CJEC, November 11, 1987, No 259-85

THE COURT,

Having regard to the report for the hearing and further to the hearing on 3 December 1986, at which the French republic was represented by Philippe Pouzoulet and the Commission by g. Marenco, assisted by g. Thies, as expert, After hearing the opinion of the advocate general delivered at the sitting on 4 June 1987, Gives the following

Judgment

1. By an application lodged at the court registry on 20 august 1985, the French republic brought an action under the first paragraph of article 173 of the EEC treaty for the annulment of Commission decision 85-380-EEC of 5 June 1985 (official journal 1985, L 217, p. 20), which declared an aid scheme for the textile and clothing industry in France funded by means of parafiscal charges to be incompatible with the common market under article 92 of the treaty.

2. According to the documents before the court, on 22 may 1984 the French government adopted decrees nos 84-388 on the Comité de développement et de promotion du textile et de l'habillement (committee for the development and promotion of textiles and clothing), 84-389 on the parafiscal charge for the textile industry, and 84-390 on the parafiscal charge for the clothing and knitwear industries (Journal Officiel de la République Française 1984, pp. 1650-52). Those decrees provide that the proceeds of the parafiscal charges which are levied on supplies of textile products, apart from textiles originating in other member states released for free circulation in a member state, are to be remitted to the Comité de développement et de promotion du textile et de l'habillement, known as defi (hereinafter referred to as "the committee "). The committee has the task of promoting research, innovation and structural renewal in the textile and clothing industries, and of sharing out its resources between aid programmes for undertakings, collective promotional activities and technical centres in the sector concerned.

3. On 5 July 1984 the French government notified the Commission of the three decrees, which amend an aid scheme set up in 1982 but declared incompatible with the common market by Commission decision 83-486-EEC of 20 July 1983 (Official Journal 1983, L 268, p. 48). The amendment followed a letter of 15 December 1983 in which the French government, in response to the Commission decision, had announced that it was considering new forms of intervention.

4. On 30 July 1984 the Commission, taking the view that the French government had re-established the previous aid scheme with no more than minor changes, initiated the procedure under article 93 (2) of the treaty. By a letter of 31 august 1984 the French government replied that pending a review of the individual intervention arrangements to establish whether they were compatible with the derogations mentioned in article 92 (3) of the treaty, no individual aid had been granted under the new system.

5. After meetings on 3 and 30 October 1984 and 19 march 1985 between the Commission and the French authorities, the French government informed the Commission on 16 April 1985 of the new detailed arrangements for implementing the aid scheme. The committee was to allocate ff 150 000 000 in financing a reduction of six percentage points on interest rates in respect of commercial loans granted in 1985 for investment in technologically advanced equipment. The "net grant equivalent", set against the cost price in proportion to the depreciation of the equipment in question, was estimated at an average of 5.5 %. The aid was designed to improve productivity and quality so as to enable the textile and clothing industry to compete in particular with imports from countries with low labour costs.

6. On 5 June 1985, after a further bilateral meeting on 30 may 1985 and after receiving a letter of 3 June 1985 from the French minister for labour, the Commission adopted the contested decision. The observations submitted to the Commission by the Danish, German and United Kingdom governments and by the gesamtverband der textilindustrie in der bundesrepublik Deutschland (a federation of German textile undertakings) are summarized, without attribution, in the decision.

7. In support of its application the French government puts forward three submissions :

(i) infringement of the right to a fair hearing;

(ii) inadequacy of the statement of reasons;

(iii) misapplication of articles 92 (3) (c) of the treaty.

8. Reference is made to the report for the hearing for a fuller account of the facts, the procedure and the arguments and submissions of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the court.

A - right to a fair hearing

9. Under its first submission the French government puts forward two complaints. First, it claims that the Commission reached a decision that was in principle unfavourable before the detailed arrangements for implementing the proposed aid were notified to it on 18 April 1985, and that the contested decision was adopted without thorough prior discussions with the French government. Secondly, the French government maintains that it was prevented from replying to the objections of the three member states and a German federation of textile undertakings, the tenor of which was not communicated to it and which are Neverthelesss used and referred to in the decision.

10. As far as the first of those complaints is concerned, it should be noted that the procedure in question forms part of a continuing series of exchanges of views between the parties on aid to the textile industry in France. The broad viewpoint of the Commission has been known to the French government since the decision of 20 July 1983 on the previous scheme. After notification of the scheme on 5 July 1984, and even after notification on 18 April 1985 of the detailed arrangements for implementing that scheme, discussions were held between the parties as part of the procedure initiated by the Commission on 30 July 1984.

11. Whilst the Commission rightly appraised the French scheme by reference to its general policy on aids to the textile industry in the community as a whole, the reasons stated in the preamble to the decision demonstrate that it examined both the situation of the textile industry in France and also the detailed arrangements for implementing the new French scheme. There is nothing in the documents before the court that lends support to the contention that the Commission had already reached its final conclusion before those arrangements were notified to it, or makes it appear that the French government did not have the opportunity to defend its point of view in that respect in the course of the administrative procedure. It follows that the applicant's complaint must be rejected as unfounded.

12. As far as the second complaint is concerned, it should be emphasized, as the court has consistently pointed out, in particular in its judgments of 10 July 1986 in cases 234-84 and 40-85 kingdom of Belgium v Commission ((1986)) ECR 2263 at p. 2321, that observance of the right to be heard is, in all proceedings initiated against a person which are liable to culminate in a measure adversely affecting that person, a fundamental principle of community law which must be guaranteed even in the absence of any rules governing the procedure in question. In those judgments the court recognized that that principle requires that the member state in question must be enabled effectively to make known its views on the observations which interested third parties have submitted under article 93 (2) and on which the Commission proposes to base its decision. The court further held that, in so far as the member state has not been afforded the opportunity to comment on those observations, the Commission may not use them in its decision against that state.

13. For such an infringement of the right to a fair hearing to result in an annulment it must, however, be established that, had it not been for that irregularity, the outcome of the procedure might have been different. In that connection, it should be observed that the observations at issue contain no more than some succinctly stated arguments. In so far as elements of that argument are incorporated in the Commission's statement of reasons, they have been elaborated and supported by statistics and economic indicators gathered by the Commission and known to the French governemnt. That being so, the fact that the French government did not have the opportunity of commenting on the observations was not liable to influence the outcome of the administrative procedure. Accordingly, that complaint must also be rejected.

B - The statement of the reasons for the decision

14. The French government claims that the reasons given for the decision are inadequate both as regards the existence of conditions laid down by article 92 (1) of the treaty, a point on which the Commission has contented itself with a petitio principii, and as regards the refusal to apply article 92 (3) (c).

15. In view of those complaints the reasons given by the Commission in the contested decision should be examined.

16. With regard to article 92 (1), the Commission states that in the clothing and textile sectors there is trade between member states, and that competition is very keen. It further states that French industry produces about 20% of total textile and clothing value-added in the community and exports some 30% of its output to other member states. The Commission concludes that, in those circumstances, the proposed aid is liable to affect trade within the community and to distort, or threaten to distort, competition between member states by strengthening the position of certain undertakings as against other undertakings competing with them in the community.

17. Turning to article 92 (3) (c), the Commission points out inter alia that, after years of crisis brought about by general market depression and increased imports from countries with low labour costs, the community clothing and textile industries are firmly on the road to recovery. By virtue of rapidly rising productivity, improved marketing and management skills, a high-quality range of products and the application of a new generation of technologically advanced equipment, those industries have achieved the objectives of restucturing and have regained, to a large extent, the level of competitiveness required to ensure economic success and viability on the EEC textile market. In the Commission's opinion, those market conditions are suitable for ensuring the normal development of the textile industry without state intervention.

18. With particular regard to French industry, the Commission cites a number of economic indicators relating to the growth of investment, output and exports which demonstrate that the situation in the indusry also enables undertakings to invest using their own financial resources and without resorting to state aid. The Commission further states that massive restructuring, re-tooling and the increased application of the latest available technology have made the French textile and clothing industry much better able to manufacture high-quality products, and thus to compete internationally.

19. In examining the detailed arrangements for implementing the proposed aid, the Commission observes that it is to be granted to facilitate investment which reduces the costs normally allowed for in the budgets of the undertakings in question. The specific intensity of the aid (5.5 %) is appreciable in the light of the total investment costs of a company, and it would enable undertakings benefiting under the system to reduce their investment costs significantly and thus to modify their prices.

20. The Commission concludes from those considerations that specific aids to assist the textile and clothing industries in the community are, in principle, no longer justified and that any new aid programme for that sector would merely transfer the remaining structural problems and unemployment from one member state to another. The French government's proposal does not demonstrate the existence of any problems which are specific to the French textile and clothing industries and, in view of the volume of French exports to other member states, the result would be a distortion of trade which the detailed arrangements for implementing the aid would not help to counteract.

21. It must be concluded that the above statement of reasons is sufficiently explicit and detailed to enable the French government to acquaint itself with and appraise the Commission's reasons and to enable the court to review the merits of the decision. It follows that the submission challenging that statement of reasons must be rejected.

C - The refusal to apply article 92 (3) (c)

22. According to the French government the proposed aid should have qualified for the exemption under article 92 (3) (c) of the treaty, according to which aid to facilitate the development of certain activities may be considered compatible with the common market where such aid does not adversely affect trading conditions to an extent contrary to the common interest. In support of its submission the French government claims inter alia that the scheme envisaged entails the redistribution of resources within the French industry and would in practice be completely neutral in terms of intra-community trade, that the effects of the aid are insignificant and that the scheme benefits undertakings which adjust themselves to competition from non-member countries with cheap labour.

23. In the face of those arguments it should first be emphasized that the mere fact that a system of subsidies which benefits certain traders in a specific sector is financed by a parafiscal charge levied on every supply of national goods in that sector is not sufficient to divest the system of its character as aid granted by a member state within the meaning of article 92 of the treaty. The assessment to be made for the purposes of article 92 depends, also in the case of such a system, on the detailed arrangements under and the effects of the system. When, as in this instance, the proceeds of the charge are used to finance investments in technologically advanced equipment intended to improve productivity and product quality so as to enable the sector in question to compete with imports more effecively, the system cannot be regarded as neutral in terms of trade.

24. As the Commission stressed in its decision, the proposed aid would enable the undertakings benefiting from it to reduce their investment costs, thereby strengthening their position as against that of other undertakings competing with them in the community. In view of the information contained in the decision concerning the situation of the industries in question in the community in general and France in particular, and concerning intra-community trade, and by virtue of the fact - emphasized by the Commission in the proceedings before the court - that the profit margins in that sector are always very narrow, the Commission did not exceed the limits of its discretion in taking the view that even relatively little aid would adversely affect trading conditions to an extent contrary to the common interest.

25. As regards the argument to the effect that the aid scheme seeks specifically to strengthen the competitiveness of French undertakings in the face of imports from non-member countries with low labour costs, it is sufficient to point out that, according to the Commission, which was not contradicted on this point by the French government, only 10.7% of French imports of textile products in 1984 originated in countries with low production costs, whereas 69.3% came from the other member states.

26. It follows that this last submission must also be rejected.

27 since none of the submissions put forward by the French government has been upheld, the application must be dismissed in its entirety.

Costs

28 under article 69 (2) of the rules of procedure the unsuccessful party is to be ordered to pay the costs. As the French republic has in all essential respects failed in its submissions it must be ordered to bear the costs.

On those grounds,

THE COURT

Hereby :

(1) dismisses the application;

(2) orders the French republic to bear the costs.