefore on that
count be held to fall under the Article 87(3)(c) exception.

VI

This possibility is however ruled out by the fact that they are
financed by a parafiscal charge applied to products imported
from other Member States. This mode of financing renders
them incompatible with the common market.

The exceptions to incompatibility stated in Article 87(2) are
manifestly inapplicable and were not invoked by the Greek
authorities.

Those provided for in Article 87(3) of the Treaty are to be
restrictively interpreted when any regional or sectoral aid
programme or individual case of application of general aid
schemes is examined.

They can in particular be held to pertain only in cases where
the Commission can establish that the aid is necessary for
achievement of one of the purposes in question. To authorise
such exceptions would be to act against inter-Member State
trade and permit distortion of competition unjustifiable in the
Community interest and conferring improper advantage on
operators in some Member States.

that

The Commission consequently finds
the exceptions
provided for in Article 87(3)(a) and (c) for aid to promote or
facilitate the economic development of particular areas or
activities cannot be applied to the aids in question owing to
their mode of
financing. They are incompatible with the
common market in that they are financed by parafiscal charges
on imported products.

VII

The Commission finds that Greece has illegally put the aids in
question into application in violation of Article 88(3) of the
Treaty.

The aids in question are not a means of promoting execution
of an important project of common European interest within
the meaning of Article 87(3)(b), their potential impact on trade
being in fact against the common interest.

(1) Eurostat 1995.

For the reasons set out above the aids satisfying the require-
ments of Article 87(1) of the Treaty cannot qualify for any of
the exemptions provided for in Article 87(2) and (3). They are
therefore
since
common market
financed by a parafiscal charge on imported products.

incompatible with the

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In cases such as the present one where non-notified aid is
introduced without awaiting the Commission's final decision,
the imperative character of the procedural rules set out in
Article 88(3) of the Treaty, of which the Court of Justice has
recognised the direct effect in its Judgments of 19 June 1973
(Case 77/72 Carmine Capolongo v. Azienda Agricola
Maya (1)), 11 December 1973 (Case 120/73 Gebr. Lorenz
GmbH v. Federal Republic of Germany (2)) and 22 March
1977 (Case 78/76 Steinicke und Weinlig v. Federal Republic of
Germany (3)), prevents any retrospective legalisation of the aids
(Judgment of 21 November 1991 in Case C-354/90 Fédération
nationale du commerce extérieur des produits alimentaires and
others v. France (4)).

Article 14(1) of Council Regulation (EC) No 659/1999 of 22
March 1999 laying down detailed rules for application of
Article 93 of the EC Treaty (5) provides that when a negative
decision is taken in a case of unlawful aid the Commission
shall decide that the Member State concerned is to take all
necessary action to recover the aid from the recipient.

Reimbursement is necessary in order to restore the previous
situation by removing all financial advantages unduly gained by
the recipients since the date of granting of the aid.

Article 14(2) of Regulation (EC) No 659/1999 states that the
aid to be recovered is to include interest at an appropriate rate
set by the Commission. Interest runs from the date on which
the illegal aid was made available to the recipients until that of
its recovery.

Given the nature of the aids and the way in which they have
been financed it is not possible for the Commission on its
present information to calculate the amount to be recovered,
i.e. the aids financed by charges on imports of cotton. The
Commission calls on the Greek authorities under the coopera-
tion procedure to notify a suitable method for calculating the
amount to be recovered.

The present Decision is without prejudice to any conclusions
that the Commission may draw as regards financing of the
common agricultural policy by the European Agricultural
Guidance and Guarantee Fund (EAGGF),

HAS ADOPTED THIS DECISION:

Article 1

The State aids granted in Greece in discharge of the statutory
functions of the Greek Cotton Board that are financed by the
compulsory contributions specified in Article 30(3) of Law
2040/92 are incompatible with the common market in that
they are financed by a parafiscal charge on imported products.

Article 2

Greece must adjust the aid scheme referred to in Article 1 to
make it compatible with this Decision.

Article 3

Greece shall take all necessary action to recover from

1.
recipients the illegally granted aid referred to in Article 1.

Recovery shall be in line with the procedures of national
2.
law. Interest shall be charged on the amounts to be recovered,
to run from the date on which they were made available to
recipients to that of actual recovery. It shall be calculated at the
reference rate used for
subsidy equivalent calculation in
connection with aids for regional purposes.

Article 4

Within two months of notification of this Decision Greece
shall inform the Commission of the action it intends to take to
comply with it.

This Decision is addressed to the Hellenic Republic.

Article 5

Done at Brussels, 20 July 1999.

For the Commission

Monika WULF-MATHIES

Member of the Commission

(1) [1972-1973] ECR 567.
(2) [1972-1973] ECR 815.
(3) [1977] ECR 171.
(4) [1991] ECR I-5505.
(5) OJ L 83, 27.3.1999, p. 1.