6.2.2007   

EN

Official Journal of the European Union

L 32/1

(1)

Following information received by the Commission on the existence in France of a programme to control pollution of agricultural origin (‘Programme de maîtrise des pollutions d'origine agricole’ — hereafter called PMPOA or the programme) the Commission sent a letter to the French authorities on 24 February 2000 requesting information on the application of that programme since 1994. By letter dated 31 May 2000 France confirmed that the PMPOA had existed since 1994. Additional information was requested by the Commission by letter dated 11 July 2000. The French authorities replied by letter dated 26 December 2000.

(2)

On 13 February 1991 France notified a State aid relating to aid for investments in individual pig farms in favour of the environment. The Commission authorised the aid by letter of 11 December 1991 (2). In addition, on 20 April 1993, as part of a part-financed structural programme and in accordance with Article 29(4) of Council Regulation (EEC) No 2328/91 of on improving the efficiency of agricultural structures (3), France forwarded DEPSE/SDEE circulars No 93-7005 of 2 March 1993 and No 7027 of 5 November 1992 on investment aid in the beef and veal sector. In accordance with Regulation (EEC) No 2328/91 on 29 July 1993 the Commission adopted a Decision authorising a Community financial contribution to that joint measure (4). However, the national aid was not notified to the Commission within the meaning of Article 88(3) of the Treaty (5). The French authorities declared that those provisions, which predated the entry into force of the PMPOA, had been integrated into it by DEPSE circular No 7016 of 22 April 1994. They therefore form the beef and pig sector components of the PMPOA. That circular was also not notified to the Commission within the meaning of Article 88(3) of the Treaty.

(3)

By letter of 13 June 1994 France notified a State aid for investments to protect the environment in the poultry sector. That scheme, later integrated into the PMPOA as its poultry sector component, was authorised by the Commission by letter of 26 April 1995 (6).

(4)

France did not notify within the meaning of Article 88(3) of the Treaty the agreement of 8 October 1993 creating the programme, nor any other document describing the characteristics of the PMPOA relating in particular to the programme’s financing key (7). The Commission, in particular, was not informed of the participation of water supply agencies in financing the programme.

(5)

Moreover, in respect of the beef and veal sector, France did not notify the Commission of the planned investment aids.

(6)

No notification regarding young farmers was submitted to the Commission.

(7)

By letter of 11 April 2001 the Commission informed France of its decision to initiate proceedings as provided for in Article 88(2) of the Treaty against the PMPOA. The present Decision concerns only the application of the PMPOA in the period 1994-2000.

(8)

The Commission decision to initiate proceedings was published in the Official Journal of the European Communities  (8). The Commission invited the other Member States and interested parties to submit their comments on the aids in question. The Commission received no comments from third parties. France submitted its comments by letter of 21 June 2001.

(9)

Extension of the PMPOA from 2001 was authorised by the Commission by letter of 30 October 2001 (9).

(10)

The PMPOA is the result of an agreement between the French state and French agricultural trade organisations dated 8 October 1993 which entered into force on 1 January 1994. The purpose of the programme was to enable farmers to adapt their equipment and working practices with a view to better environmental protection in general and water protection in particular. The pollution identified as the subject of the programme was water pollution by plant health products and by mineral and organic fertilisers.

(11)

The PMPOA particularly sought compliance with Council Directive 91/676/EEC of 12 December 1991 concerning the protection of waters against pollution caused by nitrates from agricultural sources (10) (hereafter called the nitrates Directive) and the national provisions to introduce a code of good farming practice. It related to all production methods: livestock and crops.

(12)

In order to satisfy the legal requirements and to avoid polluting water resources with animal waste it was deemed necessary to improve animal housing and to manage liquid waste. The cost of the work on housing alone was indicatively estimated at that time at approximately EUR1 billion up to 2002. An investment programme was launched; its overall financing plan was: livestock rearers: one-third of the cost; the State (Ministry of Agriculture and Fisheries) and local authorities, one-sixth each; water supply agencies: one-third (11). In return, livestock farmers likely to qualify for aid had to pay the pollution charge levied by the water supply agencies.

(13)

By memorandum of 24 February 1994 to the relevant administrative bodies the French ministries of agriculture and of the environment defined the procedures adopted by the national monitoring committee responsible for implementing the programme: timetable, financing keys, application by rearers.

(14)

As regards the programme’s link to the classified installations, the French authorities stated in the memorandum that it was in the interests of the rearers to comply with the provisions relating to protection of water resources in the ministerial decrees of 29 February 1992 on livestock farms when work under pollution control contracts was being carried out.

(15)

Implementation of the PMPOA followed a sectoral approach and was by means of circulars containing the aid rules from the Ministry of Agriculture and Fisheries to the regional and departmental prefects. At the request of the Commission the French authorities sent copies of the following circulars:

(16)

Aid beneficiaries were managers or owners of property for farming use in the beef and veal, pig and poultry sectors. The aim of the investments was to redevelop existing housing so as to increase storage capacity for animal waste and improve storage equipment to bring it in line with the requirements of the nitrates Directive (12).

(17)

Financing consisted of a State contribution of 35 % of the costs in the form of a capital subsidy covering 30 % of the costs to which could be added a low-interest loan, the subsidy equivalent of which corresponded to 5 % of the costs. Participation by the water supply agencies to the extent of one-third of the costs was not mentioned in the circulars referred to in recital 15.

(18)

With regard to the beef and veal and pig sectors, aid was also planned for farmers implementing their projects under a material improvement plan (MIP) in less-favoured areas in the form of capital aid of 30 % and a loan with a subsidy equivalent of 15 %. The rates were increased in the case of young farmers (43,75 % in lowland areas and 56,25 % in less-favoured areas). For young farmers in the poultry sector an increase of 5 % via a soft loan was provided for.

(19)

DEPSE/SDEEA circular No 7001 of 15 January 1996 amended the aid rates in favour of young farmers setting up from 1 January 1996. The capital subsidy rate was increased from 30 % to 35 % in less-favoured areas and priority rural development areas. No soft loan was provided for. In other areas the capital subsidy rate was increased from 30 % to 32,5 %. A supplementary loan having a subsidy-equivalent effect of 2,5 % was permitted.

(20)

To qualify for the aid, farmers had to submit a preliminary study performed on their behalf by approved experts and resulting in the drawing up of the farmer’s investment project. Analyses were used as the basis for the pollution control contract (see recital 21) and, therefore, for the definition of the eligible amount for each of the parties participating in the public financing of the work. The studies amounted to 2 % of the cost of the investments and were subsidised at the rate of 50 % by the State and 50 % by the water supply agencies up to a ceiling of FRF 6 000 before taxes (equivalent to EUR 914).

(21)

The pollution control contract was the factor which guaranteed the farmer that the aid provided for in the PMPOA would be applied and that any charge by the water supply agencies would dbe offset. It was a contract of confidence which of necessity highlighted the existence of environmental problems on a farm but the purpose of which was to help resolve them. It was signed by all the financial partners, including the farmer.

(22)

Firstly, the Commission felt that the involvement of the water supply agencies in the PMPOA was a State aid within the meaning of Article 87(1) of the Treaty. The water supply agencies were responsible for one-third of the funding of the PMPOA’s investment costs. The Commission only became aware of their involvement after dissemination of a report evaluating the management and progress of the PMPOA drawn up by the Inspectorate-General of Finances, the standing committee for the coordination of inspections of the Ministry of Agriculture and Fisheries and the Conseil Général for agricultural engineering, water resources and forests (13).

(23)

The Commission noted the fact that Article 2 of French decree No 66-700 of 14 September 1966 on water supply agencies stipulated that the agencies were public State bodies enjoying legal personality and financial independence and that French legislation made it clear that the agencies were public in nature.

(24)

In its decision to initiate the procedure the Commission concluded that, in the light of the legalislation adopted in France on the water supply agencies and their operating methods, and the decisions of the Court of Justice of the European Communities and the Court of First Instance (14), the water supply agencies were to be regarded as extensions of the State and that their funding of investments on agricultural holdings therefore constituted State aid (15).

(25)

The Commission considered that the amounts allocated to cattle, pig and poultry farmers, including those provided by the water supply agencies, conferred on those farmers an advantage from which other forms of production could not benefit. This was therefore State aid granted by France which, by distorting or being likely to distort competition by favouring certain undertakings or production sectors, was likely to affect trade between the Member States. Consequently the measure fell under Article 87(1) of the Treaty.

(26)

The Commission also concluded that the State aid put into effect by France constituted new aid not notified to the Commission which could by dint of that be considered unlawful aid within the meaning of the Treaty. The Commission based its arguments on Article 1(f) of Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty (16), which defines unlawful aid as new aid put into effect in contravention of the former Article 93(3) (now Article 88(3)) of the Treaty. The term new aid covers all aid, that is to say, aid schemes and individual aid, which is not existing aid, including alterations to existing aid.

(27)

The Commission noted that any aid scheme authorised by the Commission into which major changes were later introduced — in this case, relating to the participation of a public body in the financing of an aid notified to the Commission, thus significantly altering the financing key and, consequently, the aid rate — constituted a new aid which had to be notified to the Commission within the meaning of Article 88 of the Treaty and authorised by it. The notification obligation was established by Article 1(c) of Regulation (EC) No 659/1999. The Commission stated that varying the aid rate appeared per se to constitute an element modifying the substance of the aid which made notification within the meaning of Article 88(2) of the Treaty obligatory.

(28)

The Commission then carried out an assessment of the aids in question in the light of paragraph 23.3 of the Community guidelines on State aid in the agriculture sector (17) (hereafter ‘the agriculture guidelines’), which states that any unlawful aid within the meaning of Article 1(f) of Regulation (EC) No 659/1999 is to be assessed in accordance with the rules and guidelines in force at the time the aid is granted.

(29)

With regard to the subsidised investments and the form of aid, the Commission considered that, where the pigmeat sector was concerned, the type of investment had actually been continued in the PMPOA and that the investments corresponded in the main to those notified to and authorised by the Commission. With regard to the beef and veal sector, the Commission, even though it had not examined the aid from the point of view of the Community’s competition rules at the time, noted its compatibility with those rules when it initiated the procedure. With regard to the poultry sector the Commission noted that the PMPOA included exactly what it had previously authorised. Lastly, with regard to the scheme in favour of young farmers setting up from 1 January 1996, the Commission concluded that the scheme did not engender any changes in the scheme as regards the section on eligible investments, but was restricted to a change in the form of that part of the aid financed by the State.

(30)

The Commission was therefore able to conclude on the nature of the investments and the forms of aid provided for by the French authorities that the aids, while tainted with illegality, had been put into effect in compliance with the Community competition rules applicable at the time. The Commission did not therefore object to that aspect of the aid as applied.

(31)

Where the financing key for the aid was concerned, the Commission noted that, according to the rules applicable at the time the programme was launched, the ceiling for investment aid to protect the environment was 35 % of the eligible costs (45 % in less-favoured areas). The fifth indent of Article 12(5) of Regulation (EEC) No 2328/91, which provides for scrutiny of national aids in the light of former Articles 92 and 93 (now Articles 87 and 88) of the Treaty and Article 6 of that Regulation, authorised investment aid to protect the environment provided it did not give rise to an increase in production. In its decision on State aid N 136/91, the Commission took account of the fact that it normally considered as compatible with the common market an aid rate of 35 % of eligible costs for that type of aid (45 % in less-favoured areas within the meaning of Council Directive 75/268/EEC of 28 April 1975 on mountain and hill farming and farming in certain less-favoured areas (18). Those aid rates were confirmed in paragraph 3.2.3 of the Community guidelines on State aid for environmental protection (19) shortly after entry into force of the programme.

(32)

In addition, the French authorities explained the existence and nature of those ceilings in the sectoral circulars applying the PMPOA as referred to in recital 15. They wrote that the European Union had authorised a derogating rate of 35 % for public aid to this type of investment linked to improvement of the environment.

(33)

Given that the programme’s financing key provided for a contribution to investment costs of one-third by the State and local authorities (equal shares, i.e. one-sixth each), one-third by the water supply agencies and one-third by the farmers, and that the contribution by the water supply agencies constituted a State aid, the Commission concluded in its decision to initiate the procedure that the aid ceilings authorised for that type of investment appeared not to have been respected, for the result of the funding of the PMPOA by the water supply agencies would have been to increase the rate of public financing to two-thirds of the investment costs, i.e. some 66,6 % of the costs incurred. According to the Commission that was some 31,6 % (21,6 % in less-favoured areas) more than the permitted rate. A similarly excessive rate applied to the scheme in favour of young farmers setting up on or after 1 January 1996 since the amendments to the scheme related only to the form of the aid in the part financed by the State and therefore did not result in an overall increase in the assistance rate in favour of them.

(34)

However, the Commission also considered the fact since 1 January 2000, the date of application of the agriculture guidelines, it had been authorising, on the basis of paragraph 4.1.1.2 of those guidelines, aid rates for that type of investment of 40 % of costs incurred (50 % in less-favoured areas). For young farmers the accepted rate was 45 % (55 % in less-favoured areas). That meant that, applying these favourable conditions, the excess aid rates granted in 2000 would have been only 26,6 % (16,6 % in less-favoured areas) and, for young farmers, 21,6 % (11,6 % in less-favoured areas), for investments implemented from 1 January 2000 and meeting the conditions set out in the agriculture guidelines.

(35)

Since the aid authorised by the Commission for investments was based on a permitted maximum rate of public financing of 35 % of their costs (45 % in less-favoured areas), or 40 % to 55 %, depending on circumstances, from 1 January 2000, the Commission had to conclude in its decision to initiate the examination procedure that the level of aids granted under the PMPOA did not appear to tally with the aid rate it authorised and so all public funding granted above the authorised ceilings constituted a State aid incompatible with the Treaty.

(36)

Having examined the information provided by the French authorities, the Commission had doubts as to the compatibility with the common market of the aid for investments financed under the PMPOA during the period 1994-2000, in particular in respect of the aid amounts which had been granted in excess of the authorised aid rates of 35 % or 45 %. For that reason the Commission initiated the procedure provided for in Article 88(2) of the Treaty.

(37)

The Commission also concluded that the aid rate used by the French authorities for arranging for the holding analyses was in compliance with the applicable competition rules.

(38)

By letter of 21 June 2001 the French authorities submitted their comments on the Commission’s decision to initiate the Article 88(2) procedure against the notified aid.

(39)

The French authorities noted the Commission’s legal opinion on the public nature of the aid from the water supply agencies. The authorities stated that the French government was planning to revise Act No 64/1245 of 16 December 1964 on water resources and their distribution and controlling their pollution, which defined the underlying principles of the operation of the water supply agencies for the purpose of in future submitting to Parliamentary vote the rules for calculating water charges and the guidelines for financial assistance programmes by the agencies.

(40)

Nevertheless the French authorities believed that the provisions of Article 12(5) of Regulation (EEC) No 2328/91, subsequently Article 12(3)(d) of Council Regulation (EC) No 950/97 on improving the efficiency of agricultural structures (20) could have been used to exceed the intensities of 35 % and 45 %. They stated that those provisions allowed for the prohibition of the aids and the limitations on exceeding the rates to be waived in the case of certain investments, including those for environmental protection purposes.

(41)

With regard to the impact on competition of the involvement of the water supply agencies in the PMPOA, the French authorities believed that the agencies were not unjustifiably favouring a specific national sector for the following reasons: The investments were non-productive so, even at high aid rates, they were a burden on the finances of the farms and placed the farmers concerned in a disadvantageous position compared to those not carrying out such investments. The latter were by far the more numerous in France. It was the French authorities’ opinion that the distortion of competition would therefore generally be to the detriment of the farmers concerned and not to their benefit.

(42)

The French authorities stated that if there were a distortion of competition with in the light of Article 87 of the Treaty it could only by comparison with farmers in other Member States who had carried out similar work, but with financial aid limited to 35 %, or 45 % in less-favoured areas. They stated that the existence of such a distortion could really only be assessed on a case-by-case basis.

(43)

The French authorities pursued their argument by claiming that the actual aid rates applied to such work varied substantially from one farmer to the next depending on the precise rules for applying the programme. They explained that the rates were very generally much lower than 60 % if they were calculated using the value of the aid expressed as a percentage of the amount of the investment, in accordance with Article 7(2) of Regulation (EEC) No 2328/91 and Article 7(2) of Regulation (EC) No 950/97.

(44)

According to the French authorities, the rules for applying the aid granted by the State as communicated to the Commission define the general framework for applying the programme. The water supply agencies decided to adopt the same list of eligible works but the aid ceilings were not always the same. For instance, technical limits (in m2 of covered exercise area, for example) were added locally, both for the aid from the agencies and for that from the State or local authorities, and those limits often reduced the financeable portion of the eligible works. Lastly, certain water supply agencies applied an overall ceiling on the aid by amount of nitrogen per livestock unit (UGBN).

(45)

Thus, as a result of the different ceilings the actual aid rate granted, relative to the expenditure agreed by the farmer for the eligible works, is, according to the French authorities, always in practice lower than the maximum rates permitted under the programme.

(46)

The French authorities explained that during work on improving environmental effectiveness some farmers carried out modernisation work. The latter was not eligible and did not therefore receive aid under the PMPOA.

(47)

In the cattle rearing sector, which represented 80 % of the total number of farms eligible under the PMPOA, the actual average aid rate was quite low, often between 35 % and 50 %, and also varied greatly according to production method. That was the result of a large variety of effluent — liquid, solid and most often mixed — and therefore of effluent storage in terms of both its nature (slurry or dung pits) and its capacity, and because of that investments in storage, land concreted-over and coverage for exercise areas were subject to technical limits or particularly low financial ceilings.

(48)

In intensive pig and poultry farms waste storage capacity was usually adequate to cope with periods when spreading was banned. In that case works consisted in re-sealing the pits or existing concrete surfaces or in installing bi-phase supply systems, reducing pollution at source in pig farms and improving the management of droppings in poultry farms. The actual aid rate could in that case be increased to up to 60 % of the cost of eligible works, as Table 1 shows. However, the cost of the works was usually much lower than for the beef and veal sector.

(49)

According to the French authorities, a study covering 20 000 dossiers in the Loire-Bretagne water supply region showed that the average aid rate was 40 %.

(50)

Some of those dossiers related to new structures built under the programme in cases where for various reasons it was felt inappropriate to carry out the recommended works on existing buildings. The French authorities felt that those cases had to be dealt with separately because in that case the aid no longer fell under aid for environmental protection, but instead under modernisation aid as provided for in Article 7(2)(b) of Regulation (EEC) No 2328/91 and Article 12(4)(c) of Regulation (EC) No 950/97. The amount of aid could therefore not exceed 35 % or 26,25 % (45 % or 38,75 % respectively in less-favoured areas) of the cost of the works, depending on whether the farmer could or could not obtain a material improvement plan. In such cases the actual aid rate was, in the examples shown in Table 2, always well below those rates — column (a) indicating what the cost of the environmental works would have been had the buildings been preserved.

(51)

Work on existing buildings and new structures could also be carried out on the same farm.

(52)

Lastly, if it was necessary to make the comparison on a case-by-case basis, the French authorities felt that farmers paying an annual charge to a water supply agency should under all circumstances be excluded from the scope of the comparison.

Table 1

Examples of actual aid rates for upgrading work under the PMPOA

Table 2

Examples of actual aid rates in the case of the construction of new buildings

(53)

Article 87(1) of the Treaty states: ‘Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market.’

(54)

Articles 87 to 89 of the Treaty were made applicable to the pigmeat sector by Article 21 of Council Regulation (EEC) No 2759/75 on the common organisation of the market in pigmeat (22). In the beef and veal sector they were made applicable by Article 40 of Council Regulation (EC) No 1254/1999 on the common organisation of the market in beef and veal (23). Prior to the adoption of the latter, they were made applicable in that sector by Council Regulation (EEC) No 805/68 on the common organisation of the market in beef and veal (24). In the poultrymeat sector they were made applicable by Article 19 of Council Regulation (EEC) No 2777/75 on the common organisation of the market in poultrymeat (25).

(55)

The nature of the aid must be established for each agricultural holding having carried out investments under the PMPOA. The Commission believes that the funding of the PMPOA has conferred a selective advantage on French farmers.

(56)

The Commission believes that, contrary to the claims of the French authorities in their comments, the non-productive nature of the investments does not cancel out the impact of the advantage of the aid in purely financial terms, since it takes over a cost normally incurred by the beneficiary, thus placing the latter at an advantage vis-à-vis competitors who do not receive such aid.

(57)

Moreover, even assuming that such non-productive investment could initially be a financial burden on the farms by, according to the French authorities, placing the farmers in question at a disadvantage by comparison with those not carrying out such investments, it is no less true that those investments comply with a precise legal obligation and that, in the end, all the farmers concerned must carry out such an investment in order to avoid committing an infringement.

(58)

In order to establish whether the aid which is the subject of this Decision falls within the scope of Article 87(1) of the Treaty we must firstly establish whether it is likely to affect trade between the Member States.

(59)

The Court of Justice has ruled that when an advantage granted by a Member State strengthens the position of an undertaking compared with undertakings competing in intra-Community trade the latter must be regarded as affected by that advantage (26).

(60)

It appears that the aid which is the subject of this Decision is likely to affect trade between Member States in so far as it favours national production to the detriment of production in other Member States. The sectors in question are particularly open to competition at a Community level and therefore highly sensitive to any measure in favour of production in one or other Member State.

(61)

Table 3 shows trade between France and the other Member States in the products concerned during the first year after the PMPOA entered into force.

Table 3

(62)

The measures examined in this Decision constitute State aid within the meaning of the Treaty because they provide beneficiaries with a financial advantage from which other sectors cannot benefit. Consequently, the Commission concludes that the measures fall within the scope of Article 87(1) of the Treaty.

(63)

Article 1(f) of Regulation (EC) No 659/1999 defines unlawful aid as new aid put into effect in contravention of Article 88(3) of the Treaty. In accordance with Article 1(c) of that Regulation the term new aid covers all aid, that is to say aid schemes and individual aid, which is not existing aid, including alterations to existing aid.

(64)

Any aid scheme authorised by the Commission to which major modifications are subsequently made — in this case, relating to the involvement of a public body in the financing of the aid notified to the Commission significantly altering the financing key and, therefore, the aid rate — constitutes a new aid which must be notified to, and authorised by, the Commission within the meaning of Article 88 of the Treaty.

(65)

The Court of Justice has held that the obligation to inform the Commission of plans to grant or alter aid as provided for in the first sentence of Article 88(3) of the Treaty does not apply solely to the initial plan but also covers subsequent alterations to that plan; such information may be supplied to the Commission in the course of the consultations which take place following the initial notification (27).

(66)

The notification obligation is established by Article 1(c) of Regulation (EC) No 659/1999.

(67)

It must be noted that inclusion of an information sheet in the list of aids drawn up by the French Ministry of Agriculture merely has an informative value and cannot be described as a notification for the purpose of the Treaty. Moreover, the information in it makes no reference to the involvement of the water supply agencies in the programme but states that the State’s contribution is 35 % of the cost of the investments.

(68)

The Commission has not been able to assess the involvement of the water supply agencies in the programme or the impact that their involvement could have had on public assistance to the investments concerned. More specifically, it was not able to examine the possible impact that the involvement of a public body in financing the aid was likely to have in terms of the aid rate. Consequently, the aids actually granted by the French authorities did not necessarily comply with the conditions authorised by the Commission for State aids N 136/91 and N 342/94.

(69)

Variation of the aid rate constituted per se a factor altering the substance of the aid which made notification within the meaning of Article 88(2) of the Treaty obligatory.

(70)

With regard to the beef and veal sector, the French authorities had not notified the Commission of the investment aid. They claimed, however, that once the Commission deemed the scheme eligible for a Community financial contribution they were justified in deducing that it was compatible with Community rules. Article 12(5) of Regulation (EEC) No 2328/91, which applied at that time, stipulated that aid for investment in the protection and improvement of the environment was authorised provided that it did not entail an increase in production and that it complied with Articles 92 to 94 (now 87 to 89) of the Treaty. That included the obligation to notify all State aid schemes within the meaning of the former Article 93(3) of the Treaty, all the more so as the conditions applied to the aids in 1994 were not the same as those communicated to the Commission in 1991.

(71)

It is clear from the above that the State aids put into effect by France were new aids not notified to the Commission and hence unlawful within the meaning of the Treaty.

(72)

Article 87 of the Treaty does, however, provide for exceptions, even though some of them are clearly not applicable, particularly those provided for in paragraph 2 of the Article. They were not invoked by the French authorities.

(73)

With regard to the derogations provided for in Article 87(3) of the Treaty, these must be interpreted strictly during the examination of any regional or sectoral aid programme or of any individual case of the application of general aid schemes. They may be granted only if the Commission can establish that the aid is necessary for the realisation of one of the objectives in question. Allowing such derogations to apply to aids which do not involve such a quid pro quo would be tantamount to permitting interference with trade between Member States and distortion of competition that has no justification in the light of Community interest and, by the same token, undue advantages to operators in certain Member States.

(74)

The Commission is of the opinion that the aids in question are not intended to promote the economic development of a region in which the standard of living is abnormally low or in which where there is serious underemployment within the meaning of Article 87(3)(a) of the Treaty. Nor are they intended to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State within the meaning of Article 87(3)(b), or to promote either culture or heritage conservation within the meaning of Article 87(3)(d).

(75)

Article 87(3)(c) of the Treaty stipulates that aid to facilitate the development of certain economic activities or of certain economic areas may be considered to be compatible with the common market, where such aid does not adversely affect trading conditions to an extent contrary to the common interest. To be entitled to that derogation, the aid must contribute to the development of the sector in question.

(76)

Turning to the investments subsidised and the form of the aid, the Commission concluded when initiating the procedure that the aid, while tainted with illegality, had been put into effect in compliance with the Community competition rules applicable at the time. The Commission has no cause to call into question that part of the aid as applied.

(77)

Therefore, the resultant examination of the compatibility of the aid only concerned the aid rates applied by the French authorities.

(78)

The Commission noted when initiating the examination procedure that under the rules applicable at the time the programme entered into force the ceiling for aid for environmental protection investments was 35 % of costs incurred (45 % in less-favoured areas).

(79)

Nevertheless, the French authorities believe that Article 12(5) of Regulation (EEC) No 2328/91, later Article 12(3)(d) of Regulation (EC) No 950/97, could have been used to exceed the rates of 35 % and 45 %. According to the French authorities those rules permit derogations from the aid prohibitions and restrictions on exceeding those intensities in the case of certain investments, including those intended to protect the environment.

(80)

The Commission initially noted that the fifth indent of Article 12(5) of Regulation (EEC) No 2328/91, which provides for national aid to be examined for compliance with Articles 92 and 93 (now 87 and 88) of the Treaty, and with Article 6 of the same Regulation, authorised aid for investments intended to protect the environment provided they did not result in an increase in production. The Commission believes it is proven that the investments targeted by the aid in question did not bring about an increase in production since they were exclusively intended for the protection of the rural environment (in particular, the storage and treatment of waste).

(81)

With regard more specifically to the permitted aid rate, the Commission, in its decision addressed to France on State aid N 136/91, noted that it normally considered as compatible with the common market a rate of 35 % of eligible costs for that type of aid (45 % in less-favoured areas).

(82)

Those aid rates were confirmed by the Community guidelines on State aid for environmental protection shortly after the PMPOA was put into effect. Paragraph 3.2.3 of those Guidelines stated that as a general rule aid for environmental investment could be authorised up to specific levels. The second paragraph of footnote 14 explained that ‘for investments covered by Article 12(1) and (5) of Council Regulation (EEC) No 2328/91 […] the maximum aid level is 35 %, or 45 % in […] less-favoured areas […]. These maximum aid levels apply irrespective of the size of the enterprise. Consequently, the maxima may not be increased for SMEs as provided for below in this section. For investments in Objectives 1 and 5(b) regions, the Commission reserves the right, on a case-by-case basis, to accept higher aid levels than the above, where the Member State demonstrates to the satisfaction of the Commission that this is justified.’

(83)

Regulation (EEC) No 2328/91 was repealed by Regulation (EC) No 950/97. Article 12(2)(e) of the latter stipulated that Member States could grant aid to investments intended for ‘the protection and improvement of the environment, provided that such investments do not entail an increase in production capacity’. Article 12(3) stipulated that ‘in the case of individual or associated holdings which satisfy the conditions of eligibility laid down in Articles 5 and 9, aids for investments which exceed the amounts laid down in Article 7(2) and (3) and 11, are prohibited’. However, pursuant to point (d) of the second subparagraph of Article 12(3) that prohibition applied only to aid intended for ‘the protection and improvement of this environment’.

(84)

Article 12(2) and (3) of Regulation (EC) No 950/97 stipulated that Articles 92 to 94 (now 87 to 89) of the Treaty applied to those aids. That is tantamount to a reversion to the competition rules applicable at the time, i.e. Community practice as already cited in the decision on State aid N 137/91, and to the conditions contained in the Community guidelines for environmental protection.

(85)

The Commission, on the basis of the provisions applicable in 1994-1999 as described in this Decision, can only conclude that the maximum aid intensity applicable to the aid in question was 35 % of costs incurred (45 % in less-favoured areas) and that, therefore, aid granted in excess of those intensities was not in compliance with those provisions.

(86)

However, where the year 2000 and aid for investments in agricultural holdings are concerned, paragraph 4.1.1.2 of the agriculture Guidelines, which applied from 1 January 2000, stipulated that the maximum rate of public support, expressed as a volume of eligible investment, was limited to a maximum of 40 %, or 50 % in less-favoured areas. However, in the case of investments made by young farmers within five years after setting-up, the maximum rate of aid was increased to 45 %, or 55 % in less-favoured areas.

(87)

Paragraph 4.1.2.4 of the agriculture Guidelines stipulated, as an exception, that where investments resulted in extra costs relating to the protection and improvement of the environment, the improvement of hygiene conditions of livestock enterprises or the welfare of farm animals, the maximum aid rates of 40 % and 50 % referred to in point 4.1.1.2 could be increased by 20 or 25 percentage points respectively. Thus, the increase could be granted for investments aimed at ensuring compliance with the recently introduced minimum standards, subject to the conditions in Article 2 of Commission Regulation (EC) No 1750/1999 of 23 July 1999 laying down detailed rules for the application of Council Regulation (EC) No 1257/1999 on support for rural development from the European Agricultural Guidance and Guarantee Fund (EAGGF) (28). It had to be strictly contained within the limits of the additional eligible expenditure needed to realise the aim in question and must not concern investments having the effect of increasing production capacity.

(88)

The entry into force on 23 January 2004 of Commission Regulation (EC) No 1/2004 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises active in the production, processing and marketing of agricultural products (29) changed the legal situation on the case in question. The Regulation authorises, under certain conditions, aid to small and medium-sized agricultural holdings while exempting them from the notification obligation under Article 88(3) of the Treaty.

(89)

The French authorities explained that the beneficiaries of the investment aid under the PMPOA during the period 1994-2000 were small and medium-sized enterprises within the meaning of Article 2(4) of Regulation (EC) No 1/2004.

(90)

Article 20(2) of Regulation (EC) No 1/2004 stipulates that individual aid and aid schemes implemented before the date of entry into force of this Regulation and aid granted under those schemes in the absence of a Commission authorisation and in breach of the notification requirement of Article 88(3) of the Treaty are to be compatible with the common market within the meaning of Article 87(3)(c) of the Treaty and be exempt if they fulfil the conditions laid down in Article 3 of that Regulation, except the requirements in paragraph 1 and paragraph 2(b) and (c) of that Article.

(91)

Article 3(3) of Regulation (EC) No 1/2004 stipulates that aid granted under the schemes referred to in paragraph 2 of that Article is to be compatible with the common market within the meaning of Article 87(3)(c) of the Treaty and exempt from the notification requirement of Article 88(3) of the Treaty provided that the aid fulfils all the conditions of the Regulation.

(92)

Article 4 of Regulation (EC) No 1/2004 contains the conditions which have to be respected in the case in question, i.e. in the case of an unnotified investment aid scheme in favour of small and medium-sized enterprises.

(93)

Thus, under Article 4(1) of Regulation (EC) No 1/2004, aid for investments in agricultural holdings in favour of the production of agricultural products is compatible with the common market and exempt from the notification obligation if the gross aid intensity does not exceed 50 % of eligible investments in less-favoured areas and 40 % in other areas.

(94)

However, if the investments result in extra costs linked to the protection and improvement of the environment the maximum aid intensities of 50 % and 40 % may be increased by 25 and 20 percentage points respectively. This increase may only be granted for investments which go beyond the minimum Community requirements in force, or for investments made to comply with newly introduced minimum standards. The increase must be limited to the extra eligible costs necessary and must not apply in the case of investments which result in an increase in production capacity.

(95)

In the case in question it is clear that the investments are aimed at protecting and improving the environment and the applicable environmental legislation is the nitrates Directive. This was adopted in 1991 and could not therefore be described as new legislation in 2000.

(96)

The Commission has already expressed its opinion on that problem as part of State aid N 355/2000, in authorising the continuation of the PMPOA from 2001 to 2006. In line with the arguments invoked at the time, the Commission today insists that it cannot ignore the fact that the initial French action programme implementing the nitrates Directive was only adopted in 1997 and that the actual initial obligations imposed on livestock rearers on the spot, transposing that programme, are subsequent to that date. Even if it seems clear that France did not exercise due diligence in transposing the Directive and that it should have adopted the necessary provisions within time limits long since passed (30), it cannot be denied that the initial obligations of which the livestock rearers were aware were much more recent.

(97)

Moreover, unlike some other Community rules, the Nitrates Directive contains no precise obligations to which economic operators had to agree without the prior intervention of the Member State. Neither does the Directive contain time limits within which installations have to be adapted.

(98)

For that reason, the Commission maintains its opinion that, in the light of the particular circumstances surrounding the nitrates Directive, the obligations on the rearers could be deemed to be new rules within the meaning of Regulation (EC) No 1/2004. Any other interpretation would have the effect of penalising rearers because of France’s omission to take legal action.

(99)

It is the Commission’s opinion that investments in non-vulnerable areas within the meaning of the nitrates Directive, where the conditions required by the Directive do not apply, could in any case benefit from the higher rates because less exacting rules than those envisaged in that Directive apply and the planned work goes beyond the minimum requirements existing in those regions.

(100)

Turning to investments to be realised in vulnerable areas, the Commission, while remaining consistent to its reasoning already expressed on the new nature of the rules imposed on the rearers, must conclude that an increase in the aid rates could be applied in the case in question. The rates could therefore be set at 60 % of investment costs, or 75 % in less-favoured areas.

(101)

Given that the figures provided by the French authorities show that the level of the aid never in practice exceeded 60 % of incurred costs the Commission believes that the aid granted during the period 1994-1999 under the PMPOA can be authorised.

(102)

In the light of the reasons given, the Commission considers the notified measure to be compatible with Community rules, in particular with Article 87(3)(c) of the Treaty.

(103)

The measure consisting in the grant of aid to investments in favour of farmers under the programme to control pollution of agricultural origin (PMPOA) during the period 1994-2000 may benefit from the derogation provided for in Article 87(3)(c) of the Treaty,

6.2.2007   

EN

Official Journal of the European Union

L 32/14

(1)

By letter dated 17 December 1999, registered as received on 22 December 1999, the Italian Permanent Representation to the European Union notified the Commission, in accordance with Article 88(3) of the Treaty, the above aid scheme relating to assistance from AIMA (Associazione italiana dei mercati agricoli — Italian Association for Agricultural Markets) to the Italian poultry market, which was said to have suffered a drastic fall in the consumption and sales of poultry as a result of the 1999 dioxin crisis.

(2)

By letters dated 8 August 2000, registered as received on 9 August 2000, 15 November 2000, registered on 21 November 2000, 27 February 2001, registered on 1 March 2001, and 23 May 2001, registered on 28 May 2001, the Italian Permanent Representation to the European Union sent the Commission the additional information sought from the Italian authorities by letters dated 18 February 2000 (ref. AGR 5073), 2 October 2000 (ref. AGR 25123), 10 January 2001 (ref. AGR 000449) and 24 April 2001 (ref. AGR 009825).

(3)

By letter dated 30 July 2001, the Commission informed Italy of its decision to initiate the procedure provided for in Article 88(2) of the Treaty in respect of this aid.

(4)

The Commission Decision to initiate the procedure was published in the Official Journal of the European Communities  (1). The Commission invited interested parties to submit their comments on the measure.

(5)

The Italian authorities submitted their comments by letter of 24 October 2001, registered as received on 26 October 2001. The Commission received no comments from other interested parties.

(6)

National programme of AIMA assistance for 1999. The legal basis for the proposed aid scheme is Article 3(1)(d) of Law No 610/82, which authorises AIMA, ‘using the financial resources at its disposal and based on the situation on the market and according to availability (…), to provide food products to developing countries, designated in agreement with the Ministry for Foreign Affairs and after consulting the national food institute’.

(7)

The Italian Unione nazionale dell'avicoltura (UNA) (National Union of Poultry Farmers) had asked AIMA to intervene on the market in order to offset the serious impact of the dioxin crisis on the consumption of poultrymeat.

(8)

Initially (see letter dated 17 December 1999), following the refusal of AIMA to purchase 17 000 tonnes of unsold meat, worth ITL 40 billion (approximately EUR 20 million), UNA had proposed selling some of the meat (11 450 tonnes) at reduced prices on the markets of developing countries; the difference between the actual commercial value of the goods and the selling price (approximately ITL 20 billion i.e. 50 % of the market value) would have been covered by AIMA.

(9)

After the Commission had stated in its letter dated 18 February 2000 that the aid appeared to be an export refund covering the difference between the price of poultry in the third world and its price on the Italian market (and, therefore, by its very nature incompatible with the common market, with the Community’s obligations under the World Trade Organisation and with the common organisation of the market), the Italian authorities no longer referred, in their letter dated 10 August 2000, to the initial purpose of the aid, but argued that the losses suffered by Italian poultry farmers were the result of exceptional occurrences (rather than normal market risks) and were therefore eligible for the derogation provided for in Article 87(2)(b) of the Treaty.

(10)

The programme provides for compensation for poultry farmers following the fall in prices and the collapse in sales caused by the dioxin crisis and the ensuing alarm among consumers. The aid corresponds to the difference between average prices in countries not affected by the crisis and prices in Italy in June-July 1999 (the period considered for the purposes of compensation). According to the Italian authorities, average prices in countries not affected by the crisis (excluding Italy) were EUR 137,89/100 kg in June and EUR 132,35/100 kg in July. The price difference was therefore EUR 53,966/100 kg in June and EUR 46,218/100 kg in July (2). The maximum aid is ITL 21 150/100 kg (EUR 10,92/100 kg) and ITL 15 400/100 kg (EUR 7,95/100 kg). Aid is granted for meat produced and marketed in June and July 2001 and the total amount of aid is EUR 10 329 138.

(11)

In support of their argument, the Italian authorities state that the dioxin crisis caused not only a collapse in production and trade (due to disturbances on the market following the outbreak of the crisis) but also a sharp fall in the consumption of poultry products. According to data provided by the Italian authorities, 34 700 000 kg of meat was sold at reduced prices in June 1999 (compared with 52 000 000 kg of meat sold in June 1998), followed by 30 200 000 kg in July 1999 (compared with 51 000 000 kg of meat sold in July 1998 (3). In spite of the preventive measures taken by UNA to avoid a crisis of overproduction of poultrymeat (involving the slaughter, in March, of chicks that would have reached maturity in the next few months), the measures were unsuccessful because of the dioxin crisis.

(12)

In their letters dated 21 November 2000 and 28 May 2001, the Italian authorities stress the vital role played by the media during the crisis and claim that the alarm triggered by the media aggravated the sharp fall in the consumption of poultrymeat (29,1 % in June, 10,1 % in July, 16,2 % in August and 5,9 % for the year as a whole compared with a year earlier). The collapse in demand caused a sharp reduction in prices, particularly in June and July (down 30 % and 30,1 % respectively compared with the same months of the previous year). In addition, in order to cope with this situation, Italian producers had to place 4 150 tonnes of chicken in storage in June, 9 271 tonnes in July and 2 595 tonnes in August because they could not dispose of it on the market.

(13)

The scheme provides for no compensation for disposing of poultry or poultry products unfit for sale or consumption.

(14)

The maximum aid planned is ITL 20 billion (EUR 10 329 138).

(15)

The Commission initiated the procedure provided for in Article 88(2) of the Treaty because of its doubts as to the compatibility of the scheme with the common market. These doubts concerned whether or not the aid in question could be viewed as an aid to compensate for losses due to an exceptional occurrence. The Italian authorities referred to Article 87(2)(b) of the Treaty, under which aid to make good the losses caused by exceptional occurrences is compatible with the common market. The notification refers to the dioxin crisis as an exceptional occurrence.

(16)

The Treaty does not define the concept of exceptional occurrence and the Commission applies this provision on a case-by-case basis after making a detailed assessment of the event concerned. In the case of the dioxin crisis affecting food and feedingstuffs produced in Belgium, the Commission had concluded that this was an exceptional occurrence within the meaning of Article 87(2)(b) of the Treaty because of the nature and extent of the restrictions that had to be imposed to protect public health in that Member State (4).

(17)

There are also other precedents as regards the definition of exceptional occurrence, involving, in particular those relating to aid granted by the United Kingdom (5) during the BSE crisis: the Commission had concluded that it was an exceptional occurrence, in view, in particular, of the ban on exporting beef and veal and the fall in the consumption of beef and veal due to the uncertainties and concern caused by the news about BSE. It must however be stressed that the examples quoted involve countries directly affected (the United Kingdom in the case of BSE and Belgium in that of dioxin) and not, as in this case, a country where the market was disturbed because of consumers’ concerns (about dioxin).

(18)

In the cases cited, the Commission approved the compensation paid to producers for losses of income because the losses of market share and the fall in consumption were caused not only by consumer alarm but also by exceptional factors that prevented normal trade in the products concerned (a series of measures taken by the authorities, combined with extraordinary behaviour on the part of consumers and the media). In the above-mentioned decisions, a direct and immediate link could be established between all the facts considered to comprise an exceptional occurrence and the losses suffered by the undertakings concerned.

(19)

The Italian authorities have so far been unable to offer convincing proof of a link between the losses of income suffered by agricultural producers and an exceptional occurrence, which would allow the Commission to approve the payment of compensation under Article 87(2)(b) of the Treaty. The rapid spread of alarm among consumers, resulting in a serious disturbance of the market on which Italian poultry farmers operate, the loss of market share and, consequently, a reduction in the normal level of turnover, does not appear, on the basis of the information available, to constitute in itself an exceptional occurrence within the meaning of the Treaty. In addition, there is nothing to show that the national or Community authorities adopted measures to prevent sales.

(20)

Even were it to be concluded that the media impact in Italy was greater than in other European countries, because of public sensitivity to questions of food safety and the existence of a strand of public opinion that was very critical of livestock-rearing systems, this would still not demonstrate the exceptional nature of the event.

(21)

The Commission looked into why Italian producers had not taken advantage of the situation to increase their sales of poultry products abroad (or even in Italy), since Italy, unlike Belgium, was not one of the countries directly affected by the dioxin crisis.

(22)

Another aspect to be clarified is the statement by the Italian authorities that poultry farmers were forced to freeze unsold meat (4 150,8 tonnes in June, 9 271,3 tonnes in July and 2 595,9 tonnes in August). This does not serve to rule out the possibility that the poultry products remaining unsold during the crisis could have been sold at a later date, in which case the losses incurred would be less than those declared during examination of this case. In addition, the Commission was not in a position to establish the quantities of meat remaining unsold due to the fall in demand caused by the fear of dioxin or the extent of overproduction based on an incorrect estimate of demand over the summer.

(23)

In the light of the above, the Commission could not rule out that the aid was intended simply to improve the financial situation of producers without in any way contributing to the development of the sector and, moreover, that since the aid was granted solely on the basis of price, quantity or unit of production it was to be regarded as constituting operating aid within the meaning of point 3.5 of the Community guidelines for State aid in the agriculture sector (6) (hereafter referred to as the ‘guidelines’) and, therefore as being incompatible with the common market.

(24)

The Commission accordingly expressed doubts about the existence of a link between the loss of income suffered by Italian poultry farmers and an exceptional occurrence and about whether the aid could meet the requirements for approval under Article 87(2)(b) or Article 87(3)(c) of the Treaty (since, as regards the latter subparagraph, the aid did not appear to facilitate the development of a particular economic activity) or those for approval under one of the points of the guidelines.

(25)

In their letter dated 24 October 2001, registered on 26 October 2001, the Italian authorities pointed out, among other things, that the fall in the consumption of poultry products in June, July, August and, to a lesser extent, up until December 1999 had not been questioned in the decision to initiate the procedure.

(26)

According to the Italian authorities, since the losses caused by a fall in sales and prices were not questioned by the Commission, they only had to establish a link between those losses and the dioxin crisis. They claim that such a link is proven by the fact that the first news about dioxin in poultry was broadcast at 7 p.m. on 28 May 1999 and the sudden downturn in sales occurred from June 1999 onwards (29 % fall compared with June 1998). They affirm that the consumption trend in Italy closely followed the public alarm triggered by the media, with a sharp drop in sales when the news concerning dioxin was first broadcast, a resumption of sales in July, when media interest declined, and a further reduction in August following news of the European Union decision to double the maximum permissible level of dioxin in certain products. They add that, from September onwards, with the media paying increasingly less attention to the matter, the consumption of poultry products gradually returned to its normal level.

(27)

Consequently, the Italian authorities believe there is an undeniable link between consumer concern following news broadcasts about dioxin in Belgium and the fall in consumption and prices.

(28)

It therefore remains to be proven that the dioxin crisis in Italy can be regarded as an exceptional occurrence within the meaning of Article 87(2)(b) of the Treaty. The Commission is said to have already recognised the exceptional character of the dioxin crisis in Belgium, in view of the nature and extent of the restrictions imposed to safeguard public health. While Italy may not have been directly affected by the dioxin crisis, according to the Italian authorities there is no question that the effects of the crisis went beyond national borders and also affected neighbouring countries, including Italy.

(29)

The Italian authorities argue that an ‘exceptional occurrence’ within the meaning of Article 87(2)(b) of the Treaty is any unforeseeable event or any event that is difficult to predict, such as a natural disaster. Therefore, it is the event in itself that should be assessed, rather than the measures adopted to cope with the resulting crisis, which are simply a consequence of the event. They state that, in the case of BSE in the United Kingdom, the Commission had accepted the exceptional nature of the event because of the ban on meat exports, but especially because of the fall in the consumption of beef and veal caused by the uncertainty and fear aroused by the news concerning BSE. The Italian authorities claim that the same situation arose in Italy in 1999 following the dioxin scare. The ban on UK exports did not contribute to any major extent to the fall in consumption, since, even without the ban, consumers abroad would in any case have reduced their consumption of beef and veal (just as consumers in the UK did), thus preventing producers from finding other outlets abroad for their products. In the case of dioxin in 1999, it should be added that all non-member countries banned imports of poultrymeat from the EU at the time of the crisis.

(30)

The Italian authorities argue that the reason why Italian producers neither turned to foreign markets nor exploited the Italian market is related to the transnational character of the event, which went well beyond the borders of Belgium.

(31)

The incomes of certain Italian poultry undertakings over the period June-August 1999 clearly attests, according to the Italian authorities, to this fall in prices and sales.

(32)

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

(33)

Article 19 of Council Regulation (EEC) No 2777/75 of 29 October 1975 on the common organisation of the market in poultrymeat (7) lays down that, save as otherwise provided in that Regulation, Articles 87, 88 and 89 of the Treaty apply to the production of and trade in the products covered by that Regulation.

(34)

The planned measure provides for the payment of public funds (totalling ITL 20 billion) to certain undertakings and is granted on a selective basis to poultry farmers presumed to have suffered losses resulting from the dioxin crisis. In addition, this measure favours certain products (poultry products) and, in view of Italy’s share of total EU poultry production (13,2 %), is likely to affect trade. In 2001, gross Italian poultry production amounted to 1 134 000 tonnes out of an EU-15 total of 9 088 000 tonnes (8).

(35)

The measure under examination therefore constitutes state aid as defined in Article 87(1) of the Treaty.

(36)

The prohibition on state aid is not absolute. In this case, the Italian authorities invoked the derogations provided for in Article 87(2)(b) of the Treaty, under the terms of which aid to make good the damage caused by natural disasters or exceptional occurrences can be considered to be compatible with the common market.

(37)

Since the Treaty gives no definition of ‘exceptional occurrence’, it must be verified whether the dioxin crisis in Italy can be treated as an exceptional occurrence within the meaning of Article 87(2)(b) of the Treaty.

(38)

In accordance with the Community guidelines for state aid in the agricultural sector (9), in assessing aid to compensate for losses caused by natural disasters or exceptional occurrences, because they constitute exceptions from the general principle of the incompatibility of state aid with the common market enshrined in Article 87(1) of the Treaty, the Commission has consistently held that the concepts of natural disaster and exceptional occurrence found in Article 87(2)(b) must be interpreted restrictively. Hitherto the Commission has accepted that earthquakes, avalanches, landslides and floods may constitute natural disasters. Exceptional occurrences that have hitherto been accepted by the Commission include war, internal disturbances or strikes and, with certain reservations and depending on their extent, major nuclear or industrial accidents and fires that result in widespread loss. On the other hand, the Commission did not accept that a fire at a single processing plant which was covered by normal commercial insurance could be considered as an exceptional occurrence. As a general rule, the Commission does not accept that outbreaks of animal or plant diseases can be considered to constitute natural disasters or exceptional occurrences. However, in one case the Commission did recognise the very widespread outbreak of a completely new animal disease as an exceptional occurrence. Given the inherent difficulties in foreseeing such events, the Commission will continue to evaluate proposals to grant aid in accordance with Article 87(2)(b) on a case-by-case basis, having regard to its previous practice in this field. Such a case-by-case analysis is particularly necessary in such a sensitive sector as poultry farming, where any market measure could conflict with measures laid down under the common organisation of the market.

(39)

Generally speaking, the Commission cannot accept that the chemical contamination of foodstuffs intended for human consumption constitutes, in itself, an exceptional occurrence within the meaning of Article 87(2)(b) of the Treaty. In fact, the risk of contamination is a consequence of a failure to guarantee the highest quality standards throughout the food chain.

(40)

In the case of the dioxin crisis in Belgium, numerous elements had to be taken into account before it could finally be established that this crisis constituted an exceptional occurrence. The Commission first of all looked at the scope of the measures adopted to deal with the crisis and protect human health, including a ban on the marketing and retail sale of poultrymeat, a ban on the trade in and the export to third countries of certain animal products intended for human and animal consumption and the imposition of a series of conditions, including the monitoring, the traceability and the control of the products concerned (10). The crisis was declared to be an exceptional occurrence on the basis of two facts, namely the announcement made by the Belgian authorities, along with the emergency measures subsequently adopted and the consequent impossibility of marketing production, which created a crisis situation for Belgian producers. This crisis situation, by its nature and its effects on the operators concerned, differed sharply from the usual situation and the conditions under which the market normally operates. The rapid spread of alarm among consumers and the ban on Belgian animals and animal products imposed by various third countries seriously aggravated the crisis and severely disrupted the market on which Belgian producers sold their products, led to a loss of market share and, consequently, a reduction in turnover compared with what would have been expected in a normal market situation.

(41)

Neither the chemical contamination of products nor the fall in sales was sufficient in itself to conclude that this was an exceptional occurrence, which was the result of significant measures to restrict the marketing and exportation of these products, combined with the sharp fall in sales and prices. The alarm among consumers and their reaction to the dioxin contamination of poultrymeat were only contributing factors to the exceptional nature of the occurrence.

(42)

In the case of Italian producers, it should be noted that no measures were adopted restricting the marketing or exportation of products and no restrictive measures were adopted to protect consumer health, since the country was not directly affected by the crisis. The only unforeseeable factor that created disruption on the market was the spreading of alarm among consumers and their reaction to contamination detected elsewhere.

(43)

The situation in Italy cannot be compared with that in the countries directly affected by the crisis. The dioxin crisis was declared to be an exceptional occurrence in Belgium, not an exceptional occurrence in itself. As stressed in recitals 37 to 40, neither the chemical contamination of foodstuffs intended for human consumption nor the spread of alarm among consumers constitutes an exceptional occurrence within the meaning of Article 87(2)(b).

(44)

The Italian authorities also referred to the first BSE crisis in the United Kingdom. In that case, the extraordinary situation in the beef and veal sector was caused by the total ban imposed on the exportation of live animals and of beef and veal from the United Kingdom to other Member States and to non-member countries. The effects of the market measures adopted in response to the problem of BSE in the United Kingdom were unprecedented. The Commission pointed out that, in the context of the measures adopted to deal with the crisis, that there was a total ban on all British meat and meat products that might enter the human and animal food chain and an unprecedented fall in domestic meat consumption. The fall in consumption was related to the stringent restrictions imposed on the market, which had created a situation that could be described as exceptional.

(45)

In addition, concerning more recent cases of BSE in Europe (11), the Commission pointed out that a fall in sales or incomes was not regarded as an exceptional event. The collapse in sales is regarded as the consequence of an exceptional occurrence, caused by an unusual combination of factors. As in the cases referred to above, aid intended to deal with an exceptional occurrence within the meaning of Article 87(2)(b) was approved in the countries directly concerned, in which various factors contributed to the exceptional nature of the crisis: the very serious negative repercussions on European agricultural producers, the alarm that spread among consumers, the ban imposed by a large number of non-member countries on animals and meat products from the EU and a series of incidents beyond the control of livestock farmers that aggravated the crisis situation and spread fear among consumers. All this caused serious disruption of the market on which European producers sell their products, a subsequent loss of market share and a reduction in turnover compared with what would have been expected in a normal market situation.

(46)

A major factor that the Commission took into account in recognising that crisis as an exceptional occurrence was the stable and balanced situation on the market for beef and veal before the crisis. However, as shown below (see recitals 54 to 57 below) and as declared by the Italian authorities themselves (see letters dated 28 August and 15 November 2000), this was not the case with the market for chicken in Italy, on which there was already overproduction and falling prices.

(47)

In all the cases referred to above, and in particular those referred to by the Italian authorities, the exceptional occurrence occurred in the country concerned and led to the adoption of a series of restrictive, market-control and health measures which contributed to a fall in sales and prices of the products concerned.

(48)

In addition, an exceptional occurrence must at least, by its nature and its effects on the operators concerned, differ sharply from the usual situation and the conditions under which the market normally operates. The unforeseeable nature of an occurrence and the difficulty in predicting it can contribute to its exceptional nature, but are not in themselves sufficient to declare it ‘exceptional’ within the meaning of Article 87(2)(b) of the Treaty.

(49)

In this case, the alleged fall in sales is no different from other events that determine demand, such as closure of an export market. Such events are just as unforeseeable, but form part of the normal commercial risks to which an undertaking is exposed and are in no way exceptional within the meaning of Article 87(2)(b) of the Treaty.

(50)

According to the Italian authorities, Italian producers had no other market outlets, because the crisis had spread well beyond the borders of Belgium and the consumption of poultrymeat had fallen throughout Europe.

(51)

However, according to information available to the Commission, intra-Community exports of poultry in June and August 1999 remained at their usual levels and were actually slightly higher than in the previous year. Intra-Community exports in July were higher than the average for 1999 and than in the corresponding month of the previous year. Although this increase was not enough to absorb all the unsold production declared by the Italian authorities, it mitigated the impact of the crisis on producers, allowing them to sell a part of their production on the Community market. The Italian authorities provided no figures to prove the absence of other outlets on the Community market, simply stating that, because of the crisis, the consumption of chicken in all other European countries had also fallen. At the same time, they state that certain countries, such as Denmark, Greece, Spain, Ireland, Austria, Portugal, Finland, Sweden and the United Kingdom, could be taken as reference countries for comparing prices (see recital 7 above) because they were not affected by the crisis. They could therefore have provided an outlet for at least a part of this surplus production.

(52)

In addition, in view of the policy of the Commission as regards the application of Article 87(2)(b) of the Treaty in the agricultural sector, any overcompensation of losses must be ruled out.

(53)

The compensation mechanism planned by the Italian authorities is based on aid for meat produced and marketed during June and July 1999, calculated on the basis of the difference between the average price in countries not affected by the crisis and the average price in Italy. According to the Italian authorities, this difference was EUR 53,966/100 kg in June and EUR 46,218/100 kg in July. The aid is ITL 21 150/100 kg (or EUR 10,92/100 kg) and ITL 15 400/100 kg (or EUR 7,95/100 kg.

(54)

This calculation method raises two problems. The first concerns the statement by the Italian authorities that farmers had to freeze unsold meat (12). This would have allowed poultry products unsold during the crisis to be sold at a later date and losses would have been less than declared during examination of this case. The Italian authorities made no comment on this point. Consequently, the risk of overcompensation for the losses, with a part of production being sold at a later date, probably at normal prices, cannot be ruled out. In addition, the Italian authorities declared that 43 170,1 tonnes of chickens were slaughtered in June 1999 and 47 485,9 tonnes in July, making a total of 90 656 tonnes (see letter dated 15 November 2000), while the quantities of meat sold were 34 700 000 kg in June 1999 and 30 200 000 kg in July, a total of 64 900 tonnes. The quantities frozen in June and July were 4 150,8 tonnes and 9 271,3 tonnes respectively, making a total of 13 422,1 tonnes. No information was provided regarding what was done with the part of production that was not sold or frozen and could therefore have been put to another commercial use.

(55)

Italy refers to average prices in other European countries not affected by the crisis, without taking into account the fact that prices in Italy were already falling before June 1999 and that prices for poultrymeat vary. The table below shows price trends in Italy in 1998, 1999 and 2000 (13):

Monthly market price of whole chickens

(56)

According to the Italian authorities, the poultrymeat sector was already experiencing overproduction and, consequently, producers decided in March to slaughter a percentage of the chickens they had been intending to slaughter in April and May, the aim being to reduce the supply of meat in June by 4,8 %. According to the Italian authorities, because of the dioxin crisis, 10 % of production in June was not slaughtered and marketed but rather was kept until July and August, increasing supplies during those two months. On the basis of the data available to the Commission, the number of chicks being reared increased in February, March and April, leading to an estimated 5,6 % increase in production in June.

(57)

A comparison of the data for the slaughter of chickens between May and August 1999 with those for the same months of the previous year shows an increase in the number of chickens slaughtered in May 1999, and therefore in the supply of chickens, of almost 9 %; in June 1999, the supply was down 10 % on June 1998 and in July 1999 the number of chicken slaughtered was almost 10 % up on the figure for the same month in 1998. This upward trend in supplies continued in August 1999 (+6,5 %). Assuming that prices follow the supply trend, it can be deduced that prices would have fallen from their April level, when they were already lower than the European average because of overproduction. Consequently, comparing the prices of chickens in Italy in June and July with the average of prices in those countries not affected by the dioxin crisis would lead to an overestimation of the value of chickens in Italy.

(58)

Given the variability of prices of chickens in Italy and the downward trend in prices already seen before the dioxin crisis broke, no useful comparison can be made between selling prices in June 1999 and those in June 1998 and any comparison would, in any case, not reflect the overproduction that was already affecting the market for chicken in Italy and the resulting fall in prices already being felt. The statement by the Italian authorities that producers had already taken measures to correct the situation on the market, slaughtering chicks in March that were due to be slaughtered in April and May in order to reduce supplies in June and July, does not tally with the numbers of chicks being reared and, therefore, with estimates for production, which indicate an increase in supplies in June and a small reduction (1,6 %) in July. Any attempt to forecast selling prices in June and July 1999 (compared with prices in June 1998 or prices recorded in other European countries not affected by the dioxin crisis) using these figures would be no more than guesswork.

(59)

Consequently, the Commission can conclude that, since consumer alarm does not in itself constitute an exceptional occurrence within the meaning of Article 87(2)(b) of the Treaty and that the method of calculating losses proposed by the Italian authorities could lead to an overestimate of the losses suffered by Italian poultrymeat producers, the measure cannot be considered to be compatible with the common market under Article 87(2)(b).

(60)

Even if the aid is examined in the light of Article 87(3) of the Treaty, the only conclusion that can be reached is that it is incompatible with the common market. Article 87(3)(a) does not apply, because the aid is not intended to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment.

(61)

As regards Article 87(3)(b), the aid is not intended to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State.

(62)

As regards Article 87(3)(d) of the Treaty, the aid is not intended to achieve the objectives laid down in that subparagraph.

(63)

As regards Article 87(3)(c) of the Treaty, since the Italian authorities correctly notified the law for evaluation within the meaning of Article 88(3), the rules laid down in the Community guidelines for state aid in the agricultural sector (14) (hereinafter the guidelines) apply. In accordance with point 23.3 of the guidelines, the guidelines apply to new state aid, including that already notified by the Member States, but on which the Commission has not yet ruled, with effect from 1 January 2000.

(64)

Aid to compensate for losses of income related to animal diseases is governed by point 11.4. It may include reasonable compensation for loss of profit, taking into account the difficulties involved in restocking the herd or replanting and any quarantine or waiting period imposed or recommended by the competent authorities to allow the elimination of the disease before the holding is restocked or replanted. The compulsory slaughter of animals by order of the health/veterinary authorities, under a plan for preventing and eradicating the animal disease is therefore a necessary condition for granting this aid.

(65)

From the notification, it is clear that the health/veterinary authorities issued no order to slaughter animals under a plan for preventing and eradicating an animal disease, since the chemical contamination did not affect Italian undertakings. Consequently, the measure under consideration does not meet the conditions laid down in point 11.4 of the guidelines.

(66)

In the light of the above, the aid for undertakings in the poultrymeat sector cannot be regarded as aid intended to compensate for losses caused by an exceptional occurrence within the meaning of Article 87(2)(b) or as aid eligible for one of the exemptions provided for in Article 87(3). Consequently, the aid in question appears to be operating aid incompatible with the common market in accordance with point 3.5 of the guidelines (15).

(67)

The aid also infringes the rules laid down in Regulation (EEC) No 2777/75, under which only the following measures may be taken in respect of the products specified in Article 1 thereof: measures to promote better organisation of production, processing and marketing; measures to improve quality; measures to permit the establishment of short- and long-term forecasts on the basis of the means of production used; and measures to facilitate the recording of market price trends. In addition, in order to take account of any restrictions on free circulation imposed in consequence of measures to prevent the spread of animal disease, exceptional measures may be taken under the procedure provided for in Article 17 to support any market affected by such restrictions. Such measures may be taken only to the extent that and for such period as is strictly necessary for the support of that market. In this case, none of these measures was adopted in Italy. It therefore follows that any other type of state aid may be granted only under Articles 87 to 89 of the Treaty. As indicated in the previous recital, the aid in question does not comply with the rules governing state aid and, consequently, is incompatible with the common market.

(68)

In the light of the above, the Commission is in a position to conclude that the aid provided for under the AIMA programme for poultry farmers constitutes state aid within the meaning of Article 87(1) of the Treaty and that it is ineligible for any of the derogations provided for in Article 87(2) and (3).

(69)

Since the programme was notified in accordance with Article 88(3) of the Treaty, which lays down that the Member State may implement the aid only after approval by the European Commission, it is not necessary to provide for the recovery of the aid,

6.2.2007   

EN

Official Journal of the European Union

L 32/23

(1)

This Decision is addressed to Microsoft Corporation.

(2)

Microsoft Corporation has infringed Article 82 of the EC Treaty and Article 54 of the EEA Agreement by:

(3)

Operating systems are software products that control the basic functions of a computer. ‘Client Personal Computers’ (PCs) are general-purpose computers designed for use by one person at a time and that can be connected to a computer network.

(4)

A distinction could be made between (i) operating systems for so-called ‘Intel-compatible’ PCs and (ii) operating systems for non-Intel-compatible PCs. ‘Intel-compatible’ in that context relates to a specific type of hardware architecture. ‘Porting’ (that is to say, adapting) a non-Intel-compatible operating system (for example Apple’s Macintosh) to run on Intel-compatible hardware is a long and costly process. However, the question of the inclusion of operating systems for Intel-compatible and non-Intel-compatible PCs in the definition of the relevant market can be left open since the difference will not be such as to alter the result of the assessment of Microsoft’s market power.

(5)

Operating systems for handheld devices such as personal digital assistants (PDA) or ‘intelligent’ mobile phones and operating systems for servers cannot presently be regarded as competitive substitutes for client PC operating systems.

(6)

As regards supply-side substitutability, a software product that is not presently in the market for client PC operating systems would have to be substantially modified in order to adapt to the specific needs of consumers in that market. This entails a development and testing process that involves a substantial amount of time (often above one year) and expenses, and entails a substantial commercial risk. Furthermore, as is established when discussing Microsoft’s dominance in the relevant market, such a new entrant would face significant barriers to entry.

(7)

‘Work group server services’ are the basic services that are used by office workers in their day-to-day work, namely sharing files stored on servers, sharing printers, and having their rights as network users ‘administered’ centrally by their organisation’s Information Technology department. ‘Work group server operating systems’ are operating systems designed and marketed to deliver these services collectively to relatively small numbers of PCs linked together in small to medium-sized networks.

(8)

Evidence gathered by the Commission in the course of its investigation has confirmed that work group server services are viewed by customers as constituting a distinct set of services provided by servers. In particular, the provision of file and print services on the one hand and of group and user administration services on the other hand are closely interrelated: if there were no proper group and user administration, the user would not have efficient and secure access to file and print sharing services.

(9)

Work group servers (servers that run a work group server operating system) must be distinguished from high-end servers that are generally needed to support ‘mission-critical’ tasks, such as inventory control, airline reservations or banking transactions. Such tasks may involve the need to support storage of vast amounts of data and require maximum (often termed rock-solid) reliability and availability (2). They are carried out by expensive machines (sometimes called enterprise servers) or by mainframes. By contrast, work group server operating systems are generally installed on less expensive computers.

(10)

However, not all low-end server machines are used as work group servers. For instance, low-end servers can also be installed at the ‘edge’ of networks and be specialised in web serving (3), web caching (4) or firewall (5) to the exclusion of the core work group server services.

(11)

It should also be pointed out that whilst only file, print and group and user administration services constitute the core work group server services, work group server operating systems can be used to run applications, as is the case with other operating systems. These applications will often be tightly linked to the provision of group and user administration services. Since work group server operating systems are as a rule used with inexpensive hardware, these applications will generally not require extremely high reliability.

(12)

Media players are client-side software applications, the core functionality of which is to decode, decompress and play (and further allow the processing of) digital audio and video files downloaded or streamed over the Internet (and other networks). Media players are also capable of playing back audio and video files stored on physical carriers such as CDs and DVDs.

(13)

As regards demand-side substitutability, classical playback devices such as CD and DVD players are not substitutes for media players as they offer a very limited subset of the media player functionalities. Media players which depend on third parties’ proprietary technologies are, in contrast to Microsoft’s WMP, RealNetworks’ RealOne Player and Apple’s QuickTime Player, not likely to constrain the third parties’ behaviour. Media players unable to receive audio and video content streamed over the Internet are not substitutes for streaming media players since they do not satisfy specific consumer demand for streaming.

(14)

As regards supply-side substitutability, the significant necessary R&D investments, the protection of existing media technologies through IP rights and the indirect network effects characterising the market translate into entry barriers for developers of other software applications including non-streaming media players.

(15)

Microsoft has acknowledged that it holds a dominant position in the PC operating system market.

(16)

This dominant position is characterised by market shares that have remained very high at least since 1996 (90 % + in recent years), and by the presence of very high barriers to entry. These barriers to entry are in particular linked to the presence of indirect network effects. Indeed, the popularity of a PC operating system among users derives from its popularity among vendors of PC applications, which in turn choose to focus their development efforts towards the PC operating system which is most popular among users. This creates a self-reinforcing dynamic that protects Windows as the de facto standard for PC operating systems (applications barrier to entry).

(17)

The Commission concludes that Microsoft has achieved a dominant position in the work group server operating system market. This conclusion rests in particular on the following findings:

(18)

The Decision makes the following findings.

(19)

These circumstances of an exceptional nature lead to the conclusion that Microsoft’s refusal constitutes an abuse of a dominant position incompatible with Article 82, unless it is objectively justified.

(20)

Microsoft’s claimed justification for its refusal is that providing the information at stake and allowing competitors to use it in order to make compatible products would be tantamount to licensing intellectual property rights. The Commission did not take a position on the validity of Microsoft’s general intellectual property claims, which could in any event only be ascertained on a case by case basis when Microsoft has prepared the relevant specifications. However, according to the jurisprudence, an undertaking’s interest in exercising its intellectual property rights cannot in itself constitute an objective justification when exceptional circumstances such as the ones identified above are established.

(21)

The Commission investigated whether, under the specific circumstances of this case, Microsoft’s proffered justification outweighed these exceptional circumstances and concluded that Microsoft had not provided any evidence to that effect. In particular, an order to supply the relevant information could not lead to the cloning of Microsoft’s product. The Commission also took account of the fact that disclosure of information of the kind refused by Microsoft was commonplace in the industry.

(22)

Furthermore, the Commission drew inspiration from the undertaking made by IBM to the Commission in 1984 (the IBM Undertaking) (6), and from the 1991 Software Directive (7). Microsoft indeed recognises that the IBM Undertaking and the Software Directive provide useful guidance for the present case. The Commission concluded that an order to supply in the present case would be analogous to the IBM Undertaking, in that it would only relate to interface specifications. The Commission also concluded that the refusal at issue was a refusal to supply interoperability information, in the sense of the Software Directive. In that respect, the Commission noted that the Software Directive restricted the exercise of copyright over software (including exercise by non-dominant undertakings) in favour of interoperability, thereby stressing the importance of interoperability in the software industry. It also noted that the Software Directive explicitly provided that its provisions were without prejudice to the application of Article 82, in particular if a dominant undertaking refused to make information available which is necessary for interoperability.

(23)

Microsoft further argued that its refusal to supply interoperability information could not be aimed at restricting competition in the work group server operating system market, because the company had no economic incentive to pursue such a strategy. The Commission rejected Microsoft’s argument, noting that it was based on an economic model that did not fit the facts in this case and was inconsistent with the views expressed by Microsoft’s executives in Microsoft internal documents obtained during the investigation.

(24)

The Decision finds that Microsoft infringes Article 82 of the Treaty by tying WMP with the Windows PC operating system (Windows). The Commission bases its finding of a tying abuse on four elements: (i) Microsoft holds a dominant position in the PC operating system market; (ii) the Windows PC operating system and WMP are two separate products; (iii) Microsoft does not give customers a choice to obtain Windows without WMP; and (iv) this tying forecloses competition. In addition, the Decision rejects Microsoft’s arguments to justify the tying of WMP.

(25)

Microsoft does not dispute that it holds a dominant position in the PC operating system market.

(26)

The Commission Decision finds that streaming media players and PC operating systems are two separate products (rejecting Microsoft’s argument that WMP is an integral part of Windows). The Decision first sets out that although Microsoft has been tying its media player with Windows for some time, there remains today separate consumer demand for stand-alone media players, distinguishable from demand for PC operating systems. Secondly, a number of vendors develop and supply media players on a stand-alone basis. Thirdly, Microsoft itself develops and distributes versions of its WMP for other PC operating systems. Finally, Microsoft promotes WMP in direct competition with third party media players.

(27)

As regards the third tying element, the Decision finds that Microsoft does not give customers a choice to obtain Windows without WMP. PC manufacturers must license Windows with WMP. If they want to install an alternative media player on Windows, they can only do so in addition to WMP. If a user buys Windows in a retail store, the same considerations apply. The Decision considers Microsoft’s arguments that customers need not pay ‘extra’ for the WMP and that they need not use it to be irrelevant in the context of determining whether there is coercion under Article 82 of the Treaty.

(28)

The Decision then explains why tying in this particular case is liable to foreclose competition. The Decision sets out that the tying of WMP to Windows affords Microsoft unmatched ubiquity of its media player on PCs worldwide. The relevant evidence reveals that other distribution means are second best. By tying WMP to Windows, Microsoft can offer content providers and software developers that support the Windows Media technologies the ability to rely on the Windows monopoly to reach almost all PC users worldwide. Evidence shows that supporting several media technologies generates additional costs. As such, WMP’s ubiquitous presence induces content providers and software developers to rely primarily on Windows Media technology. Consumers will in turn prefer to use WMP, since a wider array of complementary software and content will be available for that product. Microsoft’s tying reinforces and distorts these ‘network effects’ to its advantage, thereby seriously undermining the competitive process in the media player market. Evidence shows that WMP usage increases due to tying, while other media players are rated more highly in terms of quality by users. Market data as regards media player usage, format usage, as well as content offered by web sites point to a trend in favour of usage of WMP and the Windows Media formats to the detriment of the main competing media players (and media player technologies). Whilst the Decision highlights this trend in favour of WMP and the Windows Media format, the Decision also emphasises that, on the basis of the case law of the Court, the Commission is, in particular, not required to prove that competition has already been foreclosed or that there is a risk of the elimination of all competition to establish a tying abuse. Otherwise, antitrust scrutiny in certain software markets would come too late as evidence of market impact could only be demonstrated once the market had ‘tipped’.

(29)

Finally, the Decision discusses Microsoft’s arguments to justify the tying of WMP, in particular the alleged efficiencies of tying WMP to Windows. With regard to alleged distribution efficiencies, the Commission rejects Microsoft’s argument that tying lowers transaction costs for consumers by reducing time and confusion through having a set of default options in a personal computer ‘out-of-the-box’. The benefit of having a media player pre-installed along with the client PC operating system does not require that Microsoft selects the media player for consumers. PC manufacturers can ensure that consumer demand for pre-installed media players of their choice is met. The Decision also finds that Microsoft has not put forward any technical efficiency for which ‘integration’ of WMP would prove to be a precondition. The tying of WMP rather shields Microsoft from effective competition from potentially more efficient media player vendors, which could challenge its position, thus reducing the talent and capital invested in innovation in respect of media players.

(30)

The Decision orders Microsoft to disclose the information that it has refused to supply and to allow its use for the development of compatible products. The disclosure order is limited to protocol specifications, and to ensuring interoperability with the essential features that define a typical work group network. It applies not only to Sun, but to any undertaking that has an interest in developing products that constitute a competitive constraint to Microsoft in the work group server operating system market. To the extent that the Decision might require Microsoft to refrain from fully enforcing any of its intellectual property rights, this would be justified by the need to put an end to the abuse.

(31)

The conditions under which Microsoft shall disclose the information and allow the use thereof must be reasonable and non-discriminatory. The requirement for the terms imposed by Microsoft to be reasonable and non-discriminatory applies in particular to any remuneration that Microsoft might charge for supply. For example, such remuneration should not reflect the strategic value stemming from Microsoft’s market power in the PC operating system market or in the work group server operating system market. Furthermore, Microsoft may not impose restrictions as to the type of products in which the specifications may be implemented, if such restrictions create disincentives to compete with Microsoft, or unnecessarily restrain the ability of the beneficiaries to innovate. Finally, the terms imposed by Microsoft in the future must be sufficiently predictable.

(32)

Microsoft must disclose the relevant protocol specifications in a timely manner, that is to say, as soon as it has produced a working and sufficiently stable implementation of these protocols in its products.

(33)

Concerning the tying abuse, the Decision orders Microsoft to offer to end users and OEMs for sale in the EEA a full-functioning version of Windows which does not incorporate WMP. Microsoft retains the right to offer a bundle of Windows and WMP.

(34)

Microsoft must refrain from using any means which would have the equivalent effect of tying WMP to Windows, for example by reserving privileged interoperability with Windows to WMP, by providing selective access to Windows APIs, or by promoting WMP over competitors’ products through Windows. Microsoft is also prevented from giving OEMs or users a discount conditional on their obtaining Windows together with WMP, or de facto, financially or otherwise, removing or restricting OEMs’ or users’ freedom to choose the version of Windows without WMP. The unbundled version of Windows must not be less performing than the version of Windows which comes bundled with WMP, regard being had to WMP’s functionality which, by definition, will not be part of the unbundled version of Windows.

(35)

The Commission considers that the infringement constitutes by its nature a very serious infringement of Article 82 of the EC Treaty and Article 54 of the EEA Agreement.

(36)

Furthermore, the pattern of exclusionary leveraging behaviour engaged in by Microsoft has a significant impact on the markets for work group server operating systems and for streaming media players.

(37)

For the purposes of assessing the gravity of the abuses, the markets for client PC operating systems, for work group server operating systems and for media players are EEA-wide in scope.

(38)

The initial amount of the fine to be imposed on Microsoft to reflect the gravity of the infringement should be, in light of the above circumstances, EUR 165 732 101. Given Microsoft’s significant economic capacity (8), in order to ensure a sufficient deterrent effect on Microsoft, this figure is adjusted upwards by a factor of two to EUR 331 464 203.

(39)

Finally, the basic amount of the fine is increased by 50 % to take account of the duration of the infringement (five and a half years). The basic amount of the fine is therefore set at EUR 497 196 304.

(40)

There are no aggravating or attenuating circumstances relevant to this Decision.

6.2.2007   

EN

Official Journal of the European Union

L 32/29

(1)

By letter dated 2 September 1997, registered on 5 September 1997, the Italian Permanent Representation at the European Union notified the Commission of Article 6 of Regional Law n. 27 of 1997 of the Sicilian Region, in accordance with Article 88(3) of the EC Treaty.

(2)

By telex VI/41836 of 28 October 1997, Commission services asked the competent authorities to provide clarifications on the aid provided for by Article 6 and on Regional Law n. 27 of 1997.

(3)

By letter dated 19 January 1998 the competent authorities sent some complementary information and indicated that the Law had already entered into force. The notification was therefore transferred to the register of non notified aids under number NN 36/98, as communicated to Italy by letter SG(98)D/32328 of 3 April 1998. However, the competent authorities also clearly indicated that no aid would be granted under the law before the termination of the procedure of Article 88(3) of the Treaty.

(4)

By telex VI/13937 of 31 May 2000 (anticipated in the English version by telex of 14 April 2000/VI/10442) Commission services asked the competent authorities to provide explanations regarding the provisions contained in Regional Law n. 27/1997 and a copy of the Law itself.

(5)

By letter dated 31 July 2002, registered on 5 August 2002, the competent authorities sent some complementary information regarding Article 5 of the Law.

(6)

By telex AGR 024925 of 22 October 2002 Commission services asked the competent authorities to provide explanations and clarifications regarding the complementary information lately sent and the measures contained in Regional Law n. 27/1997. In the same letter Commission services indicated that if the aid measures envisaged by Article 6 of Regional Law n. 27 of 1997 and, possibly, by other provisions of the same Law had not yet been put into effect and the competent authorities could assure that no aids had been paid and would be paid under Regional Law n. 27/1997 the competent authorities could consider the possibility of withdrawing the notification under examination.

(7)

Not having received any reply to the above telex, by telex AGR 30657 of 20 December 2002, Commission services sent the Italian authorities a reminder inviting them to submit the requested information within one month and informing them that unless satisfactory replies to all the questions asked were received within this deadline, Commission services reserved the right to propose the Commission to issue an information injunction on the basis of Article 10(3) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (2).

(8)

By letter of 10 July 2003 SG(2003)D/230470 the Commission notified Italy of its decision containing an information injunction in respect of Article 6 and Article 4 of Regional Law n. 27/1997, which it had adopted on 9 July 2003 (C(2003) 2054fin) on the basis of Article 10(3) of Regulation (EC) No 659/1999.

(9)

By the said information injunction the Commission had requested Italy to provide, within 20 working days from the notification of its decision, all the documents, information and data necessary to enable the Commission to establish whether the aids foreseen in the law had been granted and were compatible with the common market. Besides inviting Italy to provide any other information deemed useful for the assessment of the above measures, the information injunction specified a list of information that Italy was requested to provide.

(10)

Neither a reply to the above information injunction, nor a request for a prolongation of the deadline within which a reply had to be provided, were received by Commission services.

(11)

By letter dated 17 December 2003 (SG(2003)D/233550), the Commission informed Italy that by its decision C(2003) 4473 fin of 16 December 2003 it had decided to initiate the procedure laid down in Article 88(2) of the Treaty in respect of the aid measures provided for by Article 4 (Advertising of Sicilian products) and by Article 6 (Cooperatives, cantine sociali) of Regional Law n. 27/1997.

(12)

The Commission Decision to initiate the procedure was published in the Official Journal of the European Communities  (3). The Commission called on interested parties to submit their comments.

(13)

By letters dated 10 February 2004 registered on 13 February 2004, the Italian Permanent Representation at the European Union, on behalf of Regione Siciliana asked Commission services for a prolongation of 20 working days to provide the information requested by the Commission in its Decision C(2003) 4473 fin of 16 December 2003, in respect of Article 4 (Advertising of Sicilian products) of Regional Law n. 27/1997. In the same letter the Italian authorities announced their intention to withdraw the notification of the aid measure concerned by Article 6 (Cooperatives, cantine sociali) which, as indicated in their letter, had not been not implemented.

(14)

By telex AGR 05312 of 23 February 2004 Commission services confirmed that the prolongation requested by Italy had been granted with effect from 13 February 2004.

(15)

By letter dated 18 February 2004, registered on 26 February 2004 the Italian Permanent Representation sent a request for a prolongation of 20 working days with regard to the same aid measure.

(16)

By letter of 24 February 2004, registered on 1 March 2004, later confirmed by letter dated 12 March 2003, registered on 17 March 2003, the Italian authorities informed the Commission of the withdrawal of the notification of the aid measure concerned by Article 6 (Cooperatives, cantine sociali) of Regional Law n. 27/1997 which, as indicated in their letters, had not been and would not be implemented.

(17)

By telex AGR 07074 of 11 March 2004 the Italian authorities were informed that, since the Commission Decision concerned had been published in the Official Journal of the European Union on 24 February 2004 and the deadline for third parties to submit comments in its respect would expire on 24 March 2004, no prolongation to submit the information requested and/or comments beyond that date would be granted. By the same telex Commission services acknowledged the withdrawal of Article 6 (Cooperatives, cantine sociali) of Regional Law n. 27/1997.

(18)

The Commission received comments from Italy in respect of Article 4 (Advertising of Sicilian products) of Regional Law n. 27/1997 by letter dated 15 March 2004, registered on 18 March 2004.

(19)

In accordance with the Decision to open the procedure (4), the current decision only concerns the State aids provided for by Article 4 (Advertising of Sicilian products) of Regional Law n. 27/1997 in favour of Annex I agricultural products which may have been and which may be granted from the entry into force of the Community Guidelines for State aid for advertising of products listed in Annex I to the EC Treaty and of certain non-Annex I products  (5) , (hereafter the advertising guidelines), i.e . from 1 January 2002.

(20)

As the notification of Article 6 (Cooperatives, cantine sociali) of Regional Law n. 27/1997 was withdrawn by Italy by letter of 24 February 2004, registered on 1 March 2004, there is no reason to describe and assess the aid measures provided for by Article 6.

(21)

Article 4 (Propaganda prodotti siciliani) amends Article 17 of Regional Law No 14/1966 and envisages that ‘(1) Advertising campaigns are implemented directly by the Regional Ministry or through the Institute for Foreign Trade or through specialised bodies, or through Consortia established by the Ente Fiera del Mediterraneo and by the Ente Fiera di Messina or by these entities and one or more Chambers of Commerce of the Region on the basis of the programmes indicated in Article 15. The said programmes may have three-year duration. (2) With the exclusion of the consortia indicated above, if the implementation of the programmes is entrusted to bodies outside the national or the regional administration, the rules on entrusting the services of the public administration will apply’.

(22)

Despite repeated requests from Commission services, and the information injunction issued by the Commission by its Decision of 9 July 2003, the Italian authorities had not provided the information which could help the Commission to dispel the doubts that Article 4 may provide for State aids within the meaning of article 87(1) of the EC treaty and, if the case, to allow the Commission to conclude that these aids may be considered compatible with the common market. Moreover it was not clear whether the aids concerned had already been granted or not.

(23)

In its Decision to open the procedure envisaged by Article 88(2) of the Treaty on the measure under examination, the Commission noted that at that stage of the procedure, due to the lack of information from the Italian authorities, the Commission did not know whether Article 4 of Regional Law n. 27/1997 provided for the introduction or the modification of State aids for promotion and/or advertising of Annex I agricultural products.

(24)

Moreover the Commission expressed doubts on their compatibility with the common market, as due to the lack of replies from the Italian authorities, it was entirely unclear to the Commission whether the measures which were to be financed under Article 4 of the law would be compatible with the rules which are currently applicable to these types of aid measures, i.e. with the rules set out in the Community Guidelines for State aid for advertising.

(25)

Also given the modalities of implementation of the advertising and promotion campaigns and programmes envisaged by Article 4 and reported above at recital 21, the Commission expressed doubts that the State aid measures possibly provided therein would be implemented in compliance with EU public procurement rules. In particular regarding the direct selection of the entities and bodies in charge of the advertising campaigns the Commission had doubts that a contract for pecuniary interest would be concluded in writing between the contracting authority and the service providers selected, and, that in this case, the strict conditions of the Teckal judgement would be met (6) . If those conditions were not met, the Commission had doubts that the selection of the intermediaries would be done following the rules of Council Directive 92/50/EEC (7) if applicable, and, in any case, in accordance with the principles of the EC Treaty, in particular those of equal treatment and transparency, by ensuring a ‘sufficient degree of advertising’ as requested by the Court of Justice (8).

(26)

No comments from interested parties were received.

(27)

The Commission received comments from Italy, on behalf of Regione Siciliana, by letter dated 15 March 2004, registered on 18 March 2004.

(28)

In this letter the Italian authorities confirmed the withdrawal of the notification of Article 6 of Regional Law n. 27/97 and communicated their observations regarding Article 4.

(29)

In particular the Italian authorities indicated that the modification introduced by Article 4 (Propaganda prodotti siciliani) to Article 17 of Regional Law n. 14/1966, regarding the implementation of advertising campaigns through Consortia established by the Ente Fiera del Mediterraneo and by the Ente Fiera di Messina or by these entities and one or more Chambers of Commerce of the Region, was not applied as the said consortia were not established.

(30)

According to the information provided, the promotional programmes are implemented directly by the Regional Ministry or through the Institute for Foreign Trade (conventions drafted in the years 1993-1998, and 1999-2001-2003 in the context of the Agreements between the Ministry of production Activities and the Regions). The responsible subjects select the projects submitted for financing on a yearly basis and procure the necessary services for their implementation on the basis of the applicable rules, within the respect of market rules, except where exclusivity contracts with the organisers exist.

(31)

The competence of the Regional Ministry concerns not only the agri-food sector but also other sectors (crafts, publishing, textile, etc.) Regarding the sector under examination the activities which are financed at the rate of 100 % of the expenses by public funds are the following ones:

(32)

The beneficiaries of the interventions listed above under letters (a) and (b) are consortia of undertakings and undertakings which are regularly enrolled in the Chambers of Commerce in Sicily. The selection of the beneficiaries is made through a yearly public call for proposals, on the basis of selection criteria published in advance on the Official Journal of the Sicilian Region. On the basis of the fourth recital of Commission Regulation (EC) No 69/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to de minimis aid (9) the interventions indicated above under letters (a) and (b) are not export aids and since 2002 the aids concerned are applied according to the ‘de minimis rule’. Regarding the agri-food sector, having regard to the Guidelines applicable to promotion and advertising the aids concerned would appear to be soft aids falling under point 14(1) of the general agricultural Guidelines (10) concerning: ‘the organisation of competitions, exhibitions and fairs’. Moreover notwithstanding the fact that the regional law does not specify the maximum ceiling of EUR 100 000 per beneficiary over a three-year period, the aids granted to each beneficiary undertaking for participating to fairs and workshop would be much below this ceiling.

(33)

With regard to the advertising through the mass media the Italian authorities specified that the actions implemented both in Italy and in other Community countries do not concern specifically the products of one undertaking or of a group of undertakings, and advertise the products in a generic way, without emphasising their origin, even when the products are typical regional products. For agri-food advertising campaigns the message which is addressed to consumers concerns a product or a group of products, without making reference to their producer undertakings in the Region. The advertising is generic, does not contain any invitation to purchase the products solely because of their regional origin, and it cannot be considered to disparage the products of other Member States. The advertising should not therefore breach Article 28 of the Treaty.

(34)

The observations made by the Italian authorities are applicable to promotional and advertising actions carried out both in the European Community and in third countries, as the same criteria are applied.

(35)

Article 87(1) of the Treaty provides 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.

(36)

The measure under examination provides for the granting of aid, through public regional resources, to specific agricultural undertakings in Sicily which will undeniably be granted an undue economic and financial advantage to the detriment of other undertakings not receiving the same contribution. According to the case law of the Court of Justice, improvement in the competitive position of an undertaking as a result of State financial aid leads to possible distortion of competition compared with other competing undertakings not receiving such assistance (11).

(37)

The measure affects trade between Member States in that there is substantial intra-Community trade in agricultural products as indicated by the table (12) below which lists the overall value of agricultural imports and exports between Italy and the Community over the 1997-2001 period (13). It must be considered that within Italy, Sicily is a significant producer of agricultural products.

(38)

With respect to the above, it should however be recalled that the Court of Justice has held that aid to an undertaking may be such as to affect trade between the Member States and distort competition where that undertaking competes with products coming from other Member States even if it does not itself export its products. Where a Member State grants aid to an undertaking, domestic production may for that reason be maintained or increased with the result that undertakings established in other Member States have less chance of exporting their products to the market in that Member State. Such aid is therefore likely to affect trade between Member States and distort competition (14).

(39)

The Commission therefore concludes that the measure under examination is caught by the prohibition in Article 87(1) of the Treaty. The Italian authorities have never contested this point.

(40)

The prohibition in Article 87(1) is followed by exemptions in Article 87(2) and (3).

(41)

The exemptions listed in Article 87(2)(a) (b) and (c) are manifestly inapplicable given the nature of the aid measures in question and their objectives. Indeed, Italy has not submitted that either Article 87(2)(a) (b) or (c) are applicable.

(42)

Article 87(3)(a) is also inapplicable since the aids are not intended to promote the development of areas where the standard of living is abnormally low or where there is serious underemployment. Moreover Italy has not submitted that Article 87(3)(a) is applicable.

(43)

Article 87(3)(b) is also inapplicable as the aids in question are not intended to promote the execution of an important project of common European interest or to remedy a serious disturbance in Italy's economy. Moreover Italy has not submitted that Article 87(3)(b) is applicable.

(44)

These aids are not intended to achieve or suitable for achieving the objectives of promoting culture and heritage conservation referred to in Article 87(3)(d), nor has Italy submitted that Article 87(3)(d) is applicable.

(45)

Considering the nature of the aids under examination and their objectives the only exemption which may be applicable is the one provided for by Article 87 (3)(c) of the Treaty.

(46)

The applicability of the exemption mentioned at recital 45 needs to be assessed in the light of the provisions applicable to the granting of State aids for promotion and advertising in the agriculture sector, i.e. of the provisions contained in the advertising Guidelines (15).

(47)

According to point 7.1 of the advertising Guidelines, the Commission will apply these guidelines to new State aid, including pending notifications from Member States, with effect from 1 January 2002. Unlawful aid within the meaning of Article 1(f) of Regulation (EC) No 659/1999 will be assessed in accordance with the rules and guidelines applicable at the time when the aid is granted.

(48)

In accordance with the decision to open the procedure where the Commission expressed doubts that the measures concerned may not comply with the rules currently applied to this type of aids (16), this Decision only concerns the aids granted and to be granted from 1 January 2002 for the promotion and advertising of Annex I agricultural products.

(49)

With regard to the aids for promotion, point 8 of the said advertising Guidelines establishes that promotion operations such as the dissemination to the general public of scientific knowledge, the organisation of trade fairs or exhibitions, participation in these and similar public relations exercises, including surveys and market research are not considered as advertising. State aid for such promotion in the broader sense is subject to points 13 and 14 of the Community guidelines for State aid in the agriculture sector (17). Since the notification does not specify that the aid scheme under examination applies only to small and medium enterprises, Commission Regulation No 1/2004 of 23 December 2003 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises active in the production, processing and marketing of agricultural products (18) is not applicable to this case.

(50)

With regard to aids for advertising point 7 of the advertising Guidelines establishes that advertising, to which the Guidelines apply, does not only concern any operation using the media (such as press, radio, TV or posters) which is designed to induce consumers to buy the relevant product, but that it also includes any operation which is designed to induce economic operators or consumers to buy the relevant product and all material which is distributed direct to consumers for the same purpose, including advertising activities aimed at consumers at the point of sale.

(51)

On the basis of the information available, it appears that the measures for participation to trade fairs and workshops in the Community and outside the Community, which are described above at recitals 31(a) and (b) and 32 of this Decision, can be entirely considered as aids for promotion only to the extent that the described activities do not include either operations which are designed to induce economic operators or consumers to buy the relevant product, or material which is distributed direct to consumers for the same purpose. On the basis of paragraph 7 of the advertising Guidelines aids for operations which are designed to induce economic operators or consumers to buy the relevant product, and for material which is distributed direct to consumers for the same purpose are considered as aids for advertising.

(52)

In so far as the said measures for participation to trade fairs and workshops in the Community and outside the Community are indeed aids for promotion, in compliance with point 13 and 14 of the Community Guidelines for State aid to the agricultural sector, the aids can be granted at a rate of up to 100 % but should not exceed EUR 100 000 per beneficiary over any three-year period, or, in the case of aid granted to undertakings falling within the scope of the Commission definition of small and medium-sized enterprises, as defined in Commission Regulation (EC) No 70/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises (19), 50 % of the eligible costs, whichever is greater. For the purpose of calculating the amount of aid, the beneficiary is considered to be the person receiving the services. As it appears from the observation provided by the Italian authorities the promotional measures under examination are financed within the respect of the above maximum aid amount and appear therefore compatible with the applicable rules (20).

(53)

In compliance with the said point 14 of the general agricultural Guidelines, in order to avoid the creation of distortions of competition, this type of aid measure should in principle be available to all those eligible in the area concerned based on objectively defined conditions. On the basis of the information provided by Italy and reported above at recital 32 of this decision, this condition appears to be met (21). Aids which are restricted to identified groups in order to provide support only for their members cannot be considered to facilitate the development of the sector as a whole and must be considered as operating aids. Thus, where the provision of such services is undertaken by producer groups or other agricultural mutual support organisations, the services concerned must be available to all eligible farmers. In such cases any contribution towards the administrative costs of the group or organisation concerned should be limited to the costs of providing the service.

(54)

In so far as the said measures for participation to trade fairs and workshops include also operations which are designed to induce economic operators or consumers to buy the relevant product or material which is distributed direct to consumers for the same purpose (for example advertising to the point of sale or advertising which is addressed to economic operators, such as food processors, wholesale or retail distributors, restaurants, hotels and other catering establishments), these measures need to be assessed on the basis of the rules for advertising aids, as much as the advertising measures carried out through the mass media (press, posters, radio, television) which were described above at recitals 31 (c) and 33 of this Decision.

(55)

According to the advertising Guidelines, normally, producers and traders would be expected to bear the costs of advertising themselves, as part of their normal economic activities.

(56)

Therefore, in order not to be regarded as operating aids but as aids that are compatible with the common market under Article 87(3)(c) of the Treaty, advertising aids should not interfere with trade to an extent contrary to the common interest (negative criteria), and should facilitate the development of certain economic activities or of certain economic areas (positive criteria). Moreover State aids must comply with the Community's international obligations, which in the case of agriculture are specified in the Agreement on Agriculture (WTO-GATT 1994).

(57)

In order to satisfy the negative criteria, according to point 3.1 of the applicable advertising Guidelines, the aid must not be granted for campaigns contrary to Article 28 of the Treaty (point 3.1.1), or for campaigns which contravene secondary Community legislation (3.1.2), or for advertising related to particular firms (3.1.3). Moreover where the conduct of publicly financed advertising activities is entrusted to private firms, in order to exclude the possibility of aid to the firms carrying out the campaigns, the choice of the private firm concerned must be made on market principles, in a non-discriminative way, where necessary using tendering procedures which are in accordance with Community law, and in particular with case-law (22) using a degree of advertising sufficient to enable the services market to be opened up to competition and the impartiality of procurement procedures to be reviewed.

(58)

On the basis of the information provided, the requirements envisaged by point 3.1.1 (campaigns contrary to Article 28 of the Treaty) and 3.1.3 (advertising related to particular firms) appear to be met by the advertising measures which are described above at recitals 30, 31(c) and 33 of this Decision. On the other hand, no indication that the requirement indicated at point 3.1.2 (campaigns which contravene secondary Community legislation) is also met was provided by the Italian authorities.

(59)

Besides satisfying the negative criteria, according to point 3.2 of the applicable advertising Guidelines, advertising aids should satisfy at list one of the positive criteria aimed at showing that the aid indeed facilitates the development of certain economic activities or of certain economic areas. This positive condition is considered to be met provided that the subsidised advertising concerns any of the following: surplus agricultural products or underexploited species; new products or replacement products not yet in surplus; high-quality products, including products produced or obtained using environmentally friendly production or catchment methods, such as products from organic farming; development of certain regions; development of small and medium sized undertakings (SMEs) as defined by Regulation (EC) No 70/2001; projects that are implemented by organisations officially recognised within the meaning of Council Regulation (EC) No 104/2000 of 17 December 1999 on the common organisation of the markets in fishery and aquaculture products (23); projects that are jointly implemented by producer organisations or other organisations of the fishery sector recognised by national authorities.

(60)

With regard to the aids for advertising, the observations submitted by the Italian authorities do not indicate that the advertising measures in question meet any of the above positive criteria.

(61)

Regarding the maximum level of State aid for the advertising of agricultural products point 5 of the applicable advertising Guidelines requires that as a general rule, direct aid, from a general purpose government budget, must not exceed the amount which the sector itself has committed to a given advertising campaign. Thus, in the case of aid for advertising, the rate of direct aid should not exceed 50 % and undertakings from the sector will have to contribute at least 50 % of the cost, either through voluntary contributions or through the collection of parafiscal levies or compulsory contributions. To take account of the weight of some of the positive criteria mentioned in point 3.2 of the advertising Guidelines, the Commission may authorise the raising of the abovementioned maximum rate of direct aid up to 75 % of the costs in the case of advertising for products produced by SMEs in areas eligible for support under Article 87(3)(a) of the Treaty.

(62)

On the basis of the information provided and reported above at recital 31 of this Decision, it appears that all the promotional and advertising measures envisaged by the present scheme are financed at the rate of 100 % by public funds. The condition that 50 % (or 25 % where applicable) of the financing must come from the sector is therefore not met.

(63)

From the above assessment the Commission can therefore conclude that the advertising aids under examination do not meet the requirements set out at points 3.1.2 (campaigns which contravene secondary Community legislation), 3.2 (positive criteria) and 5 (maximum level of State aid) of the applicable advertising Guidelines.

(64)

The same conclusion applies to both measures implemented within the Community and outside the Community. Since the advertising measures implemented outside the Community are not explicitly covered by the agricultural guidelines, the Commission exercises its powers of discretion in their assessment. According to current Commission practice, where they comply with relevant state aid rules applicable within the Community territory the envisaged measures can be considered compatible with the common market and aid up to 80 % can be authorised (24). In the present case as it appears from the information provided and reported above at recitals 31 and 33 of this Decision, the measures implemented within and outside the Community are the same ones and aid is granted at the rate of 100 %. Therefore also in this case neither the requirements set out at points 3.1.2 (campaigns which contravene secondary Community legislation) and 3.2 (positive criteria) of the applicable advertising Guidelines, nor the maximum level of State aid which is allowed by the Commission are respected (25).Also these aid measures are therefore incompatible with the common market.

(65)

This Decision concerns exclusively aid to the agricultural sector for the promotion and advertising of Annex I agricultural products. It does not constitute a formal position of the Commission as to whether service providers were selected in accordance with Community public procurement rules and case-law. The Commission reserves the right to further investigate the issue under the angle of public procurement.

(66)

From the abovementioned considerations, it results that the aid measures for promotion, in so far as they comply with point 13 and with point 14 of the Community Guidelines for State aid to the Agriculture sector, can be considered compatible with the common market in accordance with Article 87(3)(c) as aids to facilitate the development of certain economic activities.

(67)

The aid measure for advertising, which do not comply with the rules set out in the Community guidelines for State aid for advertising of products listed in Annex I to the EC Treaty and of certain non-Annex I products, are not compatible with the common market and can be implemented only if they are modified in compliance with the said rules.

(68)

The aid measures for advertising which are incompatible with the common market, if granted, must be recovered from the beneficiaries,

6.2.2007   

EN

Official Journal of the European Union

L 32/37

(1)

By letter dated 23 June 2003, the French Permanent Representation to the European Union notified the Commission under Article 88(3) of the EC Treaty of an aid scheme that it planned to implement in favour of producers and traders of liqueur wines: Pineau des Charentes, Floc de Gascogne, Pommeau de Normandie and Macvin du Jura. Further information was sent by letters dated 9 August, 24 and 28 November 2003 and 17 and 24 February 2004.

(2)

By letter dated 20 April 2004, the Commission informed France that it had decided to initiate the procedure laid down in Article 88(2) of the EC Treaty in respect of the aid.

(3)

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

(4)

The Commission has received no comments from interested parties.

(5)

By letter dated 11 June 2004, recorded as received on 14 June 2004, France submitted its comments to the Commission.

(6)

The aids notified are a continuation of those previously notified to and approved by the Commission in connection with state aids Nos N 703/95 (3) and N 327/98 (4) and involve publicity and promotion measures, research and experimentation measures, technical assistance measures and measures to promote the production of quality products.

(7)

The Court of Justice annulled the Commission decision on state aid N 703/95 in a judgment detailed below.

(8)

Seven instalments were paid under the two aid schemes 703/95 and 327/98, which were initially planned to run for five years from 1995/96, the final instalment covering the period from May 2001 to April 2002. However, because of budget constraints imposed by the Government, the final payments are still frozen today. The expiry date of the previous scheme was extended to 30 April 2002.

(9)

As regards the products covered, changes were made from the previous schemes. The spirit-drinks sector (Armagnac, Calvados, Cognac) did not ask for the scheme to be extended. Consequently, the French authorities decided to restrict it to liqueur wines with a registered designation of origin.

(10)

For all the inter-branch organisations targeted and all the aid measures described below, the total budget planned is EUR 12 000 000, broken down as follows: EUR 9 360 000 for Pineau des Charentes, EUR 2 040 000 for Floc de Gascogne, EUR 360 000 for Pommeau de Normandie and EUR 240 000 for Macvin du Jura.

(11)

The research, technical assistance and quality-product development measures will be financed solely by the Member State from the budget. The publicity and promotion measures will be financed partly by the Member State and partly by the inter-branch organisations concerned by means of obligatory voluntary levies (CVO) charged to their members. For publicity measures within the European Union, the Member State will contribute up to a maximum of 50 %.

(12)

The CVO applies to the volumes of liqueur wines with a registered designation of origin marketed by winegrowers, professional distillers, traders and wholesalers located within the production area of the registered designation of origin concerned.

(13)

In 2002, the CVO was EUR 12,96/hectolitre for Pineau des Charentes, EUR 0,25/bottle for Floc de Gascogne, EUR 30,79/hectolitre for Pommeau de Normandie and EUR 2,75/hectolitre for Macvin de Jura.

(14)

The French authorities explained that the planned programmes will be carried out on certain European Union markets, including the French market, and on markets of non-member countries. The purpose of the planned publicity measures is to encourage the development of purchasing intentions by improving knowledge of liqueur wines, without promoting just the products of specific companies. The products concerned will all be registered destinations of origin: Pineau des Charentes, Floc de Gascogne, Pommeau de Normandie and Macvin du Jura.

(15)

These measures benefit all organised producers of liqueur wines who, according to the French authorities, could not alone carry out equivalent measures to improve the marketing of their products.

(16)

Steps will be taken to ensure that the publicity campaigns do not aim to dissuade consumers from buying products from other Member States or to disparage those products.

(17)

The programmes will involve publicity, information and communication campaigns, comprising a range of measures, including advertising in the media, the creation and distribution of other promotional materials and publicity campaigns at points of sale. They may be accompanied by promotion measures such as public relations measures, participation in fairs, seminars and events, information brochures and documentation and studies of the product's image in the eyes of consumers and the relevance of the campaigns.

(18)

The French authorities promised to submit originals or copies of the publicity material to be used for the campaigns.

(19)

The aid planned by the above inter-branch organisations for publicity will be limited to 50 % for measures within the European Union including France and 80 % for measures in non-member countries.

(20)

The estimated aid in euro for the planned measures is:

(21)

According to the French authorities, the purpose of the aid for research and experimentation is exclusively to support general research that is useful to the sector as a whole.

(22)

For Pineau des Charentes: microbiology, bacterial deterioration and consequences (identifying the factors promoting the development of lactic bacteria in Pineau des Charentes, perfecting tests for contamination and methods to solve the problem); ageing methods (identifying analytical criteria characteristic of oxidation phenomena and the factors responsible for ageing); constituting an analytical database (general analyses — rate of vinifiable alcohol, sugars, pH, any chemical or bacteriological contamination, metals, cations, volatile compounds, plant-protection product residues).

(23)

For Floc de Gascogne: studies of vine varieties and blends, with the aim of optimising the harmonisation of blends of varieties to increase the freshness and fruitiness of Floc de Gascogne (aiming to achieve high sugar contents, intense colour and consistent total acidity); study of Armagnac suitable for producing Floc de Gascogne (analysis — copper, ethanol and ethyl acetate contents, alcoholic strength, improvement of the Armagnac used); study and development of a Floc de Gascogne suited to targeted consumption types, qualitative and quantitative tests, storage.

(24)

For Macvin du Jura: technical development (monitoring the maturity of groups of Jura vine varieties in order to determine the state of maturity and the vine varieties best suited for the production of Macvin du Jura); selection and evaluation of vineyards; quality of musts and pressing (effects of extraction methods — enzymage and cold pressing — and of pellicular maceration of musts on the aromatic quality of Macvin du Jura); impact of the quantity of SO2 during settling; clarification and treatment for bottling (comparison of different methods to ensure that Macvin du Jura is and remains limpid after bottling).

(25)

The full cost of the planned research work will be financed. The estimated allocation of aid for this research measure over the five years, including computer and bibliographical expenditure and expenditure on all the means for disseminating the results of the measures implemented to all operators, is: Pineau des Charentes, EUR 912 600; Floc de Gascogne, EUR 118 000 and Macvin du Jura, EUR 65 000.

(26)

The French authorities described the planned technical assistance measures, which will consist primarily of technical training to improve and control production processes at all levels (primary production, wine-making, tasting) and of measures to disseminate knowledge.

(27)

The full cost of this work will be financed, subject to the abovementioned ceiling. The estimated allocation of aid for this work over the five years is: Pineau des Charentes, EUR 280 800 and Floc de Gascogne, EUR 169 000.

(28)

Aid for the production of quality products is planned for Pineau des Charentes and Floc de Gascogne. The following measures are planned: HACCP and traceability (development and dissemination of a reference framework in accordance with the technical and regulatory requirements); technical and economic studies to encourage quality-improvement measures.

(29)

The estimated allocation of aid for these measures over the five years is: Pineau des Charentes, EUR 210 600 and Floc de Gascogne, EUR 50 500.

(30)

As regards the nature of, the conditions for granting and the method of financing the planned aid, the preliminary examination of the measures did not raise any substantive doubts, although, in the case of the aid for publicity measures, the Commission took the view that France must make an explicit undertaking that any reference to the national origin of the products concerned would be secondary.

(31)

The Commission initiated the procedure provided for in Article 88(2) of the Treaty because of doubts concerning the compatibility of the aid with other provisions of Community law, in particular Article 90 of the Treaty.

(32)

It should be pointed out that the Commission Decision concerning state aid No N 703/95, of which the notified measure is an extension, was annulled by the Court of Justice (5).

(33)

In its judgment, the Court recalled that during 1992 and 1993 (6) the French government had introduced a differentiated system of taxation for liqueur wines and naturally sweet wines. Thus, from 1 July 1993 an excise duty was fixed of FRF 1 400 per hectolitre (7) for liqueur wines and FRF 350 per hectolitre for naturally sweet wines.

(34)

During 1993/94, certain French producers refused to pay the additional excise duty on liqueur wines. When that excise strike was suspended in June 1994, the President of the Confédération nationale des producteurs de vins de liqueur AOC (National Confederation of Producers of Liqueur Wines with a Registered Designation of Origin; CNVDLAOC) justified that suspension by reference to the fact that, according to him, the French Government was planning to pay French producers of liqueur wines an annual indemnity and compensation for the years 1994 to 1997 in order to compensate for the difference in taxation.

(35)

In 1995, the Associação de Exportadores de Vinho do Porto (Association of Port Wine Exporters; AEVP) sent two complaints to the Commission. It claimed that there was a link between the difference in taxation between liqueur wines and naturally sweet wines and certain aid paid to French producers of liqueur wines. According to the AEVP, the aid was intended to compensate French producers of liqueur wines for the higher level of taxation, which meant that only foreign producers of liqueur wines had to pay the higher tax. They claimed that this discriminatory taxation infringed Article 95 (now Article 90) of the Treaty.

(36)

The Court established that part of the aid in question appeared to favour a category of producers that broadly coincided with the category of French producers of liqueur wines fiscally disadvantaged by the system of taxation and that the possible existence of a link between the system of taxation and the proposed aid scheme in question represented a serious difficulty in determining whether that scheme was compatible with the provisions of the Treaty.

(37)

The Court stressed that, under those circumstances, only by initiating the procedure provided for in Article 93(2) of the Treaty (now Article 88(2)) would the Commission have been in a position to appreciate the issues raised in the complaints lodged by the AEVP.

(38)

The Court also found that the Commission Decision was devoid of any statement of reasons, i.e. that the Commission had not explained why it had concluded that the complaint lodged by the AEVP claiming a possible infringement of Article 95 (now Article 90) of the EC Treaty was unfounded.

(39)

The Court therefore concluded that the contested decision was unlawful, as a result both of the failure to initiate the procedure under Article 93(2) (now Article 88(2)) of the Treaty and of the breach of the duty to state reasons, as provided for in Article 190 (now Article 253) of the Treaty.

(40)

Given this judgment, the Commission regarded it essential to make a detailed examination in the light of Article 90 of the Treaty of the notified aid scheme, which is an extension of the scheme approved in the Decision annulled by the Court.

(41)

As part of its preliminary examination of the measure, the Commission therefore asked the French authorities whether the state aid concerned was not, in practice, a partial reimbursement, exclusively to French producers of liqueur wines, of the tax provided for in Article 402(a) of the General Tax Code.

(42)

In its answers during this first phase, France stressed that there had been no link in the past and there was no link today between the proposed support measures and excise duties, for the following reasons:

(43)

According to the French authorities, the amount allocated for the aid (EUR 2,4 million per year, EUR 12 million over five years) is tiny compared with what the sector pays back in excise duties. Thus, the 150 000 hectolitres of liqueur wines with a registered designation of origin marketed, on which an excise duty of EUR 214/hl is imposed, brings in more than EUR 32 million per year in excise revenue.

(44)

With this special rate of EUR 214/hl imposed on liqueur wines, compared with EUR 54/hl for natural sweet wines, this sector paid an extra EUR 24 million in excise duties. According to France, this sum was also out of all proportion to the proposed level of aid.

(45)

According to the French authorities, no provision had ever been implemented providing for the use of funds collected under Article 402a of the General Tax Code for the benefit of French producers of liqueur wines. Thus, between 1 January 1995 and 31 December 2000, the revenue collected was paid to the fonds de solidarité vieillesse (Old-Age Solidarity Fund). Between 1 January 2001 and 31 December 2003, it was paid to a fund intended to finance the reduction of working hours. Since 1 January 2004, this revenue has been paid into the national budget.

(46)

After examining this information, the Commission was of the opinion that it did not categorically dispel the doubts regarding the existence of a link between the tax collected and the aid.

(47)

The Commission took the view that the fact that the amount of aid (EUR 2,4 million) did not tally with the revenue from excise duties on liqueur wines (EUR 32 million) or with the additional excise duties imposed on liqueur wines compared with natural sweet wines (EUR 2,4 million) did not constitute reasonable proof of the absence of a link between the tax and the aid. It could not therefore be ruled out, at this stage of the procedure, that the aid could, at least in part, be used to provide compensation to French producers of liqueur wines that other Community producers could not receive.

(48)

The Commission also took the view that it should comply with the Court's wish to allow third parties to put forward their arguments concerning a possible infringement of Article 90 of the Treaty.

(49)

In the decision to initiate the procedure provided for in Article 88(2) of the Treaty, the Commission therefore asked France to provide information and additional figures in support of its position.

(50)

Initially, France was asked to specify whether the national authorities had already made an undertaking to producers of French liqueur wines to provide compensation, even partial, for the impact of the introduction of the tax in 1993.

(51)

The Commission then asked France to provide figures for the sums collected under the tax on liqueur wines from French products and imported products respectively and for the sums collected, broken down by product (French or Community).

(52)

Noting that Pineau des Charentes was, by far, the principal beneficiary of the notified aid, receiving 78 % of the total, followed by Floc de Gascogne with 17 %, then Pommeau de Normandie with 3 % and, finally, Macvin du Jura with 2 %, the Commission asked France to explain if these percentages coincided, for each of these products, with those for the revenue that the State received from the tax on liqueur wines.

(53)

Since most of the aid is for publicity measures, France was asked to explain whether this was representative of French Government policy in other agricultural sectors, in particular as regards quality products.

(54)

The Commission asked France to provide the budget for aid for publicity campaigns in France for each of the four products concerned.

(55)

France was also asked to provide explanations concerning any link between the revenue from the CVO and the resources from the national budget used to finance the aid.

(56)

By letter dated 10 January 2005, France submitted the following information and comments:

(57)

As regards publicity measures (see recital 30), the French authorities promised that the financing would not be provided for measures placing the emphasis on the French origin of the liqueur wines concerned.

(58)

As regards the link between the tax on liqueur wines and the aid, France again underlined that there was no correlation between the revenue from excise duties and the amount of aid from the national budget. The revenue from excise duties, including that from liqueur wines, is paid into the general state budget. According to the French authorities, the public authorities take decisions on aid for certain economic sectors completely independently. In this case, the aid is intended to remedy a number of structural handicaps affecting these wines, in particular a lack of awareness of the products among consumers, the small size and the dispersal of production facilities and the lack of means to improve market position.

(59)

France confirmed that there is no legal text allowing compensation for the excise duties paid by producers of liqueur wines (see recital 50).

(60)

As regards the revenue from the release to the market of French liqueur wines and of imported liqueur wines (see recital 51), France first of all explained that the tax statistics (which are broken down by excise duty tariff) do not differentiate between French products and those from other Member States.

(61)

In any event, according to the figures produced by the customs authorities, excise duties levied in 2003 on natural sweet wines and liqueur wines of all origins amounted to EUR 142,5 million, broken down as follows: EUR 25,2 million from natural sweet wines, subjected to a duty of EUR 54/hl on a volume of 467 000 hl, and EUR 117,3 million from liqueur wines, subjected to a duty of EUR 214/hl on a volume of 548 000 hl.

(62)

In this latter figure, it is possible, on the basis of harvest declarations, to isolate liqueur wines produced in France. These break down as follows: 94 477 hl of Pineau des Charentes, 2 091 hl of Macvin du Jura, 5 680 hl of Pommeau and 6 057 hl of Floc de Gascogne.

(63)

France submitted a table showing the distribution of the planned aid between the four inter-branch organisations and the breakdown by volume of liqueur wines produced (see recital 52).

(64)

France noted that the share of each liqueur wine in total production and the percentage of planned aid are close, although they do not coincide totally. It stressed that the distribution of planned aid was the result of discussions between the beneficiary inter-branch organisations and had not been imposed by the public authorities.

(65)

As regards the Commission's question about the budget for publicity measures (see recital 53), France provided figures showing that, particularly for quality wines psr, the sums devoted to publicity measures represent between 50 % and 74 % of the overall budget available to the inter-branch organisations.

(66)

France forwarded, for each of the four inter-branch organisations concerned, the share of the budget assigned to publicity campaigns in France. The authorities stated that this allocation would remain unchanged if the aid scheme were approved and was the result of a free choice by the inter-branch organisations concerned.

(67)

As regards the possible relation between the revenue from the CVO and the resources from the national budget used to finance the aid, France provided the following table:

(68)

The revenue that can be used for publicity is not restricted to the amounts collected by means of the CVO. In particular, inter-branch organisations can draw on other resources, for example revenue from the provision of services and the sale of advertising material and from other sources. France confirmed that the publicity measures would receive private financing covering at least 50 % of eligible costs.

(69)

For the purposes of comparing planned aid and revenue from excise duties, estimated on the basis of volumes harvested (8), France provided the following figures:

(70)

France stressed that this latter table was particularly significant, because it showed that the aim was not to compensate for the burden of excise duties by means of aid, since there was no quantitative correlation between the two.

(71)

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

(72)

For a measure to fall within the scope of Article 87(1) of the Treaty, the following four conditions must all be met: (1) the measure must be financed by the state or through state resources, (2) it must selectively concern certain undertakings or production sectors, (3) it must involve an economic advantage for the beneficiary undertakings, (4) it must affect intra-Community trade and distort or threaten to distort competition.

(73)

In this case, the Commission considers that these conditions are met:

(74)

The research, technical assistance and quality-product development measures will be financed entirely by the state from its budgetary resources.

(75)

On the other hand, the promotion and publicity measures will be financed partly by the state and partly (minimum of 50 %) by the trade organisations concerned from resources drawn primarily from the ‘compulsory voluntary levy’ (CVO) imposed on their members.

(76)

The Commission considers that the budget allocated to promotion and publicity measures is made up entirely of state resources, on the basis of the arguments set out below.

(77)

The Commission has always taken the view that compulsory contributions from undertakings in a sector that are allocated to funding financial support measures are parafiscal charges and therefore constitute state resources when those contributions are imposed by the state or when the proceeds of those contributions pass through a body established by law.

(78)

In this case, the French Government made the levies compulsory as part of an extension of inter-trade agreements. The agreements were extended by means of a decree published in the Journal officiel de la République française. These levies therefore require an act adopted by the public authorities to take their full effect.

(79)

However, case law of the Court of Justice suggests that, when the nature of a state aid is being assessed, it must also be decided whether the state is responsible for the measure concerned  (9). Recent case law (10) has provided a framework that should be examined here.

(80)

The Court declared that certain measures financed by the members of trade organisations through resources levied from their members did not fall within the scope of Article 87(1) of the Treaty, since (a) contributions were compulsorily allocated to financing the measures; (b) neither the organisation nor the public authorities had power, at any time, freely to dispose of those resources; (c) the members of the trade organisation concerned had exclusive responsibility for the measure, which did not form part of government policy.

(81)

This case law implies that, when the role played by the state is purely and simply that of an intermediary, because it does not intervene in policy choices made by the trade and at no time disposes of the resources collected, which are compulsorily allocated to the measures in question, the criterion of state responsibility is not met. The measures can therefore be considered not to be state aid.

(82)

Nevertheless, this case does not meet the criteria stipulated in the Pearle judgment. In particular, the fact that the state contributes 50 % to the financing of these promotion/publicity measures clearly shows that they form part of government policy, and, consequently, the funds used to finance them should be regarded, in their totality, as public resources allocated to measures for which the state is responsible.

(83)

The measures benefit exclusively French producers of liqueur wines and are therefore selective.

(84)

Producers of liqueur wines enjoy an economic advantage in the form of funding for various measures (research projects, technical assistance, the development of quality products, promotion and publicity). This advantage improves the competitive position of the beneficiaries. According to consistent case law of the Court of Justice, the improvement of the competitive position of an undertaking resulting from state aid implies, as a general rule, a distortion of competition with respect to other undertakings not receiving the same support (11).

(85)

This aid is likely to affect trade between Member States insofar as it promotes national products to the detriment of the products of other Member States. Indeed, there is very open competition in the Community wine sector, as is well shown by the existence of a common organisation of the markets in the sector.

(86)

The following table shows, by way of an example, the level of intra-Community and French trade in wine products over the years 2001, 2002 and 2003 (12).

(87)

Some of the planned measures are intended to be carried out outside the European Union. However, in view of the interdependence of the markets on which Community undertakings operate, it cannot be ruled out that aid could distort intra-Community competition by strengthening the competitive position of certain operators (13), even though the aid benefits products for export outside the Community (14).

(88)

In the light of the above, the measures in question fall within the scope of Article 87(1) of the Treaty and may be declared compatible with the Treaty only if they are eligible for one of the derogations provided for therein.

(89)

The only possible derogation at this stage is that provided for in Article 87(3)(c), which stipulates that aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest may be considered to be compatible with the common market.

(90)

To be able to benefit from that derogation, the aid in question must comply with the rules on state aid. The Commission first of all checks the applicability of Commission Regulation (EC) No 1/2004 of 23 December 2003 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises active in the production, processing and marketing of agricultural products (15). If that Regulation does not apply, the Commission checks whether other legal bases, such as guidelines or Community frameworks, may apply.

(91)

Since the planned aid is not restricted to small and medium-sized enterprises, Regulation (EC) No 1/2004 does not apply. The Commission therefore based its assessment on the following instruments: (a) the Community guidelines for State aid in the agriculture sector (16) (hereafter ‘agricultural guidelines’); (b) the Community guidelines for State aid for advertising of products listed in Annex I to the EC Treaty and of certain non-Annex I products (17) (hereafter ‘guidelines on advertising’) and (c) the Community framework for state aid for research and development (18) (hereafter ‘framework’).

(92)

Since it is intended to finance the planned aid, at least in part, through compulsory contributions assimilated to parafiscal charges, the Commission also assessed the methods of financing the aid.

(93)

The guidelines on advertising (19) lay down positive and negative criteria that all national aid schemes must meet. According to points 16 to 30 of the guidelines, advertising must not infringe Article 28 of the Treaty or Community secondary legislation and must not relate to particular undertakings.

(94)

The French authorities explained that the measures will not benefit particular undertakings, that publicity will not disparage other Community products and that it will make no unfavourable comparison when referring to the national origin of products.

(95)

References to national origin must be secondary to the principal message conveyed to consumers by the campaign and must not be the main reason it is suggested they buy the product. In this case, it is important that the French origin of the products concerned is not the main message of campaigns carried out on French territory.

(96)

On the basis of the samples sent by the French authorities and the explicit undertaking made by France on this matter, it can be concluded that no particular emphasis will be placed on the national origin of the products concerned and that any reference to origin will be secondary to the principal message conveyed by the publicity campaigns.

(97)

As regards the positive criteria, according to points 31 to 33 of the guidelines on advertising, products benefiting from publicity campaigns must concern one of the following: surplus agricultural products or underexploited species, new products or replacement products not yet in surplus, the development of certain regions, the development of small and medium-sized undertakings, or high-quality products, including organic products.

(98)

The French authorities explained that the measures will aim to develop the regions of production concerned by ensuring the disposal of their typical products. The measures will fulfil the need to provide support for the network of small and medium-sized enterprises in the geographical areas concerned: the wine-sector undertakings concerned are essentially small, with few employees and often still family-owned. The measures will also aim to promote high-quality products (registered designations of origin).

(99)

With regard, more particularly, to aid for advertising agricultural products bearing a protected designation of origin or a protected geographical indication registered by the Community (20), in order to guarantee that aid will not be granted to individual producers, the Commission checks that all producers of the product covered by the registered designation of origin have the same entitlement to the aid. This means that publicity measures must refer to the registered designation of origin itself and not to any logo or label, unless all producers are entitled to use it. In the same way, when, for practical reasons, aid is paid to a producer group, the Commission requests assurances that the aid will actually benefit all producers, whether or not they are members of the group.

(100)

The French authorities have given an undertaking that all producers of the products covered by the publicity campaigns and those involved in marketing them will benefit, without discrimination, by means of the measures implemented collectively, from the aid.

(101)

As regards the ceilings on aid provided for in point 60 of the guidelines, up to 50 % of the financing for publicity measures may come from state resources and the balance must be provided by the trade bodies and inter-branch organisations that benefit from the measures concerned.

(102)

The French authorities have given an undertaking that public financing will cover a maximum of 50 % of the publicity measures carried out within the European Union. The balance will have to be provided by operators in the agricultural sector concerned.

(103)

The measures carried out outside the European Union can be financed at the rate of 80 %. This is in accordance with the position adopted by the Commission (21), according to which the participation of producers in part-financed measures of this type is provided for, in particular, by Council Regulation (EC) No 2702/1999 of 14 December 1999 on measures to provide information on, and to promote, agricultural products in third countries (22). With regard to measures the Community can carry out in non-member countries, Article 9 of the Regulation stipulates that, in the case of public relations, promotional and publicity measures for agricultural products and foodstuffs, part of the financing must remain the responsibility of the proposer organisations. Thus, in the case of measures lasting at least two years, as a general rule, the minimum contribution from those organisations is 20 % of the cost, with a maximum Community contribution of 60 % and a contribution from the Member State of 20 %. It follows that the beneficiaries of this type of measure should make a real contribution of at least 20 % of the cost in order to limit distortions of competition with respect to other Community products.

(104)

The French authorities sent the Commission examples of the material for promotion and publicity measures financed under the notified aid scheme, on the basis of which it can be confirmed that the commitments made by those authorities have been kept.

(105)

The Commission concludes that the aid fulfils the conditions laid down at Community level.

(106)

As regards the aid for research and experimentation measures and that for the dissemination of scientific progress, point 17 of the agricultural guidelines lays down that aid for research and development should be examined in accordance with the criteria set out in the applicable Community framework for State aid for research and development (23). The latter specifies that an aid rate of up to 100 % is compatible with the common market, even where research and development is carried out by firms, subject to fulfilment in each case of the four conditions laid down therein:

(107)

The French authorities have given the following undertaking:

(108)

The Commission concludes that this aid fulfils the conditions laid down at Community level.

(109)

Point 14 of the agricultural guidelines lays down that this type of aid is authorised, with an aid intensity of 100 %, where it is available to all those eligible in the area concerned based on objectively defined conditions and the total amount of aid granted does not exceed EUR 100 000 per beneficiary per three-year period or, in the case of small and medium-sized enterprises, 50 % of eligible expenditure, whichever is greater. The French authorities have undertaken to comply with those conditions.

(110)

The Commission concludes that this aid fulfils the conditions laid down at Community level.

(111)

Point 13 of the agricultural guidelines lays down that this type of aid is authorised, with an aid intensity of 100 %, where it is available to all those eligible in the area concerned based on objectively defined conditions and the total amount of aid granted does not exceed EUR 100 000 per beneficiary per three-year period or, in the case of small and medium-sized enterprises, 50 % of eligible expenditure, whichever is greater. The French authorities have undertaken to comply with those conditions.

(112)

The Commission concludes that this aid fulfils the conditions laid down at Community level.

(113)

In accordance with the case law of the Court of Justice (25), the Commission normally considers that the financing of state aid by means of compulsory charges may influence the aid by having a protective effect which goes beyond the aid as such. The levies in question (CVO) are compulsory charges. According to the same case law, the Commission considers that aid may not be financed by parafiscal charges that also apply to products imported from other Member States.

(114)

The CVO applies to the volumes of liqueur wines with a registered designation of origin marketed by winegrowers, professional distillers, traders and wholesalers located within the production area of the registered designation of origin concerned. The French authorities also explained that, unlike the taxes collected under Community directives on excise duties on alcohol and alcoholic beverages, the inter-branch contributions, by definition, are imposed only on the liqueur wines covered by the registered designations of origin concerned, i.e. exclusively products in the regions specified in the regulations, which means that the CVO is not imposed on liqueur wines from other Member States.

(115)

As regards more particularly wholesalers, it cannot be ruled out that they also market imported products. However, the French authorities specified that the inter-branch levy paid by wholesalers will apply only to volumes of the liqueur wines with a registered designation of origin referred to in the notification, i.e. Pineau des Charentes, Floc de Gascogne, Pommeau de Normandie and Macvin du Jura. Therefore, imported wine is excluded from payment of the levy.

(116)

Since only the national liqueur wines with a registered designation of origin covered by the measure are subject to the levy it can be concluded that no imported product is taxed.

(117)

As regards state aid financed by parafiscal charges, the Court has also established other criteria that should be examined here. In the Nygård case (26), the Court laid down that a charge constitutes a breach of the prohibition of discrimination laid down by Article 90 of the Treaty if the advantage conferred by the use of the revenue generated by the charge benefits in particular those national products subject to it that are processed or marketed on the national market by partially offsetting the charge imposed on them, thus placing national products that are exported at a disadvantage.

(118)

The aid for promotion and publicity, which is the only aid to be financed by means of the CVO, benefits the marketing sector and may not confer the same benefits on traders who are involved exclusively in sales outside France or outside the European Union.

(119)

The French authorities however have given assurances that both the Pineau des Charentes National Committee and the Floc de Gascogne Inter-Branch Committee finance publicity and promotion measures both in France and in the European Union and non-member countries and stress that their decisions are taken fully independently by their management boards, on which all those involved in the sector are represented.

(120)

On the other hand, the inter-branch organisation of cider designations and the inter-branch committee for the wines of the Jura are said not to be planning, for the moment, to finance measures outside the French market. However, according to the French authorities, the decision to concentrate measures on the French market was taken by the sector itself, which gives priority to consolidating its position on the national market, in the knowledge that the sale of these liqueur wines abroad has not yet become the norm in the trade. The French authorities affirm that this policy does not disadvantage any trader, because sales outside France remain marginal and there are no traders specialising in the export trade.

(121)

In any event, the French authorities have given an undertaking that exported products will benefit from measures financed by means of the inter-branch levies to the same extent as products marketed in France.

(122)

The Commission notes this undertaking and is of the opinion that there is nothing in the information provided by France that indicates that there is, at present, any discrimination against exported liqueur wines.

(123)

However, the Commission draws the attention of the French authorities to the implications of the Nygård judgment as regards discrimination between exported products and products marketed on national territory. In particular, the Court ruled that it is up to the national courts to establish the extent of any possible discrimination against particular products. To that end, they must verify, during a reference period, the financial equivalence of the total amounts levied on national products marketed on the domestic market in connection with the charge in question and the advantages afforded exclusively to those products.

(124)

It should be recalled here that state aid, certain of whose conditions contravene other provisions of the Treaty, cannot be declared to be compatible with the common market. In the present case, the Commission examined whether the complaint lodged by the AEVP against aid N 703/95 concerning a possible infringement of Article 90 of the Treaty was well founded. The Commission also notes that the AEVP submitted no comments under the present procedure.

(125)

Article 90 of the Treaty lays down that ‘No Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products’.

(126)

In the present case, the rate of excise duty applicable to liqueur wines in France is the same for French wines and for wines from other Member States.

(127)

If the tax paid by French producers were partially offset by the aid that is restricted to those same producers, meaning that only non-French producers were obliged to pay the full amount of the tax, this would constitute discriminatory internal taxation contrary to Article 90 of the Treaty.

(128)

It should first of all be noted that taxes do not fall within the scope of the provisions of the Treaty on state aid unless they constitute the means of financing an aid measure and form an integral part of that aid.

(129)

It follows that the tax on liqueur wines will only have an impact on the appraisal of the compatibility of the planned aid and therefore need be examined here if there is a sufficiently close link between the tax and the aid measures.

(130)

The judgment of the Court of Justice of 13 January 2005 in the Streekgewest Westelijk North-Brabant case (27), handed down after the procedure provided for in Article 88(2) of the Treaty had been opened with respect to the aid covered by this Decision, clarified the circumstances in which a sufficiently close link must be considered to exist between a tax and an aid measure, meaning that the tax can be considered to form an integral part of the aid.

(131)

Ground 26 of the above judgment stipulates in particular that, for a tax, or part of a tax, to be regarded as forming an integral part of an aid measure, it must be hypothecated to the aid measure under the relevant national rules, in the sense that the revenue from the tax has a direct impact on the amount of the aid and, consequently, on the assessment of the compatibility of the aid with the common market.

(132)

In the Streekgewest case, the Court ruled that even if, for the purposes of the budget estimates of the Member State in question, an increase in the amount of the tax is offset by the advantage given (aid), that fact is not sufficient in itself to show that the tax was hypothecated to the tax exemption (28).

(133)

In this particular case, France indicated that the tax revenues are paid into the general state budget and that there is no law allowing compensation for excise duties paid by the producers of liqueur wines. None of the information in the possession of the Commission suggests the contrary. On the basis of this finding, the Commission can therefore conclude that the revenue from the tax on liqueur wines is not hypothecated to the aid granted to those products, without any need to demonstrate the absence of any quantitative link between the amounts levied by France and the amounts spent in the context of the aid measure.

(134)

In the alternative case, the Commission also notes that the tables provided by France following the opening of the procedure provided for in Article 88(2) of the Treaty show that there is no quantitative correlation between the revenue from the tax for the various products and the aid granted for those products.

(135)

Since there is no sufficiently close link between the tax and the planned aid, it is not necessary to assess the effects of this tax on the compatibility of the notified measures with the common market, in particular in the light of Article 90 of the Treaty, under the procedure on state aid provided for in Article 88 of the Treaty.

(136)

In the light of the above, the Commission concludes that the aid planned by France is eligible for the derogation provided for in Article 87(3)(c) of the Treaty and can be declared compatible with the common market,

6.2.2007   

EN

Official Journal of the European Union

L 32/49

(1)

On 24 March 2003, the Commission received a complaint concerning a number of alleged state aid measures in favour of Schneider Technologies AG (‘Schneider AG’). The complainant, Gebrüder Schneider GmbH & Co. KG, is a holding company which held the shares in Schneider AG and which is owned by two Schneider brothers.

(2)

On 14 July 2004, the Commission initiated the formal investigation procedure with respect to three loans granted by the Bayrische Landesanstalt für Aufbaufinanzierung (Bavarian State Institute for Development Financing — ‘LfA’) and two grants from the Bayrische Forschungsstiftung (Bavarian Research Foundation — ‘BFS’) for research and development (‘R&D’). The Commission's decision to initiate the procedure was published in the Official Journal of the European Union on 22 February 2005 (2). The Commission invited interested parties to submit comments on the suspected aid. No such third party comments were submitted (3). Germany's response to the initiation of the formal investigation procedure was submitted by letters dated 16 and 24 September 2004, registered as received on the same respective days.

(3)

The Commission requested further information on 6 September 2005, which Germany submitted by letter dated 5 October 2005, registered as received on 6 October 2005. Additional information was submitted on 6 February 2006, registered as received on 7 February 2006.

(4)

Schneider AG, a large undertaking, was a German producer of colour television sets headquartered in Türkheim, Bavaria. In addition to its manufacturing activities, the company had embarked in the 1990s on an ambitious project concerning the development of a laser display technology which was expected to deliver sharper images, higher brightness, unlimited screen size and flexibility in terms of projection surface. Between 2000 and 2002, these two main areas of activity were allocated to two newly created subsidiaries of Schneider AG: Schneider Electronics AG (‘SE’), which continued the television set production, and Schneider Laser Technologies AG (‘SLT’).

(5)

The LfA, a public bank having as its object the promotion of regional economic development, had held shares in Schneider AG since 1998. In 1999/2000, the LfA was the biggest shareholder, holding 35,6 % of the shares. Lehman Brothers, a private investment bank, held 26,6 %, Gebr. Schneider GmbH & Co. KG 14,6 % and other private investors 23,2 %.

(6)

At that time, the market had high expectations of Schneider AG's future success as a result of its leading role in laser display technology. Between 1998 and 2000, Schneider AG's share price increased almost tenfold, and between 1999 and 2000 it increased by about two and a half times. This positive view of the company's future was shared by the second biggest investor, Lehman Brothers, as evidenced by a study issued in April 2000 which explained that break-even in the field of production of consumer electronics was expected by the end of 2000, whereas break-even in laser display technology was expected for Q4 of 2001. Lehman Brothers bought [...] (*1) shares from the LfA between mid-1999 and mid-2000.

(7)

However, the companies did not perform as expected. SE produced television sets of a lower quality range and could not compete with low-price products imported mainly from Asia. Since no income could be derived from the television set business, Schneider AG ran out of funds needed by SLT to continue its laser technology activities, which progressed much more slowly than originally expected. A first prototype was available only in May 2000, much later than scheduled, and it was suitable only for industrial use. By 2002, the company had not succeeded in developing a product suitable for the private consumer, the actual economic aim of SLT.

(8)

In March 2002, three separate sets of insolvency proceedings were initiated in respect of Schneider AG and its two subsidiaries. The insolvency administrator sold the assets of Schneider AG and SE to the Chinese electronics company TCL, and the assets of SLT to Jenoptik Laser, Optik, Systeme GmbH (‘LOS’). TCL and LOS had made the highest respective offers.

(9)

In its decision to initiate the procedure, the Commission expressed doubts as to the compatibility of the following two sets of measures.

(10)

The three LfA loans were part of a package agreed in autumn 1999 between the LfA, Lehman Brothers, the complainant and a pool of banks. Germany explained that, in 1998, the company had to face losses because the attempt to increase sales of television sets through the specialised retail channel had failed. The management therefore decided to restructure the company and to reinforce the OEM (original equipment manufacturer) business. Liquidity was needed to finance the restructuring, prefinance the production for large-scale orders and cover the losses.

(11)

The first LfA loan (‘loan 1’) amounted to EUR 2,1 million and was granted in September 1999. The interest rate was [...] %. The second loan (‘loan 2’) amounted to EUR 5,1 million and was also granted in September 1999. The interest rate was [...] %. The third loan (‘loan 3’) amounted to EUR 5,6 million, was granted in February 2000 and the interest rate was [...] %. The first two loans were granted for a duration of one year, while loan 3 was granted until 31 December 2001, i.e. for almost two years.

(12)

In September 2000, the first two loans were prolonged until 30 September 2002, i.e. by two further years, and the interest rates were increased for loan 1 to [...] %, and for loan 2 to [...] %. In December 2000, loan 3 was also prolonged until 30 September 2002 and the interest rate was increased to [...] %.

(13)

Loan 1 was secured by several collateral items such as a charge on land, the cession of receivables and a product property transfer by way of security. These collateral items were ranked below the securities granted to the pool banks, whose loans had been granted earlier. Loans 2 and 3 were not secured by any collateral. Germany explained that securities had been replaced by a higher interest rate. The actual value of securities for the LfA as a shareholder was very limited because it was likely that the shareholder loan would be treated as equivalent to a capital injection under German law (Section 30 of the Law concerning Companies with Limited Liability).

(14)

The contributions by the private parties to the package were as follows:

(15)

In 1994 and 1997, the BFS provided two grants to Schneider AG totalling EUR 9 050 121,88. (4)

(16)

The first subsidy amounted to EUR 6 498 468,68. (5) It was granted on 16 December 1994 with the aim of co-financing the ‘Laser-Display-Technologie’ project (‘project 1’). The aid was disbursed in several instalments over the lifetime of the project, i.e. between January 1995 and June 1997. Eligible costs amounted to EUR 12 484 972,74, while the aid intensity amounted to 48,9 %.

(17)

Project 1 focused on creating the bases for new working methods for the projecting of large, high-resolution colour images for different applications and the scientific and technological bases for the individual components of the future system.

(18)

The following project costs were taken into account when granting the aid: (*2)

(19)

Germany has confirmed that the costs were incurred directly as a result of the research project.

(20)

In accordance with the grant agreements, the results of the project were presented to a broad public and made generally available.

(21)

The BFS also financed 100 % of a ‘blue laser’ research project carried out by the University of Würzburg. The project costs were EUR 0,26 million. At the BFS's request, project 1 and the ‘blue laser’ project were associated with each other in the expectation of a mutual know-how exchange.

(22)

The second grant amounted to EUR 2 551 653,20 and was awarded on 23 July 1997. It was intended to finance the project ‘Laser-Display-Technologie — Systemintegration und Prototypen’ (‘project 2’), which followed project 1. The aid was disbursed in several instalments over the project's lifetime, i.e. between April 1997 and September 1999. The planned eligible costs amounted to EUR 5 103 293,22, with the result that the aid intensity amounted to 50 %.

(23)

Project 2 concerned further elaboration on the results of project 1 and the attempt to integrate the individual key components into an overall system. It comprised studies into image production with picosecond impulse lasers, laser resistance of the individual components and basic research into the miniaturisation of monochrome laser systems.

(24)

The following project costs were taken into account when granting the aid:

(25)

Germany has confirmed that the costs were incurred directly as a result of the research project.

(26)

In accordance with the grant agreements, the results of the project were presented to a broad public and made generally available. Upon request, user rights had to be granted at market rates.

(27)

As regards the three loans, the Commission expressed its initial view that they probably fulfilled the market economy investor test. However, more detailed information was missing in order to enable to Commission to finalise its assessment. The Commission further doubted that the R&D grants for the two laser technology projects were compatible with the state aid rules.

(28)

No comments were submitted by third parties.

(29)

In its comments on the initiation of the formal investigation procedure, Germany argued that the loans did not constitute state aid because they fulfilled the market economy investor test.

(30)

As regards the R&D grants, Germany expressed the opinion that both projects qualified as industrial research and that their subsidisation to the tune of up to 50 % of the eligible cost was therefore compatible with the state aid rules applicable to R&D grants at the time the respective aid awards were made. With regard to project 2, Germany emphasized that the title of the project — ‘system integration and prototypes’ — was misleading and that the project had the aim of further deepening research into individual components of the project.

(31)

Pursuant to Article 87 of the EC Treaty, any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market. In order to determine whether shareholder loans granted by a public authority constitute state aid within the meaning of Article 87 of the EC Treaty, it is necessary to consider whether in similar circumstances a market economy investor might have provided loans on conditions comparable to the ones granted by the public authority.

(32)

The Commission considers that there are strong indicators that the three loans did not constitute state aid because the market economy investor test is fulfilled. The information available to the Commission indicates that granting loans to Schneider AG with interest rates of between [...] %, [...] % and [...] % (Commission reference rate 4,76 %), later increased to [...] %, [...] % and [...] % (Commission reference rate 5,7 %), was not economically irrational in the given circumstances of 1999/2000. The trust of the market in future profits by Schneider AG, mainly through a leading position in the laser technology business, is evidenced for instance by the almost tenfold increase in the price of Schneider shares between 1998 and 2000 and by the very favourable study by the strategic investment bank Lehman Brothers, which purchased an additional [...] shares in Schneider AG during that period. In July 2000, about 50 % of the capital was held by about 40 strategic investors. Secondly, compared with the behaviour of the private shareholder Lehman Brothers, the behaviour of the LfA was much more cautious. Lehman Brothers increased the capital of Schneider AG by EUR 25 million in December 1999 and was lead investor in the EUR 46 million capital increase of February 2000. Apart from contributing about EUR 8,74 million to the February capital increase (which was already accepted as complying with the market economy investor test in the decision to initiate the procedure), the LfA provided a further EUR 12,8 million only in the form of a reimbursable loan with interest. Thirdly, the LfA interest rates were higher than the rates of the pool banks, both at the time of the original grant of the loans (September 1999 and February 2000) and at the time of the loans' prolongation (September and December 2002).

(33)

Nevertheless, some doubts persist as to the nature of the loans. Due to the role of the LfA in promoting the regional economy and on the basis of the information currently available, the Commission cannot exclude that the purpose of the investment was to bridge a difficult period for Schneider AG and to save jobs in the region. Further, it is unclear whether the higher interest rates were sufficient to compensate for the lack of collateral. Schneider AG was in a difficult financial situation at the time the loans were granted and it was not impossible that the laser technology might fail. But the question whether the increased interest rates were sufficient to counterbalance this risk is difficult to assess.

(34)

The Commission is of the opinion that the question whether the LfA loans qualified as state aid can be left open. Even if they had to be considered incompatible state aid, a negative decision ordering the aid's recovery would be without object since there is no undertaking existing any more which would have benefited, either directly or indirectly, from the alleged state aid.

(35)

The formal beneficiary of the loans was Schneider AG. SE and SLT were created only after the loans had been granted, but there is no reason to exclude that they benefited from the loans. The insolvency proceedings against the three Schneider companies were initiated in March 2002, and all three companies were liquidated. The loan debt was included in the insolvent estate.

(36)

The three companies' assets were sold by the insolvency administrator, under the supervision of the insolvency courts. The Commission considers that the market price was paid for the respective assets, as a result of which the benefit of the aid was not passed on to any of the purchasers.

(37)

Public funding is provided by the Land of Bavaria through the BFS. It thus stems from state resources and is imputable to the State. The funding of the part of project 1 which was carried out by SLT and of project 2 provided an advantage to Schneider AG. Since consumer electronics are traded between Member States, the measure threatens to distort competition and affects trade between Member States. The subsidisation of projects 1 and 2 therefore constitutes state aid.

(38)

As regards the financing of the ‘blue laser’ project which was carried out by the University of Würzburg, the Commission considers that the public funding does not qualify as state aid. The project concerned fundamental research which was designed to generally increase scientific and technical knowledge. According to point 2.2 of the 1986 Community framework for state aid for research and development (7) (applicable in 1994 at the time of grant), the funding of fundamental research is not normally considered state aid. ‘However, in exceptional cases where such research is carried out in or for particular firms, the Commission cannot rule out the possibility that the aid does fall within Article 92(1) [now 87(1)]’. This is not such a case. In particular, the project was not carried out for Schneider. The funding request had been made independently by the University of Würzburg and the grants were disbursed directly to the university. Germany informed the Commission that the results of the university's research were not relevant for Schneider AG, which had its own scientific approach to solving the issues related to the blue laser. Schneider AG continued its research and development activities independently of the blue laser project and did not use the results of the university's project for its own technical solution. The association of both projects had been done by the BFS in the hope of synergies which did not take place.

(39)

The R&D grants fall to be assessed under the Community framework for state aid for research & development (‘R&D framework’) of 1986 (8) and 1996 (9), which allows state aid for fundamental research, (basic) industrial research and precompetitive development.

(40)

Project 1 can be qualified as a project of basic industrial research within the meaning of Annex 1 to the R&D framework of 1986 (10). The research activities were focused on acquiring, through original theoretical and experimental work, entirely new knowledge in the field of the projecting of large, high-resolution colour images for different applications and on elaborating the scientific and technological bases for the individual components of a future laser display system.

(41)

The BFS subsidised the project to the tune of 48,98 %, i.e. below the ceiling of 50 % allowed for basic industrial research.

(42)

The Commission considers that the R&D aid had an incentive effect because the project would not have been carried out without public support. The project involved a very high technical and economic risk and the technology was very innovative: it required very basic research and a high amount of input. This was confirmed by an external study commissioned by the BFS before deciding on the aid grant. The consulted experts were of the opinion that, in view of the high complexity and the demanding overall aim of the project, it could only be carried out if substantial support was provided. The highest technical risk was estimated to be the exact reproduction of the image. The experts further confirmed that this completely new technology contained a high number of single issues which could only be tackled through an intensive, concentrated and financially well-equipped R&D project.

(43)

As regards project 2, Germany claims that the project must also be qualified as a project of industrial research (11). Germany argues that, despite the misleading subtitle of the project (‘Systemintegration und Prototypen’), the activities carried out during the project were such as to fall under the above definition. Germany explained that the aim of the project was to further elaborate on the individual components of the technology. Therefore, in the eyes of the BFS, the project was entirely classified as industrial research. Furthermore, the first prototype was developed a couple of months after the end of project 2 and the prototype was for professional use and not for consumer use, which had been the aim of the project. The actual precompetitive research was carried out only after project 2 and without further public funding.

(44)

The Commission is more convinced that the project should rather be qualified as a project of precompetitive development (12) — at least partially. Pursuant to points 5.5 and 5.9 of the R&D framework of 1996, the funding would be limited to 25 %, or would have to represent the weighted average of the permissible aid intensities. The Commission considers that the integration of individual components into an overall system could fall under the definition of precompetitive development. Furthermore, the first prototype was finalised just a few months after the end of project 2, which is an indicator that the project was aimed at the creation of an initial prototype.

(45)

However, a further analysis of the question would be without object since any incompatible aid would not distort the market any more. The R&D grants were provided to Schneider AG. SE and SLT were set up only later. It is highly unlikely that the television set producer SE benefited from the R&D aid for research into laser technology, which was entirely spent in the approved manner. SLT might have benefited from the aid. However, the companies have since been liquidated, the R&D grants were included in the insolvent estate (13) and the assets were sold at their market price (see paragraph 36).

(46)

The Commission considers that the technological and economic risk of project 2 was still very high and that SLT would not have been in a position to carry out the project without the support of the BFS. Like the first project before it, the second project had a highly innovative character and required a significant amount of input.

(47)

The Commission concludes that the R&D aid for project 1 amounting to EUR 6 498 468,68 and 50 % of the R&D aid for project 2, i.e. EUR 1 275 826,60, were compatible with the Community's state aid rules.

(48)

As regards the three loans totalling EUR 12,8 million and 50 % of the R&D aid for project 2, the Commission considers that the information available is not sufficient for it to reach a conclusive assessment. However, the decisive questions as to whether the loans constituted state aid and how far project 2 was a project of industrial research can be left open. Any incompatible state aid could not be recovered since, following the liquidation of all actual or potential beneficiaries and the sale of their assets at their market price, the aid would no longer distort the market.

The Commission accordingly concludes that the formal investigation procedure initiated under Article 88(2) of the EC Treaty in respect of the three loans and part of project 2 no longer serves any purpose,

6.2.2007   

EN

Official Journal of the European Union

L 32/56

(1)

The measure was notified by letter of 19 April 2001 in response to a written inquiry from the Commission. Since the measure had already been implemented, the record of the aid was transferred to the register of non-notified state aid (aid No NN 32/01).

(2)

Additional information was submitted by letters of: 13 February 2002, registered as received on 18 February 2002; 5 July 2002, registered as received on 9 July 2002; and 5 December 2002, registered as received on 10 December 2002. A meeting to discuss the aid took place at the Directorate-General for Agriculture on 25 June 2002.

(3)

By letter SG (2003) D/232035 of 2 October 2003 the Commission informed Germany of its decision to initiate the procedure under Article 88(2) of the EC Treaty in respect of this state aid measure (aid No C 60/2003).

(4)

On 6 November 2003 the Commission decision to initiate the procedure was published in the Official Journal of the European Union  (2) and interested parties were invited to submit their comments.

(5)

The Commission received comments from interested parties and from the regional authorities granting the aid by letters of 18 November 2003, registered as received on 25 November 2003; 23 December 2003, registered as received on 5 January 2004; and 12 February 2004, registered as received on 17 February 2004.

(6)

Germany submitted comments to the Commission by letter of 5 November 2003, registered as received on 6 November 2003.

(7)

By letter of 7 March 2005, registered as received on 9 March 2005, Germany submitted further comments to the Commission and requested an assessment of the measure pursuant to Commission Regulation (EC) No 1860/2004 of 6 October 2004 on the application of Articles 87 and 88 of the EC Treaty to de minimis aid in the agriculture and fisheries sectors (3).

(8)

Aid for the acquisition of shares by winegrowers in Rhineland-Palatinate

(9)

The scheme is based on the following:

the Guideline on granting assistance from funds of the rural district of Bernkastel-Wittlich to support winegrowers who join a winegrowers' cooperative;

the Guideline on granting assistance from funds of the rural district of Cochem-Zell to support winegrowers who join a winegrowers' cooperative/producer organisation;

the Guideline on granting assistance from funds of the rural district of Trier-Saarburg to support winegrowers who join a winegrowers' cooperative/producer organisation;

the Notice issued by the local authority association of Schweich to increase the assistance granted by the rural district of Trier-Saarburg to support winegrowers who join a winegrowers' cooperative/producer organisation.

(10)

The Guideline issued by the district administration of Bernkastel-Wittlich specifically provides for aid to purchase shares in the Moselland cooperative. The Guidelines issued by the district administration of Cochem-Zell contain similar provisions, and this has led in practice to support being granted only for shares in the Moselland cooperative. The Guidelines issued by the district administration of Trier Saarburg and the local authority association of Schweich are not specifically targeted at a particular company, but generally at cooperatives and producer organisations approved under the German Market Structure Act.

(11)

The aim of the scheme was to increase the proportion of grapes collected by producer organisations and to reduce the proportion of cask wine freely saleable, i.e. not sold via producer organisations. The objective was to help stabilise prices on the cask-wine market. At the same time the long-term objective was to close down production capacity in the form of vinification facilities on individual holdings, especially at small winegrowing enterprises in the Mosel-Saar-Ruwer winegrowing area.

(12)

The aid was designed to cover part of winegrowing enterprises' costs when acquiring shares in winegrowers' cooperatives/producer organisations (hereinafter: producer organisations). The aid was granted on condition that the winegrower undertook to keep the shares for five years from the date on which the application was filed. Each enterprise also had to bring into the producer organisation its total cultivated area and deliver all its grapes, must and wine to the producer organisation. Each enterprise was also required to shut down its corresponding vinification facilities.

(13)

The aid was granted in the form of direct grants and in the form of interest relief on capital-market loans.

(14)

The cost of acquiring shares was normally EUR 293,99. Where the cost was less, the grant was reduced proportionately.

(15)

The following grants per share were granted:

(16)

The assistance paid by the local authority association of Schweich was additional (cumulative) to payments in the rural district of Trier-Saarburg.

(17)

In the rural district of Cochem-Zell, interest relief of up to 4,95 % was granted on any loans taken out for the purchase of shares during a maximum period of four years.

(18)

In 2000, the following payments were made to producer organisations:

(19)

In 2000, a total of EUR 155 460 was paid out. The scheme was financed from funds of the district administrations and of the Schweich local authority.

(20)

The duration of the scheme in the rural district of Cochem-Zell was four years (2000 to 2003). The other measures were limited to 2000.

(21)

The aid was paid direct to the producer organisations which sold shares at reduced prices to newly-joining winegrowers and winegrowing enterprises.

(22)

Winegrowers and winegrowing enterprises in each rural district were thereby able to acquire shares in producer organisations at reduced cost.

(23)

The measure enabled producer organisations to increase their own capital and secure the purchase of raw materials.

(24)

After provisional examination, the measure was classified as operating aid to winegrowing enterprises and producer organisations — which is incompatible with the common market. The Commission therefore initiated a formal investigation procedure.

(25)

The Commission received a complaint concerning the introduction of the aid scheme. The complainant pointed out that the aid enabled winegrowers to acquire shares in local producer organisations at reduced prices. Besides the advantage of increased capital, the producer organisations were then also able to secure the purchase of raw materials in the form of must and raw wines. The complainant argued that this placed competitors at a disadvantage regarding the procurement of must and raw wines.