61985J0103

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1 . ECSC - Production - Steel production and delivery quota system - Adjustment of delivery quotas - Conditions - Exceptional difficulties due to the scale of the abatement rate for a specific category of products - Assessment - Criteria

( Decision No 234/84, Art . 14 )

2 . ECSC - Production - Steel production and delivery quota system - Adjustment of delivery quotas - Conditions - No authorized aid to cover operating losses - Aid intended to encourage the restructuring of an undertaking - Essential difference

( Decision No 234/84, Art . 14 )

1 . The fact that an undertaking experiences "exceptional difficulties" justifying, pursuant to Article 14 of Decision No 234/84, an adjustment of delivery quotas must be assessed on the basis only of the situation in the category of products subject to a high abatement rate without taking into account the undertaking' s general profit or loss .

2 . It is the conditions of grant and the object of aid which must be taken into account in determining whether it constitutes aid intended to cover operating losses preventing an adjustment of delivery quotas pursuant to Article 14 of Decision No 234/84 and not its effects on the undertaking' s profit and loss account .

The aim of the extension of the quota system is to promote the restructuring needed to adapt production and capacity to foreseeable demand and to re-establish the competitivity of the European steel industry . It is consistent with that aim that undertakings which have received a form of aid likely to delay the desired restructuring, namely aid intended to cover operating losses, should be excluded from the benefit of the additional quotas, the grant of which may likewise reduce their willingness to restructure . Aid which in practice is likely to promote the desired restructuring and improvement of competitivity cannot, however, be regarded as aid intended to cover operating losses within the meaning of Article 14 of Decision No 234/84 .

In Case 103/85

Stahlwerke Peine-Salzgitter AG, having its registered office at Salzgitter, represented by Deringer, Tessin, Herrmann and Sedemund, Rechtsanwaelte, Cologne, and with an address for service in Luxembourg at the Chambers of Jacques Loesch, 8 rue Zithe,

applicant,

v

Commission of the European Communities, represented by Rolf Waegenbauer, Legal Adviser, acting as Agent, with an address for service in Luxembourg at the office of G . Kremlis, a member of the Commission' s Legal Department, Jean Monnet Building, Kirchberg,

defendant,

APPLICATION concerning the Commission' s refusal to adjust the applicant' s delivery quotas for products in Category III ( heavy sections ) pursuant to Article 14 of Commission Decision No 234/84/ECSC of 31 January 1984 on the extension of the system of monitoring and production quotas for certain products of undertakings in the steel industry ( Official Journal 1984 L 29, p . 1 ),

THE COURT ( Second Chamber )

composed of : O . Due, President of Chamber, K . Bahlmann and T . F . O' Higgins, Judges,

Advocate General : J . Mischo

Registrar : H . A . Ruehl, Principal Administrator

having regard to the Report for the Hearing and further to the hearing on 7 October 1987,

after hearing the Opinion of the Advocate General delivered at the sitting on 17 November 1987,

gives the following

Judgment

1 By an application lodged at the Court Registry on 22 April 1985, Stahlwerke Peine-Salzgitter Aktiengesellschaft brought an action under Article 35 of the ECSC Treaty to annul the decision by which the Commission impliedly refused to adjust the applicant' s delivery quotas for products in Category III ( heavy sections ) for the first quarter of 1985 in accordance with Article 14 of Commission Decision No 234/84/ECSC of 31 January 1984 on the extension of the system of monitoring and production quotas for certain products of undertakings in the steel industry ( Official Journal 1984 L 29, p . 1 ).

2 By letter dated 15 January 1985 the applicant requested the Commission to make the abovementioned adjustment . Since the Commission did not reach a decision on the request within the period of two months provided for in Article 35 of the ECSC Treaty, the applicant brought the present action . By an express individual decision of 11 June 1985 adopted during the proceedings the Commission decided not to adjust the applicant' s quotas pursuant to Article 14 for the first and second quarters of 1985 . In its reply the applicant extended its action to the Commission' s express decision of 11 June 1985 and claimed that that decision should be annulled in so far as it refused the applicant' s request for a quota adjustment pursuant to Article 14 for Category III products for the first quarter of 1985 .

3 Under the monitoring and production quota system for steel industry undertakings the Commission quarterly fixes production quotas and the part of such quotas which may be delivered in the common market ( delivery quota ) on the basis of the production and reference quantities determined when the system was introduced and after applying to the production and reference quantities certain abatement rates fixed quarterly .

4 Article 14 of the Decision No 234/84 provides :

"If, by virtue of the scale of the abatement rate for a certain category of products set for a quarter, the quota system creates exceptional difficulties for an undertaking which, during the 12 months preceding the quarter in question :

( i ) did not receive aids authorized by the Commission with a view to covering operating losses,

( ii ) was not the subject of penalties in respect of the price rules or paid fines due,

the Commission shall, in respect of the quarter in question, make a suitable adjustment to the quotas and/or parts of quotas which may be delivered in the common market for the category or categories of products in question ..."

5 Stahlwerke Peine-Salzgitter AG is a steel undertaking . One of its products is rolled steel in Category III ( heavy sections ), which accounts for 16% of its total output . For that category of products the ratio between the production quota and the part of the quota which may be delivered in the common market ( which is known as the I:P ratio ) is exceptionally unfavourable for the applicant both in absolute terms and in comparison with the Community average and was at the relevant period some 24% less than that of the Community average for the said category .

6 In view of the applicant' s difficulties as a result of the I:P ratio and in response to its request, the Commission adjusted that part of the quota which could be delivered in the common market for the second, third and fourth quarters of 1984 pursuant to Article 14 of Decision No 234/84 . However, as regards the first quarter of 1985, the Commission let it be understood that it did not intend to grant the applicant quota adjustments pursuant to the aforesaid Article 14 on the ground that the authorities of the Federal Republic of Germany had granted it in the fourth quarter of 1984 aid for structural improvement in respect of special depreciation, which was authorized by the Commission . In the Commission' s view, that aid for structural improvement constituted aid with a view to covering operating losses, which, under the said Article 14, precludes the grant of supplementary quotas pursuant to that article . The Commission' s express decision of 11 June 1985 was also based on the same grounds . In that decision, moreover, the Commission found that since the applicant undertaking had on the whole shown a profit after the fourth quarter of 1984 there were no longer "exceptional difficulties" within the meaning of Article 14 .

7 It is not denied that at the said time Peine-Salzgitter AG received aid under the Directive of the Federal Minister for Economy on the grant of aid for structural improvement of steel undertakings of 28 December 1985 ( Bundesanzeiger No 245 of 31 December 1983 ). Aid intended for structural improvement covers :

expenditure in respect of workers affected by the restructuring measures and leaving the undertaking because they are directly or indirectly affected thereby;

the special depreciation of plant intended for steel production within the meaning of the ECSC Treaty, that is to say for the closure of such plant or, in exceptional cases, for long-term reduction in utilized capacity .

8 The applicant received both aid in respect of workers affected by the restructuring measures and leaving the undertaking and aid for the depreciation resulting from the closure of plant and for long-term reduction in utilized capacity . Only the latter aid is at issue in this case .

9 Reference is made to the Report for the Hearing for a more detailed account of the facts of the case, the procedure and the submissions and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court .

Admissibility

10 The Commission expresses doubt as to the admissibility of changing an action for failure to act into an action for annulment, but has made no formal objection .

11 The express decision of 11 June 1985, which during the proceedings replaced the previous implied decision with the same subject-matter, that is to say the refusal to adjust pursuant to Article 14 of Decision No 234/84 the applicant' s delivery quotas for Category III products for the first quarter of 1985, must be regarded as a new factor enabling the applicant to amend his pleadings . As the Court held in its judgments of 3 March 1982 ( Case 14/81 Alpha Steel Ltd v Commission (( 1982 )) ECR 749 ) and 29 September 1987 ( Joined Cases 351 and 360/85 Fabrique de fer de Charleroi SA and Dillinger Huettenwerke AG v Commission (( 1987 )) ECR 3639 ), it would not be in the interests of a due administration of justice and the requirements of procedural economy to oblige the applicant to make a fresh application to the Court .

12 Moreover, it would be inequitable if the Commission were able, in order to counter criticisms of an implied decision contained in an application to the Court, to adopt an express decision to the same effect and to rely in the proceedings on the express decision in order to deprive the other party of the opportunity of extending his original pleadings to the later decision or of submitting supplementary pleadings directed against that decision .

13 It follows that the application is admissible .

Substance

14 The case concerns two questions : in the first place whether, as the Commission contends, Article 14 of Decision No 234/84 is inapplicable because the quota scheme has not caused the applicant any "exceptional difficulties" since the first quarter of 1984, and in the second place whether the aid received by the applicant must be regarded as aid to cover operating losses within the meaning of Article 14 .

The concept of "exceptional difficulties"

15 The applicant challenges the Commission' s contention that the applicant has been making a profit since the fourth quarter of 1984 . Although the applicant' s results have been positive if past losses are disregarded, it continues to suffer losses in relation to the production of heavy sections by reason of the unfavourable I:P ratio . Moreover, the existence of a deficit should not be regarded as an unwritten criterion for the application of Article 14 and in practice the Commission has, as provided by Article 14, adjusted the quotas of undertakings which were not making losses . Finally, the existence of "exceptional difficulties" is determined by the situation in a particular category of products and not by the positive or negative results of an undertaking as a whole .

16 The Commission observes that Article 14 does not apply to a profitable undertaking . The existence of "exceptional difficulties" depends on the situation of the undertaking as a whole and not on the situation prevailing in a particular category of products .

17 The Commission' s argument cannot be accepted . It is clear from the wording of Article 14 of Decision No 234/84 that it provides for limited possibilities of adjusting quotas only where an undertaking is confronted with "exceptional difficulties" "by virtue of the scale of the abatement rate for a certain category of products set for a quarter ". Only the difficulties which are the direct consequence of the establishment and application of the quota system may be considered by the Commission in applying Article 14 .

18 It is clear from the judgment of the Court of 22 June 1983 ( Case 317/82 Usines Gustave Boël and Fabrique de fer de Maubeuge v Commission (( 1983 )) ECR 2041 ) that the Commission may adjust quotas only in exceptional circumstances where such adjustment is necessary for categories subject to a high abatement rate . It follows from the said judgment that in determining whether "exceptional difficulties" exist the Commission may not take account of the position of other categories of products . In the same way the Commission may not base its reasoning in relation to the existence of "exceptional difficulties" on the fact that the undertaking is on the whole profitable .

19 Indeed, it is apparent from the documents produced at the Court' s request that in several cases the Commission has granted additional quotas pursuant to Article 14 although the undertakings concerned were profitable .

The nature of the contested aid

20 The applicant submits that the contested aid was not intended to cover operating losses within the meaning of Article 14 of Decision No 234/84 . It was aid for special depreciation in relation to measures occasioned by the total or partial closure of steel plants . It is the purpose of the aid and not its capacity in practice to reduce operating losses which determines its classification .

21 The Commission contends that the application of Article 14 depends on whether the aid is objectively likely to contribute to covering operating losses . Since the consequence of the aid for depreciation at issue is to reduce the undertaking' s losses, the undertaking cannot also have its quotas adjusted pursuant to Article 14, since the object of that article is to avoid the aggregation of the two benefits .

22 In that respect it should be noted that the wording of Article 14 has been altered more than once by general decisions extending the quota system . In its original version in Commission Decision No 2177/83 of 28 July 1983 on the extension of the system of monitoring and production quotas for certain products of undertakings in the steel industry ( Official Journal 1983 L 2O8, p . 1 ), all undertakings which had received any aid, apart from aid for closure, were barred from the benefit of Article 14 . On the other hand, in subsequent general decisions, including the contested Decision No 234/84, all undertakings, even those which had received aid, were allowed to benefit under Article 14, the sole exception being those which had received aid to cover operating losses .

23 Since the fact of having obtained a different kind of aid therefore does not exclude an undertaking from benefiting under Article 14, it follows that the effect which aid may have on the profit and loss account of an undertaking cannot be regarded as a valid criterion for determining what constitutes aid intended to cover operating losses within the meaning of Article 14 . Since the result of any aid may be to compensate wholly or in part any operating losses, the Commission' s argument with regard to the application of Article 14 would exclude almost all aid which is not aid for closure .

24 It is therefore the conditions of grant and the aim of aid which must be taken into account in determining the question whether aid is aid intended to cover operating losses within the meaning of Article 14 of Decision No 234/84 .

25 The Court held in its judgment of 15 January 1985 ( Case 250/83 Finsider v Commission (( 1985 )) ECR 131 ) that the aim of the general decision extending the quota system was to promote the restructuring needed to adapt production and capacity to foreseeable demand and to re-establish the competitivity of the European steel industry . The Court observed that it was consistent with that aim that undertakings which had received a form of aid likely to delay the desired restructuring, namely aid intended to cover operating losses, should be excluded from the benefit of the additional quotas, the grant of which might likewise reduce their willingness to restructure . It follows from that judgment that aid which in practice is likely to promote the desired restructuring and improvement in competitivity cannot be regarded as aid intended to cover operating losses within the meaning of Article 14 of the general decision now in force .

26 In the present case the contested aid was granted pursuant to a "programme of restructuring of particular expedience from the point of view of economic policy ..." and the feasibility of the programme was checked and confirmed by an independent auditor or by an independent audit company ( Point 4 of the aforementioned directive ). The aid might have to be refunded in certain circumstances if the undertaking decided to abandon the closure or reduction in capacity ( Point 12 of the said directive ). In those circumstances, it cannot be regarded as aid likely to delay the desired restructuring within the meaning of the aforementioned judgment of the Court of 15 January 1985 . The contested aid cannot therefore be regarded as aid intended to cover operating losses within the meaning of Article 14 of Decision No 234/84 .

27 It follows that the Commission' s arguments in that respect must be rejected .

28 In view of the foregoing the Commission' s express decision of 11 June 1985 refusing to adjust, pursuant to Article 14 of Decision No 234/84, the applicant' s quotas for products in Category III for the first quarter of 1985, which replaced the Commission' s implied decision to the same effect, is based on a wrong interpretation of the said Article 14 and must therefore be declared void .

Costs

29 Under Article 69 ( 2 ) of the Rules of Procedure the unsuccessful party is to be ordered to pay the costs . As the Commission has failed in its submissions, it must be ordered to pay the costs .

On those grounds,

THE COURT ( Second Chamber )

hereby :

( 1 ) Declares that the Commission' s decision of 11 June 1985 refusing to adjust pursuant to Article 14 of Decision No 234/84 the applicant' s quotas for Category III products for the first quarter of 1985 is void .

( 2 ) Orders the Commission to pay the costs .