2002/195/EC: Commission Decision of 17 October 2001 on the aid scheme which Italy intends to implement for the production, processing and marketing of products listed in Annex I to the Treaty (Law 81 of the region of Sicily of 7 November 1995) (notified under document number C(2001) 3060)
Date: 2001-10-17
Institutions: European Commission
Subjects: Italy, agricultural product, agro-industry, aid system, marketing, production aid

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COMMISSION

COMMISSION DECISION

of 17 October 2001

on the aid scheme which Italy intends to implement for the production, processing and marketing
of products listed in Annex I to the Treaty (Law 81 of the region of Sicily of 7 November 1995)

(notified under document number C(2001) 3060)

(Only the Italian text is authentic)

(2002/195/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 (EC) No 1493/1999 of 17 May 1999 on the common organisation of
the market in wine (1),

Having called on interested parties to submit their comments pursuant to the provision cited above,

Whereas:

I. PROCEDURE

(1)

By letter dated 6 December 1995, the Italian authorities notified the Commission under Article 88(3)
of the Treaty, of Regional Law No 81 of the region of Sicily of 7 November 1995 laying down
financial provisions for 1995 (hereinafter called ‘Law No 81/1995’), relating to the production,
processing and marketing of products listed in Annex I to the Treaty. By letter dated 2 May 1996,
those authorities notified Regional Law No 18 of 6 April 1996 (hereinafter called ‘Law No 18/1996’)
‘on measures to assist entrepreneurs and young people's cooperatives. Fund for agricultural mecha-
nisation (ESA). Amendments to the rules. Extension’, which amends Article 10 of Regional Law No
81/1995.

(2)

The aid measures provided for in Law No 81/1995, application of which has been suspended
pending a Commission decision under Article 87 of the Treaty, were entered by the Secretariat-
General of the Commission in the register of aid measures notified under numbers:

N 408/B/96: production, processing and marketing of products listed in Annex I to the Treaty, and

N 408/A/96: other sectors.

(1) OJ L 179, 14.7.1999, p. 1. See recital 36 of this Decision. The Regulation repeals Council Regulation (EEC) No
822/87 of 16 March 1987 on the common organisation of market in wine, which repealed Council Regulation (EEC)
No 337/79 of 5 February 1979 on the common organisation of the market in wine, as amended by Council Regula-
tion (EC) No 454/80.

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(3)

(4)

(5)

(6)

(7)

(8)

(9)

The Commission examined and authorised under Articles 87 and 88 of the Treaty (by letter SG(97)
D/07189 of 20 August 1997) aid N 408/A/96, concerning the aid measures contained in Law No
81/1995, if and in so far as those measures applied to sectors other than agriculture, fisheries and
aquaculture. Application of the said measures in agriculture, fisheries and aquaculture was examined
by the Commission in the context of aid N 408/B/96.

This Decision does not concern aid N 408/A/96.

Additional information was transmitted by letters No 5657 of 9 August 1996, No 7382 of 30
October 1996, No 7694 of 13 November 1996 and No 2694 of 12 April 1996. On the basis of the
information supplied by the Italian authorities, it is clear that Articles 4 and 9 of Law No 81/1995
apply to agriculture, fisheries and aquaculture, while the authorities did not provide an exhaustive
answer to the Commission's questions about the field of application of Article 8, and in particular
whether it applied to the production, processing and marketing of products listed in Annex I to the
Treaty.

By letter dated 23 January 1997, the Commission informed Italy that it had decided to initiate the
procedure laid down in Article 88(2) of the Treaty in respect of the aid.

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

The Italian authorities submitted comments by letters Nos 3155 and 3899, dated 8 May 1997 and
12 June 1997, respectively. The Commission received no comments from other interested parties.

By letter No 9365 of 23 July 2001, recorded as received on 28 August 2001, the Italian authorities
requested that Article 7(7) of Council Regulation (EC) No 659/1999 laying down detailed rules for
the application of Article 93 of the EC Treaty (3) be applied for Article 4 of Law No 81/1995, and
that the Commission therefore take a decision within two months from the date of receipt of the
request.

This Decision concerns only the applicability of the aid measures in the sectors covered by Annex I
to the Treaty (namely agriculture, meaning the primary production, processing and marketing of
agricultural, fishery and aquaculture products).

II. DESCRIPTION

(10)

The measures covered by this Decision are solely those provided for in Articles 4, 8 and 9 of
Regional Law No 81/1995, described below in so far as they apply to the products listed in Annex I
to the Treaty (agricultural and fishery products). In so far as the aid measures provided for by Law
No 81/1995 apply to sectors other than agriculture, fisheries and aquaculture, they were examined
and approved by the Commission, within the meaning of Articles 87 and 88 of the EC Treaty, by
letter SG(97) D/07189 of 20 August 1997.

(11) Article 4 of Regional Law No 81/1995. Under this Article, the regional Assessore for agriculture is
authorised ‘to grant the aids provided for in Article 78 of Regional Law No 25/1993 to winegrowers
who, having acquired a replanting right by virtue of Regulation (EEC) No 454/80 (4) and having
suffered losses as a result of the drought in 1988 to 1990, submitted an application for the aid
provided for in Regulation (EEC) No 1442/88 (5), on the same conditions’. For the purposes of this
Article, ITL 2 000 million (approximately EUR 1 million) was earmarked for 1995.

(2) OJ C 88, 19.3.1997, p. 17.
(3) OJ L 83, 27.3.1999, p. 1.
(4) See recital 36 of this Decision.
(5) See recital 36 of this Decision.

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In order to qualify for the aid concerned, winegrowing holdings must meet all three of the
conditions laid down in that Article,

in other words:

(i) they must have replanting rights within the meaning of Regulation (EEC) No 454/80 (6);

(ii) they must have been unable to use those rights because of the drought during 1988 to 1990;

(iii) they must have applied for the premium provided for in Regulation (EEC) No 1442/88 for the

permanent abandonment of winegrowing areas.

These beneficiaries can obtain the contributions provided for in Article 78 of Regional Law No
25/93, which stipulates that winegrowing holdings which have applied to grub up and replant and
which suffered losses as a result of the drought in 1988 to 1990 qualify for the aid provided for in
Regulation (EEC) No 1442/88.

In substance, the aid is intended to compensate the winegrowers concerned for the fact that they
were unable, because of the drought, to use replanting rights which expired during the years of the
drought, by instead granting them premiums for the permanent abandonment of wine-growing
areas.

(12) With regard to Article 4, in its letter dated 23 January 1997 initiating the procedure, the Commis-

sion set out the arguments reproduced in full

in recitals 13 to 16 below.

(13)

Regulation (EEC) No 1442/88 (7) on the granting, for the 1988/89 to 1997/98 wine years, of
permanent abandonment premiums in respect of winegrowing areas (8) provides for the grant of aid
(financed by the EAGGF Guarantee Section) to wine growers who permanently abandon production
in accordance with the conditions laid down in the Regulation. The amount of the premium varies
(see the third recital of the Regulation) according to the productivity of the areas concerned, and is
designed to cover the cost of the grubbing-up operations, the loss of replanting rights and the loss of
future income. It is clear that the first condition to be met is that the vineyard must be grubbed up
(Article 4(2) of the Regulation: ‘The grant of the premium shall be subject to a written declaration in
which the applicant undertakes to grub up the vines on the areas in respect of which the premium
has been applied for or to have them grubbed up’; Article 6:
‘The amount of the permanent
abandonment premium shall be paid [...] provided the applicant has furnished proof that grubbing
up has in fact taken place’). In the case of the aid in question, it would seem that the aim of the
regional authorities is not to encourage the permanent abandonment of areas currently under vines
(the objective of Regulation (EEC) No 1442/88) but rather to compensate wine growers for not using
a replanting right. The Sicilian legislation provides for aid of the same type as that referred to in
Regulation (EEC) No 1442/88 (the purpose of which is to encourage the grubbing up of vineyards,
the amount being calculated on the basis of the estimated loss incurred from such an operation) as a
response to an operative event bearing no resemblance to the event giving rise to the aid part-
financed by the Community. Having regard to the rules for calculating the aid referred to in the
Community Regulation and the different nature of the events giving rise to aid in the case of
Regulation (EEC) No 1442/88, on the one hand, and the Regional Law in question, on the other, the
latter would undoubtedly lead to over-compensation of the cost borne by the beneficiaries.

(14)

In the light of the foregoing, it is not possible to support the view that the Sicilian provision has a
‘similar’ objective to that of the Community scheme within the meaning of Article 19 of the
Regulation in question:
‘This Regulation shall not impede the granting of aid provided for by
national rules designed to achieve objectives similar to those sought by this Regulation. The granting
of such aid […] shall be subject to review on the basis of Articles 92, 93 and 94 of the Treaty’. The
above considerations apply where the replanting rights under consideration are valid.

(6) The wording of Article 4 of the Regional Law contains inexact legal references: among the conditions laid down in
that Article is possession of replanting rights acquired within the meaning of Regulation (EEC) No 454/80. At the
time the Law was published, the provisions inserted by Regulation (EEC) No 454/80 in Regulation (EEC) No 337/79
had not been in force since 1 April 1987 (the date of entry into force of Regulation (EC) No 822/87 on the
common organisation of the market in wine). In fact, the replanting rights had been acquired under Regulation (EEC)
No 337/79.

(7) See recital 36 of this Decision.
(8) OJ L 132, 28.5.1998, p. 3. The period of validity of the Regulation was extended until the 1997/98 wine year by

Regulation (EC) No 1595/96 (OJ L 206, 16.8.1996, p. 36).

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(15)

(16)

In the case in point, the replanting rights referred to in the regional provision in question (acquired
under Regulation (EEC) No 337/79) are not even valid (since their period of validity was set at eight
years by the previous common market organisation, so the ‘last’ replanting right acquired on the
basis of that legislation expired at the latest eight years after 31 March 1987). In substance it seems
that the regional aid in question is designed to grant the aid provided for in Regulation (EEC) No
1442/88 (for farmers who grub up their vineyards) to Sicilian wine growers who had acquired
replanting rights pursuant to Regulation (EEC) No 337/79 and who, by reason of the weather in
1988 to 1990, were unable to exercise those rights. It would thus be a matter of retrospectively
compensating them for the ‘loss’ of replanting rights which are no longer usable.

Consequently, if in the case of a valid replanting right the grant of a Regulation (EEC) No 1442/88
type aid would have the effect of overcompensating for the cost to the winegrower, where a
replanting right did not legally exist, the aid would simply be ‘free’ in the sense that it did not
compensate for anything and would have to be regarded as an operating aid which was fundamen-
tally incompatible with the common market. The aid in question relates to a sector covered, even as
regards abandonment of production, by provisions deriving from the common organisation of the
market. These provisions, according to the consistent case law of the Court of Justice, are complete
and exhaustive in nature and prevent the Member States from adopting measures which might
jeopardise them. In the light of the foregoing, the regional aid in question would appear to constitute
an infringement of the Community provisions on the common organisation of the market in wine
(Regulation (EEC) No 822/87); it would not therefore qualify for any of the exemptions provided for
in Article 87(2) and (3) (ex Article 92(2) and (3)) of the Treaty.

(17) Article 8 of Regional Law No 81/1995 provides for an ITL 10 000 million increase in the working
capital of the CRIAS (Cassa regionale per il credito alle imprese artigiane) to be used to grant
subsidised short-term loans to craft undertakings.

(18)

In its letter of 23 January 1997 initiating the procedure, the Commission based its arguments on the
detailed considerations set out in recitals 19 and 20 below.

(19)

It is not possible to rule out the possibility that craft undertakings engaged in producing, processing
and marketing products listed in Annex I to the Treaty fall within the scope of this Article. By letter
No 23927 of 17 June 1996, the Commission asked the Italian authorities to specify what sectors of
activity were covered by the definition of craft undertaking and, in particular, whether it included the
production, processing and marketing of agricultural products. In their reply No 7382 of 30 October
1996, the Italian authorities admitted that, while agricultural holdings producing agricultural prod-
ucts did not qualify for such loans,
in the region concerned the term craft undertaking had
sometimes been interpreted in ad hoc legislative texts in such a way as to include some processing
and marketing activities (for investments in the dairy sector, for instance), and that it was therefore
necessary to refer to national Law No 443 of 8 August 1985 (framework law on craft activities) to
interpret the scope of the Article concerned. That national Law excludes agricultural undertakings
engaged in production from the definition of craft undertakings. In the light of the foregoing, it is
not possible to rule out that the subsidised short-term loans granted by the CRIAS also relate to craft
undertakings engaged in processing and/or marketing agricultural products. This measure, being a
new aid scheme remaining in force after 1 January 1996 (9), should be assessed under the guidelines
on national aids in the form of subsidised short-term loans (10), but in the absence of any further
information, these measures cannot usefully be assessed in the light of those guidelines. Conse-
quently, the Commission decided to initiate the procedure laid down in Article 88(2) (ex Article
93(2)) of the Treaty in respect of the aid provided for in Article 8 of Regional Law No 81/1995, in
so far as it is applicable to the production and/or processing and/or marketing of products listed in
Annex I to the Treaty (i.e. to the extent that the exclusion of the ‘agricultural sector’ from its scope
does not cover all these activities).

(9) This is the date set by the Commission for the application of the new set of rules on national aids in the form of
subsidised short-term loans to aid which is not ‘existing’ within the meaning of Article 88 (ex 93(1)) of the Treaty.

(10) OJ C 44, 16.2.1996.

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(20) Article 9 of Regional Law No 81/1995. Article 9 of Regional Law No 81/1995 authorises the
expenditure referred to in heading 05 of the Regional Ministry for Cooperation and increases
regional budget heading No 75826 by ITL 3 000 million. The Italian authorities specified that the
expenditure referred to in Article 9 of Regional Law No 81/1995 is for the refinancing of aid
provided for in Regional Law No 26 of 27 May 1987, examined under Cases C-3/87 (approved by
decision of 21 October 1987) and C-45/87 (approved by Decision SG(88) D/12824 of 8 November
1988). Law No 26 of 27 May 1987 was extended and some of its provisions amended by Regional
Law No 25/90, which was examined and approved by the Commission in aid Case NN 27/92
(decision SG(92) D/15059 of 3 November 1992).

(21)

The Commission decided to initiate the procedure provided for in Article 88(2) on the basis of the
considerations set out in recital 22.

(22)

(23)

(24)

(25)

(26)

(27)

The various laws listed above, which implement aid in the fisheries sector, were examined in the
light of the guidelines for the assessment of State aids in the fisheries sector (11) which referred to
compliance with the conditions set out in Council Regulation (EEC) No 4028/86 on Community
measures to improve and adapt structures in the fisheries and aquaculture sector (12). The Commis-
sion does not have sufficient information at its disposal to assess whether the aid granted in the
fisheries sector under Regional Law No 81/1995 is compatible with the rules in force at the time of
notification, i.e. the guidelines for the examination of State aids to fisheries and aquaculture (13),
which refer to compliance with the conditions set out in Council Regulation (EC) No 3699/93 of 21
December 1993 laying down the criteria and arrangements regarding Community structural assis-
tance in the fisheries and aquaculture sector and the processing and marketing of its products (14).

III. COMMENTS FROM ITALY

By letters No 3155 of 8 May 1997 and No 3899 of 12 June 1997, the Italian authorities commented
only on Articles 4 and 8 of Law No 81/1995. Regarding Article 4 in particular, they pointed out the
following facts.

The winegrowers in question were unable to use replanting rights already acquired because those
rights expired during the years in which the drought occurred. Under the arrangements provided for
in Law No 25/93 it would be possible to compensate farmers for the loss of an acquired replanting
right and for lack of future income,
in consideration of the fact that the objective sought by
Regulation (EEC) No 1442/88 (15), namely reduction of winegrowing potential, was achieved in any
event, albeit for reasons independent of the will of the farmer.

The winegrowers really did grub up their vineyards, and bore the grubbing costs, but received no
State assistance. The authorities are therefore proposing to calculate the aid using the production
average of the five wine years preceding the grubbing operation to grant the level provided for in
Regulation (EEC) No 1442/88, paying the premium at the ECU value of the reference wine year.

The Regional Law stipulates that the premium may be paid only where a replanting right existed
which was valid during the five wine years following the grubbing operations, and provided no
grubbing premiums were paid.

Regarding Article 8 in particular, the Italian authorities specified that the working capital and the
available funds, abolished by that same Article, were paid into a single, separately-managed fund,
with a view to providing assistance to craft undertakings as provided for in Article 64 of Regional
Law No 6/97. At the time the ITL 10 billion (approximately EUR 5 million) referred to in Article 8
were transferred, the competent regional Assessorato had advised the transfer but recommended that
the CRIAS should not permit craft undertakings engaged in producing, processing or marketing
agricultural products to qualify for the aid.

(11) OJ C 269, 19.10.1985.
(12) OJ L 376, 31.12.1986, p. 7.
(13) OJ C 260, 17.9.1994, p. 3.
(14) OJ L 346, 31.12.1993, p. 1. Consolidated version in Regulation (EC) No 2468/98 (OJ L 312, 20.11.1998).
(15) See recital 36 of this Decision.

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(28)

The Italian authorities have submitted no comments regarding Article 9 of Law No 81/1995.

IV. ASSESSMENT OF THE AID

(a) Article 4 of Law No 81/1995

(29) Article 4 of Law No 81/1995 provides for aid to winegrowers who, having acquired replanting rights
under Regulation (EEC) No 454/80/EEC (16) and suffered damage as a result of the drought of 1988
to 1990, applied for the aid provided for in Regulation (EEC) No 1442/88 (17), on the same
conditions.

(30) Article 87(1) of the Treaty stipulates that 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 shall, in so far as it affects trade between
Member States, be incompatible with the common market. The Commission considers that in the
case in point the conditions are met for applying Article 87(1) in respect of all the measures
concerned. Article 71 of Council Regulation (EC) No 1493/1999 stipulates that Articles 87, 88 and
89 of the Treaty apply to production of and trade in the products covered by it.

(31) Article 4 of the Law under examination provides for aid intended to compensate winegrowers for
damage suffered because they were unable to use a replanting right acquired under Regulation (EEC)
No 337/79, provided they had applied for the aid provided in Regulation (EEC) No 1442/88 for
permanent abandonment. The winegrowers receiving this State aid enjoy economic advantages
which they would not otherwise enjoy in the normal course of their business and they thereby
improve their competitive position in relation to other farmers in the Community who do not
receive the same aid.

(32)

(33)

This aid affects competition and trade between Member States. The beneficiaries carry out an
economic activity in a sector which is the subject of trade between the Member States, namely the
wine sector. In 1995, intra-Community trade in the wine sector amounted to 31 346 000 hl and
152 848 000 hl was produced in the Community of 12, including 58 776 000 hl by Italy (i.e. 38 %
of total production in the Community of 12). In addition, Italy accounted for 34,1 % of world trade
in the wine sector. Sicily is a wine-producing region;
in 1995 it accounted for 18 % of wine
production in Italy (on approximately 164 000 ha). The measure in question is therefore a State aid
within the meaning of Article 87(1) of the Treaty.

The prohibition on granting State aid is not unconditional. In this case, the exceptions provided for
in Article 87(2) of the Treaty clearly do not apply and the Italian authorities did not even invoke
them. According to the information available, the drought cannot be considered an exceptional
occurrence within the meaning of Article 87(2)(b). Given the nature of the notified scheme, the only
exemption which could be applied is that provided for in Article 87(3). It is therefore necessary to
ascertain whether application of the proposed measures can benefit from this exemption.

(34) Article 4 of Law No 81/1995 provides for the grant of aid to winegrowers who, having acquired
replanting rights under Regulation (EEC) No 454/80 but been unable to use them because of the
drought in 1988 to 1990, applied for the aid provided for by Regulation (EEC) No 1442/88. The
rights to which the Italian authorities refer, and which constitute the prerequisite for the grant of aid,
were acquired under Regulation (EEC) No 337/79 on the common organisation of the market in
wine.

(16) See recital 36 of this Decision.
(17) See recital 36 of this Decision.

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(35)

Since the Italian authorities correctly informed the Commission of the Law in question as provided
for in Article 88(3) of the Treaty, it is to be assessed in accordance with the rules set out in the
Community guidelines for State aid in the agricultural sector (18) (hereinafter called ‘the guidelines’).
Point 23.3 of the guidelines states that these guidelines are to apply to new State aids, including aids
notified by Member States but on which a Commission decision is still pending, with effect from 1
January 2000.

(36)

Regulation (EC) No 1493/1999 repealed previous Regulations (EEC) No 822/87 on the common
organisation of the market in wine, which itself repealed Regulations (EEC) No 337/79, and (EEC) No
1442/88 on the granting of permanent abandonment premiums in respect of winegrowing areas.
Article 4 of Regulation (EC) No 1493/1999 referred to above concerns replanting rights and Articles
8, 9 and 10 cover permanent abandonment premiums.

(37) Under Article 4 of Regulation (EC) No 1493/1999, replanting rights can be acquired in two ways:
either they can be similar rights acquired under prior Community or national legislation, or they are
granted by the Member States to producers who undertake to grub up an area of vines before the
end of the third year after the year in which the area was planted. The replanting rights concerned
had actually been acquired under prior Community legislation. The wording of Article 4 of Law No
81/1995 is quite clear on this point (the aid may be granted only to winegrowers who,
‘having
acquired a replanting right under Regulation (EEC) No 454/80 and suffered damage as a result of the
drought of 1988 to 1990, applied for the aid provided for in Regulation (EEC) No 1442/88, on the
same conditions’). It must therefore be proved that these rights are still valid and that they can be
converted into permanent abandonment premiums.

(38)

(39)

(40)

The winegrowing holdings in question bore the grubbing costs in exchange for the possibility of
exercising replanting rights on the grubbed or equivalent surfaces. In the case in point, the replanting
rights (acquired under Regulation (EEC) No 337/79 (19)) are no longer valid. Annex IVa(C) to
Regulation (EEC) No 337/79 (Annex inserted by Regulation (EEC) No 454/80) defines replanting
rights as ‘the right, under the conditions laid down in this Regulation, to plant vines, during the eight
years following the year in which regularly declared grubbing took place, on a pure cultivation area
equivalent to that in which vines were grubbed’. As these producers did not use their replanting
rights before the expiry date (the Italian authorities have stated that the rights concerned expired in
1988 to 90), they were no longer valid at the time when the Law under examination was notified
and a fortiori they are not valid within the meaning of the first indent of Article 4 of Regulation (EC)
No 1493/1999.

Since replanting rights acquired under Regulation (EEC) No 337/79 have expired, any aid to
compensate for those rights would be retrospective aid incompatible with point 3.6 of the guide-
lines, which stipulates that aid granted retrospectively in respect of activities which have already been
undertaken by the beneficiary cannot be considered to contain the necessary incentive element, and
must be considered to constitute operating aid which is simply intended to relieve the beneficiary of
a financial burden. Except in the case of aid schemes which are compensatory in nature, all aid
schemes should therefore provide that no aid may be granted in respect of work begun or activities
undertaken before an application for aid has been properly submitted to the competent authority
concerned.

The only case in which retrospective aid could be granted in the light of the guidelines, once it had
been found to be compatible with the rules of the relevant common market organisation, is that of
schemes which are compensatory in nature. In the case in point, it must therefore be ascertained
whether point 11 of the guidelines, concerning ‘aids to compensate for damage to agricultural
production or the means of agricultural production’, in this specific case aid intended to compensate
farmers for losses resulting from bad weather (the drought in 1988 to 90), is applicable. In fact, in
their letter No 3899 of 12 June 1997, the Italian authorities linked the failure to use the replanting

(18) OJ C 28, 1.2.2000, p. 2.
(19) As amended by Regulation (EEC) No 454/80.

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rights (and therefore the losses suffered) with the drought. Point 11.1.2 of the guidelines nevertheless
stipulates that, in order to avoid a risk of distorting the conditions of competition, the Commission
considers it important to ensure that, subject to administrative and budgetary constraints, aid to
compensate farmers for damage caused to agricultural production is paid as soon as possible after
the occurrence of the adverse event concerned. Where aid is paid only several years after the
occurrence of the event in question, there is a real danger that the payment of such aid will produce
the same economic effects as operating aid. This is particularly the case where aid is paid retrospec-
tively in respect of claims which were not properly documented at the time. Therefore,
in the
absence of a specific justification, resulting for example from the nature and extent of the event, or
the delayed or continuing nature of the damage, the Commission will not approve proposals for aid
which are submitted more than three years after the occurrence of the event. In the case in point,
that period has expired and the authorities have provided no information with which to analyse the
nature and extent of the event, or the delayed or continuing effect of the damage, which could justify
extending the three-year deadline laid down in the guidelines.

(41)

The aid cannot even be considered to be aid for closing production capacity within the meaning of
point 9 of the guidelines. Indeed, if this aid is not to be considered as pure operating aid in favour of
the holdings concerned, it must be demonstrated to be in the interest of the sector as a whole. This
premium compensates the Sicilian producers in question for grubbing up carried out almost 13
years before the aid was notified and therefore it in no way serves as an incentive to benefit the
sector and must accordingly be considered as pure operating aid.

(42) Moreover, an essential requirement for the grant of any State aid in the agricultural sector is that it
does not interfere with the mechanisms of the common organisation of the market for the product
concerned. But beneficiaries under Article 4 of Law No 81/1995 do not qualify for the permanent
abandonment premium under Regulation (EC) No 1493/1999. Chapter II of Title II of Regulation
(EC) No 1493/1999 (Articles 8 and 9) states that the premium may be granted in return for the
permanent abandonment of winegrowing on a particular area. The premium may be granted, subject
to the provisions of this Chapter, to producers of winegrowing areas cultivated for the production of
wine grapes. The winegrowers in question were unable to apply for the permanent abandonment
premiums under Regulation (EC) No 1493/1999 because the areas had not been cultivated since the
1981/82 wine year (final date for grubbing). Any aid granted to those winegrowers would therefore
be incompatible with the rules of the common organisation of the market.

(43)

(44)

(45)

Even if Articles 87, 88 and 89 are fully applicable to the sectors covered by the common
organisations of the markets, their application nevertheless remains subject to the provisions of the
relevant Regulations. In other words, recourse by a Member State to Articles 87, 88 and 89 cannot
override the provisions of the Regulation governing the market organisation concerned. Under no
circumstances, therefore, can the Commission approve aid which is incompatible with the provisions
governing a common organisation of the market or which would impair the smooth operation of
that organisation. Granting the aid provided for in Article 4 of Law No 81/1995 would contravene
the rules of the common organisation of the market in wine laid down in Regulation (EC) No
1493/1999, as demonstrated in the previous point, and cannot therefore benefit from any of the
exemptions provided for in Article 87(3) of the Treaty.

Even an assessment of this aid in the light of the Community rules applicable prior to the entry into
force of Regulation (EC) No 1493/1999, quoted in Article 4 of Law No 81/1995 (the rules under
which the rights had been acquired), shows that none of the exemptions provided for in Article
87(3) of the Treaty apply.

The purpose of Article 4 of the Law in question is to grant aid to winegrowers who acquired
replanting rights within the meaning of Regulation (EEC) No 337/79 (rights which expired during
the 1988 to 90 wine years, as stated by the Italian authorities) and who applied for premiums for the
permanent abandonment of wine-growing areas, with a view to compensating them for the objective
impossibility of exercising those rights. The Community legislator had provided for two different
options:

— the possibility of definitively grubbing up the vineyards, compensated by the premiums provided

for in Regulation (EEC) No 1442/88, or

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— the possibility of grubbing up vineyards and obtaining replanting rights for an area equivalent to

that grubbed up, as provided for in Regulation (EEC) No 337/79.

The producers in question originally chose the second option and obtained replanting rights in
return for grubbing up.

(46) Under Article 19 of Regulation (EEC) No 1442/88, the grant of subsequent national aid is permitted
provided such aid is designed to achieve objectives similar to those sought by that Regulation. The
grant of such aid is subject to review on the basis of Articles 87, 88 and 89 (ex Articles 92, 93 and
94) of the Treaty. Additional State aid could therefore be granted only if the aid scheme and
Regulation (EEC) No 1442/88 shared common objectives. The Law under examination provides for
compensating replanting rights which the wine growers had acquired, but which they had not been
able to use owing to the drought. The objective of the Law therefore does not correspond to that of
Regulation (EEC) No 1442/88, since not using a replanting right cannot be considered the same as
permanent abandonment carried out for the purposes of and under the terms of Regulation (EEC) No
1442/88. In addition, the detailed rules for implementing Regulation (EEC) No 1442/88 are not
complied with, since at least one of the conditions sine qua non for receiving permanent abandon-
ment premiums is not met. In fact, under Article 1(1) of the above Regulation, to qualify for
permanent abandonment premiums, producers must hold cultivated winegrowing areas for the
production of: wine, table grapes or grapes for drying, or cultivated winegrowing areas used as
root-stock nurseries provided that the root-stock varieties are listed in the classification of vine
varieties. The Sicilian wine growers clearly do not come in this category, since the areas for which
they applied for the premiums were not cultivated at the time they submitted their applications
within the meaning of Regulation (EEC) No 1442/88 (since the grubbing-up of the vineyards, the
essential requirement for being granted replanting rights, had already been carried out).

(47) Moreover, as stated in recital 39 above, the replanting rights had expired in the 1988 to 1990 wine
years and were therefore no longer valid, even at the time the measure in question was notified.
Since the objective of the aid provided for in Article 4 of Law No 81/1995 is to compensate
winegrowers for the loss of replanting rights they no longer had when the Law was adopted, it
constitutes retrospective aid in breach of the rules on the common organisation of the market in
wine, including Regulation (EEC) No 337/79, as amended by Regulation (EEC) No 454/80. The
Commission must conclude that the measure cannot benefit from the exemptions provided for in
Article 87(3) of the EC Treaty.

(b) Article 8 of Regional Law No 81/1995

(48) Article 8 of Regional Law No 81/1995 provides for an ITL 10 000 million increase in the working
capital of the CRIAS (Cassa regionale per il credito alle imprese artigiane) to be used to grant
subsidised short-term loans to craft undertakings.

(49) Article 8 of Law No 81/1995 provides for aid, in the form of subsidised short-term loans, intended
for craft undertakings. These public funds are granted without any reciprocal action on the part of
the undertakings which, thanks to these loans, improve their competitive position in relation to
other farmers in the Community who do not receive the same aid. On the basis of the information
received, it is impossible to rule out that this aid is also intended for undertakings engaged in
processing and marketing products listed in Annex I to the Treaty. Article 51 of Council Regulation
(EC) No 1257/1999 of 17 May 1999 on support for rural development from the European
Agricultural Guidance and Guarantee Fund (EAGGF) and amending and repealing certain Regula-
tions (20) stipulates that Articles 87 to 89 of the Treaty apply to aid granted by the Member States for
measures to support rural development.

(20) OJ L 160, 26.6.1999, p. 80.

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(50)

The prohibition on granting State aid is not unconditional. In this case, the exceptions provided for
in Article 87(2) of the Treaty clearly do not apply and the Italian authorities did not even invoke
them. Given the nature of the notified scheme, the only exemption which could be applied is that
provided for in Article 87(3).

(51)

Since these are subsidised short-term loans, they must be assessed in the light of the Commission
communication on State aids dealing with subsidised short-term loans in agriculture (21) and State aid
discipline relating to subsidised short-term loans in agriculture (22). In their comments the Italian
authorities did not provide sufficient information to rule out once and for all the possibility that this
Article also applies to craft undertakings engaged in processing and marketing products listed in
Annex I to the Treaty. Article 64 of Law No 6/97, which repeals Article 8, provides for a direct
transfer of the resources intended for subsidised short-term loans to craft undertakings, without
subsequently specifying the categories of craft undertakings to which the Law refers.

(52)

In their letter No 3155 of 8 May 1997, the Italian authorities stated that when the transfer was made
they had advised the CRIAS to debar from the aid craft undertakings engaged in producing,
processing or marketing agricultural products.

(53)

Such advice is of dubious value. In the first place, the very fact that such a recommendation might be
appropriate clearly arises from the possibility of granting subsidised short-term loans to undertakings
operating in the agricultural sector. Moreover, the Italian authorities have not denied that this
possibility exists:
in their letter No 7382 of 30 October 1996, while excluding undertakings
operating in the primary production sector from the list of potential beneficiaries of the aid, they
confirmed that in Sicily the term craft undertaking had sometimes been interpreted in ad hoc
legislative texts in such a way as to include some processing and marketing activities (for investments
in the dairy sector, for instance). In the case in point, according to the Italian authorities it is
necessary to refer to national framework Law No 443 of 8 August 1985, Article 3 of which defines
craft undertakings as […] those having as a predominant objective the production of goods and
services, even semi-finished products, or the supply of services, excluding agricultural activities […].
The wording of the Law does not permit the conclusion that such exclusion also covers agricultural
craft undertakings engaged in processing and/or marketing agricultural products.

(54) Once it is accepted that subsidised short-term loans can be granted to undertakings engaged in
processing and/or marketing agricultural products under Article 8, the legal force of the ‘recommen-
dation’ by the regional authorities must be analysed, that is, it must be determined whether such a
recommendation could provide sufficient guarantee to be able to conclude with certainty that no
undertakings engaged in producing, processing and/or marketing products listed in Annex I to the
Treaty can qualify for loans under Article 8. In the abovementioned letter, it appears that at the time
the funds were transferred, the competent regional Assessorato advised the transfer but recommended
that craft undertakings engaged in producing, processing or marketing agricultural products should
be excluded from eligibility for the aid. This formulation suggests that such a recommendation has
no binding effect.

(55)

In view of the foregoing,
it cannot be ruled out that the scheme applies to craft undertakings
engaged in processing and/or marketing agricultural products. Accordingly, the Article must be
assessed in the light of the guidelines, the Commission communication on State aids: subsidised
short-term loans in agriculture, and State aid discipline relating to subsidised short-term loans in
agriculture. In particular, the Commission clearly states, in point A of its communication on State
aids: subsidised short-term loans in agriculture, that subsidised short-term loans are operating aids
and acceptable only in exceptional circumstances because of their potential to distort competition.
The grant of such aid is therefore strictly conditional on compliance with the requirements laid down
in the abovementioned documents.

(21) OJ C 44, 16.2.1996, p. 2.
(22) SG(97) D/10801, 19.12.1997.

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(56)

The abovementioned Community rules on subsidised short-term loans clearly show that these loans
are operating aids, the grant of which must be subject to appropriate rules. In particular, according
to points B and C of the abovementioned Commission communication, subsidised short-term loans
must be made available to all operators in the region on a non-discriminatory basis irrespective of
the agricultural activity for which the operator needs a short-term loan. The State must clearly
identify the financing disadvantages of the sector, in terms of the gap between the interest rate paid
by operators in the agricultural sector and the rate paid in the rest of the economy of the Member
State concerned for short-term loans of a similar amount, not linked with investments. Under no
circumstances may the amount of the loans exceed the cash-flow requirements arising from the fact
that production costs are incurred before income from output sales is received. In no case may the
aid be linked to particular marketing or production operations. Compliance with these conditions is
essential
if subsidised short-term loans are to be granted. The Italian authorities have given no
information about these aspects.

(57) Under the terms set out above, the aid provided for in Article 8 must be seen as an operating aid.
Where the production, processing and marketing of products listed in Annex I to the Treaty is
concerned, point 3.5 of the guidelines states that in order to be considered compatible with the
common market, any aid measure must contain some incentive element or require some counterpart
on the part of the beneficiary. Unless exceptions are expressly provided for in Community legislation
or in these guidelines, 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,
and in particular aids which are granted solely on the basis of price, quantity, unit of production or
unit of the means of production are considered to constitute operating aids which are incompatible
with the common market. Furthermore, by their very nature, such aids are also likely to interfere
with the mechanisms of the common organisations of the markets.

(58)

Since this measure concerns subsidised short-term loans which are by nature operating aids, the
Commission must conclude that it cannot benefit from any of the exemptions provided for in Article
87(3) of the Treaty, in so far as it is applicable to undertakings engaged in producing, processing and
marketing products listed in Annex I to the Treaty.

(c) Article 9 of Law No 81/1995

(59) Article 9 of Regional Law No 81/1995 authorises the expenditure referred to in heading 05 of the
Regional Ministry for Cooperation and increases regional budget heading No 75826 by ITL 3 000
million.

(60)

(61)

(62)

The regional aid in question is granted for the refinancing of expenditure already allocated and
approved by the Commission in the context of the aid provided for in Regional Law No 26 of 27
May 1987, examined under Cases C-3/87 (approved by decision of 21 October 1987) and C-45/87
(approved by Decision SG(88) D/12824 of 8 November 1988). The existence of State aid had been
checked in the context of these two aids.

The prohibition on granting State aid is not unconditional. In this case, the exceptions provided for
in Article 87(2) of the Treaty do not apply and the Italian authorities did not even invoke them.
Given the nature of the notified scheme, the only exemption which could be applied is that provided
for in Article 87(3).

The aid provided for in Article 9 must be assessed on the basis of the guidelines published in OJ C
19 of 20 January 2001, which refer to Council Regulation (EC) No 2792/1999 laying down the
detailed rules and arrangements for Community structural assistance in the fisheries sector. The
Commission still does not have the information needed to assess the aid provided for in this Article.
Italy must therefore be ordered to provide the information necessary to assess these aid measures so
that the Commission can take its decision in full knowledge of the facts. Should Italy fail to comply,
under Article 13 of Regulation (EC) No 659/1999 the Commission will take its decision on the basis
of the information available.

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V. CONCLUSIONS

(63) Under Article 7(7) of Regulation (EC) No 659/1999, should the Member State concerned so request,
the Commission will, within two months, take a decision on the basis of the information available to
it. If appropriate, where the information provided is not sufficient to establish compatibility, the
Commission will take a negative decision.

(64)

In the light of the foregoing, the Commission can conclude that the aid measures provided for in
Articles 4 and 8 of the Regional Law under examination, in so far as they apply to agriculture,
constitute State aid within the meaning of Article 87(1), which cannot benefit from any of the
exemptions provided for in Article 87(3),

HAS ADOPTED THIS DECISION:

Article 1

The aid which Italy is planning to grant on the basis of Articles 4 and 8 of Law No 81 of the region of
Sicily of 7 November 1995 for the production, processing and marketing of the products listed in Annex I
to the Treaty, not including the fisheries and aquaculture sector, is incompatible with the common market.

The aid may accordingly not be implemented.

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

Article 2

Article 3

With regard to the fisheries and aquaculture sector, the Commission gives Italy notice, in accordance with
Article 10(3) of Regulation (EC) No 659/1999, to provide it with the following information within one
month:
— a list and the description of the aid measures provided for by Regional Law No 26 of 27 May 1987 to

be refinanced under Article 9 of Regional Law No 81 of 8 November 1995,

— the precise terms on which this aid is granted: its exact nature, rate, rules regarding aggregation with

other aid schemes, etc.

This Decision is addressed to the Italian Republic.

Article 4

Done at Brussels, 17 October 2001.

For the Commission

Franz FISCHLER

Member of the Commission