2000/625/EC: Commission Decision of 13 June 2000 on the aid scheme implemented by Ireland to promote the transport of Irish livestock by sea to continental Europe (notified under document number C(2000) 1659) (Only the English text is authentic)
Date: 2000-06-13
Institutions: European Commission
Subjects: State aid, control of State aid, infringement of EU law, maritime transport, public health, transport of animals

18.10.2000

EN

Official Journal of the European Communities

L 263/17

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 13 June 2000

on the aid scheme implemented by Ireland to promote the transport of Irish livestock by sea to
continental Europe

(notified under document number C(2000) 1659)

(Only the English text is authentic)

(2000/625/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 called on interested parties to submit their comments
pursuant to the provision cited above (1),

Whereas:

I

PROCEDURE

(1)

(2)

(3)

By letter of 18 September 1997, registered on 29
September 1997, addressed to the Director-General of
Agriculture, the Irish authorities notified the Commis-
sion pursuant to Article 88(3) of the EC Treaty of their
intention to grand IEP 1 000 000 in order to provide
direct sea access to markets on the European continent
for producers of livestock in Ireland. The case was regis-
tered as aid N 633/97.

On 1 October 1997, a meeting took place between Irish
officials and the Commission.

Supplementary information has been sent by letter of 1
October 1997, registered on 6 October 1997, by letter
of 9 October 1997 and by letter of 18 December 1997.
A letter from Mr Walsh, the Irish Minister for Agricul-
ture, addressed to Commissioner Fischler, was received
on 28 January 1998.

(4)

(5)

(6)

(7)

By letter dated 10 February 1998, the Irish authorities
were informed by the Commission that the case had
been re-registered as non-notified aid under NN 1/98 as
the aid had already been
the first
disbursed.

instalment of

By letter dated 25 February 1998,
the Commission
informed Ireland of its decision to initiate the procedure
laid down by Article 88(2) of the Treaty in respect of the
measure.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (2). The Commission invited interested parties to
submit their comments.

The Commission has received comments from interested
parties. It forwarded them to Ireland which was given
the opportunity to react. Its comments were received by
letter dated 21 July 1998. By fax of 14 April 2000, the
Irish authorities
in
connection with the possible recovery of aid.

submitted further observations

II

DESCRIPTION OF THE MEASURE

(8)

Ireland granted IEP 1 000 000 to a shipping company
to ensure that Irish livestock could be exported by sea to
continental Europe during the 1997 to 1998 winter

(1) OJ C 142, 7.5.1998, p. 8.

(2) See footnote 1.

L 263/18

EN

Official Journal of the European Communities

18.10.2000

season by roll-on roll-off transport which is suitable for
the delivery of small
lots of animals to individual
fatteners on the continent. The lorries charged with
livestock enter (‘roll-on’) the ship without having to be
unloaded and at arrival ‘roll-off’ to supply different desti-
nations.

(9)

Before October 1997, two companies provided a regular
freight
direct sea-transport service for roll-on roll-off
between Ireland and France. Pandoro Limited,
a
subsidiary of the P & O group, provided a year round
freight service.
Irish Ferries provided a summer-only
service, and for commercial reasons discontinued its
service each year between the end of September and the
beginning of April.

livestock (except

(10) On 24 June 1997, P & O informed the Irish authorities
by letter that Pandoro would permanently discontinue
the carriage of all
for animals for
breeding) on the ferry service they operate between
Ireland and France after 31 July 1997. It was explained
that this decision was consequent on pressure from the
animal welfare lobby, and concerns about the impact of
livestock transport operations on the perception of the
P & O group as a whole. Concern was also expressed
about the lack of proper enforcement of animal welfare
regulations on the continent. As a result of this decision
by P & O, no regular commercial service would be avail-
able for the direct transport of Irish livestock exports to
France between 27 September 1997 and 1 April 1998.

(11) On 1 August 1997, the Irish High Court dismissed an
application for an injunction by Irish exporters against
Pandoro's decision. Thus, the Irish exporters of livestock
faced a situation of being cut off from their traditional
access route to Continental Europe.

did not affect the payment of the aid for the establish-
ment of the service provided by Gaelic Ferries.

(14) As to the actual form of the aid the following descrip-
tion was provided by the Irish authorities. A vessel (the
MV Purbeck) was chartered from shipping brokers in
London for a period of seven months and an option was
obtained for a further charter of six months. According
to the Irish authorities, the vessel chosen was the only
one available suitable for the transport of livestock and
there was a danger of it being chartered by another
party. In support of this contention, the Irish authorities
supplied copies of correspondence from London ship-
brokers indicating that in early October 1997 there were
three potential alternative charterers of the vessel.

(15)

Prior to the granting of the aid, the Irish authorities
invited selected companies to indicate the amount of aid
they would need to start up a transport service between
Ireland and France. Dundalk was the company selected
to organise the new service. Dundalk set up a subsidiary
called Gaelic Ferries to operate the service. Gaelic Ferries
was to be responsible for all relations with the brokers
and the owners of the vessel. Should the service prove
successful, it was envisaged that Dundalk would buy the
in order to provide a continuous service.
vessel

(16) As far as operating costs were concerned, the projected
figures provided by the successful applicant
for the
seven-month period October 1997 to April 1998 made
provision for
IEP 3 030 000
of
costs). The aid represented the
(including charter
projected shortfall between expenditure and revenue
during the period concerned.

operating

costs

(12)

In these circumstances, the Irish Government decided to
offer State aid in order to support a direct sea transport
link between Ireland (Cork) and France (Cherbourg) for
the transport of livestock. According to the Irish author-
ities, there was no viable alternative to this measure,
since Irish Ferries was unable to continue its services
during the winter season, and alternative routes for
exports via the UK ‘landbridge’ route were closed for
legal reasons in the case of bovine livestock because of
the restrictions imposed on the export of live animals
from the UK in the wake of the BSE crisis, or were
unavailable for practical reasons. Moreover, the altern-
ative of substituting exports of carcases in place of live-
stock was
economic
reasons.

considered unacceptable

for

(13) On 18 December 1997,

the Irish Supreme Court
reversed the decision of the Irish High Court and granted
an order restraining Pandoro from refusing to carry
certain types of livestock on any of its services between
Ireland and continental Europe. However, this decision

(17) Gaelic Ferries had an initial capital of IEP 100 000 to
cover the operating costs of
the service (fuel, port
charges, wages, etc.) which was provided in equal shares
by Dundalk, the Irish road hauliers of livestock, through
their trade association, and the Port of Cork, from which
the service operated.

(18)

IEP 450 000 of the aid was paid to Gaelic Ferries on 24
October 1997, and a further tranche of IEP 250 000
was paid in mid-December 1997. Two further instal-
ments — leading to the total amount of IEP 1 000 000
— were paid in mid-February (IEP 200 000) and late
April 1998 (IEP 100 000). The aid was ‘front-loaded’ to
take account of the heavy start-up costs of the service.
The Irish authorities confirmed that Gaelic Ferries would
charge shipper rates ‘which are in line with what would
be charged under “normal market conditions”’ and that
‘there is no subsidisation of livestock exports’ (letter of
18 December 1997). The charges would be monitored
by the Irish authorities to confirm that they reflect the
going market rates.

18.10.2000

EN

Official Journal of the European Communities

L 263/19

(19)

Should the service cease prematurely, no further aid
would be paid after the cessation of the service. The
charter conditions required a 90-day penalty payment if
the charter were terminated prematurely. This payment
was guaranteed by the Port of Cork. There was no
provision for repayment of the aid if the service proved
successful.

appear to meet any of the conditions for exemption
under Article 87(2) or Article 87(3).

(25)

Secondly, although the aid was presented by the Irish
authorities as an aid to agriculture, the fact that it was
being paid to a shipping company raised the question of
whether the measure should alternatively or additionally
be considered as an aid to maritime transport within the
meaning of the relevant guidelines.

(20) Gaelic Ferries would have a de facto monopoly of live-
stock transport on the route until Irish Ferries resumed
operations in spring 1998.
It would compete with
Pandoro for other freight. In the event that the service
was operating at full capacity, the operator would be
required to give priority to livestock transport, within
the limit of the number of places available.

The ship had a total capacity of 54 units. However, due
to animal welfare legislation, only 10 units, on the upper
deck, could be used for the transport of animals. The
remaining 44 units on the lower deck lacked proper
ventilation, and could only be used for the transport of
other freight. According to the Irish authorities,
the
maritime rates charged by the new ferry service would
be in line with what would be charged under normal
market conditions.

The service began operating on 14 October 1997 on the
basis of the legal commitment of the Irish authorities to
grant support amounting to IEP 1 000 000 to be paid
in instalments. The service was discontinued in April
1998, and no additional aid was granted for the mainte-
nance of the service beyond the period originally envis-
aged.

the measure at

In the decision to initiate the procedure, the Commis-
sion expressed its doubts concerning the compatibility
of
issue with the common market,
considering that the measure might constitute State aid
incompatible with the common market as it appeared to
fulfil
the Treaty
without qualifying for any of the derogations provided
for in paragraphs 2 and 3 of that Article.

the conditions of Article 87(1) of

(21)

(22)

(23)

(24)

III

COMMENTS FROM INTERESTED PARTIES

(26)

The Commission has received comments from Compas-
sion in World Farming (CIWF) by letter of 29 May
1998. CIWF essentially supports the arguments which
led the Commission to initiate the procedure in respect
of the measure. They have added that on account of an
injunction against Pandoro, that carrier had resumed
carrying live animals from Ireland for further fattening
on the continent in January 1998. Also, Irish Ferries
resumed services on the route in May and are willing to
carry all classes of live farm animals. Irish Ferries, in fact,
operate two services, one between Rosslare and Cher-
bourg and one between Rosslare and Roscoff.

(27) According to CIWF, there was no risk of the situation
evolving into a serious disturbance of the Irish economy
as a whole as the Irish exporters could convert their
trade (or a proportion of it) from live to meat exports.
Already around 90 % in value of Irish exports are in
meat form.

(28)

CIWF points out that as Pandoro resumed carrying live
animals in January 1998, the aid which was to be paid
to Gaelic Ferries was not necessary to enable traders to
export live animals to the continent.

IV

COMMENTS FROM IRELAND

The Commission underlined the need to look further
into two aspects of the measure possibly involving the
grant of State aid. First, the professed objective of the
measure was to secure Irish livestock exports jeopardised
by the withdrawal of a carrier from this service.
It
appeared that there were grounds for considering that
the aid might distort competition by favouring certain
undertakings and that it affects trade between Member
States in so far as it enables Irish exporters of livestock
to sell their products in continental Europe at lower
prices than would be possible if they had to meet the
full economic cost of shipping the livestock. Further-
more, in so far as the measure constituted aid, it did not

(29)

In its letter of 24 April 1998, Ireland challenges the
arguments that led the Commission to open the proce-
dure under Article 88(2) in respect of the measure.

(30) According to a first argument, given the importance of
continental Europe as an export outlet for Irish livestock
production, Ireland is entitled to step in and provide a
means of export where no others exist.

(31)

The Irish authorities emphasise the heavy dependence
on exports in the Irish livestock sector. 90 % of produc-
tion needs to be exported either in live or carcase form.
Statistics are provided to show that in 1994 and 1995
live exports to the European continent accounted for

L 263/20

EN

Official Journal of the European Communities

18.10.2000

5 % to 6 % of total cattle disposals. Furthermore, the
maintenance of a separate trade for live animals also
plays a significant part in sustaining prices for Irish
farmers as it ensures that Irish meat factories cannot
enjoy a monopoly position as regards the disposal of
Irish animals. In this context, the Irish authorities claim
there is a positive correlation between the level of live
trade and prices for young cattle.

(32)

The BSE crisis in 1996 reduced farm incomes in general
(for instance by 4,5 % in nominal terms in 1997) and
had especially severe consequences for beef farmers. As
many of the traditional third-country markets for live
cattle closed, the only other substantial export market
available was continental Europe. Disruption of access to
that market would have a disproportionately destabi-
lising impact on Ireland's market as, in particular for the
beef sector,
Ireland produces 10 times its internal
consumption. Against that background it was impossible
for the Irish Government
to countenance a further
income loss, especially for beef farmers. Furthermore,
according to the Irish authorities, had the State not
intervened, economic activity in general would have
been disrupted as farm bodies and those engaged in the
live
trade would have demonstrated and
protested.

export

(33)

The Irish authorities address the doubts expressed by the
Commission in its decision to open the procedure under
three headings:

— did the measure distort competition,

— did the measure fulfil the conditions for a subsidy of
a Public Service Obligation as
in the
Community guidelines on State aid for maritime
transport (3),

set out

— alternatively, did the aid fulfil

the conditions for
exemption under Article 93(2) and (3) of the Treaty
(now Article 87(2) and (3)).

in Article 33 of

the Treaty. These include
set out
ensuring a fair standard of living for the agricultural
community, stabilising markets, assuring the availability
of supplies and ensuring that supplies reach consumers
at reasonable prices. Account must also be taken of the
particular nature of agricultural activity, resulting in part
from natural and structural disparities between the
various
approach was
confirmed by the judgment of the Court of Justice of the
European Communities in Case C-122/94 Commission v
Council (4). Ireland was therefore entitled, if not required,
to provide a means for the export of livestock to Europe.

regions. This

agricultural

(35)

The Irish authorities contest the Commission's assertion
that an increase in the freight rates paid for the transport
of livestock to Europe would have caused an alternative
shipper to enter the market. First, they point out that
Pandoro's decision to cease transporting livestock was
not a normal commercial decision. It resulted from the
protests of animal rights activists and from concern of
the effects of other aspects of Pandoro's activities. Since
no other carrier had the capacity to carry livestock on
the route in winter, a completely new market entrant
would be required. However, this would be a very high-
risk venture, since Pandoro could at any time decide to
resume the carriage of livestock. Furthermore, any new
market entrant would be subject to the same constraints,
resulting from animal welfare legislation, which limit the
number of lorries carrying livestock on any crossing to
In order to ensure a
about 20 % of actual capacity.
profitable service, a new market entrant would have to
compete with Pandoro for dry freight road haulage, in
which the P & O Group, including Pandoro, has a very
strong if not dominant position. Had Pandoro with-
drawn from the route entirely, normal market forces
might have made it possible for a competitor to enter
the market. However, as it only selectively withdrew part
of its capacity, this was not possible.

(34) As regards the effects of the measure on competition,
the Irish authorities begin by pointing out that by virtue
of Article 36 of the Treaty, the competition rules apply
to agriculture only to the extent determined by the
Council. The State aid rules of the Treaty apply to trade
in beef, veal, pigmeat and sheepmeat by virtue of the
regulations establishing the relevant common organ-
isations of the market. The application of Articles 87, 88
and 89 of the Treaty must therefore take account of the
objectives of the common agricultural policy which are

(36)

The Irish authorities consider that viewed in this light,
the payment of IEP 1 000 000 did not insulate trade
conditions from the impact of market development. Any
new entrant on the market would be obliged to charge
competitive rates for the vast bulk of
it
carried without the possibility of taking into account the
costs of starting up the business. Prior to the entry of
Gaelic Ferries onto the market, Pandoro enjoyed a
livestock
seasonal monopoly for ‘RoRo’

transport of

the freight

(3) OJ C 205, 5.7.1997, p. 5.

(4) [1996] ECR I-881.

18.10.2000

EN

Official Journal of the European Communities

L 263/21

between Ireland and continental Europe. Pandoro's
decision to withdraw from that market effectively
blockaded that trade. In order to ensure its continuance,
in compliance with the common organisations of the
market, and the aims of the common agricultural policy,
the Irish Government was entitled to encourage another
enterprise to enter the market, even though the bulk of
that entrant's business would be the carriage of dry
freight
in direct competition with Pandoro. Market
forces ensured that the new entrant charged competitive
rates for dry freight. The Irish Government regulated the
prices charged for the transport of livestock to ensure
that
the new entrant did not abuse its de facto
monopoly.

(37) As regards the applicability of a rule governing the
concept of a public service within the meaning of the
guidelines on State aid in maritime transport, according
to the Irish authorities, the route has to be considered to
be thinly served within the meaning of the guidelines
because there was no other service for the export of live
animals from Ireland. The fact
the dry freight
service could not be described as thinly served is not
relevant, since a well-served dry freight route without
any capacity for the carnage of livestock is of no benefit
in terms of the free movement of animals.

that

(38) According to the Irish authorities, while there was no
full public tender launched because of the urgency of the
affair, a comprehensive and transparent selection proce-
dure was implemented. Expressions of
interest were
companies. On 17
received from a number of
September 1997, the Irish authorities had issued specific
invitations to those interested to submit detailed busi-
ness plans by 24 September 1997. Maximum sailings
per week and in total were specified. Plans were required
to clearly demonstrate the viability of any service
proposed.

(39)

Five business plans were received. These plans were
independently assessed by the Nautical Enterprise
Centre, based at Cork Regional Technical College. Two
plans were assessed as unrealistic and one as insufficient
in detail. A range of additional questions suggested by
the assessor was put to the two remaining applicants.
Additional issues explored included company structure
and financing, marketing strategy, specific number of
trips per week, berth availability and cattle facilities. The
ship proposed, the MV Purbeck in both cases, had also
to be inspected to ensure that regulatory obligations

would be met and to fix a maximum capacity for live-
stock.

(40)

The final decision on the successful applicant was only
taken after detailed assessment of the additional infor-
mation had been received.

(41) As part of the process, all requirements concerning the
level and frequency of the service provided and the
capacity and standards to be met were clearly specified.
Payment levels were to be determined independently of
the Irish authorities but would be monitored to confirm
that they were in line with the rates normally applicable
for the livestock transport service to ensure that there
would be no hidden subsidy to producers. In the event,
the rates charged by Gaelic Ferries for livestock exports
have been exactly in line with the rates which had
hitherto been charged by Pandoro and by Irish Ferries.
Thus,
there has not been any overcompensation on
livestock exports nor, since the rates charged were not
higher than the other operators rates, does the question
of cross-subsidisation of other services arise.

(42)

The provisional Gaelic Ferries trading profit and loss
account for the period October to April shows a sales
IEP 1,3 million with total expenditure,
income of
including overheads, of
IEP 2,3 million. The deficit
incurred in providing the service has been approximately
equivalent to the grant given. Thus, the Irish authorities
consider that the aid meets the requirement laid down in
the guidelines that the aid should reimburse the extra
costs incurred by the operator as a result of providing
the service, and should be directly related to the calcu-
lated deficit incurred in providing the service.

(43) With regard to the other applicants (excepting the two
‘finalists’), in one case the vessel was not immediately
suitable, for animal welfare reasons,
in that it lacked
stabilisers. The second application was based on the
purchase of a vessel by the Irish Government. The third
sought a subsidy of a multiple of the figure contem-
plated by the Irish authorities. In any event, in the three
cases where the business plans submitted were deemed
unrealistic/inadequate by the independent evaluator,
detailed examination of the ferries proposed did not
arise.

(44)

In this case the grant given was restricted to a period of
just six months, well within the normal period of five
years allowed by the guidelines, and was structured to be
exceptional, temporary and digressive.

L 263/22

EN

Official Journal of the European Communities

18.10.2000

(45) On the other hand, the Irish authorities contend that the
measure meets the conditions for exemption under
Article 87(2) or (3) of the Treaty. As regards the applica-
tion of Article 87(2)(b), Ireland claims that the Commis-
sion is wrong to express doubts as to the applicability of
this exemption. The measure has to be considered as
intended to make good damages caused by an excep-
tional occurrence. It is not reasonable to assume that aid
qualifying for this provision must await the occurrence
of the damage. It should be read to also include protec-
in any event, the payments
tive measures. However,
were made after the exceptional event occurred, i.e., the
impossibility of exporting livestock from Ireland to
continental Europe.

tional circumstances. Moreover, Pandoro's withdrawal
cannot be seen as a normal economic event but was a
reaction to protests of animal rights activists in the
United Kingdom. In the Irish authorities' submission, the
exceptional nature of the situation was reinforced by the
fact that Pandoro withdrew its service selectively making
it economically impossible for a new entrant to raise its
rates in the dry freight sector unless it risked operating
at solely 20 % of its capacity which would be wholly
unprofitable. A new entrant has to compete on the
sea-route with an existing supplier of a year-round
service and a second supplier of a seasonal service for
the transport of dry freight. The reference to ‘historic
rates’ in the Commission's initiation of the procedure is
thus not relevant to the argument.

(46)

that

The Irish authorities point out
the concept of
‘exceptional circumstances’ as mentioned in Article 87(2)
of the Treaty has been referred to in the opinion of
Advocate-General Cosmas in Case C-122/94, Commission
v Council. It covers facts or situations which may relate
to one sector in particular or to the economy in general,
but which assessed in each case in a reasonable manner
in the context of a specific Member State and a specific
agricultural sector, show that there has been a change on
such a scale, as compared with what was previously
considered normal, or at least not extraordinary, that it
has become clear that the situations previously obtaining
have changed, that new situations have arisen and that
protective measures are needed for which there is no
provision in the existing rules governing the sector in
question. The question whether in any Member State
there is in a sector of production a state of crisis which
cannot be dealt with by the existing machinery of the
regulations governing that sector constitutes the essen-
tial factor for assessing whether or not there are excep-
tional occurrences as required by Article 87(2).

(47)

The Irish authorities appear to accept the comment of
the Commission that it must be careful not to shift
normal entrepreneurial risks into the area of Article
87(2)(b) of the Treaty. However, they cannot emphasise
strongly enough that the circumstances prevailing on the
Irish beef market in the autumn of 1997 as a result of
Pandoro's refusal to carry livestock went far beyond
normal entrepreneurial risks and amounted to excep-

(48)

(49)

(50)

The Irish authorities contend furthermore that the with-
drawal of Pandoro from livestock transport constituted
an abuse of a dominant position within the meaning of
Article 82 of the Treaty. In accordance with the judg-
ment of the Court of Justice of the European Communi-
ties in Case C-265/95, Commission v France (5), the Irish
authorities argue that a Member State has an obligation
to prevent breaches of Community law by individuals.
The Irish Government was therefore obliged to intervene
to ensure that the action of Pandoro did not in fact
jeopardise the free movement of agricultural products
and thus undermine the objectives of the common agri-
cultural policy.

Ireland adds that Commission Decision 96/
To this,
239/EC of 27 March 1996 on emergency measures to
protect against bovine spongiform encephalopathy (6)
prohibited the dispatch from the United Kingdom of live
bovine animals, thereby closing the landbridge route
from Ireland to the continent, via the United Kingdom,
to Irish cattle. The closure of this route prevented any
alternative means of transporting livestock to the conti-
nent from being found.

In reply to the comments from CIWF, the Irish authori-
ties, in their letter of 27 July 1998, maintain the point of
view set out in their previous comments. They empha-
sise that although it only constitutes a limited percentage
of disposals of animals, live animal exports are of crucial
importance for the beef sector. They insist that Ireland
complies with all requirements laid down in Community
animal welfare legislation. Finally, they add that the fact
that Pandoro resumed services
in January 1998
following the injunction granted by the Irish Supreme
Court should not be taken into consideration in the
assessment of decisions taken in the light of the circum-
stances prevailing in the Autumn of 1997.

(5) [1997] ECR I/6959.
(6) OJ L 78, 20.3.1996, p. 47.

18.10.2000

EN

Official Journal of the European Communities

L 263/23

(51)

In reply to requests from the Commission dated 5
March 1999 and 15 June 1999, the Irish authorities, by
letter of 2 July 1999, a corrected version of which was
transmitted on 14 July 1999, have provided a report on
developments in the transport of livestock from Ireland
to continental Europe since January 1998. Following the
end of the financial support provided to Gaelic Ferries in
March 1998, the service ran into financial difficulty. An
attempt at restructuring the service, without
further
State aid, proved unsuccessful, and the service was
injunction,
discontinued in May 1998. Under Court
Pandoro has continued to carry live cattle, excluding
calves, and in addition Irish ferries were approved to
carry cattle on their new vessel, the MV Normandy in
May 1998, and carried livestock throughout the 1998 to
1999 peak season. A number of designated cattle vessels
have also been approved to carry exports.
Irish live
animal exports to continental Europe on ‘RoRo’ trans-
port and dedicated vessels reached record levels in 1998,
the Irish
amounting to 136 000 cattle. Furthermore,
authorities have provided information to confirm that
the rates charged by Gaelic Ferries were broadly similar
to those charged by Pandoro.

V

ASSESSMENT

(52)

In order for a national measure to fall within the scope
of the prohibition on State aid contained in Article
87(1), four conditions must be fulfilled: the measure
must involve aid being granted from State resources;
that aid must favour certain undertakings or the produc-
tion of certain goods;
it must distort or threaten to
distort competition and it must affect trade between
Member States. The Commission finds that all
four
conditions are met, whether the effects of the measure
are considered on the agricultural sector or on the mari-
time transport sector.

Commission is therefore of the opinion that the primary
beneficiaries of the measure are intended to be Irish
livestock exporters.

(54) At the time, production and trade in beef were covered
by Council Regulation (EEC) No 805/68 of 27 June
1968 on the common organisation of the market in
beef and veal (7). Article 24 of this Regulation stipulates
that save as otherwise provided for in the Regulation,
Articles 87, 88 and 89 of
the Treaty apply to the
products covered by it. Analogous provisions are laid
down by Article 21 of Council Regulation (EEC) No
2759/75 on the common organisation of the market in
pigmeat (8), as last amended by Regulation (EC) No
3290/94 (9) and Article 22 of Council Regulation (EC)
No 2467/98 of 3 November 1998 on the common
organisation of
in sheepmeat and goat-
meat (10). The measure is therefore covered by the rules
laid down in Articles 87, 88 and 89 of the Treaty,
subject to any contrary provisions in the regulations
governing the common organisations of the market.

the market

(55)

(56)

It is not disputed that the Irish Government has made
available IEP 1 million to subsidise the operation of the
Gaelic Ferries service. This money clearly constitutes
State resources.

it

The aid was granted to a single undertaking, Gaelic
Ferries, and could be considered to favour that under-
taking. However,
from the comments
is apparent
submitted by the Irish authorities that the objective of
the aid was to benefit the livestock sector by providing a
means of transporting livestock from Ireland to conti-
nental Europe. The Irish authorities have explained that
the amount of aid was calculated by reference to the
difference between the estimated cost of providing the
service and the estimated income, and this is confirmed
in their written comments following the opening of the
procedure. Thus, the position of Gaelic Ferries appears
to be that of a service provider rather than the benefi-
ciary of the aid. The primary beneficiaries of the aid are
those undertakings operating in the Irish livestock
sector, including producers, hauliers and traders. In any
event, however, having regard to the
comments
submitted by the Irish authorities, it appears clear that
the measure favoured, and was intended to favour live-
stock production in Ireland.

The presence of State aid within the meaning of the
Treaty

(53)

It results from the statements of the Irish authorities that
the purpose of the measure was to provide an alternative
means to transport exports of Irish livestock directly to
continental Europe following the unilateral decision of
Pandoro to cease carrying livestock on its services. The

(57)

The Irish authorities argue that the producers did not
derive any benefit from the measure, as they continued
to pay similar, if not identical shipping charges to those
charged before. The Irish Government
intervened to
regulate these charges to ensure that, on the one hand,
Gaelic Ferries did not obtain any unfair advantage from
its de facto monopoly and, on the other hand, to avoid

(7) OJ L 148, 28.6.1968, p. 24.
(8) OJ L 282, 1.11.1975, p. 1.
(9) OJ L 349, 31.12.1994, p. 105.
(10) OJ L 312, 20.11.1998, p. 1.

L 263/24

EN

Official Journal of the European Communities

18.10.2000

any unfair advantage to producers. The Commission
cannot accept this argument. It is clear that as a result of
changes in circumstances, the cost of transporting live-
stock from Ireland to continental Europe increased.
Without the financial intervention of the Irish Govern-
ment that increase in cost would have amounted to
IEP 1 million for the sector for the 1997 to 1998
winter season. The sector concerned would therefore
have had to meet these costs, either through a reduced
level of profitability or by charging higher prices to its
customers.

(58)

The Commission therefore concludes that the measure
did favour certain undertakings or the production of
certain goods within the meaning of Article 87(1).

(59)

In its judgment of 17 September 1980 in Case C-730/79
Philip Morris v Commision (11), the Court of Justice of the
European Communities has indicated that strengthening
the economic position of an undertaking by means of a
State aid normally indicates a distortion of competition
in relation to competing undertakings.

(60)

In the present case, the State intervention has shielded
the economic position of the Irish livestock exporters
from the negative consequences which would have
otherwise ensued. The Irish producers of livestock are in
competition with producers of livestock throughout the
Community. Surplus livestock markets have, in the case
of cattle, been further affected by the outbreak of the
BSE crisis which in its turn has made conditions of
competition even more difficult and delicate. Therefore,
there is no doubt that the intervention of the State has
insulated the transport conditions for Irish livestock
exporters from the effects of Pandoro's decision, thereby
artificially forestalling any advantages that producers
elsewhere could have derived from such a situation.

(61) A measure affects trade between Member States if it
makes imports from Member States more difficult or if it
makes exports from one Member State to other Member
States easier. The crucial factor is that as a result of the
measure, trade within the Community evolves differently
or is likely to evolve differently. The notion of ‘affecting
trade’
therefore also encompasses measures which
protect trading conditions from the impact of changes in

(11) [1980] ECR, p. 2671, paragraphs 11 and 12.

(62)

(63)

(64)

(65)

the market and thereby artificially conserve the status
quo.

Ireland produces annually a total of 569 000 tonnes of
beef meat. The overall Community production of beef
meat is 7,89 million tonnes. The intra-Community trade
in the beef sector amounts to 2,17 million tonnes (12). In
this context,
it should be observed that the avowed
the Irish authorities in introducing the
objective of
measure was to permit the maintenance of Irish live-
stock exports to continental Europe.
In their written
observations, the Irish authorities emphasise the impor-
tance of this trade for the livestock sector. They also
indicate that exports of live cattle to continental Europe
using ‘RoRo’ transport reached record levels in 1998,
amounting to 136 000 head. The Commission therefore
concludes that the measure does affect trade between
Member States.

Consideration of the measure's effects on the mari-
time transport sector

In its decision to open the procedure, the Commission
considered it necessary to examine whether the measure
might fall within the scope of the Community guidelines
on State aid to maritime transport (13). In its comments
reported at recitals 37 to 44, Ireland considers that the
measure can be accepted as a subsidy for a public service
obligation.

In the preceding recitals, the Commission considered the
measure to be one in favour of the Irish livestock sector,
and considered Gaelic Ferries to be the provider of a
service rather than the recipient of the aid. However, it
could also be considered to be a measure in support of
maritime transport of which Gaelic Ferries could be
considered as the beneficiary. Nonetheless, the Commis-
sion considers that the measure cannot be authorised by
virtue of the guidelines on State aid to maritime trans-
port.

relevant passage of

the
In accordance with the
Community guidelines, a public service obligation (PSO)
is ‘any obligation imposed on a carrier to ensure the
provision of a service satisfying fixed standards of
continuity, regularity, capacity and pricing, which stan-
dards the carrier would not assume if it were solely
considering its economic interest’. PSOs may be imposed
for scheduled services to ports serving peripheral regions
of the Community or thinly served routes considered
vital for the economic development of that region, in
cases where the operation of market forces would not
ensure a sufficient service level.

(12) Commission's Report of the agricultural situation in the European

Union: 1998.

(13) OJ C 205, 5.7.1997, p. 5.

18.10.2000

EN

Official Journal of the European Communities

L 263/25

(66) According to Commission practice and to the case-law
of the Court (14), when assessing contracts relating to
PSOs, the reimbursement of operating losses incurred as
a direct result of
fulfilling certain PSOs constitutes
compatible State aid provided that:

— the schemes are transparent and allow for the devel-
opment of competition, in particular by using tender
procedures,

— adequate publicity is given to the call for tender and
all relevant requirements relating to the PSO are
specified in a clear and transparent manner, thereby
giving all carriers with the right of access to the
route the opportunity to bid,

— except in exceptional and duly justified cases, the
is awarded to the bidder requiring the

contract
lowest subsidy to operate the route.

(69)

(67)

The Commission considers that the Irish measure does
not meet the conditions necessary to be considered as a
PSO.

per week) can be considered as vital to the economic
development of the regions served by the Port of Cork.

Furthermore, the Commission cannot accept that the
financing of a system to allow Irish livestock exporters
to maintain their current export levels into the continent
constitutes a service of general interest in the meaning of
Article 86(2) of the Treaty according to the relevant
Commission communication (15). Besides the fact that
the measure does not benefit all economic activities of
the region nor the general public,
the Commission
considers
that companies producing and marketing
products referred to in Annex I to the Treaty covered by
a common market organisation cannot be considered
undertakings entrusted with the operation of services of
general economic interest within the meaning of Article
86(2) of the Treaty. The functioning of the common
market for beef meat (as well as other products subject
to common market organisations) is incompatible with
State intervention in the market through companies not
acting according to the private investor principle (see,
for instance, C 51/98 (EPAC and Silopor) (16) and C
28/98 (Centrale del Latte di Roma (17))).

it

is clear that

Even if the maintenance of a regular scheduled service
for livestock exports could be considered to constitute a
PSO,
the Irish authorities have not
respected the requirements laid down in the guidelines
to accept that the aid measure is compatible with the
common market. In particular, no public tender proce-
dure was followed and the relevant requirements relating
to the PSO were not defined in a transparent manner. In
fact, the possibility to participate in the tender process
was by invitation only, and the service obligations,
rather than being defined in advance, were a matter of
negotiation between the Irish authorities and the poten-
tial shippers.

(68)

First, the concept of a PSO is limited to ports serving
peripheral regions, or thinly served routes considered
vital for the economic development of a region. Neither
of these conditions is fulfilled. The Port of Cork cannot
be considered to serve a peripheral region and the mari-
time routes between Ireland and continental Europe
cannot be considered to be thinly served. The Irish
authorities accept this as regards normal freight, but
consider that the route was thinly served as regards the
transport of livestock, since there was no other carrier
for such cargo. However,
the Commission does not
accept that it is appropriate to assess whether or not a
route is thinly served by reference to a single category of
cargo, but to all types of cargo and passengers. More-
over, even if this were the case, it is still necessary to
show that the route may be considered to be vital to the
economic development of
region concerned.
Notwithstanding the arguments advanced by the Irish
authorities about the importance of livestock exports,
the Commission does not accept that the export of 30
lorry-loads of livestock a week (assuming three sailings

the

(14) Case T-106/95 FFSA, [1997] ECR II-229.

(70)

the requirements which allow it

In the light of these considerations, the Commission
concludes that
to
consider that an operating subsidy for a PSO is compat-
ible aid are not met. Therefore, the guidelines require
that any aid must be assessed in accordance with the
general State aid rules.

Beneficiary/beneficiaries of the aid

(71) As a general rule, the Commission considers the benefi-
ciary of a State aid to be the undertaking(s) directly in
receipt of State resources. In this case, that undertaking
is Gaelic Ferries. However in certain cases, notably where

(15) OJ C 281, 26.9.1996, p. 3.
(16) OJ C 363, 25.11.1998, p. 4.
(17) OJ C 206, 2.7.1998, p. 6.

L 263/26

EN

Official Journal of the European Communities

18.10.2000

the direct recipient is granted the aid on condition that it
provides an advantage (in the form of finance, services,
premises, etc.) to another clearly defined group of under-
takings, the Commission may consider the beneficiary/
beneficiaries) to be the undertakings in this group.

(72)

the livestock sector. Without

In the present case, and while the intentions of a
Member State in formulating an aid measure are gener-
ally less important in its assessment than its effects, it
can be noted that the explicit objective of the aid was to
benefit
the transport
service, it would have to meet the supplementary costs
incurred by
the
animals and processing the meat inside Ireland. This
measure has thus shielded the economic position of the
Irish livestock sector from the negative consequences
which would have otherwise ensued.

slaughtering

additional

fattening,

the

Although other undertakings were also able to make use
of Gaelic Ferries' services, the Commission considers that
this was merely an incidental consequence of the choice
service. Following
of vessel used to provide
Pandoro's withdrawal
from the livestock transport
market, there was no practicable way to transport Irish
livestock to the continent. Gaelic Ferries was set up to
provide a service, executed it during the established
period at uneconomic terms, discontinued the service in
April 1998 and entered subsequently into a liquidation
procedure. It should furthermore be noted that, within
the adjudication procedure, applicants had to submit
and
detailed business plans
frequency of the service, capacity and standards to be
met. Within the framework of this business plan, the
operators were supposed to charge normal market rates
for
subsidy of
IEP 1 000 000 was then solely relating to the covering
of the operating costs of the service between October
1997 and April 1998.

livestock and other

freight. The

specifying

level

the

(73)

In their comments reported in recital 41,
the Irish
authorities claim that the possibility of cross-subsidisa-
tion can be excluded because the rates charged by Gaelic
Ferries for livestock corresponded to the historic rates
charged by Pandoro. It should be noted that, due to the
technical specifications of the vessel and animal welfare
rules, only 20 % of the cargo could be covered by live
animals. The remaining 80 % of the cargo would be
other freight. However, the Commission took account of
the fact that the aid was calculated by the difference

between the operating costs (including start-up) and
revenues assuming that Gaelic Ferries would in fact ship
other freight at normal market rates. Furthermore, the
Irish authorities have monitored the tariffs charged for
livestock and for other freight during and after the
operation of the service, namely during the liquidation
procedure of Gaelic Ferries. Consequently, the Commis-
sion considered that the subsidy of IEP 1 000 000 was
largely transferred to the Irish livestock sector.

In the very specific circumstances of this case, therefore,
the Commission has taken the view that the beneficiaries
of the measure should be regarded as being the Irish
livestock operators.

Compatibility of the aid to the Irish livestock sector
with the Treaty

The prohibition on State aid laid down in Article 87(1)
of
the Treaty is not unconditional. Exceptions are
provided for in Article 87(2) and (3) of the Treaty. In the
interest of the functioning of the common market and
having regard to Article 3(g) of the Treaty, these excep-
tions must be interpreted restrictively.

Ireland argues that the application of Articles 87, 88 and
89 of the Treaty is subject to the objectives of the
common agricultural policy. Since the measure was
intended by the Irish authorities to further the objectives
of the common agricultural policy, it is compatible with
the common market.

this

accept

cannot

The Commission
argument.
According to Article 36 of the Treaty, the provisions
relating to rules of competition apply to production of
and trade in agricultural products only to the extent
determined by the Council within the framework of
Article 37(2) and (3) and in accordance with the proce-
the
dure laid down therein, account being taken of
objectives of the common agricultural policy set out in
Article 33.

the
In Article 24 of Regulation (EEC) No 805/68,
Council, having taken into account the objectives of the
common agricultural policy, determined that save as
otherwise provided for in the Regulation, Articles 87, 88
and 89 shall apply to the production and trade of beef.
The same holds true for sheepmeat and pigmeat (18). In
the absence of any contrary provisions in the relevant
regulations, by virtue of Article 88 of the Treaty, the
Commission therefore has exclusive competence, subject
to review by the Court of Justice, to determine whether
an aid measure is compatible with the Treaty, having
regard to the provisions of Article 87(2) and (3). To
permit a Member State, acting unilaterally, to determine
what national aid measures might be considered neces-
sary to attain the objectives of the common agricultural
policy would fatally weaken both the application of the
common agricultural policy and the control of State aid
within the Community.

(74)

(75)

(76)

(77)

(18) See recital 54.

18.10.2000

EN

Official Journal of the European Communities

L 263/27

(78)

(79)

(80)

(81)

(82)

The Commission does not consider that the judgment of
the Court in Case C-122/94 Commission v Council (19)
assists the Irish argument. That case arose from a dispute
between the Commission and the Council regarding the
application of the third subparagraph of Article 88(2) of
the Treaty. By way of derogation from the principle of
exclusive competence stated in the previous paragraph,
this provision allows the Council, acting unanimously,
to decide that aid which a Member State intends to grant
or is granting shall be considered compatible with the
common market in derogation from the provisions of
Article 87, if such a decision is justified by exceptional
circumstances. The fact that the Council,
in deciding
whether or not a decision can be justified by exceptional
circumstances, is entitled to take account of the objec-
tives of the common agricultural policy can in no way
be used to support an argument that a Member State is
entitled to take unilateral action in contravention of the
Treaty rules.

In fact, if Ireland considered that a derogation from the
provisions of Article 87 were justified by exceptional
circumstances, it should have made an application to the
Council.

Furthermore, Ireland has not suggested that there are
any contrary provisions in the regulations governing the
common organisations of the market concerned which
might be cited as a legal basis for the measure, nor has
the Commission been able to find any such provision of
its own initiative.

(84)

It follows that the compatibility of this aid with the
common market is to be assessed exclusively by refer-
ence to the provisions of Article 87 of the Treaty and
any relevant provisions of the regulations governing the
common organisations of the market concerned.

Ireland did not
rely on the derogations in Article
87(2)(a) and (c) of the Treaty and there is no reason to
consider the present measure as qualifying for these
derogations (aid of a social character granted to indi-
vidual consumers or aid to compensate for the effects of
the division of Germany). The same holds true as far as
aids to compensate damage inflicted by natural disasters
are concerned. However, in its comments, Ireland has
suggested that the measure can be considered as aid to
make good the damage caused by exceptional occur-
rences and thereby fall within the scope of the exception
laid down in Article 87(2)(b) of the Treaty.

referred to by the Irish authorities at recital 46 to be
relevant to the present case. Those comments concerned
the interpretation of the third subparagraph of Article
88(2) of the Treaty, according to which the Council
may, acting unanimously, in derogation from Article 87,
find an aid to be compatible with the common market if
this is justified by exceptional circumstances. Since
Article 88(2) allows the Council to derogate from the
whole of Article 87, the meaning of the expression
‘exceptional circumstances’ in Article 88(2) must inevit-
ably be wider than the meaning of ‘exceptional occur-
rences’

in Article 87(2)(b).

According to point 11.2 of the Community guidelines
for State aid in the agriculture sector (20), the Commis-
sion has consistently held that the notions of ‘natural
contained in
disaster’
Article 87(2)(b) must be interpreted restrictively because
they constitute exceptions from the general principle of
the incompatibility of State aid with the common
market laid down by Article 87(1) of the Treaty.

and ‘exceptional occurrence’

In its decision to initiate the procedure, the Commission
doubted whether the decision of an economic operator
to discontinue providing a service could fall within the
scope of Article 87(2)(b). According to Ireland, however,
Pandoro's decision was exceptional as it was not based
on normal commercial considerations but was due to
pressure from animal welfare lobbies. The Commission
does not accept this argument. The distinction which
Ireland makes between so-called normal commercial
supposedly non-commercial
considerations and the
motives underlying Pandoro's decision appears artificial.
It
the
is clear from the supporting documents that
carriage of livestock represented only a limited part of
Pandoro's business. That activity was deeply unpopular
the public, notably those
with a certain sector of
concerned with animal welfare issues. For P & O, the
parent company of Pandoro, facing the alternatives as to
whether to continue its livestock service or not, the
possible negative effects of loss of goodwill resulting
from the continued transport of livestock appears to
have constituted a tangible factor
in a cost-benefit
analysis. P & O appears to have considered these effects
to outweigh the economic gains of continuing the
service for livestock.

(83)

The Treaty does not define what constitutes an excep-
tional occurrence within the meaning of Article 87(2)(b),
is any definition to be found in secondary
nor
Community legislation or in the judgments of the Court
of
the Commission does not
consider the comments of Advocate-General Cosmas

Justice. Furthermore,

(85) Moreover,

it does not appear that Pandoro's decision
was taken rapidly, or without prior consultation of those
concerned. Already in August 1994, the P & O group
announced that, for animal welfare reasons,
it would
than for breeding
stop transporting livestock other
purposes on its vessels. This decision was implemented
by the P & O Group as a whole. After Pandoro had
recommenced transporting livestock for fattening and

(19) See recital 34.

(20) OJ C 28, 1.2.2000, p. 2.

L 263/28

EN

Official Journal of the European Communities

18.10.2000

rights

activists

it decided to
breeding from 30 July 1996 onwards,
discontinue the service for the export of livestock for
fattening with effect from 1 December 1996 because of
animal welfare problems on the continent. Following
protests from farming groups it agreed, in March 1997,
to recommence the transport of livestock for fattening
purposes. Protests by animal
and
attempts to block Pandoro's vessels generated negative
publicity. This was further evidenced by demonstrations
and questions at the annual meeting of P & O in London
in May 1997 and these events in turn led to Pandoro's
decision in June 1997. Subsequently, by letter of 24 June
1997, Pandoro advised the Irish Minister for Agriculture
that it had decided that all shipments of livestock for
fattening and slaughter would cease on the 31 July
1997. Given that
regularly stop their
Irish Ferries
seasonal service at the end of September, that meant that
the full
impact of Pandoro's decision was delayed by
three months until October 1997. This timescale was
more than enough to enable alternative charter arrange-
ments to be put in place, through the establishment of
Gaelic Ferries.

(86)

Thus, on the basis of the information available to it, it
appears to the Commission that Pandoro's decision to
discontinue the transport of livestock for fattening must
be considered to constitute a normal commercial
the
decision of an economic operator. Furthermore,
documents made available to the Commission in
connection with this case, and in particular the affidavits
sworn in connection with national court proceedings,
show that similar decisions to discontinue livestock
transport were reached by other economic operators
offering RoRo freight
transport services between the
British Isles, and between the British Isles and conti-
nental Europe.

(89) Whilst the Commission has previously accepted that the
incidence of BSE in the United Kingdom constituted an
exceptional occurrence within the meaning of Article
87(2)(b), which justified the payment of aid to farmers
in that country, it does not consider that this is relevant
Indeed, as the Irish authorities
for the present case.
themselves point out in their letter of 1 October 1997,
the most common route for Irish livestock exports to
the Continent was by direct ferry services from Ireland
to France. Thus it appears that the causal event which
induced the economic damage the Irish authorities set
out to forestall is in principle to be found in Pandoro's
decision. The Commission is therefore of the opinion
that the line of causality between the event and the
actual damage is insufficient.

(90) Moreover, although from the legal point of view the
United Kingdom landbridge route remains open for non-
bovine livestock, in practical terms this route no longer
appears to be an option due to the refusal of ferry
companies providing roll-on roll-off ferry services across
the English channel to carry livestock. Given the absence
of a direct route for the transport of livestock between
Ireland and continental Europe, exports of
livestock
would in any case have come to a halt.

(91)

In those circumstances, the Commission considers it
likely that the Irish authorities would have wished to
maintain direct ferry services for livestock from Ireland
to the Continent, even if the United Kingdom landbridge
route had not been closed to bovine livestock by
Decision 96/239/EC.

(87) Nor can the Commission accept the argument of the
Irish authorities that the selective nature of Pandoro's
withdrawal from the market, from the transport of live-
stock alone, contributed to the existence of an excep-
tional occurrence. This is simply the logical consequence
of the commercial decision taken by Pandoro.

(92)

(88)

The Irish authorities also refer to the effects of Decision
96/239/EC adopted as a result of the BSE crisis, which
prohibits the dispatch from the United Kingdom of live
bovine animals, thereby closing the landbridge route
from Ireland to the continent via the United Kingdom to
Irish cattle.

In its decision to initiate the procedure, the Commission
indicated that the aid in question is of preventive char-
acter and therefore cannot be seen to make good the
damage caused by exceptional occurrences. In reply, the
Irish authorities have contended that such an inter-
pretation is unduly restrictive. On that basis, aid to
purchase sandbags to staunch an anticipated flood does
not come within Article 87(2)(b) but aid to pay for
cleaning up afterwards would be covered. The wording
of the Treaty is nonetheless unambiguous, and appears
to result from the implicit assumption that an excep-
tional occurrence is something which is, by its nature,
unforeseeable. Aid paid in advance to prevent losses
from an adverse event may qualify for exemption from
the prohibition on State aid by virtue of other provisions

18.10.2000

EN

Official Journal of the European Communities

L 263/29

the derogation
of Article 87, but not by virtue of
contained in Article 87(2)(b). In any case, however, in
view of the conclusion that Pandoro's withdrawal from
the transport of livestock did not amount to an excep-
tional occurrence,
it is not necessary to consider this
aspect further.

only after the judgment of the Irish Supreme Court of
18 December 1997,
in an action brought by private
parties, which granted an injunction requiring Pandoro
to resume live animal exports, several months after the
decision to grant the aid had in fact been taken.

(93)

(94)

(95)

(96)

The Irish authorities contend that Pandoro's refusal to
carry livestock amounts to an abuse of a dominant
position within the meaning of Article 82 of the Treaty.
This factor is cited to support the exceptional nature of
the occurrence and to show that the present measure is
justified, possibly even necessary, in accordance with the
judgment of
the European
Communities in Case C-265/95 Commission v France. The
Commission does not accept these arguments.

the Court of

Justice of

The Commission is expressly reserving its position in
this Decision as to whether the conduct of Pandoro
infringed Article 82 of the Treaty. However, even if it
were shown that the conduct of Pandoro in refusing to
carry livestock did infringe Article 82, this would not of
itself be relevant for the purpose of determining whether
that behaviour constitutes an exceptional occurrence
within the meaning of Article 87(2)(b).

Furthermore, the possible abuse of a dominant position
by Pandoro could not be used to support action by a
Member State which was itself contrary to the Treaty.
The judgment of the Court to which the Irish authorities
refer emphasises the duty of Member States to intervene
to put an end to behaviour by natural or legal persons
which results in an infringement of Community law.
However, it does not in any way imply the acceptance of
unlawful behaviour by the Member States themselves.

that

In any case, the Commission doubts that the Article 82
aspects of the matter were a factor in the decision of the
Irish authorities to grant this aid. There is no informa-
tion in the file to suggest
the Irish authorities
considered the institution of legal proceedings in the
Irish Courts to bring about an end to the alleged abuse
of a dominant position by Pandoro, nor is the Commis-
sion aware that any such proceedings were in fact
brought by the Irish authorities themselves. In fact the
possibility of an abuse of a dominant position by
Pandoro was first mentioned by the Irish authorities

(97)

the reasons set out above,

For all
the Commission
considers that the measure does not fall within the scope
of the derogation provided for in Article 87(2)(b) of the
Treaty.

(98) As regards the applicability of the exceptions provided
for in Article 87(3) of the Treaty, it should be noted that
the aid does not fulfil the requirements laid down in the
guidelines on national regional aid (21). Nor has Ireland
claimed that the measure in question would be justifi-
able under Article 87(3)(a) or (c) on the basis of those
guidelines. Manifestly the measure is not intended for
the conservation of culture or heritage, within the
meaning of Article 87(3)(d).

I.6(d) of

Point
the Commission communication of
1988 (22) on the method for the application of Article
92(3)(a) and (c) to regional aid provides that in recogni-
tion of their special difficulties, the Commission may, by
way of derogation, authorise certain operating aid in
these regions under
specific conditions which are
enumerated in sub-points (i) to (v). Sub-point (ii) of these
conditions specifies that the aid should be designed to
promote a durable and balanced development of
economic activity and not give rise to sectoral overca-
pacity at the Community level such that the resulting
Community sectoral problem produced is more serious
in this context, a
that the original regional problem;
sectoral approach is required and in particular
the
Community rules, directives and guidelines applicable to
certain industrial
(steel, shipbuilding, synthetic fibres,
textiles and clothing) and agricultural sectors, and those
concerning the industrial enterprises involving the trans-
formation
be
observed (23). In the agriculture sector, which covers the
production, processing and marketing of Annex I prod-
ucts, it has been constant Commission policy for many
years to prohibit the payment of operating aid in all
regions,
including regions which fall under Article
87(3)(a) of the Treaty. Point 3.5 of the Community
guidelines for State aid in the agriculture sector provide
that unilateral State aid measures which are simply
intended to improve the financial situation of producers
but which in no way contribute to the development of
the sector are considered operating aids incompatible
with the common market. Furthermore, by their very
nature, such aids are likely to interfere with the mecha-
nisms of
the markets,
which take precedence over the competition rules laid
down in the Treaty (24).

the common organisation of

agricultural

products

are

to

of

(21) OJ C 74, 10.3.1998, p. 9.
(22) OJ C 212, 12.8.1988, p. 2.
(23) Judgment of the Court of Justice of 14 January 1997 in Case C-

165/97 — Spain v. Commission [1997] ECR I-0135.

(24) Judgment of the Court of Justice in Case 177/78 Pigs and Bacon

Commission v McCarren [1979] ECR 2161.

L 263/30

EN

Official Journal of the European Communities

18.10.2000

(99) At an earlier stage of the procedure, Ireland suggested
that the aid could be considered compatible with the
common market as a measure to remedy a serious
disturbance in the economy of a Member State within
the meaning of Article 87(3)(b).

(100) The Irish authorities have at no time claimed that the
Irish economy was already seriously disturbed in the
autumn of 1997, before the introduction of the Gaelic
Ferries service. The Commission does not accept that the
interruption of Irish livestock exports during the winter
of 1997 to 1998 would have resulted in a serious
disturbance of the Irish economy. The Commission has
already stated in the initiation of the procedure that to a
certain extent the negative effects on the prices of live-
stock in Ireland would have been cushioned by the
intervention mechanisms provided for in the relevant
common organisation of the market. Furthermore, the
information submitted by the Irish authorities makes
clear only the possible adverse impact of Pandoro's
decision on the agricultural sector and in particular on
cattle farmers. However, the only reference pointing to a
disturbance of the Irish economy in general is that the
Irish authorities contend that the situation ‘would have
resulted in major protests by farming bodies and those
engaged in the live export trade with inevitable disrup-
tion of economic activity generally’. This cannot be seen
as a sufficiently direct and adequate perspective to
conclude that the Irish economy would have been seri-
ously disturbed (25).

(101) The Commission therefore concludes that the measure
from the exemption provided for in

cannot benefit
Article 87(3)(b) of the Treaty.

(102) According to Article 87(3)(c) of the Treaty, aid to facili-
tate the development of certain economic activities may
be considered to be compatible with the common
market provided that such aid does not adversely affect
trading conditions to an extent contrary to the common
interest.

(103)

In the present case, the purpose of the aid was to reduce
the costs to be born by the Irish livestock sector for the
transport of livestock to continental Europe. Since the
transport of goods to export markets is a normal,
everyday commercial activity, aids which are intended to

(25) For Commission practice on the application of Article 87(3)(b), see
for instance Commission Decision 88/167/EEC of 7 October 1987
(OJ L 76 22.3.1988, p. 18). Embracing the applicability of
the
the
that
the Commission had taken into account
provision,
economic situation in Greece had been constantly deteriorating and
that national authorities were confronted with very serious external
payments and pressure on the exchange rate. An economic stabili-
sation and recovery programme was
launched which included
measures
like devaluing the drachma by 15 %. The European
Community reacted by issuing a loan of ECU 1 750 million and
permitted the grant of export subsidies for a limited period of
time. The aid which was approved under Article 92(3)(b) of the EC
Treaty was targeted at avoiding liquidation of companies which
accounted for 20 % of the industrial employment of Greece and a
considerably larger percentage of its industrial output and interna-
tional trade.

cannot be

reduce transport costs must be considered to constitute
operating aids. According to a long-standing body of
case-law, operating aids
considered to
promote the development of any economic sector. They
provide the beneficiaries with artificial financial support
such as to distort competition and to affect trade to an
extent contrary to the common interest (26). They there-
fore cannot benefit from the exemption provided for by
Article 87(3)(c) of the Treaty.

(104) The Commission does not accept the point of view of
the Irish authorities that the aid can nevertheless be
considered to be justified in order to maintain transport
services between Ireland and continental Europe. The
Irish Government certainly had the possibility of inter-
vening to assist in the organisation of the necessary
transport arrangements. It also had the possibility of
assisting in the organisation of the necessary financial
arrangements in a form which did not constitute aid, for
example through the provision of a loan at market rates.
However, the Commission considers that the provision
of a grant of IEP 1 000 000 to subsidise the costs of
transport service for livestock
maintaining a freight
between Ireland and continental Europe during the
winter of 1997 to 1998 constitutes an operating aid
which cannot benefit from the exemption provided for
by Article 87(3)(c) of the Treaty.

VI

CONCLUSION

(105) The Commission considers that the provision of a grant
of IEP 1 000 000 to subsidise the costs of maintaining a
freight transport service for livestock between Ireland
and continental Europe during the winter of 1997 to
1998 constitutes State aid within the meaning of Article
87(1) of the Treaty.

(106) The Commission regrets that Ireland has illegally put
that aid into effect in breach of Article 88(3) of the
Treaty.

(107) For the reasons set out the aids cannot qualify for any of
the exceptions provided for in Article 87(2) and (3).
They are therefore incompatible with the common
market.

(26) See Judgment of

Instance in Case T-459/93
Siemens v Commission [1995] ECR II-1675, paragraphs 48 and 77.

the Court of First

18.10.2000

EN

Official Journal of the European Communities

L 263/31

(108)

In cases such as the present 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, the direct effect of
which has been recognised by the Court of Justice in its
judgments of 19 June 1973 (Case 77/72 Carmine Capo-
longo v Azienda Agricola Maya) (27), 11 December 1973
(Case 120/73 Gebr. Lorenz GmbH v Federal Republic of
Germany (28) and 22 March 1977 (Case 78/76 Steinicke
and Weinlig v Federal Republic of Germany) (29), prevents
any retrospective legalisation of the aid (judgment of 21
November 1991 in Case C-354/90 Fédération nationale du
commerce extérieur des produits alimentaires and others v
France (30)).

the Commission shall decide that

(109) Article 14(1) of Council Regulation (EC) No 659/1999
of 22 March 1999 laying down detailed rules for the
application of Article 93 of the EC Treaty (31) provides
that, where negative decisions are taken in cases of
unlawful aid,
the
Member State concerned shall take all necessary meas-
ures to recover the aid from the beneficiary. Reimburse-
ment is necessary in order to restore the previous situa-
tion by removing all
financial advantages unduly
obtained by the beneficiaries since the date the aid was
granted.
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 avail-
able to the recipients until that of its recovery. The aids
should be repaid in accordance with the procedures of
Irish law. The amounts of these aids shall bear interest
from the date on which the aid was granted to the
moment of its effective recovery. It shall be calculated
on the basis of the market rate, with reference to the
rate used for calculating the grant-equivalent
in the
framework of regional aid.
(110) According to the case-law of

the Court of

Justice
concerning the implementation of negative State aid
decisions with recovery obligation (32), Member States
are, under certain circumstances,
in particular after a
first trial, permitted to invoke the absolute impossibility
of recovering State aid. In view of the special circum-
stances of the present case and the difficulties already
announced by the Irish authorities in this respect, the
Commission invites the Irish Government to detail its
arguments and submit its evidence (i.e. records, statistics,
legal texts) on the alleged impossibility of recovering.

The Commission will examine this evidence and the
respective arguments in the framework of its obligation
of loyal cooperation with the national authorities.

that

(111) The present Decision is without prejudice to any conclu-
regards
sions
financing of
the common agricultural policy by the
European Agricultural Guidance and Guarantee Fund
(EAGGF).

the Commission may draw as

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Ireland has implemented for the transport
of livestock between Ireland and continental Europe amounting
to IEP 1 000 000 is incompatible with the common market.

Article 2

1.
The Irish authorities shall take all the measures necessary
to recover from the recipients the aid referred to in Article 1(2)
and unlawfully made available to them, within two months of
the notification of this Decision.

2.
Recovery shall be effected in accordance with the proced-
ures of Irish law. The sums to be recovered shall bear interest
from the date on which they were made available to the
recipients until their actual recovery. Interest shall be calculated
on the basis of the reference rate used for calculating the
grant-equivalent of regional aid.

Article 3

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

This Decision is addressed to Ireland.

Article 4

Done at Brussels, 13 June 2000.

For the Commission

Franz FISCHLER

Member of the Commission

(27) [1973] ECR 611.
(28) [1973] ECR 1471.
(29) [1977] ECR 595.
(30) [1991] ECR I-5505.
(31) OJ L 83, 27.3.1999, p. 1.
(32) See Case C-280/95, [1998] ECR I-259.