CJEC, March 17, 1993, No C-72/91

THE COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES

1. By two orders of 9 October 1990, received at the Court on 22 February 1991, the Arbeitsgericht Bremen (Federal Republic of Germany) referred to the Court pursuant to Article 177 of the EEC Treaty a question concerning the interpretation of Articles 92 and 117 of the EEC Treaty.

2. The question was raised in the context of two disputes between Sloman Neptun Schiffahrts AG ("Sloman Neptun"), a shipping company, of Bremen, and its Seebetriebsrat ("Seafarers' Committee").

3. As appears from the file, pursuant to Paragraph 99 of the Betriebsverfassungsgesetz (Law on industrial relations) Sloman Neptun applied for the consent of the Seebetriebsrat to the engagement of a Filipino radio officer (Case C-72-91) and five other Filipino seafarers (Case C-73-91) on a vessel operated by it and which it had registered in the International Shipping Register ("ISR"). The ISR was introduced by the Gesetz zur Einfuehrung eines zusaetzlichen Registers fuer Seeschiffe unter der Bundesflagge im internationalen Verkehr (Internationales Seeschiffahrtsregister - ISR) (Law on the introduction of an additional shipping register for ships flying the Federal German flag in international trade (International Shipping Register - ISR)) of 23 March 1989 (Bundesgesetzblatt I, p. 550, "the ISR Law").

4. Under Paragraph 21 (4) of the Flaggenrechtsgesetz (Law relating to the right to fly the flag), which was inserted by Article 1 (2) of the ISR Law, it was agreed that the contracts of employment for the seafarers in question would not be governed by German law.

5. Paragraph 21 (4) of the Law relating to the right to fly the flag is worded as follows: For the purposes of Article 30 of the Introductory Law to the Buergerliches Gesetzbuch (Civil Code) and subject to the provisions of Community law, the contracts of employment of crew members of a merchant ship registered in the ISR who have no permanent abode or residence in Germany shall not be governed by German law merely on account of the fact that the ship is flying the Federal German flag. If, in respect of the contracts of employment referred to in the first sentence, collective agreements are entered into by foreign trade unions, they shall have the effects provided for in the Law on collective agreements only if it has been agreed that they are to be subject to the wage bargaining rules applicable within the field of application of the Grundgesetz and that jurisdiction should be conferred on the German courts. In case of doubt, wage bargaining agreements entered into after the entry into force of this subparagraph shall relate to the contracts of employment mentioned in the first sentence hereof only if expressly provided for therein. The provisions of German social insurance law shall remain unaffected.

6. After the Seebetriebsrat refused to give its consent to the engagement of the persons in question, Sloman Neptun applied to the Arbeitsgericht Bremen to do so in lieu of the Seebetriebsrat. In the proceedings before the national court, the Seebetriebsrat argued that the provision added by the ISR Law was not only unconstitutional, but was also contrary to Articles 92 and 117 of the EEC Treaty because it made it possible to engage nationals of non-member countries on less favourable conditions relating to pay and social protection than those applying to seafarers engaged under German law.

7. Taking the view that it required an interpretation of those provisions in order to resolve the disputes, the Arbeitsgericht Bremen stayed the proceedings and referred the following question to the Court for a preliminary ruling: Is it compatible with Articles 92 and 117 of the EEC Treaty that Article 1 (2) of the Gesetz zur Einfuehrung eines zusaetzlichen Registers fuer Seeschiffe unter der Bundesflagge im internationalen Verkehr (Internationales Seeschiffahrtsregister - ISR) (Law on the introduction of an additional shipping register for ships flying the Federal German flag in international trade (International Shipping Register - ISR)) of 23 March 1989, Bundesgesetzblatt I, p. 550, makes it possible for foreign seafarers with no permanent abode or residence in the Federal Republic of Germany not to be covered by German collective agreements and thus to be employed at lower "home country" rates and on less favourable working conditions than comparable German seafarers?

8. The German Government considers that Paragraph 21 (4) of the Law relating to the right to fly the flag was introduced in order to clarify, in the shipping sector, the rules laid down Article 30(2) of the Civil Code concerning the law applicable to contracts of employment. That provision is intended to ensure the international competitiveness of German merchant vessels by reducing staff costs.

9. In that connection the German Government observes that from the end of 1977 to the end of 1987 merchant shipping tonnage flying the German flag fell from 9.3 to 3.8 million gross register tonnes and that in 1987 alone the merchant fleet flying the German flag decreased by 11%. At the beginning of 1988 only 19 130 seafarers were employed on board German vessels, whereas at the beginning of 1971 there were still 55 301.

10. Reference is made to the Report for the Hearing for a fuller account of the facts of the case and the legal background to the main actions, the procedure and the written observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

11. In the first place, it is important to note that, as the Court has consistently held (see, in particular, the judgment in Case 78-76 Steinike und Weinlig v Federal Republic of Germany [1977] ECR 595, paragraph 9), the intention of the Treaty in providing through Article 93 for aid to be kept under constant review and supervision by the Commission, is that the finding that an aid may be incompatible with the Common Market is to be determined, subject to review by the Court, by means of an appropriate procedure which it is the Commission' s responsibility to set in motion.

12. However, in the same judgment (paragraph 14) the Court stated that cases may come before national courts which give them cause to interpret and apply the concept of aid contained in Article 92 in order to determine whether or not State aid introduced without observance of the preliminary examination procedure provided for in Article 93 (3) ought to have been subject to this procedure.

13. In the light of the foregoing, the question submitted must be viewed as seeking to ascertain whether a system established by a Member State, such as that applicable to the ISR, which enables contracts of employment concluded with seafarers who are nationals of non-member countries and have no permanent abode or residence in that Member State to be subjected to working conditions and rates of pay which are not covered by the law of that Member State and are considerably less favourable than those applicable to seafarers who are nationals of that Member State, is to be regarded as State aid within the meaning of Article 92 (1) of the EEC Treaty and whether Article 117 of the Treaty precludes the application of a system of that kind. Interpretation of Article 92 of the EEC Treaty

14. The national court takes the view that the contested system constitutes State aid within the meaning of Article 92 (1) of the EEC Treaty in so far as it permits the partial non-application of German employment law and social security law.

15. In support of that view, the national court relies on the case-law of the Court of Justice, according to which the partial reduction of social charges devolving upon undertakings in a particular sector of industry constitutes an aid within the meaning of that provision if such a measure is intended partially to exempt those undertakings from the financial burdens arising from the normal application of the general system of compulsory contributions imposed by law (see the judgment in Case 173-73 Italy v Commission [1974] ECR 709). The system in question relieves shipowners who have registered their vessels in the ISR of certain financial burdens, particularly the higher social insurance contributions payable in the event of German seafarers being employed.

16. The national court adds that the Gesetz zur AEnderung von Vorschriften der See-Unfallversicherung in der Reichsversicherungsordnung (Law amending the rules on insurance against accidents at sea in the National Insurance Code) of 10 July 1989 (Bundesgesetzblatt I, p. 1383) was enacted in connection with the introduction of the ISR. Under this Law, it states, the rates of pay for seafarers whose contracts of employment are not governed by German law are not taken into account in fixing average rates of pay for the calculation of social security contributions. For the seafarers in question, those contributions are calculated according to their actual pay. This accordingly leads to an appreciable reduction in costs for the shipowners concerned because they are not required to pay the difference between the contribution on such pay and the contribution on the average German pay.

17. The Commission considers that any measure of whatever nature which entails for a particular sector a relief which is not part of a comprehensive system is a State aid within the meaning of Article 92 (1) of the EEC Treaty even if it is not financed from public funds. In its view, that follows, first, from the interpretation of the wording of that provision, which distinguishes between aid granted by a State and aid granted through State resources and, second, from the purpose of that provision, which is an expression, in the field of State aid, of the principle set out in Article 3 (f) of the EEC Treaty. The ISR Law, which was enacted to make German shipping more competitive by granting it special advantages, has all the characteristics of State aid. In any event the contested measure is financed from State resources. There is a loss of tax revenue as a result of the level at which rates of pay are fixed under contracts of employment not governed by German law. This view is shared by the Seebetriebsrat.

18. It is important to note that, under Article 92 (1) of the EEC 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 is, in so far as it affects trade between Member States, incompatible with the Common Market.

19. As the Court held in its judgment in Case 82-77 Openbaar Ministerie of the Netherlands v Van Tiggele ([1978] ECR 25, paragraphs 23-25), only advantages which are granted directly or indirectly through State resources are to be regarded as State aid within the meaning of Article 92 (1) of the EEC Treaty. The wording of this provision itself and the procedural rules laid down in Article 93 of the EEC Treaty show that advantages granted from resources other than those of the State do not fall within the scope of the provisions in question. The distinction between aid granted by the State and aid granted through State resources serves to bring within the definition of aid not only aid granted directly by the State, but also aid granted by public or private bodies designated or established by the State.

20. Therefore it is necessary to determine whether or not the advantages arising from a system such as that applicable to the ISR are to be viewed as being granted through State resources.

21. The system at issue does not seek, through its object and general structure, to create an advantage which would constitute an additional burden for the State or the abovementioned bodies, but only to alter in favour of shipping undertakings the framework within which contractual relations are formed between those undertakings and their employees. The consequences arising from this, in so far as they relate to the difference in the basis for the calculation of social security contributions, mentioned by the national court, and to the potential loss of tax revenue because of the low rates of pay, referred to by the Commission, are inherent in the system and are not a means of granting a particular advantage to the undertakings concerned.

22. It follows that a system such as that applicable to the ISR is not a State aid within the meaning of Article 92 (1) of the EEC Treaty. Interpretation of Article 117 of the EEC Treaty

23. The national court considers that Article 117 of the EEC Treaty is not merely intended to set out a programme, but imposes on the Member States an obligation to achieve the social objectives of, and freedom of competition within, the Community. Therefore, pursuant to this provision, the Member States must monitor the influx of workers from non-member countries in order to prevent "wage dumping" and other disturbances on the labour market and take measures to enable those workers to share in social progress if they are employed in the Community. According to the national court, that interpretation of Article 117 is confirmed by the objectives pursued by Articles 48 and 118 of the EEC Treaty. In its view, however, the aforesaid requirements have not been complied with in connection with the provisions at issue in the main action. 24 The national court and the Seebetriebsrat also take the view that Article 5 of the EEC Treaty obliges the Member States not to call in question existing social protection. The improvement of working conditions and of the standard of living is one of the objectives of the Treaty the attainment of which must not be jeopardized by measures taken by the Member States.

25. It is important to note that, as the Court has consistently held (see the judgments in Case 149-77 Defrenne v Sabena III [1978] ECR 1365, paragraph 19, and Case 126-86 Giménez Zaera v Instituto Nacional de la Seguridad Social [1987] ECR 3697, paragraph 13), Article 117 of the EEC Treaty is essentially in the nature of a programme. It relates only to social objectives the attainment of which must be the result of Community action, close cooperation between the Member States and the operation of the Common Market.

26. Admittedly, the fact that the social policy objectives laid down in Article 117 are in the nature of a programme does not mean that they are devoid of any legal effect. They constitute an important aid, in particular for the interpretation of other provisions of the Treaty and of secondary Community legislation in social matters. The attainment of those objectives must nevertheless be the result of a social policy to be defined by the competent authorities (judgment in Case 126-86, cited above, paragraph 14).

27. Consequently, neither the general trends of the social policy defined by each Member State nor special measures such as those referred to in the orders for reference are open to review by the Court in order to determine whether they are consistent with the social objectives set out in Article 117 of the EEC Treaty.

28. Finally, although the improvement of working conditions and of the standard of living constitutes a fundamental objective of the Treaty, as shown by the preamble and Articles 2 and 117, the Member States are free to take their own decisions in that regard which prevents the obligation contained in Article 5 of the Treaty from conferring rights on individuals which the national courts would be under a duty to safeguard.

29. In the light of the foregoing considerations, the answer to the national court' s question must be that a system established by a Member State, such as that applicable to the ISR, which enables contracts of employment concluded with seafarers who are nationals of non-member countries and have no permanent abode or residence in that Member State to be subjected to working conditions and rates of pay which are not covered by the law of that Member State and are considerably less favourable than those applicable to seafarers who are nationals of that Member State, does not constitute State aid within the meaning of Article 92 (1) of the EEC Treaty and that Article 117 of the Treaty does not preclude the application of a system of that kind.

Costs

30. The costs of the German, Belgian, Danish and Greek Governments and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the proceedings pending before the national court, the decision on costs is a matter for that court.

On those grounds, THE COURT, in answer to the question referred to it by the Arbeitsgericht Bremen by orders of 9 October 1990, hereby rules: A system established by a Member State, such as that applicable to the International Shipping Register (ISR), which enables contracts of employment concluded with seafarers who are nationals of non-member countries and have no permanent abode or residence in that Member State to be subjected to working conditions and rates of pay which are not covered by the law of that Member State and are considerably less favourable than those applicable to seafarers who are nationals of that Member State, does not constitute State aid within the meaning of Article 92 (1) of the EEC Treaty, and Article 117 of the Treaty does not preclude the application of a system of that kind.