CJEC, June 25, 1970, No 47-69

THE COURT,

1 By an application made on 26 September 1969, the Government of the French Republic requested the annulment of the decision of the Commission of 18 July 1968, which in the first place ordered the abolition of the aid given in France to the textile industry and, alternatively, gave its approval to the said aid subject to amendments being made to the quasi-fiscal charge designed to finance it.

The first submission

2 The French Government maintains, first, that the contested Decision has no legal foundation and amounts to a misuse of powers since Article 93 (2) of the Treaty, which empowers the Commission only to take a decision that aid which is recognized as incompatible with the common market must be abolished or altered, cannot serve as the basis for a decision which is concerned with procuring the alteration of the basis of assessment of a charge intended to finance that aid.

3 Under Article 93 (2) of the Treaty, if the Commission finds " that aid granted by a state or through state resources is not compatible with the common market Having regard to Article 92 or that such aid is being misused, it shall decide that the state concerned shall abolish or alter such aid within a period of time to be determined by the Commission ".

4 This provision, by thus taking into account the connexion which may exist between the aid granted by a member state and the method by which it is financed through the resources of that state, does not therefore allow the Commission to isolate the aid as such from the method by which it is financed and to disregard this method if, in conjunction with the aid in its narrow sense, it renders the whole incompatible with the common market.

5 Under Article 92 (1): " 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 ".

6 Nevertheless under Article 92 (3) (c): " the following may be considered to be compatible with the common market: 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 ".

7 In order to determine whether an aid " affects trade between member States ", " distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods " and " adversely affects trading conditions to an extent contrary to the common interest ", it is necessary to consider all the legal and factual circumstances surrounding that aid, in particular whether there is an imbalance between the charges imposed on the undertakings or producers concerned on the one hand and the benefits derived from the aid in question on the other.

8 Consequently the aid cannot be considered separately from the effects of its method of financing.

9 The Commission therefore had power to decide whether the French Republic should abolish or alter the disputed system of aid as a whole.

The second submission

10 The French Government claims that Articles 12 and 95 are alone applicable in this case and can afford no grounds for objecting to the charge in question, since it was levied both on national and imported products and did not have any effects equivalent to a customs duty.

11 This argument amounts to asserting that when an aid is financed by internal taxation, this method of financing can only be examined in relation to its compatibility with Article 95 and that the requirements of Articles 92 and 93 must be disregarded.

12 However these two types of provision have different aims in view.

13 The fact that a national measure complies with the requirements of Article 95 does not imply that it is valid in relation to other provisions, such as those of Articles 92 and 93.

14 When an aid is financed by taxation of certain undertakings or certain producers, the Commission is required to consider not only whether the method by which it is financed complies with Article 95 of the Treaty but also whether in conjunction with the aid which it services it is compatible with the requirements of Articles 92 and 93.

15 The French Government further maintains that in admitting that the French textile industry needed aid, the Commission could not refuse it without contradicting itself nor require an alteration of the method whereby it was financed since on the one hand this method does not adversely affect trade to an extent contrary to the common interest, and on the other hand the same result could be achieved if the aid in question, instead of being serviced by a charge designed for the purpose, were serviced by budgetary means financed by the value-added tax.

16 It may be that aid properly so-called, although not in conformity with community law, does not substantially affect trade between states and may thus be acknowledged as permissible but that the disturbance which it creates is increased by a method of financing it which would render the scheme as a whole incompatible with a single market and the common interest.

17 In its appraisal the Commission must therefore take into account all those factors which directly or indirectly characterize the measure in question, that is, not only aid, properly so-called, for selected national activities, but also the indirect aid which may be constituted both by the method of financing and by the close connexion which makes the amount of aid dependent upon the revenue from the charge.

18 If such a system whereby an aid is serviced by a charge designed for that purpose, were to become general, it would have the effect of opening a loophole in Article 92 of the Treaty and of reducing the Commission's opportunities of keeping the position under constant review.

19 In fact it leads to a system of permanent aids, the amount of which is unforeseeable and which would be difficult to review.

20 By automatically increasing the amount of national aid in proportion to the increase in the revenue from the charge and more especially the revenue from the charge levied on competing foreign products, the method of financing in question has a protective effect which goes beyond aid properly so-called.

21 In particular, the more community undertakings succeed in increasing sales in a member state by marketing efforts and by price-cutting, the more they have to contribute under the system of the servicing charge to an aid which is essentially intended for those of their own competitors who have not made such efforts.

22 Thus the Commission was entitled to take the view that the fact that foreign undertakings can have access to research work done in France could not eliminate the adverse effects on the common market of an aid incorporating a charge designed to service it.

23 Therefore it has rightly decided that this aid, whatever might be the rate of the said charge, has the effect, because of the method by which it is financed, of adversely affecting trade to an extent contrary to the common interest within the meaning of Article 92 (3) (c).

24 It follows from these considerations that the Commission in assessing as a whole the aid granted by the French Republic through state resources was justified in considering this aid as contrary to " the common interest " and in requesting the French Government to abolish it, whilst acknowledging both the useful nature of the aid properly so-called and the fact that it conformed with " the common interest " if the method whereby it was financed could be modified.

25 Consequently the application must be dismissed.

26 Under Article 69 (2) of the rules of procedure the unsuccessful party shall be ordered to pay the costs.

27 The applicant has failed in its submissions.

28 It must therefore be ordered to pay the costs.

THE COURT,

Hereby:

1. Dismisses the application;

2. Orders the applicant to bear the costs.