2001/86/EC: Commission Decision of 4 October 2000 on the aid scheme implemented by Portugal in favour of the pigfarming sector (notified under document number C(2000) 2755)
Date: 2000-10-04
Institutions: European Commission
Subjects: Portugal, State aid, control of State aid, infringement of EU law, loan, pigmeat

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COMMISSION DECISION

of 4 October 2000

on the aid scheme implemented by Portugal in favour of the pigfarming sector

(notified under document number C(2000) 2755)

(Only the Portuguese text is authentic)

(2001/86/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 regard to Council Regulation (EEC) No 2759/75 of 29
October 1975 on the common organisation of the market in
pigmeat (1), as last amended by Regulation (EC) No 1365/
2000 (2), and in particular Article 21 thereof,

(6)

(7)

The Commission's decision to initiate the procedure was
published in the Official Journal of the European Communi-
interested
ties (5). The Commission called on other
parties to submit their comments on the measures.

By letters of 4 August 1999, recorded as received on 5
August 1999, 23 September 1999, recorded as received
on 28 September 1999, and 22 June 2000, recorded as
received on 26 June 2000, the Portuguese authorities
submitted their observations to the Commission on the
procedure in question.

Having called on interested parties to submit their comments
pursuant to the provision cited above (3) and having regard to
their comments,

(8)

The Commission has received no comments from other
interested parties.

Whereas:

I

PROCEDURE

Following articles in the press, on 8 December 1998 the
Commission sent
the Portuguese authorities a letter
requesting information about a possible aid package in
favour of the pigfarming sector.

By letter of 16 December 1998, recorded as received on
21 December 1998, the Portuguese Permanent Repre-
sentation to the European Union notified the Commis-
sion of the abovementioned aid measures pursuant to
Article 88(3) of the Treaty.

The aid measures notified were adopted by Decree-Law
No 4/99 of 4 January 1999 and published in the Diário
da República (4).

II

DESCRIPTION

(9)

Portuguese Decree-Law No 4/99 is applicable to under-
takings engaged in the closed-cycle production, fattening
and finishing of piglets.

(10) Article 2 of the abovementioned Decree-Law grants a
moratorium on short-term loans taken out by the above
undertakings under Decree-Laws No 145/94 of 24 May
1994 and No 298/98 of 28 October 1998 and reduces
the interest rates applicable. The moratorium provides
for a one-year extension of reimbursement plans for the
loans taken out and will cover both capital and interest
due.

(11) Article 3 of the Decree-Law No 4/99 makes additional
short-term credit lines available to the abovementioned
undertakings at a subsidised rate of interest. The loans
cannot exceed one year in duration.

By letter of 17 March 1999, recorded as received on 18
March 1999, the Portuguese Permanent Representation
to the European Union sent the Commission the addi-
tional
information it had requested by letter of 5
February 1999.

(12)

By letter SG(99)D/4066 of 4 June 1999, the Commis-
sion informed Portugal of its decision to initiate the
procedure laid down in Article 88(2) of the EC Treaty in
respect of the aid measures. The procedure was recorded
under Aid No C 31/99.

(1) OJ L 282, 1.11.1975, p. 1.
(2) OJ L 156, 29.6.2000, p. 5.
(3) OJ C 220, 31.7.1999, p. 19.
(4) Diário da República No 2 (I Series-A), 4.1.1999.

For both measures, the interest-rate subsidy is to amount
to 70 % in general and 100 % for those undertakings
with up to 20 breeding sows. The interest will be calcu-
lated on the basis of the rational reference rate laid
down in Decree-Law No 359/89 of 18 October 1989 (6),
except where that rate is higher than the actual rate
applied by the banks. In the latter case, the interest rate
will be reduced to that actually applied.

(13) When initiating the Article 88(2) procedure,

the
Commission was of the opinion that the measures fell
within the scope of Article 87(1) of the Treaty.

(5) See footnote 3.
(6) Currently 8 %.

(1)

(2)

(3)

(4)

(5)

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(14)

(15)

(16)

(17)

(18)

Portugal has traditionally used subsidised short-term
loans to offset the handicaps facing the farming sector.
Decree-Law No 145/94 of 24 May 1994 refers to the
national aid scheme that was in force until 30 June
1998. That scheme was replaced by the scheme that is
currently in force, approved by Decree-Law No 298/98
of 28 September 1998, in order to adapt the measures
to the new Community guidelines
in the
Commission Communication on State aids: subsidised
short-term loans in agriculture (crédits de gestion) (7).

set out

Both those Decree-Laws were notified to the Commis-
sion pursuant to Article 88(3) of the Treaty and were
approved under the rules on State aid (Aid measures
N 382/94 and N 408/98). By letter No SG(99)D/419 of
21 January 1999, the Commission informed Portugal
that it had decided to raise no objections to the aid
scheme currently in force (Aid N 408/98).

The Commission took the view that the schemes under
consideration, which are supplementary to the aid
schemes approved, did not comply with the conditions
for authorising short-term loans in agriculture. First, the
the loans exceeds one year.
maximum duration of
Secondly, both measures (moratorium and new credit
line) are specific to pigfarmers and are not available to
all operators in the agricultural sector. Thirdly,
the
maximum interest-rate reduction seems to exceed the
difference between the interest rate paid by a typical
agricultural operator and the rate applying in the rest of
the economy of the Member State. Consequently, the
Commission concluded that the Community guidelines
on State aids in the form of short-term loans were not
respected.

Furthermore and following claims that
the existing
scheme for short-term loans (Aid N 408/98) would not
be applicable to pigfarmers, the Commission called on
Portugal
to forward any legislation excluding the
pigfarming sector from such support.

The Commission also took the view that the measures
referred to could not be considered investments as the
rules on investments, currently set out in Council Regu-
lation (EC) No 950/97 of 20 May 1997 on improving
the efficiency of agricultural structures (8) in the case of
primary production and the Guidelines for State aid in
connection with investments in the processing and
marketing of agricultural products (9), pertained solely to
the acquisition of capital goods. Equally, the Commis-
sion considered that the aid measures notified could not
be considered aid to companies in financial difficulties
within the meaning of the Community Guidelines on

(7) OJ C 44, 16.2.1996, p. 2.
(8) OJ L 142, 2.6.1997, p. 1.
(9) OJ C 29, 2.2.1996, p. 4.

(19)

(20)

(21)

(22)

State aid for rescuing and restructuring firms in diffi-
culty (10).

In the absence of any other legal basis suggested by the
Portuguese authorities for the examination and possible
approval of the aid measures, the Commission consid-
ered that the aid must be regarded as operating aid, i.e.
aid intended to relieve pigfarmers of the expenses which
they would normally have to bear themselves in the
daily management of their activities, which is deemed
incompatible in principle with the common market (11).
The Commission also took the view that the measures
constituted an infringement of the relevant common
market organisation.

III

COMMENTS FROM PORTUGAL

The Portuguese authorities submitted their comments by
letters of 4 August and 23 September 1999 and 22 June
2000.

The Portuguese authorities confirm that there are no
national legislative provisions governing the granting of
short-term loans in agriculture other than Decree-Law
No 298/98 of 28 September 1998 (Aid N 408/98).
Consequently, the pigfarming sector is not specifically
excluded from the general scheme for subsidised short-
term loans.

Portugal argues that the measures were taken in view of
the small scale and the difficult financial situation of the
Portuguese pigfarming sector, aggravated by the serious
crisis affecting it. Portugal adds that pigfarmers are seen
as high-risk clients, who can only secure loans at high
interest rates. There was therefore a serious risk of a
large number of bankruptcies in the sector.

(23)

Portugal concludes that the measures should be seen as
exceptional measures to ensure the survival of a whole
production sector.

IV

ASSESSMENT

(24)

In accordance with Article 87(1) of the Treaty, any aid
granted by a Member State or through State resources in
any form whatsoever which distorts or threatens to
distort competition by favouring certain undertakings or
the production of certain goods is, in so far as it affects
incompatible with the
trade between Member States,
common market.

(10) OJ C 283, 19.9.1997, p. 2.
(11) Judgment of the Court of First Instance in Case T-459/93 Siemens v
Commission [1995] ECR II-1675 and the case law cited therein.

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(25) Under Article 21 of Regulation (EEC) No 2759/75,
Articles 87, 88 and 89 of
the Treaty apply to the
production of, and trade in, the products listed in Article
1(1) of that Regulation.

(26)

(27)

The Community produces 22,31 million tonnes of meat
and other products derived from pigfarming and other
intensive livestock production (12). Portugal's production
is 0,54 million tonnes. There is appreciable trade in
these products between Portugal and the rest of the
Community: in 1997 Portugal's imports and exports of
these products totalled 75 900 tonnes and 4 100 tonnes
respectively. The exports were worth EUR 6,0 million
and the imports EUR 160,5 million.

The measures in question are therefore likely to affect
trade in pigmeat products between Member States since
the aid benefits operators in one Member State and not
in the others. The measures have a direct and immediate
effect on the production costs of pigfarms in Portugal.
Consequently, they give these farms an economic advan-
tage denied to farms in other Member States which do
not have access to such aid. They accordingly distort, or
threaten to distort, competition.

(28)

In the light of the foregoing, the measures must be
regarded as State aid within the meaning of Article 87(1)
of the Treaty.

Possible derogations under Article 87 of the Treaty

(29)

There is provision for derogations from the principle of
incompatibility laid down in Article 87(1) of the Treaty.

(30)

(31)

The exceptions to such incompatibility, which are set
out in Article 87(2) of the Treaty, are manifestly not
applicable in this case, however, and were not invoked
by the Portuguese authorities.

The derogations provided for in Article 87(3) of the
Treaty must be interpreted strictly when regional or
sectoral aid programmes or individual instances of the
application of general aid schemes are examined. They
can be granted only where the Commission can establish
that the aid is necessary for the achievement of one of
the objectives concerned. To allow aid not fulfilling that
condition to benefit under such derogations would be to
permit distortion of competition and of trade between
Member States without any justification in terms of the
Community interest and, by the same token, to grant
undue advantages to operators in certain Member States.

(32)

The Commission considers that the aid measures are not
intended to promote the execution of an important
project of common European interest,
to remedy a
serious disturbance of the economy of a Member State
within the meaning of Article 87(3)(b) of the Treaty, or

to promote cultural or heritage conservation within the
meaning of Article 87(3)(d). Consideration must there-
fore be given to whether the application of the measures
provided for may qualify for a derogation under Article
87(3)(a) or (c) of the Treaty.

Article 87(3)(c)

(33)

In accordance with Article 87(3)(c), aid may be regarded
as compatible with the common market if it is intended
to facilitate the development of certain economic activi-
ties or of certain economic areas and does not adversely
affect trading conditions to an extent contrary to the
common interest.

(34)

Both measures (moratorium and new credit line) can be
considered short-term loans in agriculture, to which the
relevant Community Guidelines must be applied (13).
Those Guidelines state that:

— subsidised loans must have a maximum duration of

one year,

— subsidised loans should not be used to aid specific
sectors or operators in agriculture selectively on
grounds not solely related to difficulties in access to
such loans,

— the maximum aid element involved in the loans may
not exceed the difference between the interest rate
paid by a typical agricultural operator and the
interest rate paid in the rest of the economy of the
Member State concerned for short-term loans of a
similar amount per operator, not
linked with
investments.

(35) When initiating the Article 88(2) procedure in respect of
the aid measures, the Commission concluded that none
of those conditions was fulfilled in the case in point. The
Commission notes that Portugal did not contest the
Commission's assessment at the time the Article 88(2)
procedure was initiated.

(36)

First, the maximum duration of the loans exceeds one
year. Decree-Laws No 145/94 and No 298/98 both lay
down one year for the maximum duration of the short-
term loans. The one-year moratorium granted to pigfar-
mers under the draft Decree-Law under examination has
the
the practical effect of extending by one year
the
taken out under
loans
maximum duration of
previous legislative provisions. The maximum duration
of short-term loans would accordingly be two years for
pigfarmers.

(12) Source: Eurostat 1997.

(13) See footnote 7.

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(37)

(38)

(39)

(40)

that

the market crisis

Secondly, both measures (moratorium and new credit
line) are specifically for pigfarmers and are not available
to all operators in the agricultural sector. Portugal
argues,
in very general terms, that owing to the pig
market crisis, pigfarmers are seen as high-risk clients by
the banks and pay higher rates of interest on loans. The
Commission accepts
in the
pigfarming sector in late 1998 may have put Portuguese
pigfarmers in a difficult financial situation that may have
had an impact on their borrowing capacity. However,
subsidised short-term loans are aimed at bridging
existing structural shortcomings in access to credit and
not at coping with a one-off market crisis. Portugal has
failed to demonstrate that the pigfarming sector suffers
from an inherent permanent handicap in access to credit
as compared with other agricultural sectors such as to
justify higher support levels in short-term loans.

Thirdly, the aid element involved in the reduced interest
rates is not limited to the difference between the interest
rate paid by a typical agricultural operator and that paid
the Member State
in the rest of
concerned.
in the worst-case scenario the
interest-rate subsidy may rise to 100 %.

the economy of

Indeed,

The Commission maintains that
the measures under
examination do not fall within the definition of invest-
ment support and that they only cover the acquisition,
construction or reconstruction of immovable property
or the acquisition of machinery.

financial

In their comments the Portuguese authorities argue that
this was an emergency measure to tackle the pigfarmers'
difficult
situation and to forestall a large
number of bankruptcies in the sector. Consequently, the
Commission should assess to what extent the conditions
of the Community Guidelines on State aid for rescuing
and restructuring firms in difficulty (14) are fulfilled.
According to point 101 of
the
Commission is to examine the compatibility with the
common market of any aid granted without its author-
isation on the basis of the Guidelines in force at the time
the aid is granted. At
the time of adoption of
Decree-Law No 4/99 of 4 January 1999, the guidelines
in force were the 1997 Community Guidelines on State
aid for rescuing and restructuring firms in difficulty (15).
Consequently, the Commission should assess the aid
measures in the light of those Guidelines.

those Guidelines,

order to qualify they need not be recognised first as
being in a difficult situation on the basis of objective
accounting and financial data.

(42)

to point 2.1 of

Pursuant
the applicable Community
guidelines, rescue aid enables firms facing a substantial
deterioration in their financial position, reflected in an
acute liquidity crisis or technical insolvency, to maintain
the
their position temporarily while an analysis of
circumstances of the company's difficulties is performed
and a suitable plan devised to remedy the situation. In
other words, rescue aid provides a brief respite, generally
for not more than six months, from a firm's financial
problems, while a long-term solution is being worked
out. Restructuring, on the other hand, should be based
on a feasible, coherent and far-reaching plan to restore
the firm's long-term viability.

(43)

In order to be approved by the Commission, rescue aid
must:

— consist of liquidity help in the form of loan guaran-
interest rates,

tees or loans at normal commercial

— be restricted to the amount needed to keep a firm in
business (for example, covering wage and salary
costs and routine supplies),

— be paid only for the time needed (generally not
exceeding six months) to devise the necessary and
feasible recovery plan,

— be warranted on the grounds of serious social diffi-
culties and have no undue adverse effects on the
industrial and agricultural sectors in other Member
States,

— in principle involve a one-off operation.

(44)

The Commission considers that the case under exam-
ination fails to meet at least the conditions set out in the
first and third indents above. The moratorium and the
new loans are granted at rates below the market rates
and both the moratorium and the new short-term credit
line, the term of which is one year, exceed the limit of
six months laid down. Moreover, the aid is not granted
subject to any time limit for assessing the prospects of
the individual pigfarmers in terms of viability. Conse-
quently, the measures cannot be considered rescue aid
within the meaning of
relevant Community
guidelines.

the

(41) With regard to the definition of companies ‘in difficulty’,
the Commission accepts that Portuguese pigfarmers (like
all other EC pigfarmers) were affected by a major market
crisis in late 1998. However, all pigfarmers may, without
exception, benefit under the measures notified and in

(14) OJ C 288, 9.10.1999, p. 2.
(15) See footnote 10.

(45)

Equally, the measures cannot be considered restructuring
aid. Access to the scheme does not depend on the
presentation and implementation of a feasible, coherent
and far-reaching restructuring plan to restore the firm's
long term viability. Consequently, there is no need to
assess
required to evaluate
restructuring schemes.

the specific conditions

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(46)

(47)

Since no other legal basis has been put forward by the
Portuguese authorities for the examination and possible
approval of the aid measures, the aid must be considered
operating aid, i.e. aid intended to relieve pigfarmers of
the expenses which they would normally have to bear
themselves in the daily management of their activities. In
principle, operating aid is deemed incompatible with the
common market because it does not contribute to the
development of economic activities in accordance with
Article 87(3)(c) of the Treaty. Having regard to the prin-
ciples laid down in the case law referred to in point 19,
the Commission is therefore bound to conclude that the
measures under consideration cannot qualify under the
derogation provided for in Article 87(3)(c) of the Treaty.

Article 87(3)(a)

The applicability of Article 87(3)(a) has not been
invoked explicitly by the Portuguese authorities. Indeed,
Portugal introduced these schemes as sectoral aid. More-
over, in the agriculture sector, which covers the produc-
tion, processing and marketing of Annex I products, it
has been constant Commission policy for many years to
prohibit the payment of operating aid in all regions,
including those which fall within the scope of Article
87(3)(a) of the Treaty. By its very nature, such aid is
likely to interfere with the mechanisms of the common
organisation of the markets, which take precedence over
the competition rules laid down in the Treaty in accord-
ance with Community case law, and in particular the
judgment of the Court of Justice in Case 177/78 Pigs and
Bacon Commission v McCarren (16). The Court of Justice
has consistently held,
in particular in its judgment in
Case 35/88 KYDEP (17) that Member States are barred
from adopting national measures which are liable to
undermine the machinery of price formation established
by a common market organisation. Given the prece-
dence of the common agricultural policy over the rules
on competition laid down in the Treaty (Article 36 of
the Treaty), national measures hampering the common
organisation of an agricultural market may in no case be
approved under a State aid scheme on the grounds that
a derogation applies. This policy has been confirmed
many times (18), and was recently incorporated in the
Community Guidelines for State aid in the agriculture
sector (19).

(48)

it must be concluded that the
In view of the above,
provisions notified constitute State aid within the

(16) [1979] ECR 2161.
(17) [1990] ECR I-3125.
(18) 20th Report on Competition Policy, 1990, points 337 and 347;
21st Report on Competition Policy, 1991, points 316 and 317;
22nd Report on Competition Policy, 1992, points 503 and 504;
23rd Report on Competition Policy, 1993, points 547 and 548;
25th Report on Competition Policy, 1995, pp. 238 to 240; 26th
Report on Competition Policy, 1996, pp. 251 to 255.

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

meaning of Article 87(1), which cannot qualify for any
of the exceptions provided for in Article 87(2) or (3).

V

CONCLUSIONS

(49)

(50)

The Commission considers that the aid measures imple-
mented by Portugal constitute State aid within the
meaning of Article 87(1) of the Treaty. The Commission
regrets that Portugal has infringed Article 88(3) of the
Treaty by unlawfully implementing the abovementioned
aid measures.

For the reasons set out above, aid falling within the
scope of Article 87(1) of the Treaty cannot qualify under
any of the exemptions provided for in Article 87(2) or
(3). The aid measures under consideration are therefore
incompatible with the common market.

(51) Where non-notified aid is introduced without awaiting
the Commission's final decision, as is the case of the
measures under consideration, the binding nature of the
procedural rules set out in Article 88(3) of the Treaty,
the direct effect of which was recognised by the Court of
Justice in its judgments in Case 77/72 Carmine Capolongo
v Azienda Agricola Maya (20), Case 120/73 Gebr. Lorenz
GmbH v Federal Republic of Germany (21) and Case 78/76
Steinicke und Weinlig v Federal Republic of Germany (22),
prevents any retrospective legalisation of the aid (judg-
ment in Case C-354/90 Fédération nationale du commerce
extérieur des produits alimentaires and others v France (23)).

(52) Article 14(1) of Council Regulation (EC) No 659/1999
of 22 March 1999 laying down detailed rules for the
application of Article 88 of the EC Treaty (24) provides
that when a negative decision is taken in a case of
unlawful aid the Commission is to decide that
the
Member State concerned is to take all necessary action
to recover the aid from the recipients. 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.

(53) 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.

(20) [1973] ECR 611.
(21) [1973] ECR 1471.
(22) [1977] ECR 595.
(23) [1991] ECR I-5505.
(24) OJ L 83, 27.3.1999, p. 1.

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(54)

(55)

The aid should be repaid in accordance with the proced-
ures of Portuguese law. The aid is to bear interest from
the date on which it was granted to the date on which it
is actually recovered. It is to be calculated on the basis of
the market rate, by reference to the rate used for calcu-
lating the grant-equivalent of regional aid (25).

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

HAS ADOPTED THIS DECISION:

Article 1

The State aid that Portugal has granted in favour of
the
pigfarming sector under Decree-Law No 4/99 of 4 January
1999 in the form of a moratorium on short-term loan agree-
ments and a new short-term credit line are incompatible with
the common market.

Article 2

1. Within two months of notification of this Decision the
take all measures necessary to
Portuguese authorities shall

recover from the beneficiaries the aid referred to in Article 1
and unlawfully made available to them.

2.
The aid shall be recovered in accordance with the proced-
ures of Portuguese law. The sums to be recovered shall include
interest payable from the date on which they were made
available to the beneficiaries 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

Within two months of notification of this Decision Portugal
shall inform the Commission of the measures it has taken to
comply with it.

This Decision is addressed to the Portuguese Republic.

Article 4

Done at Brussels, 4 October 2000.

For the Commission

Franz FISCHLER

Member of the Commission

(25) OJ C 74, 10.3.1998, p. 9.