61998C0332

I - The decision contested by this action for annulment

1. By application lodged on 8 September 1998, France has requested the Court to annul part of the Commission's decision 1999/133/EC of 10 June 1998 on State aid to the Coopérative d'Exportation du Livre Français (CELF) (hereinafter the Decision). The Decision states that the measures to compensate CELF for the extra cost of handling small orders of French-language books constitute aid within the meaning of Article 92(1) of the EC Treaty (now, after amendment, Article 87(1) EC). Although the aforesaid aid was granted illegally because no prior notification was given by the French authorities as required under Article 93(3) of the EC Treaty, the Commission nevertheless held that it met the conditions for application of the derogation provided for in Article 92(3)(d) of the EC Treaty and therefore declared that it was compatible with the common market.

2. France challenges only that part of the contested measure by which the Commission decided that Article 90(2) of the EC Treaty (now Article 86(2) EC) did not apply in this case. That provision states: Undertakings entrusted with the operation of services of general economic interest ... shall be subject to the rules contained in this Treaty, in particular to the rules on competition [Articles 85 to 94 of the EC Treaty (now Articles 81 EC to 89 EC)], in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Community.

3. During the pre-litigation procedure before the Commission, France maintained that the handling of small quantities of French-language books ordered by foreign bookshops was a service of general economic interest that no undertaking other than CELF was prepared to provide. It was therefore vital that subsidies should be granted to offset the losses caused by the handling of unprofitable orders - whose application was subject to subsequent control with unused sums being deducted from the following year's subsidy (see footnote 2) - and was in keeping with the provision of a service that was in the public interest. The service in question aimed to promote the distribution of French-language works and to consolidate the distribution network of bookshops that sell this type of publication abroad. According to the French authorities, the measure in question could not therefore be considered State aid and should benefit from the derogation provided for by Article 90(2) of the Treaty, as already decided by the Commission in another procedure that concerned the reduction of the French postal administration's local tax base (see section VIII of the Decision).

4. Referring to the Court's decision in the Banco Exterior de España case, the Commission decided that there was no reason to consider CELF's subsidised activities from the point of view of Article 90(2) because the application of Article 92 of the Treaty to this case meant that the measure in question, although defined as State aid, was compatible with the common market because: (i) its purpose was to promote culture and conserve a heritage and (ii) it was not of a nature that would affect intra-Community trade and competition in a way contrary to the common interest. Consequently, the application of Article 92 would not prevent CELF from handling of small orders. Furthermore, the Commission stated that the requirement that responsibility for services of general economic interest must be established by the public authorities was not fulfilled in the case of CELF since France had not demonstrated that the service of handling small orders of French-language books was based on any legislative or administrative order. According to the Decision, the Decree of 9 May 1995 concerning the organisation of the Section responsible for books and reading and the decrees concerning the financial laws on the allocation of funds to the Ministry of Culture to which the French authorities referred, concern books in general and make no reference to CELF and therefore do not specifically apply to it. Finally, the Commission has criticised the arguments put forward by France in support of the application of Article 90(2) of the Treaty to CELF, stating that they are contradictory: while declaring that the support mechanism in question is also open to other undertakings, the French Government, states the Commission, had reserved the aid in question for CELF in so far as that company was engaged in providing a service of general economic interest which it alone was prepared to provide.

II - The grounds for the appeal and the arguments of the parties

Admissibility

5. France seeks to justify its interest in bringing proceedings by pointing out that if the Court upholds the legality of the part of the Decision that declares that Article 90(2) of the Treaty does not apply to this case, not only would CELF be obliged to return the subsidies granted to it by the French Government over a period of almost 20 years with no prior notification to the Commission, but also the French State would be financially liable for any damage to third parties caused by the breach of Article 93(3) of the Treaty. If, however, the Court upholds the grounds of action, the Commission will have to apply the derogation provided for by Article 90(2) to the aid in question and therefore the implementation of the measure by the French authorities before a final decision on authorisation was made will have to be considered entirely lawful.

6. The Commission, for its part, maintains that this appeal is inadmissible. It declares that the Court's decision in Case T-49/93 (see footnote 1 above), which has not been contested before the Court, rendered classification of the contested measure as State aid and (implicitly) illegal aid definitive because it was implemented without prior notification, that classification having been made by the Commission in the 1993 Decision. Consequently, as regards the aforesaid classification, the contested Decision actually only confirms a previous final decision and therefore, according to the Court's case-law, cannot be open to appeal. On the other hand, the very identification of the parts of the operative part of the Decision contested by the applicant is far from easy.

The merits

7. The appeal is founded on three grounds, two of these (one primary and the other secondary) relate to violations of the Treaty, while the third concerns the factual error of attributing to CELF a mission of general economic interest.

8. As I have already noted (see above, point 2), the applicant firstly criticises the part of the Decision in which the Commission finds that the application of the provisions on the control of State aid to the measure in question, given the final decision of compatibility adopted by the defendant institution, was not such as to prevent the de jure or de facto implementation of the handling of small orders and therefore there was no reason for assessing CELF's subsidised activities in the light of Article 90(2) (see above, point 4). In so doing, the Commission misapplied Articles 90(2) and 92(3) of the Treaty.

9. According to the French Republic, the Commission has, in particular, incorrectly applied to new aid the principles on existing aid laid down in the Court's case-law, and has ignored the fundamental difference between the two categories of measure which, according to the Court, exists also in regard to State aid granted to undertakings covered by the derogation provided for by Article 90(2). The judgment in the Banco Exterior de España case cited by the Commission establishes that, since existing aid - such as that in question here - may continue to be implemented as long as the Commission has not found it to be incompatible with the common market, it is not necessary to examine whether and to what extent that aid is capable of falling outside the scope of the prohibition of Article 92 by virtue of Article 90(2) of the Treaty. In the applicant's opinion, new aid is, however, regulated by a different principle: notwithstanding the fact that, as a general rule, such a measure cannot be implemented until the Commission has conducted its examination and given a final decision on compatibility, this standstill obligation (temporary suspension of aid) does not apply if all the requirements of Article 90(2) of the Treaty concerning the applicability of the derogation in question have been met.

10. The applicant states that the possible applicability of Article 90(2) allows derogation from the duty to notify in advance, which does not appear to preclude CELF from carrying out its particular task and from the aforesaid standstill obligation. The applicant maintains that suspending implementation of the aid during the Commission's examination procedure is incompatible with the specific nature of the aid in question, since its purpose is to ensure a continuous and flexible service, which is of general economic interest, of handling small orders of French-language books. If, for example, the French authorities had had to suspend payment of the disputed subsidies immediately following the judgment in Case T-49/93 until the Commission issued a final decision, this would have interrupted the public service provided by CELF for almost three years. In addition, adds the French Government, the Court's ruling in Lorenz - according to which a Member State may implement proposed aid once the period of preliminary examination of the proposal is over, which period may not exceed two months - is in practice applied only rarely, as the increasing complexity of examination procedures frequently makes it necessary to initiate the inter partes procedure provided for by Article 93(2) of the Treaty, which is not subject to time-limits and which is inevitably lengthened by the participation of complainants and interested third parties.

11. The applicant claims alternatively that the section of the Decision finding that the French authorities had not proved that CELF was entrusted with the public service of handling small orders of French-language books (see point 4 above) is tainted by an error of fact (first alternative ground). The Commission relied on general but irrelevant criteria, even though it did have pertinent documents available, which were a number of public law contracts (agreements) between the Ministry and CELF, which the French authorities had duly produced during the course of the procedure to examine the aid in question.

12. Finally, France claims that the Commission misapplied Article 90(2) of the Treaty. The applicant contests the part of the Decision in which the alleged causal link between the grant of the aid in question and the public service which no other operator was prepared to provide was held to be logically incompatible with the statement that the support mechanism was also open to undertakings other than CELF (see point 4 above). The requirement applied by the Commission in this case, that the provider of a service of general economic interest had to be in a monopoly position, is foreign both to the wording and to the Court's interpretation of Article 90(2) (second alternative ground).

13. Besides its submission concerning the inadmissibility of the application, the Commission denies that the decision is tainted by the defects alleged by the applicant (see below, points 17 and 18). The Commission also requests the Court to dismiss as inadmissible the considerations raised in the alternative by the French Government, which are foreign to the grounds on which the Commission concluded that it was not necessary to consider whether and to what extent the aid granted to CELF could escape the rules governing State aid pursuant to Article 90(2) of the Treaty.

III - Legal analysis

Admissibility

14. Since the Commission, without raising any formal objections, has raised serious doubts as to the admissibility of this appeal, I shall start from that position in my examination of the case. I must immediately state that I find the defendant's arguments unconvincing. I would point out firstly that in Case T-49/93 SIDE v Commission, cited above, the Court, having declared that the Commission had failed to meet its obligation to initiate the inter partes procedure provided for by Article 93(2) of the Treaty, annulled that part of the 1993 Decision which related to the aid in question (see footnote 1 above). I do not therefore believe that classification by the 1993 Decision of this measure, implemented without prior notification and therefore illegal, as State aid is, as the Commission claims, res judicata. There was a possibility that the formal inter partes examination procedure that the Commission was required to initiate by virtue of the Court's decision of 18 September 1995, and which it did indeed initiate on 30 July 1996, would end in a different result, or even with a declaration that the subsidies granted to CELF did not constitute State aid within the meaning of the Treaty. Under the Court's decision, the Commission was bound only to allow the interested parties to take part in the detailed examination procedure, but it retained its discretion to assess the merits of the measure in question. However, following the expiry of the period in which the Court's decision could be appealed, the other findings contained in the 1993 Decision - regarding measures introduced by France in CELF's favour other than the subsidies in question, - became res judicata, so that the Court of First Instance rejected SIDE's action in their respect (see above, footnote 1). I therefore consider that the Decision is not immune from challenge in so far as it merely confirms the definitive findings contained in the 1993 Decision.

15. The Commission also maintains that this action does not clearly indicate which sections of the operative part of the Decision are contested by the French Government. The operative part of the contested Decision does not in effect make any reference to the inapplicability of Article 90(2) of the Treaty to this case, although section XII of the grounds for the Decision (see point 4 above) is devoted entirely to this issue. However, I do not believe I need share the Commission's view as I have described it. According to the established case-law of the Court, the operative part of a measure cannot be dissociated from its grounds and therefore should be interpreted, if necessary, by taking account of the grounds that led to its adoption. Consequently, even though the operative part of the Decision does not explicitly relate to the argument raised by France during the administrative examination procedure initiated on 30 July 1996, according to which by virtue of the derogation provided for in Article 90(2) of the Treaty the subsidies granted to CELF cannot be considered State aid, the conclusion contained in the operative part (compatibility of the aid with the common market) necessarily means, given the grounds for the Decision, that the Commission intended to dismiss the aforesaid arguments of the French authorities. In other words, the French Government does not merely contest certain considerations in the Decision which it considers unfavourable but also attacks the operative part of the Decision precisely because of what it does not say. The Commission's argument here would also mean that the defendant institution (or any other institution) would be able to prevent the Community courts from ruling on the legality of decisions contained in measures it had adopted by simply including these findings only in the grounds section of the measure concerned. The main ground of action therefore seeks the annulment of the operative part of the Decision. The operative part was liable to be prejudicial to the French Republic in the way claimed - at least according to Articles 90(2) and 93(3) of the Treaty, read together, as contended in the application - in so far as it states that the aid in question was granted in violation of a standstill obligation, which the French authorities claim was inapplicable precisely by virtue of the aforesaid Article 90(2). Assuming that the action is to be declared admissible, I shall now consider whether the main ground raised by the appellant is well founded.

Merits: breach of Article 90(2), in conjunction with Article 92, of the EC Treaty

16. France maintains essentially that, contrary to what the Commission found, the application of Community law on State aid - and in particular of the last sentence of Article 93(3) of the EC Treaty - would have prohibited CELF from carrying out its specific task (see point 10 above): in order for the undertaking appointed to handle small orders of French-language books to be able to ensure compliance with its obligations under conditions of economic equilibrium, the subsidies granted by the public authorities had to continue without a break during the inter partes procedure, which lasted over 22 months. In support of its primary argument, the applicant refers to the judgment of the Court of First Instance in the French postal administration case, according to which, when Article 90(2) is applicable to a measure subject in principle to Community regulation of State aid, the effect of those rules may nevertheless be curtailed so that a prohibition giving effect to new aid may be declared inapplicable (see paragraph 172, my italics).

17. The Commission points out that in the French postal administration case the principle laid down by the Community court was very different from that invoked by France. It is one thing to state that Article 90(2) of the Treaty can allow direct aid granted to offset the additional cost of providing a public service to escape the essential prohibition laid down by Article 92 of the EC Treaty, but it is quite another to assert, as does the applicant, that the derogation provided for in Article 90(2) can prevent application of a procedural rule, namely the standstill obligation imposed by the Treaty to prevent implementation of aid contrary to the common market.

18. That France's case is baseless is clear - according to the Commission - from the case-law of the Court according to which the final sentence of Article 93 is the means of safeguarding the machinery for review laid down by that article which, in turn, is essential for protecting the proper functioning of the common market. Consequently, even if the Member State in question took the view that the aid measure was compatible with the common market, that fact could not entitle it to defy the clear provisions of Article 93. The French Government's separation of the obligation to give prior notification of a planned measure, on the one hand, from the standstill clause, on the other (see above, point 10) is therefore totally arbitrary. Moreover, the applicant itself admits that the duty to give prior notification of a new aid is not removed even if the derogation provided for by Article 90(2) of the Treaty is applicable to the beneficiary; consequently, in this case, such separation does not preclude breach of Community law by France, which failed to give notification of the measure in question (see above, point 1). The Commission adds that, although France's arguments tend to limit the asserted inapplicability of the standstill obligation to particular situations in which the permanent and flexible operation of a service of general economic interest would otherwise be endangered, the applicant does not state which authority would be competent to make such an assessment or when such a decision would have to be made.

19. I find the arguments of the Commission more convincing. I agree in particular with the Commission that in no circumstances can the derogation provided for under Article 90(2) be properly invoked by a Member State with regard to unnotified aid - even if the aid is eventually declared compatible with the common market - for the purpose of removing the taint of illegality caused by the implementation of the measure and of preventing the effects, under national law, of a breach of Article 93(3) of the EC Treaty. Needless to say, no aid can be deemed properly introduced unless it has been subject to preliminary examination, for which Article 93 gives sole competence to the Commission. Failure to notify planned aid will inevitably carry with it the risk that a measure which could adversely affect competition within the common market might be implemented. Any Member State knowingly putting itself in a position of illegality cannot therefore benefit from any derogation to the general rules of procedure. The principle I have stated is, moreover, the same as that underlying the ruling in Lorenz (see above, footnote 10, and the relevant part of the text): according to the Court, any Member State planning to grant aid has a legitimate interest, worthy of protection, in being rapidly informed of its legal position. That protection cannot, however, be invoked by that State if it has implemented the aid without having notified the Commission beforehand. I therefore consider that if, as in this case, a Member State grants aid without prior notification, it cannot then invoke the legal protection provided for under the Treaty to assert that the performance of a public service entrusted to an undertaking has been prejudiced by the duty to suspend implementation of the measure during the examination procedure that the Commission has in any case commenced. This plea cannot therefore be accepted. I shall not, however, examine the other two grounds relied on by France in the alternative, whose purpose, as the Commission has correctly observed, is to make comments in abundantiam (see above, points 11 to 13) that are foreign to the main ground for the measure at issue. Acceptance of those grounds would not therefore lead to annulment of the part of the decision attacked by the applicant.

20. That said, and in order to ensure that this examination is complete, I am bound to ask whether the combination of Articles 90(2) and 92 (more exactly, the last sentence of 93(3) of the EC Treaty), as understood by the French authorities in this case, could apply if the aid here in question had been properly notified. In such a case, would the Commission, at the end of an inter partes examination procedure, be required to ascertain whether the requirements laid down in Article 90(2) had been met, even if the final decision was that the measure was compatible? In particular, could the Commission decide that - in order to allow the beneficiary undertaking to fulfil its duty to provide a service of general economic interest under economically acceptable terms - a derogation from the standstill obligation, with retrospective effect, was necessary during the examination procedure?

21. Although the wording of the pertinent passage in the French postal administration case might at first glance appear to justify the French Government's interpretation in this case (see above, point 16), as I see it, there is no basis for the view that the duty to suspend payment of aid during the Commission's examination should be declared inapplicable in that it impedes the operation of the service of general economic interest with which the beneficiary is theoretically entrusted. This is for the following reasons.

22. I must make it clear that the solution I favour does not derive from the fact that the provision of the Treaty whose non-application is sought is a procedural rather than a substantive provision, as is typically the case where the derogation provided for in Article 90(2) is invoked having regard to the rules on competition applicable to companies (Articles 85 and 86 of the EC Treaty, now Articles 81 EC and 82 EC). Instead, the solution is based on the preventive nature of the system of supervising new aid plans, established by Article 93 of the Treaty. As in the case of the provisions laid down by the Community legislature for controlling concentrations between Community undertakings, the purpose of the preventive control assigned to the Commission is to prevent competition on the internal market from undergoing, through faits accomplis, unlawful distortions whose elimination, to reinstate the status quo ante - either by unscrambling the capital and assets of merged companies or recovering funds paid to the beneficiary in the form of aid - might prove extremely difficult, if not impossible.

23. We know that the possibility of invoking the derogation under Article 90(2) of the Treaty in the context of ex post control by the Commission of the conduct covered by Article 85 (agreements restricting competition) and Article 86 (abuses of dominant positions) raises no risk of the Community system being deprived of its practical effect. If the Commission decides that the conditions for application of Article 90(2) are fulfilled, the undertaking responsible - which otherwise would be judged guilty of a breach and would be ordered by decision immediately to end the prohibited practice and would also possibly be fined for previous breaches - will be shielded by the derogation in question.

24. The situation is completely different where the derogation under Article 90(2) of the Treaty is invoked by a Member State granting aid in order to evade the standstill obligation. There are two possibilities: either the Commission's decision as to the applicability of the derogation can only be made in the final decision on the compatibility of the measure, in which case - given the arguments put forward by France in this case (see above, point 10) - it will have no practical effect because it would be too late and in any event incompatible with the specific nature of aid measures like the aid now in question, which is designed to ensure the continuous and flexible operation by the beneficiary of a service of general economic interest; or the Commission's decision must merely formally declare illegal ex post facto an existing breach of the standstill obligation by the Member State in question; this would in effect give the Member State wishing to grant aid under Article 90(2) the power to assess and decide for itself whether or not to suspend implementing its aid pending the outcome of the examination procedure. According to the Court's case-law, however, application of the aforesaid provision is not left to the discretion of the Member State, which has entrusted an undertaking with the operation of a service of general economic interest. Article 90(3) assigns to the Commission the task of monitoring such matters, under the supervision of the Court. There is no reason why a different principle should apply to control of State aid.

IV - Conclusion

In view of the considerations set out above, I propose that the Court should

- dismiss the action and

- order the French Republic to pay the costs.