2001/105/EC: Commission Decision of 25 October 2000 concerning the aid scheme introduced by the region of Sardinia (Italy) to promote and add value to organic farming (notified under document number C(2000) 3153)
Date: 2000-10-25
Institutions: European Commission
Subjects: Italy, Sardinia, State aid, control of State aid, infringement of EU law, organic farming

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 25 October 2000

concerning the aid scheme introduced by the region of Sardinia (Italy) to promote and add value to
organic farming

(notified under document number C(2000) 3153)

(Only the Italian text is authentic)

(2001/105/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 above provision,

Whereas:

I. Procedure

(1)

(2)

(3)

(4)

By letter of 3 March 1994, recorded as received on 17
March 1994, the Italian Permanent Representation to
the European Union notified, pursuant to Article 93(3)
(now Article 88(3)) of the Treaty, Sardinian Regional
Law No 9/94 (hereinafter ‘the Regional Laws’)
laying
down rules to promote and add value to organic
farming. The case was entered in the register under Aid
No N 167/94.

By letters of 25 April 1994 and 23 August 1994 the
Commission asked for further information on this Law.
The Italian authorities replied by letters of 14 July and
17 October 1994 and by fax of 14 February 1995.

The information provided by the Italian authorities
showed that the aid provided for in the Regional Law
had already been introduced before that Law was noti-
fied.

Accordingly, the aid covered by the Regional Law, to
which the number N 167/94 had been assigned, was
withdrawn from the register of notified aids and entered

in that of non-notified aids under the number NN 139/
94.

By letter of 27 July 1995, the Commission informed
Italy of its decision to initiate the procedure laid down in
Article 88(2) of the EC Treaty in respect of the aid
provided for in Articles 9 and 12(1) of the Regional
Law.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (1). The Commission invited interested parties to
submit their comments.

The Commission received no comments from interested
parties.

II. Description

Article 9(1) of the Regional Law provides for grants
equal to 60 % of eligible expenditure to be made for
land improvement operations
to organic
farming.

relating

The aid provided for in Article 9(1) also covers organic
processing systems and technologies for agricultural
products.

(5)

(6)

(7)

(8)

(9)

(10) Article 9(2) of the Regional Law provides for loans for
the investments referred to in Article 9(1) at a reduced
interest rate which may be cumulated with the aid
granted under Article 9(1) up to a limit of 75 % of the
eligible expenditure.

(11)

The beneficiaries of the aid provided for in Article 9(1)
and (2) of the Regional Law are agricultural enterprises
which have been assigned the mark provided for by
Article 5 of that Law.

(1) OJ C 294, 9.11.1995, p. 19.

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(12) Article 5 of the Regional Law provides for a collective
regional mark denoting both the origin and the quality
of products to distinguish products obtained using
organic production and processing methods.

case Articles 92 and 93 of the Treaty did not apply since
under Article 35(2) of the above Regulation ‘the provi-
sions of Articles 92, 93 and 94 of the Treaty, with the
exception of Article 92(2), shall not apply to the aid
measures governed by Articles 12(2), (3) and (4)...’).

(13) Article 12(1) of the Regional Law provides for the use of
the financial resources referred to in paragraph 6(6) of
Regional Law No 39/73 for a promotional campaign for
organic products.

(14)

The budgets provided for in the Regional Law are as
follows:

— in the case of the aid referred to in Article 9, part of
an allocation amounting to ITL 1 650 billion
(around EUR 852 000) per year; this allocation is
also to finance the aids provided for in Articles 10
and 11 of the Law, to which the Commission has
not raised any objection,

— in the case of the aid referred to in Article 12(1), part
of an allocation amounting to ITL 410 million
in 1994, and ITL 210
(around EUR 211 750)
million
the
EUR 108 450)
(approximately
following years; this allocation is also to finance the
aid provided for in Articles 2(6)(c), 8 and 12(2) of
the Regional Law, to which the Commission has not
raised any objection.

in

(15)

The Commission initiated the procedure provided for in
Article 88(2) of the Treaty because it had doubts as to
the compatibility of the aid scheme with the common
market. These centred on the following points:

Article 9

(16) Aid was granted under Article 9(1) and (2) for land
improvement operations on the one hand and invest-
ment in the processing of organic products on the other.

(17)

(18)

The aid for
land improvement operations (primary
production sector) fell within the scope of Council Regu-
lation (EEC) No 2328/91 of 15 July 1991 on improving
the efficiency of agricultural structures (1), as amended
by Regulation (EC) No 409/97 (2), and had to be exam-
ined separately on the basis of that Regulation.

Since neither the provisions of Article 9 nor the infor-
mation provided by the Italian authorities confirmed
that agricultural enterprises granted aid under Article 9
had to satisfy the terms of Article 5 of Regulation (EEC)
No 2328/91, this aid could fall within the scope of
either Article 12(1) or (2) of that Regulation. In the
former case it had to be examined under Articles 92 and
93 (now Articles 87 and 88) of the Treaty. (In the latter

(19)

If Article 12(1) of Regulation (EEC) No 2328/91 applied,
it would have to be concluded that the maximum limits
authorised by the Commission for this type of invest-
ment (75 % in less-favoured areas as defined in Directive
75/268/EEC and 35 % in other areas) were only met in
the case of investments in less-favoured areas.

(20) Aid granted under Article 9 in the primary production
therefore be considered compatible
sector could not
with the common market in the case of investments
outside less-favoured areas.

(21) Aid for investment

in processing under Article 9(1)
could qualify under the derogation provided for in
Article 92(3)(c) (now Article 87(3)(c)) of the Treaty, as
concerned
facilitating development of
without adversely affecting trading conditions to an
extent
the
following reasons:

common interest

contrary to the

sectors

the

for

1. Such aid could be considered as satisfying the selec-
tion criteria laid down in point 2 of the Annex to
Commission Decision 90/342/EEC of 7 June 1990
for investments for improving the processing and
marketing conditions for agricultural and forestry
products (3), applicable by analogy in the event of the
application of the competition rules, in view of the
assurances provided by the Italian authorities that
they would observe the sectoral limits laid down in
point 2 of the Annex to Commission Decision 90/
342/EEC;

2. The levels of aid were lower than the maximum
limits generally authorised by the Commission for aid
of this type in Objective 1 regions.

(22) However, only agricultural enterprises assigned the mark
provided for by Article 5 of the Regional Law could be
granted support under Article 9, and the Article 5 mark
was a regional one denoting both the origin and the
organic character of products. The fact that it was addi-
tional to the use of the term ‘organic’ and not a replace-
ment for it in no way affected its link with the products'
origin. This was borne out by Article 5(6) imposing a
penalty if the mark was used for products not obtained
organically or containing or obtained from raw materials
not coming from Sardinia.

(1) OJ L 218, 6.8.1991, p. 1.
(2) OJ L 62, 4.3.1997, p. 4.

(3) OJ L 163, 29.6.1990, p. 71.

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(23) Article 5 of the Regional Law, by according favourable
treatment to regional products, could, given the Court of
Justice's invariable ruling in similar cases, constitute an
infringement of Article 30 (now Article 28) of the Treaty
as being equivalent to quantitative restrictions, without
being justifed under Article 36 (now Article 30). It also
infringed Article 12 of Council Regulation (EEC) No
2092/91 of 24 June 1991 on organic production of
agricultural products and indications referring thereto on
agricultural products and foodstuffs (1), as last amended
by Regulation (EC) No 2020/2000 (2), which stipulates
that ‘Member States may not, on grounds relating to the
method of production, to labelling or to the presenta-
tion of that method, prohibit or restrict the marketing of
products’.

for in Article 92(2) or (3) of the Treaty (now Article
87(2) and (3)) was applicable in this case.

III. Comments by Italy and Commission response

(28)

By letter of 23 January 1996, recorded as received on 31
January 1996, the Italian Permanent Representation to
the European Union forwarded the reply from the Italian
authorities
in its
to the Commission's
decision to initiate the procedure.

comments

(24) Given the above arguments, none of the derogations
provided for in Article 92(2) and (3) (now Article 87(2)
and (3)) were applicable. The aid appeared therefore
liable to distort competition and affect trade between the
Member States.

(29) With regard to the land improvement operations, the
Italian authorities indicated that a distinction would be
made between less-favoured and other areas in terms of
percentages of aid, with 60 % in the case of
less-
favoured areas and 35 % for other areas.

Article 12(1)

(25) On the matter of aid for the promotion of organic
products, the Italian authorities guaranteed compliance
with the criteria in the Framework for national aids for
the advertising of agricultural products and certain prod-
ucts not listed in Annex II to the EC Treaty, excluding
fishery products (3).

(26) However, this affirmation clashed with another state-
ment by the Italian authorities that the promotional
measures would cover the products of certain specific
enterprises (consorzi di cooperative). Point 2.2 of the
Community Framework specifically states
‘the
common interest can in no circumstances be advanced
as a justification for aids for advertising relating directly
to the products of one or more specific firms; these
would be nothing more than operating aids, as such
incompatible with the common market’.

that

(27)

Since the Italian authorities provided no information on
the particulars of the promotional campaign envisaged
the Commission had no grounds for concluding that the
campaign would not be restricted to products for which
the mark introduced by Article 5 of the Regional Law
had been used. Moreover, in the Light of the considera-
tions set out in regard to the provisions applicable to the
mark (see recital 22), none of the derogations provided

(1) OJ L 198, 22.7.1991, p. 1.
(2) OJ L 241, 26.9.2000, p. 39.
(3) OJ C 302, 12.11.1987, p. 6.

(30)

Concerning the regional mark, the Italian authorities
attached a draft Law amending Article 5 of the Regional
Law, replacing the regional mark with the list provided
for in Article 8(3) of Regulation (EEC) No 2092/91. The
draft Law also amends Article 9 of the Regional Law,
replacing the reference to the use of the regional mark
with a reference to entry in the abovementioned list.

(31) With respect

to Article 12(1),

the Italian authorities
repeated that the criteria laid down by the Community
with respect to the advertising of agricultural products
would be complied with, and pointed out that, by aban-
doning the regional mark, they had also removed any
possibility of specific enterprises being accorded favour-
able treatment, since the promotional campaign would
benefit all organic production obtained in accordance
with the provisions of Regulation (EEC) No 2092/91.

(32)

Finally, the Italian authorities stated that the Regional
Law had not been implemented.

(33) Having examined this information,

the Commission
called upon the Italian authorities, by letter dated 22 July
1996 (Reference: 29692), to transmit the definitive text
of the draft Law referred to in point 30. It also drew the
attention of the Italian authorities to the following:

With respect to the aid granted under Article 9(1) and (2) of
the Regional Law,

in the primary production sector

1. The Commission, in its letter of 27 July 1995 (see
recital 5), pointed out that the information on benefi-
ciaries did not permit it to establish whether, in the
case in point, the legal basis for an evaluation had to
be assumed to be Article 12(1) or (2) of Regulation
(EEC) No 2328/91.

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2. It therefore examined the aid under Articles 92 and
93 (now Articles 87 and 88) of the Treaty, assuming
that Article 12(1) applied (in other words, that the
beneficiaries satisfied the conditions laid down in
Articles 5, 6, 7, 8 and 9 of Regulation (EEC) No
2328/91), and concluded that, in this case, the aid
was not compatible with the common market since it
exceeded the maximum authorised limits.

(36)

3. Neither

the information provided by the Italian
Government in its letter of 23 January 1996 (see
recital 28) nor the draft Law amending the Regional
Law provided any new details regarding compliance
with the conditions which had to be met by the
beneficiaries.

4. It was not possible, therefore, to rule out that the aid
in question fell within the scope of Article 12(2) of
Regulation (EEC) No 2328/91, as a result of which it
would have to be reduced to at least one-quarter less
than the aid granted pursuant to Article 7 of that
Regulation.

With respect to the aid granted under Article 9(1) and (2) of
the Regional Law, for the processing of organic products

5. The draft Law notified by the Italian Government
does not contain any reference to the sectoral limits
applicable to the aid for investment in the processing
and marketing of agricultural products; the text of
the new Community guidelines for State aid in
connection with investments in the processing and
marketing of agricultural products, which entered
into force on 1 January 1996 (1), was sent to the
Italian Government by letter dated 20 October 1995.

6. The amended version of the Regional Law should
therefore take account of the new Community guide-
lines.

(34)

The Commission did not receive a reply to its letter of
22 July 1996. It does not therefore have a final version
of the draft Law referred to in point 30.

(35)

By letter dated 23 August 2000, recorded as received on
28 August 2000, the Italian Permanent Representation
to the European Union asked the Commission to take a
final decision on the basis of the information available
to it, in accordance with Article 7(7) of Council Regula-
tion (EC) No 659/1999 of 22 March 1999 laying down
detailed rules for the application of Article 93 of the EC
Treaty (2) (now Article 88).

(1) OJ C 29, 2.2.1996, p. 4.
(2) OJ L 83, 27.3.1999, p. 1.

IV. Assessment

The Italian authorities did not reply to the Commission's
letter of 22 July 1996, but have asked the Commission
to take a decision on the basis of the information avail-
able to it. After the letter was dispatched the Commis-
sion did not receive any new information to resolve the
doubts it had expressed when initiating the procedure
which the draft Law sent by the Italian authorities on 23
January 1996 did not dispel. Article 7(7) of Regulation
(EC) No 659/1999 requires the Commission to take a
negative decision if
the information provided is not
sufficient to establish compatibility. In the case under
consideration, on the basis of the information available
to it, the Commission finds as follows:

1. With regard to the aid provided for in Article 9(1)
and (2) of the Regional Law for the primary produc-
tion sector,
is still not possible to determine
whether the legal basis applicable is Article 12(1) or
(2) of Regulation (EEC) No 2328/91.

it

2. If Article 12(1) applies, which is the scenario the
Commission adopted when examining the aid, the
rate of 60 % provided for in the original Regional
Law could be accepted for less-favoured areas when
the aid is examined under Articles 92 and 93 of the
Treaty (since the maximum level permitted by the
Commission in that case for the investments in
question is 75 %) but would be excessive in the case
of other areas,
for which the maximum rate
accepted by the Commission for the investments
In their letter of 23 January
concerned is 35 %.
1996 the Italian authorities said that they would
reduce the rate of aid in areas outside less-favoured
areas to 35 %. However, the draft amending Law
attached to their letter contains no reference to
these rates. The Commission is unable to determine
therefore whether the adjustment has in fact been
made, particularly as the Italian authorities have not
forwarded the final version of the amending Law.

3. Furthermore, in their letter of 23 January 1996 the
Italian authorities did not provide any information
concerning compliance with Articles 5, 6, 7, 8 and
9 of Regulation (EEC) No 2328/91, which are to be
observed if Article 12(1) is to apply.

4. In view of the foregoing, it is still not possible to
rule out the need for the aid to be examined in the
light of Article 12(2) of Regulation (EEC) No 2328/
91. Even though, under Article 35(2) of that Regu-
lation, Articles 92 and 93 of the Treaty do not
apply to aid measures governed by Article 12(2), it
should be emphasised that, where that Article
applies, the rate of aid must be at least a quarter
lower than aid granted under Article 7 of that Regu-
lation, in other words below the level indicated in
the undertakings given by the Italian authorities.

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5. The Commission is unable, therefore, to establish
the compatibility with the common market of the
aid provided for in Article 9(1) and (2) of
the
Regional Law for the primary production sector,
where Article 12(1) of Regulation (EEC) No 2328/
91 applies, and cannot rule on the aid measures in
this Decision where Article 12(2) applies since
Article 35(2) of that Regulation provides that ‘the
provisions of Articles 92, 93 and 94 of the Treaty,
with the exception of Article 92(2), shall not apply
to the aid measures governed by Articles 12(2), (3)
and (4) …’.

6. On the matter of the aid granted under Article 9(1)
and (2) of
the organic
the Regional Law for
processing of agricultural products, the Commission
expressed doubts concerning its compatibility with
the common market because the aid was reserved
for holdings which had been assigned a mark that
appeared to be in breach of Article 28 of the Treaty
on the grounds that it accorded favourable treat-
ment to regional products only and could, given the
Court of Justice's invariable ruling in similar cases,
constitute an infringement of Article 30 (now
Article 28) of the Treaty as being equivalent to a
restriction, without being justified
quantitative
under Article 36 (now Article 30) (see recitals 22,
23 and 24).

7. The draft Law amending the Regional Law replaced
the mark with the list referred to in Article 8(3) of
Regulation (EEC) No 2092/91 and amended Article
9 of the Regional Law by replacing the reference to
the use of the regional mark with a reference to
entry in the above list.

8. However,

in the absence of a response from the
Italian authorities to the Commission's letter of 22
July 1996, it is not possible to determine whether
the draft amendment to the Regional Law had been
published and what
its final contents are. As a
result, it is not possible either to establish whether
all references to the mark concerned have indeed
been removed from the Regional Law and conse-
quently whether the aid did not continue to be
reserved for holdings producing products obtained
from raw materials coming from Sardinia only (see
recital 22).

authorise Member States to derogate from the
provisions of Community law other than those for
the application of Article 87(1) of the Treaty (1).

10. In addition, regarding the sectoral limits on invest-
ments, the Italian authorities gave assurances that
they would observe the sectoral limits laid down in
Decision 90/342/EEC (see recital 21) but failed to
act on these assurances in the draft amending Law
attached to their letter of 23 January 1996.

11. In view of the above, the Commission is still unable
to establish the compatibility of the aid granted
under Article 9(1) and (2) of the Regional Law for
the organic processing of agricultural products.

12. With regard to the aid for the promotion of organic
the
products granted under Article 12(1) of
Regional Law,
the Italian authorities affirmed in
their letter of 23 January 1996 that the criteria set
by the Community for the promotion of agricul-
tural products would be observed and that with the
the regional mark the possibility of
removal of
to specific enter-
according favourable treatment
prises would disappear,
since the promotional
campaign would benefit all products obtained in
accordance with Regulation (EEC) No 2092/91.

13. However, since the Italian authorities did not reply
to the letter from the Commission of 22 July 1996,
it is not possible to determine whether all references
to the mark have been removed from the Regional
Law and whether, consequently, the promotional
campaign is no longer likely to benefit specific
since the Italian
enterprises only. Furthermore,
the criteria laid
authorities simply repeated that
down by the Community for the promotion of
agricultural products would be observed, without
providing further details in spite of
the doubts
expressed by the Commission in the letter initiating
the procedure, it is not possible to determine the
rate of aid which the promotional campaign would
qualify for and the arrangements for carrying it out.

set out

in recital 36,

(37) Under the procedure for examining the aid, the Member
State is responsible for providing information to address
the doubts expressed by the Commission in its exam-
ination of the aid in question. In this case, in view of the
the Commission
comments
continues to have serious doubts as to whether the aid is
compatible with the common market. If it cannot estab-
lish whether the aid is compatible with the common
market because it does not have anough information to
do so,
the Commission cannot authorise the aid in
question (2), which, because it is not possible to deter-
mine whether it qualifies for one of the derogations in
Article 87 of the Treaty, is likely to distort competition
and affect trade between Member States.

9. As indicated above,

the mark appears to be in
breach of Article 28 of the Treaty. The Commission,
when examining State aids under
the powers
conferred on it by Article 88 of the Treaty, cannot

(1) Judgment of

the Court of First

Instance in Case T-184/97, BP

Chemicals Ltd v Commission of the European Communities.

(2) See Article 7(7) of Regulation (EC) No 659/1999, cited by the
Italian authorities when requesting that the Commission take a final
decision on the basis of the information available.

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(38)

Lastly, in the absence of information, the Commission is
unable to rule out the possibility that the aid has been
granted since the draft Law referred to in recital 30 was
forwarded.

Article 3

Italy shall abolish the aid measures referred to in Articles 1
and 2.

V. Conclusions

Article 4

(39)

In view of the foregoing, the Commission finds that:

1. If Article 12(1) of Regulation (EEC) No 2328/91
applies, the aid for the primary production sector
provided for in Article 9 of Regional Law No 9/94
does not meet the conditions for any of the deroga-
tions provided for in Article 87(2) and (3) of the
Treaty.

2. The aid for the processing sector provided for in
Article 9 of Regional Law No 9/94 and the aid
provided for in Article 12(1) of that Law do not meet
the conditions for any of the derogations provided
for in Article 87(2) and (3) of the Treaty,

HAS ADOPTED THIS DECISION:

Article 1

1.
Italy shall take all measures necessary to recover from the
recipients any aid as referred to in Articles 1 and 2 that may
have been unlawfully granted to them.

2.
Recovery shall be effected without delay and in accord-
ance with the procedures of national law provided that they
allow the immediate and effective execution of this Decision.
The aid to be recovered shall include interest from the date on
which it was granted to the recipient until the date of its
recovery. Interest shall be calculated on the basis of the refer-
ence rate used for calculating the grant equivalent of regional
aid.

Article 5

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

The aid for the primary production sector provided for in
Article 9 of Sardinian Regional Law No 9/94 is incompatible
with the common market where it is granted under Article
12(1) of Regulation (EEC) No 2328/91.

This Decision is addressed to the Italian Republic.

Article 6

Article 2

Done at Brussels, 25 October 2000.

The aid for the processing sector provided for in Article 9 of
Sardinian Regional Law No 9/94 and the aid provided for in
Article 12(1) of that Law are incompatible with the common
market.

For the Commission

Franz FISCHLER

Member of the Commission