2004/313/EC: Commission Decision of 23 July 2003 on State aid granted by Germany to Graphischer Maschinenbau GmbH (Berlin) (Text with EEA relevance) (notified under document number C(2003) 2517)
Date: 2003-07-23
Institutions: European Commission
Subjects: Germany, State aid, control of State aid, pulp and paper industry

6.4.2004

EN

Official Journal of the European Union

L 100/35

COMMISSION

COMMISSION DECISION

of 23 July 2003

on State aid granted by Germany to Graphischer Maschinenbau GmbH (Berlin)

(notified under document number C(2003) 2517)

(Only the German text is authentic)

(Text with EEA relevance)

(2004/313/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(4)

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

By judgment delivered on 14 May 2002 in Case T-126/
99 (Graphischer Maschinenbau GmbH v Commis-
sion) (3), the Court of First Instance of the European
Communities annulled the negative part of Commission
Decision 1999/690/EC.

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

(5)

Following the judgment, the Commission requested addi-
tional information from Germany on 10 January 2003;
it received the information on 24 February 2003.

Having called on interested parties to submit their comments
pursuant to those provisions,

Whereas:

II. DESCRIPTION OF THE MEASURE

I. PROCEDURE

Aid recipient: Graphischer Maschinenbau GmbH

(1)

(2)

(3)

By letter dated 21 January 1998, Germany notified the
Commission of restructuring aid for Graphischer Maschi-
nenbau GmbH (GMB), Berlin. By letters dated 17 March,
30 April and 18 June 1998, it provided the Commission
with further information.

By letter dated 17 August 1998, published in the Official
Journal of the European Communities (1), the Commission
informed Germany that it had decided to initiate the
procedure laid down in Article 93(2) (now Article 88(2))
of the EC Treaty. The Commission called on interested
parties to submit their comments, but received none.

In Decision 1999/690/EC (2), the Commission found that
part of the aid for GMB was incompatible with the
common market. Out of a total planned grant of
DEM 9,31 million,
exceeded
the
DEM 4,435 million was held to be incompatible.

amount which

(6)

The recipient of the aid, GMB, is based in Berlin and is a
wholly-owned subsidiary of Koenig & Bauer-Albert AG
(KBA), based in Würzburg. GMB manufactures parts for
newspaper printing machinery and sells components to
KBA, whose main activity is the manufacture of printing
presses.

The measure

(7)

To prevent the closing down of GMB's facility in Berlin,
the Land of Berlin
which had run into difficulties,
granted restructuring aid on 11 September 1997 for the
period 1998 to 2000 in the form of a grant amounting
to DEM 9,31 million (EUR 4,77 million).

(1) OJ C 336, 4.11.1998, p. 13.
(2) OJ L 272, 22.10.1999, p. 16.

(3) [2002] ECR II-2427.

L 100/36

EN

Official Journal of the European Union

6.4.2004

The restructuring plan

Background

(8)

(9)

Due to a drastic decline in demand for printing
machines, KBA decided in November 1996 to shut
down GMB's factory in Berlin at the end of June 1997.
Faced with the impending loss of jobs, the Land of Berlin
and the relevant trade unions entered into negotiations
with GMB and KBA in January/February 1997. The
negotiations led to the signing on 24 February 1997 of
an ‘Alliance for employment’, based on a restructuring
plan drawn up earlier in collaboration with the Berlin
authorities.

Through the restructuring plan, GMB sought to moder-
nise and reduce its range of products by discontinuing
non-profitable products and by organising the produc-
tion cycle more efficiently. Financially the plan was
based on the private investor contribution by KBA of
DEM 13,62 million (takeover of operating losses and
injection) and the aid of DEM 9,31 million
capital
(EUR 4,76 million), corresponding to overall restruc-
turing costs of DEM 22,93 million. The restructuring
costs included costs for the development of modernised
products amounting to DEM 4,875 million.

(10)

Since GMB did not have its own facilities for the neces-
sary development work, this was carried out by KBA.
The development work commenced after 24 February
1997. On 11 September 1997,
the Berlin Senate
formally decided to grant GMB the aid in the amount of
DEM 9,31 million. By letter dated 21 January 1998,
Germany notified the aid to the Commission.

Reasons for the annulment of the Decision

(11)

(12)

(13)

In its partially negative Decision 1999/690/EC,
the
Commission deducted from the ‘eligible restructuring
costs’ the whole of the costs of DEM 4,875 million for
the development of modernised products. It found that
these costs were not induced by the aid and that the real
beneficiary of this part of the aid was KBA and not GMB
and, therefore, considered this part of the aid incompa-
tible with the common market.

The Court of First Instance annulled the negative part of
the Decision on two legal grounds, holding that the
Commission did not correctly interpret the incentive or
inducement criterion and that the Commission's defini-
tion of the aid beneficiary was erroneous.

The so-called incentive criterion requires that the State
aid must have induced the restructuring. If the relevant
entity would have undertaken the restructuring irrespec-
tive of the State aid, the incentive criterion would not be
met and the aid would be incompatible. In this respect,
the Court of First Instance held that it was crucial to

establish at which point in time the beneficiary could
fairly assume that it would receive the aid in order to
assess whether the incentive criterion was fulfilled. The
Court stated that this was clearly before the notification
of
the aid to the Commission and also the formal
granting decision of the German authorities.

(14) Determining the real beneficiary of the aid for the devel-
opment activities required an analysis of the economic
interests of the companies involved. The Court of First
Instance said that it is not automatically in the interest
of a parent company to carry out development work for
its subsidiary, as the Decision had assumed.

III. ASSESSMENT OF THE MEASURE

(15)

In the light of the judgment and on the basis of addi-
tional facts provided by Germany, the Commission must
reassess the case. This Decision is based on the facts and
the law at the time of the notification of the aid.

Existence of State aid

(16)

(17)

The aid is provided from State resources and serves to
keep GMB, a company experiencing difficulties, in busi-
ness. It could therefore have adverse effects on the posi-
tion of competitors. Thus the firm benefits from a selec-
tive advantage which could have adverse effects on the
position of
its competitors. Consequently, since the
product is internationally traded, the State support may
distort competition or threaten to distort it and affect
trade between Member States.

The planned State support therefore constitutes State aid
within the meaning of Article 87(1) (formerly Article
92) of the EC Treaty because it enables the recipient
company to carry out restructuring without having to
bear the full costs, as any other firm in a normal market
situation would have to do.

Compatibility of the aid with the EC Treaty

(18)

Restructuring aid may be deemed compatible with the
common market under the Community guidelines on
state aid for rescuing and restructuring firms in difficulty
(the guidelines) (1), which require essentially that a
company in difficulty must present a viable restructuring
plan.

Conditions governing approval of restructuring aid

(19)

Restructuring aid may be deemed compatible with the
common market under the exemption provided for in
Article 87(3)(c) only if such aid can help to promote
economic activity without trade being affected in a way
that runs counter to the common interest, provided that
the conditions set out in the guidelines are met.

(1) OJ C 368, 23.12.1994, p. 12.

6.4.2004

EN

Official Journal of the European Union

L 100/37

(20) Under the guidelines, restructuring must take place on
the basis of a viable, coherent and far-reaching plan to
restore a firm's long-term viability within a reasonable
timescale based on realistic assumptions as to its future
operating conditions. This must include a substantial
private investor contribution. After the restructuring, the
company must be able to operate on the strength of its
own resources without requiring further State assistance.

(21)

The judgment annulled Decision 1999/690/EC on only
two grounds, relating to the incentive criterion and the
definition of the beneficiary. The other conditions for
granting the aid stipulated in the Decision were
confirmed i.e. full implementation of the restructuring
plan and the avoidance of undue distortions of competi-
tion. The State aid measure contributes to the develop-
ment of certain activities that do not adversely affect
trading conditions to an extent contrary to the common
market. Since GMB's market shares were relatively small,
there was no evidence of excess capacity and the
production of the new products could not lead to an
overall increase of capacity. Therefore, undue distortions
of competition could be excluded.

Aid in proportion to the restructuring costs and
benefits

(22) All other conditions being fulfilled, it has to be examined
whether the aid is limited to the minimum needed for
the company's restructuring. The amount specified for
the development costs is induced by the aid and benefits
fully GMB.

The incentive effect (timing of the inducement)

turing programme. On the contrary, it may in certain
cases be necessary to implement the programme within
a short period of time so as to satisfy the criterion of
restoration to viability provided for in the guidelines.

(26)

It is for the Commission to assess the circumstances of
each case in order to determine whether the prospect of
the grant of the aid is sufficiently likely to satisfy the
in order to assess
criterion as to inducement. Thus,
whether the element of inducement was present, the
Commission must take into account the precise form
and nature of the communications and acts emanating
in particular
from the competent national authorities,
the urgency due to the company's difficult
financial
situation.

(27) As to the possible timescale within which inducement
can be inferred, two points can be made. On the one
hand, no inducement is to be assumed for work in rela-
tion to restructuring which has been started by the
undertaking before the national authorities have even
given the slightest indication as to their intention to
grant aid.

(28) On the other hand, there is certainly inducement if the
Commission has given a positive decision. An under-
taking which may potentially be the recipient of new
State aid can have no certainty of actually receiving it
before the authorities of the Member State have notified
that aid to the Commission and the Commission has
declared it to be compatible with the common market.
The fact that aid is notified has no effect, in itself, in
terms of its compatibility with the common market.

(23)

In Decision 1999/690/EC, the Commission stressed the
chronological aspect of the case,
i.e. the fact that the
development work was commenced before notification
of the aid on 21 January 1998. The Commission held
that once an undertaking carries out development work
without being in receipt of aid, as GMB/KBA did, the
restructuring
granted cannot be
aid subsequently
deemed necessary in order to attain that objective.

(29)

(24) As the judgment of the Court of Justice in Case 730/79
(Philip Morris v Commission) makes clear, State aid
cannot be granted under one of the derogations set out
in Article 87(3) of the EC Treaty unless it is necessary in
order to induce one or more undertakings to act in a
manner which assists attainment of the objective envi-
saged by the relevant derogation (1). The Commission
must consider aid incompatible where that aid did not
induce the recipient undertakings to adopt conduct
likely to assist attainment of one of
the objectives
mentioned in Article 87(3) of the EC Treaty.

(25) An undertaking whose financial situation is such that it
needs to receive restructuring aid in order to ensure its
viability cannot always wait until it is absolutely certain
of payment of that aid in order to implement its restruc-

(1) [1980] ECR 2671, paragraphs 16 and 17.

Thus, notification of the aid in no way removes the
uncertainty as to its approval at Community level. So
long as the Commission has not
taken a decision
approving it and so long as the period for bringing an
action against that decision has not expired, the recipient
cannot be certain as to the lawfulness of the proposed
aid, which is the only basis for a legitimate expectation
on the part of the recipient. In those circumstances, it
must be held that the absence of absolute certainty as to
the grant of aid and, hence, of legitimate expectations, at
the time when the potential beneficiary decides to
the
proceed with restructuring, does not mean that
assurances given previously by national or
regional
authorities had no effect as an inducement.

(30) Under certain circumstances, the political decision taken
by the regional authority could be considered a sufficient
inducement. However, the circumstances of each case
under the guidelines are different and it
is for the
Commission to determine the element of inducement by
taking account of all the relevant facts,
including the
non-binding undertakings which may have been given
by the political authorities at national level or, as in the
present case, at regional level.

L 100/38

EN

Official Journal of the European Union

6.4.2004

(31)

Following this line of reasoning, GMB could, on a legal
basis, safely assume that by 11 September 1997 at the
latest,
it would receive the aid, since at this date the
Senate of Berlin granted the aid in a formally binding
legal way.

(32) However, even as early as the negotiations in January
and February 1997 and certainly with the conclusion of
the ‘alliance for employment’ on 24 February 1997 GMB
had a sufficient political basis for the necessary incentive
criterion to be met. The Court of First Instance consid-
ered the assurances given by the political authorities in
February 1997 sufficient as an incentive to induce GMB
to carry out its investment.

(33)

Since those political assurances were not legally binding,
GMB was taking a risk in relying on them. Nonetheless,
even if GMB may have doubted that the undertakings
given by the public authorities would be honoured, it
placed sufficient reliance on them to go ahead with the
restructuring as from February 1997.

(34) Moreover, at the beginning of 1997 GMB had to act
swiftly in order to prevent the closure of the production
site and, therefore, had to use KBA's development capa-
cities as the closest and most readily available. The
Commission had acknowledged the correctness of this
analysis by pointing out in Decision 1999/690/EC that
‘GMB's capacities would not have allowed for devel-
oping, on a short-term basis, the requisite competitive
and innovative products and that GMB therefore had to
have recourse to KBA's capacities’ (p. 24). Thus, a signifi-
cant part of the development expenditure in connection
with the restructuring plan had already taken place
before notification of the aid in September 1997.

The Commission had also acknowledged, at least impli-
citly, that the assurances and undertakings given by the
Land of Berlin in the course of 1997 concerning the
grant of aid induced GMB and KBA to carry out the
conversion work at the production site.

that

the political authorities

Consequently, the incentive criterion may be considered
to have been met by February 1997, when it became
in Berlin would
clear
the
provide financial assistance in order to prevent
closure of GMB's production site. Accordingly, any
investment undertaken after this date must be considered
to be induced by the aid.

The aid recipient

(35)

(36)

(37)

burden of the development work must be demonstrated.
Decision 1999/690/EC found this criterion fulfilled
insofar as the design and development work financed by
the aid directly benefited KBA, which had a strategic
interest in the production of supplies within its own
group.

(39) However, the Commission's refusal to approve the aid in
respect of DEM 4,875 million meant, in practice, that
the KBA group had to bear an additional burden in
carrying out the work without financial compensation in
order to enable the restructuring plan to be imple-
mented, since GMB was not in a position to make that
financial contribution. The price for the development
work invoiced by KBA was on a cost basis and without
the profit that an external design and development firm
would necessarily have had to achieve. It is therefore
lower
than the best price which GMB could have
obtained on the open market for such services. Conse-
quently, GMB spent
the amount of aid in its own
interest. KBA was just the cheapest and best available
provider of the development services required.

(40)

In the light of all these circumstances, and of the fact
that KBA could have avoided taking over GMB's losses
by closing its factory in June 1997, the close relations
between KBA and GMB do not demonstrate that the
payment of aid to the latter necessarily benefited KBA.

financial

(41) Nor did KBA have any another financial reason or
indirect
interest which might have induced
KBA to finance the development work. The fact that the
restructuring plan provided for KBA to do the design
and development work, subject
to remuneration by
GMB, is not in itself sufficient to support the conclusion
that KBA had an interest in that work. The payment was
remuneration for actual work which had necessarily
occasioned real costs to the KBA group's design and
development departments and which KBA could not
cover in the absence of that payment.

(42) Moreover, KBA's design and development departments
were already occupied to 100 % of their capacity by
other projects whose completion had to be deferred in
order to enable them to carry out the work in question
within the short period dictated by GMB's financial diffi-
culties. Those design and development departments were
not underemployed, but working profitably. Thus, the
restructuring plan did not particularly benefit KBA, since
it had to invoice the development work to GMB at cost
price without any profit margin.

the Commission took the
In Decision 1999/690/EC,
view that the part of the aid relating to the design and
development work benefited KBA with the result that
KBA and not its subsidiary GMB was the main recipient
of the aid. In the reassessment of the facts and adopting
the test required by the Court, however, no direct or
indirect financial interest of KBA can be identified.

(43)

(38)

The Court of First Instance requested, as a test to ascer-
tain whether aid was given to KBA, that a financial or
commercial interest on the part of KBA in assuming the

The assumption that a parent company necessarily has a
commercial
interest in having parts of its production
process carried out internally within the group is not
warranted. The pertinence of this analysis depends on
the specific circumstances of the case and, specifically,
the
component markets
concerned, as well as on the question whether the
subsidiary can profitably engage in the manufacture of
those products, regard being had to all the costs which it
has to bear in that connection.

supply on the

state of

6.4.2004

EN

Official Journal of the European Union

L 100/39

(44)

(45)

(46)

Internal production has to be compared with the possi-
bility of obtaining from outside suppliers, in a reliable
manner and at reasonable prices, products equivalent to
those developed internally. Outsourcing may be more
efficient than building the whole supply chain internally.

Since there existed outside manufacturers, KBA had no
commercial interest in carrying out the design and devel-
opment work on the basis that that work would enable
it to create a reliable source of supply of the parts neces-
sary for the manufacture of its machines later on. Other
reliable sources of supply already existed, so that,
in
those circumstances, KBA did not need to ensure the
development of those products and their manufacture by
GMB.

The development work which was to be financed with
part of the aid was necessary for the survival of GMB.
Without this development work being done, GMB could
not start its modernised production, which was the basis
of the restructuring plan. KBA had neither a financial
nor a ‘strategic’ interest in carrying out the development
work itself. As the Court of First Instance said, KBA
could have simply closed GMB, as originally intended.
Consequently, the money spent by GMB on the develop-
ment activities benefited GMB as a necessary condition
for its new product line and GMB is the only benefi-
ciary.

IV. CONCLUSION

(47) Germany notified the proposed State aid in accordance
with Article 88(3) of
the EC Treaty and therefore
complied with its obligation to notify aid individually in
the absence of an approved aid scheme. The Commis-
sion also notes that it is the first time that GMB, a
company in difficulty, has applied for restructuring aid.

(48)

(49)

The aid meets the conditions laid down in the guidelines
since the restructuring plan restores the long-term viabi-
lity of the company, does not adversely affect trading
conditions and is supported by a substantial private
investor contribution. The aid is therefore compatible
with the common market.

In view of the above, the Commission considers that the
notified State aid consisting of a grant amounting to
DEM 9,31 million (EUR 4,77 million) provided by
Germany for GMB fulfils the criteria for being consid-
ered compatible with the common market,

HAS ADOPTED THIS DECISION:

Article 1

The State aid of DEM 9,31 million (EUR 4,77 million) which
Germany has granted to Graphischer Maschinenbau GmbH for
the restructuring of its production facility in Berlin is compa-
tible with the common market.

Article 2

This Decision is addressed to the Federal Republic of Germany.

Done at Brussels, 23 July 2003.

For the Commission

Mario MONTI

Member of the Commission