CELEX: 61997CC0404
Language: en
Date: 1999-10-28
Title: Opinion of Mr Advocate General Ruiz-Jarabo Colomer delivered on 28 October 1999. # Commission of the European Communities v Portuguese Republic. # Failure to fulfil obligations - State aid incompatible with the common market - Recovery - Absolute impossibility. # Case C-404/97.

Important legal notice

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61997C0404

Opinion of Mr Advocate General Ruiz-Jarabo Colomer delivered on 28 October 1999.  -  Commission of the European Communities v Portuguese Republic.  -  Failure to fulfil obligations - State aid incompatible with the common market - Recovery - Absolute impossibility.  -  Case C-404/97.  

European Court reports 2000 Page I-04897

Opinion of the Advocate-General

1. By an application lodged on 2 December 1997, the Commission has asked the Court of Justice to make a declaration against the Portuguese Republic pursuant to the second paragraph of Article 93(2) of the EC Treaty (now Article 88 EC). In particular, the Commission complains that the Member State has failed to implement its Decision C(97) 2130 of 9 July 1997, published under reference 97/762 (hereinafter Decision 97/762) within the prescribed period.In Article 1 of the Decision, which was notified to the State to which it was addressed on 18 July 1997, the Commission declared that the aid given, in the form of a guarantee, by the Portuguese Government to the Empresa Para a Agroalimentação e Cereais, SA (hereinafter EPAC) was unlawful because it was granted in contravention of the procedural rules referred to in Article 93(3) of the EC Treaty. The Commission considered, furthermore, that such aid was incompatible with the common market pursuant to Article 92(1) of the EC Treaty (now amended to Article 87 EC ), and that it did not meet the conditions for benefitting from any of the derogations provided for in Article 92(2) and (3).In Article 2 of the Decision, the Commission ordered Portugal to cancel the aid within fifteen days of the date of notification, and to take steps to recover it within two months.I. Facts2. According to the statement of reasons of Decision 97/762 and the application, EPAC is a limited company, created in 1991 with public capital, trading in the cereals market. Its asset situation is characterised by an imbalance caused by an excess of fixed assets and overstaffing. It has very high operating costs and insufficient own capital to finance its commercial activity.As a consequence of the gradual liberalisation of the cereals market in Portugal and of questionable management, the level of EPAC's indebtedness and financial obligations became so high that the company could not meet them from its own resources and, from April 1996 it stopped honouring most of its financial commitments.Seeing one of its undertakings in serious difficulties, the Portuguese authorities gave permission to EPAC's board of directors to negotiate a loan on market terms up to a maximum of fifty billion escudos, thirty billion of which would be covered by a State guarantee for seven years. The purpose of the loan was to restructure the company's short-term bank debt so as to convert it into a medium-term bank debt.3. On 15 October 1996 the Commission received a complaint about possible State aid to EPAC in the form described above. Not having received any notification from the Portuguese authorities, the Commission sent them a letter on 31 October 1996 requesting information on that aid and asking them to notify it, if it had been granted, so that it could be examined.4. In a letter dated 26 November 1996, the Portuguese Permanent Representative to the European Union confirmed that a State guarantee had been granted to EPAC. However, the Commission received no notification of State aid and therefore the operation was entered in the register of non-notified aid under number NN 13/97.5. The Commission decided to initiate the procedure laid down in Article 93(2) of the Treaty and, to that end, sent a letter to the Portuguese authorities on 27 February 1997. It considered that the State guarantee did not fulfil the Community criteria applicable to aid and that the refinancing of EPAC had been carried out under conditions which were not justified by the market situation. The Commission believed that the action taken by the Portuguese State was likely to affect trade and to distort competition, and that the operation was prohibited under Article 92(1) of the Treaty because it was State aid. In light of the information available to the Commission, it was not eligible for any of the derogations provided for by Article 91(2) and (3) because it did not satisfy the conditions applicable to restructuring aid for undertakings in difficulty.6. In the same letter, the Commission gave the Portuguese Government notice to submit its comments and asked it to take the measures necessary to suspend with immediate effect the guarantee granted to EPAC with regard to any new commercial activity on the cereals market.7. On 21 March 1997 the Portuguese Government replied that the State authorities would not intervene in the negotiation of the bank loans granted to EPAC to finance commercial operations, and provided additional information on some of those loans. However, that Government did not mention any measure taken to comply with the obligation to suspend the State guarantee.8. On 30 April 1997 the Commission adopted Decision 97/433/EC (hereinafter Decision 97/433) requiring Portugal to suspend with immediate effect the State guarantee to the undertaking EPAC and to notify the Commission within fifteen days of the measures it had adopted to comply with that Decision.9. In a letter dated 21 May 1997 the Portuguese authorities, which had still not notified the Commission of the measures taken to suspend the guarantee, stated that the State had neither taken part nor would take part in the negotiation of the loans granted to EPAC by the banks to finance commercial operations, adding that the State had not participated in the loan agreement either. According to the Portuguese authorities, the guarantee granted to EPAC did not constitute a financial operating aid to the undertaking and, therefore, had not distorted the conditions of competition. Nor had it been demonstrated how and to what extent granting the State guarantee to EPAC would affect trade between Member States.10. In view of this reply, the Commission was compelled to conclude the procedure under Article 93(2) of the Treaty and adopted the negative decision which is now the subject of the action it has brought against Portugal in the Court of Justice for failure to fulfil its obligations.II. Proceedings before the Community judicature in respect of the guarantee granted by the Portuguese State to EPAC11. The Portuguese State did not comply with Decision 97/433 of 30 April 1997 whereby the Commission required the immediate suspension of the aid in the form of a guarantee, nor has it to date implemented Decision 97/762 of 9 July 1997, which declared the aid illegal and ordered that it should be cancelled within fifteen days and recovered within two months.12. More than two years have elapsed since those Decisions were adopted and not only have they not been implemented but their validity is being challenged in the Community judicature under Article 173 of the EC Treaty (now, after amendment, Article 230 EC).Firstly, EPAC brought actions before the Court of First Instance, seeking the annulment of Decision 97/433 in Case T-204/97 and Decision 97/762 in Case T-270/97. The hearings were held on 1 July in both cases and are now at the deliberation stage.Secondly, Portugal brought actions before the Court of Justice, initially for the annulment of Decision 97/433, in Case C-246/97, and subsequently for the annulment of Decision 97/762, in Case C-330/97.The actions brought before both the Court of First Instance and the Court of Justice sought the annulment of the same acts. Therefore the Court of Justice decided, pursuant to Article 47(3) of its Statute and to Article 82a(1)(a) of its Rules of Procedure, to stay proceedings in the actions brought by Portugal until the Court of First Instance had delivered its judgment in the actions brought by EPAC.III. Decision 97/762, which the Commission alleges Portugal has failed to implement13. In the statement of reasons for its Decision of 9 July 1997, the Commission:(I) gives a detailed account of the circumstances in which the State granted a guarantee of thirty billion escudos to EPAC, without giving prior notification;(II) describes the course of the procedure under Article 93(2) of the Treaty and the reasons which led the Commission to adopt its Decision of 30 April 1997 requiring the Portuguese authorities to suspend with immediate effect the grant of the State guarantee and to notify the Commission within fifteen days of the measures it had adopted for that purpose;(III) sets out the observations submitted by the Portuguese Government in respect of the measures taken by the Commission, in which it denied that the guarantee constituted a financial operating aid to EPAC;(IV) puts forward reasons why the measures adopted by Portugal to aid that undertaking may affect trade in cereals between the Member States;(V) explains why the guarantee granted by the Portuguese Government could not be covered by one of the derogations established in Article 92(3), and refutes the arguments put forward by that Government, stating that it had analysed the conformity of the aid granted to EPAC with reference to the provisions of the Communication entitled Community guidelines on State aid for rescuing and restructuring firms in difficulty; and(VI) states that Portugal failed to fulfil its obligation to notify the measures taken to assist EPAC at the planning stage and had implemented them without the Commission having the opportunity to state its position on the matter; that illegality cannot be remedied a posteriori; the Commission can require the Member State to recover from the beneficiaries all aid illegally granted; in the case of aid in the form of a guarantee, the advantage unduly obtained is represented by the difference between the market financial cost of bank loans (represented by the reference rate) and the financial cost actually incurred by EPAC in the financial operation.14. In Article 1 of the Decision, the Commission states that the aid is illegal since it was granted in contravention of the procedural rules referred to in Article 93(3) of the Treaty, it is incompatible with the common market pursuant to Article 92(1) of the Treaty and it does not meet the conditions for derogation provided for in Article 92(2) and (3) of the Treaty.In Article 2 it orders Portugal to cancel the aid referred to in Article 1 within fifteen days of notification of the Decision and, within two months of that date, to take the measures necessary to recover the aid referred to in Article 1. Article 2 provides that recovery of the aid is to be carried out in accordance with the procedures laid down in Portuguese legislation, with interest due from the date on which the aid was paid, and the interest rate to be applied must be the reference rate used to calculate subsidy equivalents in the context of regional aid.In Article 3 it imposes on Portugal the dual obligation of keeping the Commission regularly informed of the measures it adopts to comply with the Decision, making its first communication not later than one month from the notification of the Decision, and of sending the Commission, not later that two months after the expiry of the period provided for adopting the recovery measures, information to enable it to verify, without any additional investigation, that the obligation to recover the aid has been fulfilled.IV. The position of the parties with regard to the failure to fulfil obligations15. The Commission claims that, by failing to implement the Decision, Portugal is in breach of Article 189 of the EC Treaty (now Article 249 EC), which establishes that decisions are binding upon those to whom they are addressed. By its continued failure to implement the Decision it is in contravention of Article 93(3), because it does not acknowledge the suspensory effect of the provision, which is intended to prevent the payment of aid incompatible with the common market. Even if Portugal believed that the aid granted was compatible with the common market and that the Decision was unlawful, it should have complied with the time limits it was given.16. The Commission also considers that Portugal has not shown a willingness to discuss the specific methods of implementing the Decision and has failed to fulfil its duty to cooperate in good faith under Article 5 of the EC Treaty (now Article 10 EC). Nor has it initiated measures to cancel the guarantee or to neutralise the advantage afforded to the recipient undertaking. On the contrary, both the Government and the undertaking brought actions before the Community judicature contesting the legality of the Commission's acts, whereas the Commission itself initially refrained from bringing proceedings against Portugal for failing to implement the Decision of 30 April, in the belief that the Portuguese Government, at the very latest when it received the definitive decision, would stop infringing Community law.17. The consequences of the failure to implement the Decision are serious. EPAC continues to enjoy financial support which it would not have if the Portuguese State had not granted it the guarantee. The situation is liable to affect trade between the Member States, and competition in the cereals market may be distorted, especially in connection with the public tendering procedures which are regularly opened for the importation of cereals, when EPAC is able to put in more favourable bids than its competitors only because of the liquidity it obtained with the State guarantee. The Portuguese State's failure to fulfil its obligations - on which the Court of Justice is asked to adjudicate - may therefore be relied upon by EPAC's competitors in the national courts.18. In its defence, the Portuguese Republic acknowledges that, in principle, its failure to implement the Commission Decision of 9 July 1997 constitutes an infringement of Community law. It claims, in its defence, that no such aid has been given, since there has been no transfer of funds from the State to the undertaking, and that it has been absolutely impossible for the State to implement the decision because of insurmountable material and legal difficulties.19. Several material difficulties have made it absolutely impossible for Portugal to implement the Decision. Firstly, the operative part contradicts the statement of reasons. Throughout the [Portuguese version of the] statement of reasons the Commission refers to a measure, in the singular, which would be a State aid whereas, in the operative part [of the Portuguese version], it declares that aid measures, in the plural, are illegal and orders them to be cancelled. Furthermore, the Commission, after acknowledging that the Government authorised the negotiation of the restructuring of EPAC's liabilities under current market conditions, from which it is inferred that it has not assumed responsibility for the payment of interest, orders recovery to be carried out in accordance with national law with interest to run from the date on which the aid was paid out.Secondly, the Commission's orders were completely incomprehensible given the facts of the case, because it is difficult to determine how the State could proceed to recover aid or what, exactly, it was meant to recover, when all it had done was to grant a guarantee for the restructuring of an undertaking's liabilities, without any transfer of resources from the State to EPAC.20. There are also several insurmountable legal difficulties which have prevented Portugal from implementing the Decision. First, the State cannot unilaterally cancel the guarantee which has been granted because, if it were do to so, the creditor banks could require EPAC to repay the loan immediately, which would cause the undertaking to go into liquidation. Secondly, Portuguese law provides for the cancellation of a guarantee in only two circumstances: if it is negotiated with the creditors (and EPAC's creditors would not agree to waive a guarantee which was a decisive factor in the issuing of the loan), or where there is a decision of a court annulling the act by which the guarantee was granted because it constitutes State aid. Furthermore, the Government states that an action is pending before the Portuguese Supremo Tribunal Administrativo (Supreme Administrative Court) for a declaration annulling the guarantee issued by the State to EPAC's creditors and, finally, the Government itself maintains that the Decision is wholly inappropriate and contrary to the principle of proportionality.It also claims that the Commission knew of the reasons which made it impossible for Portugal to implement Decision 97/762. It does not believe that it has failed to fulfil its duty to cooperate in good faith and complains that the Commission ignored its arguments when it brought this action for failure to fulfil obligations, because the parties had established a satisfactory dialogue on this matter and Portugal had shown great readiness to negotiate throughout the process. In fact, in order to neutralise the competitive advantage which the guarantee afforded EPAC, the Portuguese Government officially notified the Commission that, until the Commission had expressed a view with regard to the question on the merits submitted to it by Portugal in the form of the EPAC Development Plan, the undertaking would refrain from participating in Community tendering procedures for the importation of cereals.21. In its reply the Commission points out that, in these proceedings, Portugal is attempting to dispute the legality of the Decision, under the pretext of finding it impossible to implement. Nevertheless, the Commission refutes, point by point, the arguments put forward by Portugal in its defence.22. With regard to the alleged contradiction between the Decision's operative part and its statement of reasons, which had prevented Portugal from understanding what it was to do, the Commission asserts that such an evaluation can only be the result of a hasty and superficial reading of the document. In fact, it clearly emerges, from the account of the facts, particularly from the letters sent by the Commission to Portugal and from the considerations contained in the statement of reasons of the Decision, that the measure referred to in the Decision could only be the guarantee granted to EPAC by the Portuguese Government.23. So far as concerns the absence of a transfer of resources from the State to EPAC, the Commission maintains that the State guarantee does not, for that reason, cease to be aid or to produce the characteristic effects of aid. Those effects could only be neutralised by recovering the interest relief generated by the guarantee when the rate applicable to the loan was negotiated, and by cancelling the guarantee itself. The Commission expresses surprise that the Portuguese Government has not invoked these unforeseen difficulties nor the absolute impossibility of implementing the Decision previously, and that it has not asked the Commission for clarification or put forward suggestions for attempting to implement it.24. With regard to the legal impossibility, the Commission points out that, when aid has been granted without following the procedure laid down in Article 93 of the Treaty, neither the direct beneficiaries nor third parties may rely on the principle of legitimate expectations to avoid returning it. The Commission denies that the Decision breaches the principle of proportionality because it merely orders the recovery of the interest relief and refrains, for the time being, from ordering recovery of the whole of the amount guaranteed. Finally, it points out that although it was aware of the circumstances invoked by the Portuguese Government, it has never conceded that they may amount to the absolute impossibility of implementing its decision properly. As for the informal contacts between the Commission and the Portuguese authorities, the purpose of these was to discuss EPAC's future and the matter of the implementation of the Decision was not raised.25. In the rejoinder, Portugal points out that it issued the guarantee to the banks which granted the loan to EPAC, that it cannot approach the undertaking for recovery of the aid and that it still does not understand what the Commission is referring to when it insists that Portugal must take steps to recover it. In any event, it has already applied to the national courts for cancellation of the guarantee and submitted to the Commission a proposed solution for restoring the economic viability and financial health of EPAC and subsequently privatising the undertaking, which will make it possible to cancel the guarantee. Portugal states that the grant of the guarantee was not gratuitous, but subject to 0.2% interest, and reiterates that the State took no part in determining the rate of interest at which the loan was agreed. It adds that it is the Commission which has breached the principle of loyal cooperation by acting with undue haste in bringing an action for failure to fulfil obligations.26. At the end of the written procedure, the Court of Justice invited the parties to reply to the questions it put to them.27. The Commission was asked, specifically, why, if what it had ordered in its Decision was the cancellation of the guarantee, it stated in paragraph 31 of the reply that, for the time being, it had refrained from ordering recovery of the whole of the guaranteed amount and merely ordered recovery of the interest relief.The Commission explains that, in its experience, when aid in the form of a guarantee is granted to an undertaking which is going through difficulties, it has the effect of refinancing the undertaking in the amount guaranteed, so that the loan amounts, in fact, to an outright grant, in view of the unlikelihood that the undertaking would repay it. It would therefore be feasible to require recovery of the amount guaranteed, although the Commission has not done so because, in this case, it thought it was enough to require the withdrawal of the guarantee so as to eliminate its effects and because, in order to restore the status quo, it asked for recovery of the advantage which the undertaking had enjoyed, which was finance at a reduced rate due to the existence of the guarantee, that is to say, the difference between the interest rates for the period from the time the loan was granted until the guarantee is cancelled.28. The Portuguese Republic was asked, first of all, whether the annulment by the Supremo Tribunal Administrativo of Decision 430/96-XIII of the Ministério das Finanças (Ministry of Finance) of 30 September 1996 granting the guarantee for the loan obtained by EPAC from a banking group, would allow the cancellation of the guarantee. Secondly, the Court of Justice wished to know to what extent a ruling from that court was necessary to recover the difference between the Community reference rate on the date the loan was granted, at 12.51%, and the six-month Lisbor rate of 6.75%, plus 1.2% for the non-guaranteed part of the loan (that is to say, the rate actually applied to EPAC), less the 0.2% premium which EPAC had to pay for the State guarantee.In answer to the first question, the Portuguese Government said that the action for annulment before the Supremo Tribunal Administrativo has been stayed until the Court of Justice delivers judgment in the action for the annulment of the Commission Decision. If, in the light of the judgment of the Court of Justice, the national court declares that the guarantee is void, that ruling will mean that the legal decision to grant it has ceased to exist. The Government will thus be released from its obligations towards EPAC's creditors in respect of the guarantee, but risks incurring non-contractual liability for having granted an unlawful guarantee because, in its decision, the State assured the banks that the granting of the guarantee did not constitute State aid.In answer to the second question it said that, in order to recover the advantage conferred, it is not necessary for the Supremo Tribunal Administrativo to declare the guarantee void, since repayment would have to be made by EPAC and would not involve the creditor banks.29. At the hearing, which was held on 21 September 1999, the parties confirmed the positions they had maintained during the written procedure.V. Preliminary remarks30. Before considering the Commission's action, I wish to make a few observations regarding the procedural framework within which it has been brought.31. The Commission lodged this action for failure to fulfil obligations after actions for the annulment of the Decision of 9 July 1997 had been brought before the Court of First Instance and the Court of Justice by EPAC and the Portuguese Government respectively.32. There is no question, of course, that the Commission has the power to bring proceedings under the second subparagraph of Article 93(2) for a declaration that a Member State has failed to fulfil its obligations if the Member State to which is a decision declaring aid to be unlawful is addressed does not implement it within the prescribed period. The Commission is granted this power in very clear terms by the Treaty and may exercise it whenever it thinks fit.33. However, I wish to highlight the state this mechanism has been in since 1993, when jurisdiction in matters of State aid passed from the Court of Justice to the Court of First Instance.34. A Commission decision declaring aid to be unlawful may be subject to an action for annulment brought by the Member State to which the decision is addressed and also by the recipient undertaking, in so far as a decision addressed to another person is of direct and individual concern to it within the meaning of Article 173(4) of the Treaty and if it is adequately defined.For this reason, it has become quite widespread practice to seek the annulment of such decisions before both courts at the same time. In these circumstances, under Article 47 of the Statute of the Court, either the Court of First Instance declines jurisdiction so that the Court of Justice may deliver judgment in both actions or the Court of Justice stays its own proceedings until the Court of First Instance has delivered judgment, with the possibility that, if the action is declared inadmissible or unfounded at first instance, the undertaking may appeal.35. However, the Commission's power to apply directly to the Court of Justice for a declaration that a Member State has failed to fulfil its obligations has remained intact and, where the action is brought before only one of the courts, the Court of Justice may make that declaration before a ruling has been made on the legality of the decision. Continuing with this hypothesis, which looks set to become reality in this case, a decision could be held to be unlawful even where the Court has already found a Member State to have failed to fulfil its obligations under that decision.36. Of course, this is not a new phenomenon. It is not the first time that an action for annulment has been brought against a Commission decision censuring State aid and, at the same time, that the Commission has sought a judgment against the Member State for not having implemented it. However, before the Court of First Instance was established, the Court of Justice was able to hear both cases at the same time and used to deliver judgment on the same day. This avoided the possibility of giving judgment against a Member State for failing to implement a decision which was subsequently held to be unlawful.37. However, if, in an action brought by the Commission under the second subparagraph of Article 93(2), the Court of Justice were unofficially to stay the proceedings and wait until the Court of First Instance had delivered judgment so as to hear the case at the same time as the action for annulment brought by the Member State, or as the appeal of the undertaking would, in practice, amount to suspension of the implementation of the contested act when neither the undertaking nor the Member State had applied to the Community judicature for the adoption of provisional measures, even though they could have done so.This result seems to be contrary to the scheme of the Treaty given that, under Article 185 of the EC Treaty (now Article 242 EC) actions brought before the Court of Justice do not have suspensory effect, and that, as this Court has also stated, it follows from the legislative and judicial system established by the Treaty that, although respect for the principle of the rule of law within the Community context entails the right to challenge the validity of Community measures by legal action, that principle also imposes upon all persons subject to Community law the obligation to acknowledge that such measures are fully effective as long as they have not been declared to be invalid.38. As I have pointed out, dealing with the cases separately is also not without drawbacks and risks; in the present case Portugal runs the risk that the Court of Justice will declare that it has failed to implement a Commission decision, the legality of which it has called into question before this same Court, before it has put forward its arguments with regard to whether that Decision is lawful. In these circumstances, the action for failure to fulfil obligations risks losing effectiveness and becoming an almost mechanical exercise, a formality unbefitting the jurisdiction of a constitutional court because, to be able to judge accurately whether the behaviour of a Member State is lawful, it will be necessary to wait until it is ascertained whether or not the action for annulment is well-founded.VI. Examination of the action39. It has been made clear in these proceedings that Portugal has not complied with the orders given to it by the Commission in Decision 97/762 of 9 July 1997. Those orders consisted of withdrawing the guarantee which had been granted and recovering from EPAC the difference between the market financial cost of bank loans, represented by the reference rate, and the financial cost actually paid by EPAC in the financial operation, taking account of the cost of the guarantee, which was 0.2%. Furthermore, the amount received was to be subject to default interest, in accordance with the Commission's letter to the Member States No SG(91) D/77 of 4 March 1991, payable from the date the illegal aid was granted, at the reference rate used to calculate subsidy equivalents in the context of regional aid.Nor has any evidence been adduced in these proceedings that Portugal has attempted to implement the Decision or to initiate a dialogue with the Commission with the aim of attempting to find a way to implement it. There are, on the other hand, documents proving that the parties have more or less regular contact, apparently with the aim of considering a possible future restructuring of EPAC, not the recovery of the state guarantee which had been granted to the undertaking.40. It is true that, under Article 189(4) of the Treaty, the Commission Decision of 9 July 1997, as such, is binding in its entirety upon the Member State to which it is addressed. The Court of Justice has already held that Articles 92 and 93 lay down the machinery for the review of the compatibility of state aids with the common market in such a way that any national measure instituting or altering any such aid is to be investigated by the Commission, that no such measure may be put into effect until the Commission has announced its decision and that, even if a Member State takes the view that the aid measure is compatible with the common market and that the contrary decision of the Commission infringes the provisions of the Treaty, that fact does not entitle it to disregard the clear provisions of Article 93 and to act as if that Decision were non-existent in law.41. The Portuguese Government does not dispute that it has a duty under the law to implement the Decision but denies having paid out any aid and states that, for material and legal reasons, it is absolutely impossible for it to implement the Decision properly.42. I do not think it is appropriate, within the framework of these proceedings, to examine the defence plea that no aid existed, which goes to the legality of the Decision. It is true that it is not possible to raise against Portugal the consistent case-law of this Court, according to which after the expiry of the period laid down in the third paragraph of Article 173 of the Treaty, a Member State which is the addressee of a decision adopted under the first subparagraph of Article 93(2) may not call in question the validity of the decision in the course of legal proceedings commenced pursuant to the second subparagraph of that provision, because, as I have already pointed out, that Member State did challenge the Decision within the prescribed period.However, it is also true that the Court has also consistently held that the system of remedies set up by the Treaty distinguishes between the remedies provided for in Articles 169 and 170 of the EC Treaty (now Article 226 EC and Article 227 EC respectively), which permit a declaration that a Member State has failed to fulfil its obligations, and those contained in Articles 173 and 175 of the EC Treaty (now Article 232 EC) which permit judicial review of measures adopted by the Community institutions, or the failure to adopt such measures. Those remedies have different objectives and are subject to different rules. In the absence of a provision of the Treaty expressly permitting it to do so, a Member State cannot therefore plead the unlawfulness of a decision addressed to it as a defence in an action for a declaration that it has failed to fulfil its obligations arising out of its failure to implement that decision.When a Member State argued that the Court of Justice should, by way of exception, exercise its power of judicial review in regard to a decision in those circumstances, the Court considered that it had such a duty only if the measure at issue contained such particularly serious and manifest defects that it could be deemed non-existent.However, Portugal has not drawn attention to defects of this kind in the Decision which it is charged with failing to implement.43. That is not the case with regard to the other plea raised by the Portuguese Republic. In fact, the case-law of the Court has established that the only defence available to a Member State in opposing an application by the Commission under Article 93(2) of the Treaty, is to plead that it was absolutely impossible for it to implement the decision properly. However, it has never yet been decided that a Member State has been in that situation.44. The insurmountable material difficulties which prevent Portugal from implementing the Commission Decision are: the Decision is so badly drafted that it cannot understand what it is to do; taking into account that there has been no transfer of resources by the State to the undertaking concerned, it does not know what it has to recover; and it is impossible to recover the aid, as the Commission requires it to do, because it is impossible to recover aid which does not exist.45. In my view, the examples given by Portugal in its pleadings to illustrate the difficulty it has in understanding the Decision do not prove that it is impossible for it to implement it. Admittedly, throughout the text the Commission refers to the granting of the guarantee in the singular and, in the operative part, [the Portuguese version] refers to aid in the plural. Nevertheless, the overall understanding of the Decision and, in particular, the scope of the obligations it imposes, cannot cause any problems for a reader with reasonable experience of dealing with legal matters and, even less so, for the specialised officials in a Member State, who have been involved in the previous procedures, both at national level to grant the guarantee and in the investigations carried out by the Commission.In any event, as the Court of Justice has held in a judgment on an application for judicial review with regard to State aid, the operative part of an act is indissociably linked to the statement of reasons for it, so that, when it has to be interpreted, account must be taken of the reasons which led to its adoption.46. The Portuguese Government also maintains that it cannot recover the aid because the act in which it decided to grant the guarantee is a legal act which has not translated into a transfer of resources by the State to the undertaking concerned. Now, without wishing to consider whether or not aid did exist in Portugal's case, I should like to point out, in this connection, that the opportunities afforded to Member States to favour certain undertakings are not limited to cases in which they transfer resources to them. As the Court has already held, the concept of aid is wider than that of a subsidy because it embraces not only positive benefits, such as subsidies themselves, but also interventions which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, without therefore being subsidies in the strict meaning of the word, are similar in character and have the same effect.47. Furthermore, as the Commission states in the Decision and in its pleadings, the fact that EPAC had a guarantee from the State for negotiating a loan with private banks has given it undeniable financial advantages over undertakings which do not enjoy that support and that those advantages are quantifiable. One of those advantages relates to the difference between the rate of interest which the undertaking would pay on a loan in the free market and the rate actually obtained with the help of the guarantee, minus any premium paid for the guarantee. The data needed to make this calculation is in Point V(13)(d) of the Commission's Decision of 9 July 1997.48. Portugal insists that the operation to restructure EPAC's liabilities was negotiated under market conditions and that the State played no part in those negotiations. However, in all probability, the interest rate which the private banks would have offered an undertaking in the financial situation in which EPAC found itself when it negotiated the loan would not have been the same as the one they granted to it when they knew it had the guarantee from the Portuguese State. Furthermore, if indeed the State guarantee in favour of EPAC made no difference to that undertaking's chances of negotiating such a large loan from private banks under the conditions in which it did so, why did the State guarantee the undertaking, if it was not necessary? However, the matter of whether or not illegal aid was granted cannot be considered in these proceedings and will be examined when the actions for annulment currently pending before the Community judicature are settled.49. The insurmountable legal difficulties preventing Portugal from implementing the Commission's Decision lie in the fact that the State cannot unilaterally cancel the guarantee, which was granted for the whole term of the loan agreement, without the consent of the banks which have granted the loan or a ruling of the Supremo Tribunal Administrativo annulling the administrative act by which the guarantee was granted.With regard to the annulment proceedings brought before the national courts, Portugal states that the Supremo Tribunal Administrativo is waiting to see whether the Court of Justice holds that the action for annulment of the Commission decision is well-founded. However, it must be borne in mind that the guarantee was granted in September 1996 for a term of seven years, that the proceedings in the action before the Court of Justice have been stayed until the Court of First Instance has delivered its judgment, and that the action brought by EPAC before the Court of First Instance is pending a judgment against which an appeal may be brought.When the Supremo Tribunal Administrativo is finally able to deliver a judgment, a large part of the period for which the guarantee was granted will have elapsed, so that, if it were necessary to wait until then to recover the guarantee, much of the effectiveness of this measure for competition law would be lost.50. Portugal's arguments appear to disregard the case-law of the Court of Justice relating to the recovery of aid granted illegally by the Member States.51. It is true that, in its Decision, the Commission states that recovery must be carried out in accordance with the procedures laid down in Portuguese legislation. However, the Court of Justice has ruled that, in principle, the recovery of aid unlawfully paid must take place in accordance with the relevant provisions of national law, subject however to the proviso that those provisions are to be applied in such a way that the recovery required by Community law is not rendered practically impossible. In this connection the Court has added that the interests of the Community must be taken fully into consideration in the application of the relevant provisions of national law which requires the various interests involved to be weighed up before an unlawful administrative measure is revoked.Furthermore, the Court has consistently held that a Member State may not plead provisions, practices or circumstances existing in its internal legal system in order to justify a failure to comply with its obligations under Community law.In any event, the Portuguese Government has stated, in reply to one of the written questions put to it by the Court, that, to recover the advantage conferred, it is not necessary for the Supremo Tribunal Administrativo to declare that the guarantee is void, because repayment would have to be made by EPAC and would not involve the creditor banks.52. Portugal maintains that, even if it could unilaterally withdraw the guarantee, the cancellation would not have any effect on the legal position of the creditor banks, which have concluded the agreement on the basis that the guarantee would continue during the term of the agreement. However, the Court has held that Community law requires the competent authority to revoke a decision granting unlawful aid, in accordance with a final decision of the Commission declaring the aid incompatible with the common market and ordering recovery, even if the competent authority is responsible for the illegality of the aid decision to such a degree that revocation appears to be a breach of good faith towards the recipient, where the latter could not have had a legitimate expectation that the aid was lawful because the procedure laid down in Article 93 of the Treaty had not been followed.53. This case-law is also applicable to the banks which granted the loan to EPAC with the State guarantee, despite the protestations of the Portuguese Government, in point (v) of the second recital of the administrative act it adopted to grant the guarantee to EPAC, that it was not State aid. In fact, only the Commission is permitted to adopt decisions relating to aid and, when the measure was adopted, the draft had not been brought to the Commission's attention.As Advocate General Cosmas points out with regard to the possibility that third parties other than the recipients could rely on the principle of legitimate expectation in respect of recovery of aid, ... it was the duty of the creditor banks to exercise the necessary circumspection and care and they were obliged to make the necessary check of the legality of the guarantee. In fact, as early as 24 November 1983, the Commission had made it clear in a communication published in the Official Journal of the European Communities, that the recipients of aid not lawfully granted might be required to repay it. The Communication stated: "The Commission wishes to inform potential recipients of State aid of the risk attaching to any aid granted them unlawfully, in that any recipient of an aid granted unlawfully, that is, without the Commission having reached a final decision, may have to refund the aid".54. When the State cancels the guarantee, the creditor banks might seek to recover their loan from EPAC and, if it is not repaid to them, they may seek protection in the national courts against an unlawful act of the Member State by bringing the appropriate legal proceedings, under national law, in respect of liability for the conduct of State institutions.55. The fact that the guarantee may have helped to conclude a loan agreement governed by private law is also irrelevant to the mandatory obligation to recover it. Otherwise, as the Commission points out, the Member States could resort to the practice of granting aid in agreements subject to private law in order to evade their obligations under Articles 92 and 93 of the Treaty. In circumstances in which a decision ordered the cancellation and recovery of aid, granted by a local administration to a private undertaking and consisting of the sale of a plot of land at less than the market price, the Court of First Instance held that the fact alone that the administration may be obliged to resile a clause in the contract relating, in this case, to the purchase price, owing to its alleged irregularity, and to bring proceedings against the recipient undertaking in order to recover the amount of aid alleged, would not be contrary to the principle of pacta sunt servanda but would simply be an application of the principle that the administrative authorities must act within the law.56. Nor may Portugal validly use the possible bankruptcy of EPAC as an excuse for refusing to implement the Commission's Decision. Indeed, the Court has held: The fact that, on account of the undertaking's financial position, the Belgian authorities could not recover the sum paid does not constitute proof that implementation was impossible, because the Commission's objective was to abolish the aid, and, as the Belgian Government itself admits, that objective could be attained by proceedings for winding up the company, which the Belgian authorities could institute in their capacity as shareholder or creditor.57. Portugal concludes its arguments with regard to the impossibility of implementing the Decision for legal reasons by stating that the act was not only inappropriate but also contrary to the principle of proportionality. However, the Court considers that the abolition of unlawful aid by means of recovery is the logical consequence of a finding that it is unlawful.Consequently, the recovery of State aid unlawfully granted for the purpose of re-establishing the previously existing situation cannot in principle be regarded as disproportionate to the objectives of the Treaty in regard to State aid.58. Portugal adds that, although the Commission was aware of the reasons which made it impossible for the Member State to comply with its demands, it adopted the Decision and brought an action against Portugal for failure to fulfil its obligations. Portugal believes that, if the two parties had remained in contact, they could have achieved an amicable solution.I must say, once again, that the Portuguese Government seems to disregard the extensive case-law of the Court of Justice, according to which where a Member State, in giving effect to such a decision, encounters unforeseen or unforeseeable difficulties or perceives consequences overlooked by the Commission, it must submit those problems for consideration by the Commission, together with proposals for suitable amendments to the decision. In such a case the Commission and the Member State concerned must respect the principle underlying Article 5 of the Treaty, which imposes a duty of genuine cooperation on the Member States and Community institutions; accordingly, they must work together in good faith with a view to overcoming difficulties whilst fully observing the Treaty provisions and in particular the provisions on aid.59. However, in this case, the Portuguese Government has not established contact with the Commission for the purpose of implementing the Decision, and the meetings to which the Member State refers were held to negotiate a proposal which was submitted to the Commission after this action had been brought and which seeks a long-term solution for EPAC. The same applies to the statement of intent issued by the Portuguese Government at the end of 1997, to the effect that in future EPAC would refrain from participating in Community tenders for the importation of cereals.60. As the Portuguese Republic has not shown that it was impossible to implement the Decision addressed to it by the Commission on 9 July 1997, the application should be upheld.VII. Costs61. Since the arguments put forward by the Commission have been upheld, the Portuguese Republic should be ordered, pursuant to the first subparagraph of Article 69(2) of the Rules of Procedure, to pay the costs of the proceedings.VIII. Conclusion62. In view of the foregoing considerations, I propose that the Court of Justice should:(1) declare that, by failing to implement Decision 97/762/EC on the measures taken by Portugal to assist EPAC, the Portuguese Republic has failed to fulfil its obligations under the EC Treaty;(2) order the Portuguese Republic to pay the costs.