CJEC, May 18, 1993, No C-356/90

THE COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES

1. By applications lodged at the Court Registry on 6 December 1990 and 11 July 1991, the Kingdom of Belgium brought two actions under the first paragraph of Article 173 of the EEC Treaty for the annulment of Commission Decision 90-627-EEC of 4 July 1990 on loans granted by the Belgian authorities to two shipowners for the purchase of a 34 000 m3 LPG ship and two refrigerator ships (OJ 1990 L 338, p. 21), notified on 4 October 1990, and Commission Decision 91-375-EEC of 13 March 1991 concerning credits granted by the Belgian authorities to various shipowners for the building of nine vessels (OJ 1991 L 203, p. 105), notified on 13 May 1991.

2. By a separate document lodged at the Court Registry on 6 December 1990, at the same time as the application in Case C-356-90, the Kingdom of Belgium submitted an application for interim relief under Articles 185 and 186 of the Treaty, seeking the suspension of the operation of Decision 90-627 and an order to the Commission to re-open the administrative procedure provided for in Article 93 (2) of the Treaty. By order of 8 May 1991 (C-356-90 R [1991] ECR I-2424) the President of the Court dismissed the application for interim relief and reserved the costs.

3. The contested decisions were adopted on the basis of the first subparagraph of Article 93 (2) of the Treaty and Council Directive 87-167-EEC of 26 January 1987 on aid to shipbuilding (OJ 1987 L 69, p. 55) (hereinafter "the Directive").

4. Pursuant to Article 4 (1) of the Directive, production aid in favour of shipbuilding and ship conversion may be considered compatible with the common market provided that the total amount of aid granted in support of any individual contract does not exceed, in grant equivalent, a common maximum ceiling expressed as a percentage of the contract value before aid.

5. That ceiling, according to Article 4 (2) and (3), is to be fixed by the Commission with reference to the prevailing difference between the cost structures of the most competitive Community yards and the prices charged by their main international competitors. It is to be reviewed every twelve months, or sooner if warranted by exceptional circumstances, with the aim of progressively reducing the ceiling.

6. Article 4 (4) of the Directive provides that the ceiling is to apply not only to all forms of production aid granted directly to the yards but also (Article 3 (1) and (2)) to all forms of aid to shipowners or to third parties which are available as aid for the building or conversion of ships, where these aids are actually used for the building or conversion of ships in Community shipyards.

7. By the contested decisions the Commission declared that a series of aids for shipbuilding granted by the Belgian authorities in the form of loans during 1989 was incompatible with the common market, since their grant equivalent exceeded the maximum ceiling fixed for 1989, and ordered the Belgian Government to revise the terms of the loans so as to reduce them to the level of the ceiling.

8. Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the applicable Community rules, 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.

9. In support of both its applications, the Kingdom of Belgium relies essentially on two pleas in law. The first concerns the nature of the aid granted, in the sense that in its opinion only the aid actually available as aid for production should be taken into consideration in determining the ceiling, whilst operating aid should not. The second concerns the scope of the ceiling referred to in Article 4 (1) of the Directive.

10. In the alternative to the first plea, the Belgian Government contends that in order to challenge the operating aid the Commission should have initiated the procedure laid down in Article 169. In the alternative to the second plea, the Belgian Government alleges a breach of the obligation to state reasons under Article 190 of the Treaty and also of the rights of the defence.

The first plea in law based on the distinction between production aid and operating aid

11. The scheme of aid for shipbuilding in Belgium is governed by the Law of 23 August 1948 (hereinafter "the Law"), as several times amended, intended to ensure the maintenance and development of the merchant navy, the fishing fleet and shipbuilding and setting up for those purposes a fund for shipbuilding.

12. According to the Belgian Government, the Law, which was duly notified to the Commission, pursues a twofold objective: first, it provides for direct aid in the context of a specific contract to shipyards for the construction or conversion of a ship and, secondly, it provides for operating aid granted to shipowners, that is aid to encourage sailing under the Belgian or Luxembourg flags, even on ships built in third countries, which is aimed at both the use and the modernization of a particular shipowner' s nautical equipment in general quite apart from any contract for building or restructuring with a shipyard.

13. The Belgian Government considers that only the first type of aid falls within the scope of the Directive, the purpose of which is to prevent an increase in the production capacity of Community shipyards; the Commission ought therefore to have separated the "operating aid" portion from the total amount of loans granted and should have concerned itself only with the "production aid" portion and checked only whether the latter, expressed as grant equivalent, was compatible with the applicable common ceiling. If the Commission had acted in this way, it would not have been able to establish that the ceiling was exceeded and, accordingly, to declare that the aid in question was incompatible with the common market.

14. It should be observed, as the Advocate General has rightly pointed out, that the Directive introduced a coherent system which takes into consideration, for the determination of the amount of aid granted when a ship is built, not only direct aid but also the indirect aid which the State may grant to its shipbuilding industry. That follows clearly from Article 4 (4) of the Directive, which provides that the ceiling is to apply not only to all forms of production aids granted directly to the yards but also to the aid covered by Article 3 (2), which refers to all forms of aids granted to shipowners or to third parties where these aids are actually used for the building or conversion of ships in Community shipyards.

15. In this case, it is apparent from the wording of the contested decisions that the aids in question were actually intended for the building of ships in Belgian shipyards. Since the Belgian Government has provided no evidence to the contrary, it is indisputable that they fall within the scope of the Directive.

16. The first plea in law must therefore be rejected.

17. The Belgian Government contends, in the alternative, that if the distinction between construction aid and operating aid is incompatible with the Directive that is the consequence not of the aid referred to by the contested decisions but of the Law of 23 August 1948 itself; the Commission ought therefore to have initiated proceedings under Article 169 of the Treaty and not the specific procedure for aids laid down in Article 93 (2) thereof.

18. Suffice it to note that, as is clear from Case 290-83 Commission v France [1985] ECR 439, even a law which provides for aids must be assessed under the procedure laid down in Article 93 (2) where the objective is to establish that those aids, as such, are incompatible with the common market.

19. It follows that in this case, since the Commission sought to ascertain whether the aids in question were compatible with the common market, it could only follow the procedure laid down in Article 93 (2).

20. This alternative plea cannot therefore be upheld.

The second plea in law concerning the scope of the ceiling referred to in Article 4 (1) of the Directive

21. According to the Belgian Government, the Commission was mistaken in taking the view that the scope of the common ceiling introduced by Article 4 (1) of the Directive was absolute, in confining itself simply to establishing that the aids in question exceeded the ceiling and in automatically drawing the conclusion that they were incompatible with the common market.

22. The Belgian Government further contends that it is apparent, on the other hand, from both the preamble to the Directive, the purpose of which is to avoid overcapacity in the Community shipbuilding sector, and from the actual wording of Article 4 (1) ("... may ..."), that this provision introduces only an express presumption of compatibility in respect of aids which do not exceed the ceiling and an implied presumption of incompatibility in respect of aids which do exceed it. These are mere presumptions in the sense that in the first case the Commission is not precluded from declaring an aid incompatible even if it does not exceed the ceiling and, in the second case, it is possible for the Member State concerned to provide evidence that, even though the ceiling is exceeded, the particular aid called in question is none the less compatible with the common market.

23. That approach, it is claimed, is essentially justified by the fact that the Directive, as a measure of secondary legislation, cannot derogate from primary law, in this case from Articles 92 and 93 of the Treaty, which define the criteria which determine whether an aid is incompatible with the common market and which provide that the Commission is to take prompt and specific action to check those criteria case by case. The Directive cannot therefore be interpreted as laying down a maximum ceiling as a criterion of general application which can never be shown to be inapplicable.

24. It should be pointed out that Article 92 of the Treaty, after enunciating in paragraph 1 the principle that any aid granted by a Member State which distorts or threatens to distort competition is prohibited, indicates in paragraph 2 the aids which are in any event compatible with the common market and in paragraph 3 the aids which may be considered to be compatible with the common market.

25. It follows from the structure and the arrangement of Article 92 that paragraph 3 makes it possible to derogate, in particular cases, from the prohibition of aid which would otherwise be incompatible. Whether or not it is possible to do so depends on the existence and weight of a number of requirements, in particular social and regional requirements, which merit being taken into consideration and may justify disregarding the incompatibility of the aid.

26. Moreover, Article 92 (3) (d) allows the Council, acting by a qualified majority on a proposal from the Commission, to extend the range of aids which may be considered to be compatible with the common market beyond the categories mentioned in subparagraphs (a), (b) and (c).

27. The Council made use of that facility when it adopted the said Directive 87-167, which is the sixth in a series of directives on aid to shipbuilding.

28. It is apparent from an examination of the Directive and especially of the preamble thereto that the Council, as in the previous directives, analysed the sector by showing, first, that, in the face of the crisis in the sector, aids to shipbuilding are contrary to the interests of the common market inasmuch as they tend to increase the segregation of the internal market (fifth recital) and, secondly (sixth recital), that, in view in particular of the cost differences which exist for most categories of ships in comparison to shipyards in some third countries, the immediate abolition of aid to the sector may not be possible in view of the need to encourage restructuring in many yards, but that a tighter and more selective aid policy is nevertheless necessary in order to ensure fair and uniform conditions for intra-Community competition.

29. The fourth recital also indicates that a competitive shipbuilding industry is of vital interest to the Community and contributes to its economic and social development and also to the maintenance of employment in a number of regions already suffering a high rate of unemployment.

30. Consequently, the Council, in accordance with the rationale of Article 92 (3), first noted that aid to shipbuilding was incompatible with the common market and then took into account a series of economic and social requirements which caused it to make use of its power under the Treaty to consider such aid nevertheless compatible with the common market, provided that it complied with the criteria for derogation contained in the Directive (the second subparagraph of Article 1(d)).

31. As regards production aid for shipbuilding and ship conversion, the criterion chosen is that the aid does not exceed the common maximum ceiling provided for in Article 4 (1) of the Directive. This ceiling constitutes what the Council regarded as the balance between the conflicting requirements of respect for the rules of the common market and the maintenance of a sufficient level of activity in European shipyards and also the survival of an efficient and competitive European shipbuilding industry (sixth recital in the preamble to the Directive).

32. Clearly, therefore, compliance with the ceiling at issue is the essential condition for aid to shipbuilding to be regarded as compatible with the common market and, where that ceiling is exceeded, the aid in question is automatically incompatible.

33. In this context, therefore, the Commission's role is limited to checking that that condition has been observed. If, as the Belgian Government contends, the Commission was further required to reassess the compatibility of the aids, case by case, in relation to the criteria set out in Article 92 (1), that would not only deprive the Directive of any effectiveness: it would also be illogical, since any system of derogations necessarily presupposes that the aids referred to are at the outset incompatible with the common market.

34. In the light of the foregoing, the second plea in law must be rejected.

35. As concerns the alternative plea alleging the infringement of Article 190 of the Treaty and also of the rights of the defence, the Belgian Government maintains that the reasoning of the contested decisions is defective since the Commission in no way shows that the grant of the aids at issue would have disregarded the objective of the Directive, namely to avoid an increase in the production capacity of the Community shipyards. The rights of the defence were also disregarded, it says, because the Commission did not provide Belgium with the opportunity of proving that the aids were not incompatible with the common market.

36. It should be pointed out that, as the Belgian Government accepts, each of these complaints is closely linked with the principal line of argument concerning the scope of the ceiling. Since that line of argument was rejected above, the Commission cannot be criticized for not carrying out any investigations other than ascertaining whether the ceiling had been respected. Consequently, any need for a statement of the reasons other than the finding that the aid exceeded the ceiling is precluded, as is any obligation to consult the Member State concerned on matters which the Commission was not required to investigate.

37. Accordingly, that alternative plea must also be rejected.

38. It follows from all the foregoing that the application must be dismissed in its entirety.

Costs

39. Pursuant to Article 69 (2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs. As the Kingdom of Belgium has failed in its submissions, it must be ordered to pay the costs, including those of the application for interim relief.

On those grounds,

THE COURT

Hereby:

1. Dismisses the action;

2. Orders the Kingdom of Belgium to pay the costs, including those of the application for interim relief.