Court of Justice of the European Communities (including Court of First Instance Decisions)

JUDGMENT OF THE COURT

3 May 2001 (1)

(State aid - Aid for producers of liqueur wines and eaux-de-vie - Aid granted by the French Republic in the context of an increase in internal taxation)

In Case C-204/97,

Portuguese Republic, represented by L. Fernandes, Â. Seiça Neves and C. Botelho Moniz, acting as Agents, with an address for service in Luxembourg,

applicant,

supported by

Kingdom of Spain, represented by R. Silva de Lapuerta, acting as Agent, with an address for service in Luxembourg,

intervener,

v

Commission of the European Communities, represented by A. M. Alves Vieira and D. Triantafyllou, acting as Agents, with an address for service in Luxembourg,

defendant,

supported by

French Republic, represented by K. Rispal-Bellanger and G. Mignot, acting as Agents, with an address for service in Luxembourg,

intervener,

APPLICATION for annulment of the Commission's decision of 6 November 1996 concerning aid intended to be granted by the French Republic to producers of liqueur wines and eaux de vie in the form of aid for promotional measures and technical aid for research, technical support and investment, a summary of which was published in the Official Journal of the European Communities of 6 March 1997 (OJ 1997 C 70, p. 14),

THE COURT,

composed of: C. Gulmann, President of the Third and Sixth Chambers, acting for the President, A. La Pergola, M. Wathelet and V. Skouris (Presidents of Chambers), D.A.O. Edward (Rapporteur), J.-P. Puissochet, P. Jann, L. Sevón and R. Schintgen, Judges,

Advocate General: S. Alber,

Registrar: H. von Holstein, Deputy Registrar,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 28 March 2000, at which the Portuguese Republic was represented by C. Botelho Moniz, the Kingdom of Spain by R. Silva de Lapuerta, the French Republic by F. Million and S. Seam, acting as Agents, and the Commission by D. Triantafyllou and M. Afonso, acting as Agent,

after hearing the Opinion of the Advocate General at the sitting on 18 May 2000,

gives the following

Judgment

1. By application lodged at the Court Registry on 29 May 1997, the Portuguese Republic brought an action under the first paragraph of Article 173 of the EC Treaty (now, after amendment, the first paragraph of Article 230 EC) for annulment of the Commission's decision of 6 November 1996 concerning aid intended to be granted by the French Republic to producers of liqueur wines and eaux de vie in the form of aid for promotional measures and technical aid for research, technical support and investment, a summary of which was published in the Official Journal of the European Communities of 6 March 1997 (OJ 1997 C 70, p. 14).

2. By orders of the President of the Court of 23 September 1997, the Kingdom of Spain and the French Republic were granted leave to intervene in support of the forms of order sought by the Portuguese Republic and the Commission respectively.

   Facts and legal background

3. During 1992 and 1993, the French Government amended its national legislation concerning excise duty on alcoholic drinks and established a differentiated system of taxation for liqueur wines and naturally sweet wines. Thus, following the adoption of the amending Finance Law for 1993 No 93-859 of 22 June 1993, those wines bore, from 1 July 1993, a consumption duty the rate of which per hectolitre was fixed, for liqueur wines, at FRF 1 400 (FRF 9 per bottle) and, for naturally sweet wines, at FRF 350 (FRF 2.25 per bottle).

4. During 1993 and part of 1994, certain French producers of liqueur wines partially suspended payment of excise duty by withholding the difference between the amount of duty affecting liqueur wines and the amount of duty affecting naturally sweet wines.

5. From May or June 1994, that 'excise strike was suspended. In a statement published in the June 1994 issue of the journal VITI, the President of the Confédération nationale des producteurs de vins de liqueur à appellation d'origine contrôlée (National Confederation of Producers of Liqueur Wines with a Registered Designation of Origin; 'CNVDLAOC) justified that suspension by reference to the fact that, according to him, the French Government envisaged paying French producers of liqueur wines, in order to compensate for the difference in taxation, an annual indemnity and compensation for the years 1994 to 1997. He stated in particular:

   'The producers of [liqueur wines] have been conducting this strike for a year. They have blocked in an account 30 million francs of taxes due to the State in order to obtain a reduction of the utterly excessive differential between taxes on [liqueur wines] and on [naturally sweet wines].

   The strike is suspended because the ministry has implicitly recognised that it may not be able to maintain the differential in taxation between [liqueur wines] and [naturallysweet wines]. It has agreed that this conflict should be resolved by the European Court of Justice in Luxembourg, before which we will bring the matter. In addition, it agrees to pay us from 1994 to 1997 an annual indemnity of 20 million francs and compensation of 4 million in 1994, 8 million in 1995, 12 million in 1996, and 16 million in 1997 in order to compensate progressively for the current level of the taxes being maintained.

6. On 24 March 1995, the Associação de Exportadores de Vinho do Porto (Association of Port Wine Exporters; 'AEVP) sent two complaints to the Commission, one claiming that the French system of taxing liqueur wines was incompatible with Article 95 of the EC Treaty (now, after amendment, Article 90 EC) and the other alleging that the compensatory measures envisaged by the French Government in favour of its national producers of liqueur wines infringed Article 92 of the EC Treaty (now, after amendment, Article 87 EC) and Article 93 of the EC Treaty (now Article 88 EC).

7. On 12 April 1995, following the lodging of that latter complaint, the Commission requested the French authorities to notify the proposed aid in question to it. It stated in particular that, according to the information it had received, 'aid in the form of financial compensation [was to be] granted by the French Government to producers of liqueur wines, in order to eliminate the difference in taxation between liqueur wines and naturally sweet wines for products of French origin. By a two-page questionnaire it requested various items of information.

8. By letter of 17 July 1995, the French authorities sent the Commission a draft aid plan in favour of producers of liqueur wines and eaux de vie with a registered designation of origin ('the draft aid plan), such aid being designed to include a promotional aspect and a technical aspect.

9. According to that draft, the promotional measures were designed, first, to favour the sale of wine products from areas of excess production and, secondly, to assist certain particularly disadvantaged regions. The promotion measures for cognac, armagnac and calvados were to concern only non-member countries. It was stated that 'through promotional measures, it is possible in a broad sense of that term to envisage the organisation of fairs and exhibitions, arrange public relations exercises in the form of tastings in France and abroad, to carry out market studies.

10. As for the technical aid, this was to consist of 'measures aimed at reinforcing structures for the production and elaboration of products, '[thus implying] better stability of wines, improved storage capacities, increased training of winegrowers, a rapid spread of oenological progress.

11. The letter of 17 July 1995 ended with the following statement:

    'Finally, the French authorities wish to make clear that this aid is not in any way equivalent to compensation for differences in taxation between naturally sweet wines and liqueur wines. The diversity of the beneficiary products, eaux-de-vie de vins(Cognac, Armagnac), eaux-de-vie de cidre (Calvados), liqueur wines (Pineau, Floc, Macvin, Cartagène, Pommeau), proves this.

12. The sending of the draft aid plan by the French authorities was followed by copious correspondence between those authorities and the Commission.

13. The Commission produced that correspondence before the Court of Justice pursuant to an order of the Court of 21 September 1999. The correspondence shows that, between the notification of the draft aid plan by letter of 17 July 1995 and the communication of the contested decision to the French authorities by letter of 21 November 1996, that is to say over a period of 16 months, the Commission sent the French authorities five requests for additional information, to which the latter gave six replies with annexes containing additional details of the draft aid plan.

14. According to the Commission, substantial additional information and considerable clarification were necessary to enable it to take a decision. In that respect, the telex sent by the Commission to the French authorities on 30 January 1996, after the latter had already twice supplied additional information, contains the following passage:

    'After a preliminary examination, it appears that this latest [information] is not complete and that further information is therefore necessary for a detailed examination of this plan.

15. On 29 May 1996, the authorised representatives of the AEVP sent the Commission a letter requesting immediate initiation of the procedure under Article 93(2) of the Treaty, suspension of the aid in progress in the event of its implementation having started, full information on the development of the preliminary stage of the case and access to the file and to the information supplied by the French authorities. The AEVP also informed the Commission of its intention to send it a letter of formal notice pursuant to Article 175 of the EC Treaty (now Article 232 EC) in the event of the Commission's failure to define its position on the complaint and on the request for initiation of the procedure under Article 93(2) of the Treaty.

16. By letters to the Commission of 19 July and 2 September 1996, the AEVP repeated its request for immediate initiation of the procedure under Article 93(2) of the Treaty. Finally, by letter of 25 September 1996, the AEVP called upon the Commission to act, pursuant to the second paragraph of Article 175 of the Treaty.

17. On 6 November 1996, by the contested decision, the Commission decided not to raise any objection to the draft aid plan on the ground that it could benefit from the derogation in favour of aid to facilitate the development of certain activities laid down in Article 92(3)(c) of the Treaty. It informed the French Government of that decision by letter of 21 November 1996 and the AEVP by letter of 11 March 1997. A summary of the contested decision was published on 6 March 1997 in the Official Journal of the European Communities.

18. The letter of 21 November 1996 shows that, before taking the contested decision, the Commission obliged the French authorities to amend the draft aid plan by abandoning the granting of aid in favour of investment in storage. In addition, the French authorities assured the Commission that the implementation of the aid would comply with the provisions of Community law mentioned by the Commission. Those provisions included, in particular, Commission Communication 86/C 272/03 of 28 October 1986, concerning State involvement in the promotion of agricultural and fisheries products (OJ 1986 C 272, p. 3), Commission Communication 87/C 302/06 of 12 November 1987, Framework for national aids for the advertising of agricultural products and certain products not listed in Annex II to the EEC Treaty, excluding fishery products (OJ 1987 C 302, p. 6), Commission Communication 96/C 45/06 of 17 February 1996, concerning the Community framework for State aid for research and development (OJ 1996 C 45, p. 5), Commission Communication 96/C 29/03 of 2 February 1996, concerning Guidelines for State aid in connection with investments in the processing and marketing of agricultural products (OJ 1996 C 29, p. 4), and Commission Decision 94/173/EC of 22 March 1994 on the selection criteria to be adopted for investments for improving the processing and marketing conditions for agricultural and forestry products and repealing Decision 90/342/EEC (OJ 1994 L 79, p. 29).

    The pleas in law put forward by the Portuguese Republic

19. The Portuguese Republic, supported by the Kingdom of Spain, puts forward two pleas in law in support of its application for annulment of the contested decision.

20. The first plea alleges that there has been an infringement of essential procedural requirements arising, first, from infringement of the rules of procedure laid down by Article 93(2) and (3) of the Treaty, and, secondly, from a breach of the obligation, laid down in Article 190 of the EC Treaty (now Article 253 EC), to state the reasons on which measures are based.

21. The second plea alleges an infringement of the Treaty or of rules of law concerning its application, arising, first, from a breach of the combined provisions of Articles 92(1) and 95 of the Treaty and, secondly, from failure to comply with general criteria for applying the derogations laid down in Article 92(3) of the Treaty.

    The first plea

    Arguments of the parties

22. By its first plea, the Portuguese Republic complains first that the Commission adopted the contested decision without initiating the procedure laid down in Article 93(2) of the Treaty, and, secondly, that it failed to comply with the obligation to state reasons for its decision.

23. Basing its argument on Case 120/73 Lorenz [1973] ECR 1471, at paragraph 4 of the judgment, the Portuguese Government points out that the duration of the preliminary examination stage under Article 93(3) of the Treaty, in the context of which the Commission took the contested decision, has been fixed at two months. It argues, moreover, that the opening of the examination phase provided for in Article 93(2) of the Treaty is indispensable where the Commission has serious difficulties in assessing whether a draft aid plan is compatible with the Treaty.

24. The Portuguese Government argues that, in this case, the Commission obviously did not consider, when examining the plan for the first time, that the measures notified by the French authorities were compatible with the Treaty. On the contrary, it took a prolonged investigation, involving copious correspondence between the Commission and the French Government over a period of 16 months from the date of notification of the draft aid plan, for the Commission finally to authorise the aid measures referred to in the contested decision.

25. The Commission argues that, as is shown in Case C-301/87 France v Commission [1990] ECR I-307 (the 'Boussac judgment), at paragraphs 27 and 28, the period of two months which it is allowed before having to initiate the procedure under Article 93(2) of the Treaty does not start to run until the time when the Commission has all the documents necessary to be able to examine the compatibility of an aid plan with the Treaty.

26. It emphasises that information given by Member States concerning planned aid are frequently incomplete and imprecise on secondary points. That is why, in its submission, it is required, during the preliminary stage, to collect additional information and assurances in order to ensure that the aid planned conforms fully with the provisions of Community law. However, as was the case here, those adjustments concern only secondary aspects and the detailed arrangements for implementing the aid. The Commission should therefore be accorded/allowed a degree of discretion in order to overcome the difficulties raised by the examination of a draft aid plan when notified to it, since those difficulties may be of negligible importance.

    Findings of the Court

27. It is appropriate at the outset to recall the relevant rules of the system established by the Treaty for monitoring State aid.

28. Under Article 92(1) of the Treaty, save where otherwise provided in the 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 shall, in so far as it affects trade between Member States, be incompatible with the common market.

29. Article 93 of the Treaty provides for a special procedure by which the Commission is to keep State aid under constant review. As regards proposed new grants of aid by the Member States, it establishes a procedure which must be followed before any aid can be regarded as lawfully granted. Under the first sentence of Article 93(3) of the Treaty, as interpreted by the case-law of the Court, the Commission is to be notified of any plans to grant or alter aid before those plans are implemented (Case C-367/95 P Commission v Sytraval and Brink's France [1998] ECR I-1719, paragraph 35).

30. The Commission then conducts an initial review of the planned aid. If at the end of that review it considers a plan to be incompatible with the common market, it must without delay initiate the procedure under the first subparagraph of Article 93(2) of the Treaty, which provides: '[I]f, after giving notice to the parties concerned to submit their comments, 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 (Sytraval and Brink's France, paragraph 36).

31. The 'parties concerned within the meaning of Article 93(2) of the Treaty include not only the undertakings benefiting from the aid but also the persons, undertakings or associations whose interests might be affected by the grant of the aid, in particular competing undertakings and trade associations (Case 323/82 Intermills v Commission [1984] ECR 3809, paragraph 16).

32. In the context of the procedure laid down by Article 93, the preliminary stage of the procedure for reviewing aid under Article 93(3) of the Treaty, which is intended merely to enable the Commission to form a prima facie opinion on the partial or complete compatibility of the aid in question, must therefore be distinguished from the examination under Article 93(2), which is designed to enable the Commission to be fully informed of all the facts of the case (Case C-198/91 Cook v Commission [1993] ECR I-2487, paragraph 22; Case C-225/91 Matra v Commission [1993] ECR I-3203, paragraph 16; Sytraval and Brink's France, paragraph 38).

33. It follows that the procedure under Article 93(2) of the Treaty, which gives other Member States and the parties concerned the assurance that they will be able to make their views known and enables the Commission to be fully informed of all the facts of the case before taking its decision, is essential whenever the Commission has serious difficulties in determining whether an aid is compatible with the common market. Therefore, when taking a decision in favour of an aid, the Commission may restrict itself to the preliminary phase provided for under Article 93(3) only if it is able to satisfy itself after an initial examination that the aid is compatible with the Treaty. If, on the other hand, the initial examination leads the Commission to the opposite conclusion or if it does not enable it to overcome all the difficulties involved in determining whether the aid is compatible with the common market, the Commission is under a duty to carry out all the requisite consultations and, for that purpose, to initiate the procedure under Article 93(2) of the Treaty (see, in particular, Case 84/82Germany v Commission [1984] ECR 1451, paragraph 13; Cook, paragraph 29; Matra, paragraph 33; Sytraval and Brink's France, paragraph 39).

34. The preliminary stage provided for in Article 93(3) of the Treaty is intended merely to allow the Commission a sufficient period of time for reflection and investigation so that it can form a prima facie opinion on the draft aid plans notified to it, thus enabling it either to conclude, without the need for detailed examination, that the aid is compatible with the common market or, by contrast, to make a finding that the content of those plans raises doubts as to that compatibility (see, to that effect, Case C-99/98 Austria v Commission [2001] ECR I-0000, paragraphs 53 and 54).

35. In that respect, the Commission is required to examine all the facts and points of law brought to its notice by persons, undertakings and associations whose interests may be affected by the granting of the aid (see, to that effect, Sytraval and Brink's France, paragraph 51). It is therefore in the light of both the information notified by the State concerned and that provided by any complainants that the institution must make its assessment in the context of the preliminary examination provided for in Article 93(3) of the Treaty.

36. The facts of this case must be examined in the light of those principles.

37. It is clear from the two complaints lodged by the AEVP that they were essentially based on the existence of a link between, on the one hand, the difference in taxation between liqueur wines and naturally sweet wines, and, on the other, the aid to French producers of liqueur wines. In the second complaint, which concerned infringement of Articles 92 and 93 of the Treaty, the AEVP expressly maintained that the aid in question was intended to compensate French producers of liqueur wines for that difference in taxation, which meant, essentially, that only foreign producers of liqueur wines were subject to the higher level of taxation.

38. According to the AEVP, which supplied the Commission with details on the origin of the draft aid plan, it was in response to the 'excise strike by French producers of liqueur wines that the French Government announced financial compensation for those producers, thus enabling that strike to be suspended.

39. In support of its analysis, the AEVP produced articles from the trade press of the wine and spirits industry. It drew the Commission's attention in particular to the statement of the president of the CNVDLAOC published in the June 1994 issue of the journal VITI, reproduced in paragraph 5 of this judgment.

40. The complaints of the AEVP thus contained strong evidence to suggest that the aid envisaged might result in discriminatory taxation for the purposes of Article 95 of the Treaty.

41. It follows from the general scheme of the Treaty that the procedure under Article 93 must never produce a result which is contrary to the specific provisions of the Treaty. Accordingly, State aid, certain of whose conditions contravene other provisions of the Treaty, cannot be declared by the Commission to be compatible with the common market (see, in particular, Case C-156/98 Germany v Commission [2000] ECR I-6857, paragraph 78).

42. In addition, as the Commission acknowledged at the hearing, in determining whether aid is compatible with the common market, it must take account of market conditions, including fiscal aspects.

43. Furthermore, the Commission stated in its letter to the French authorities of 12 April 1995, cited in paragraph 7 of this judgment, that, according to the information which it had received, aid in the form of financial compensation would be granted to producers of liqueur wines in order to eliminate the difference in taxation between liqueur wines and naturally sweet wines for products of French origin.

44. However, in the draft aid plan which it notified to the Commission on 17 July 1995, the French Government mentioned the question of taxation only briefly, and did so in the terms set out in paragraph 11 of this judgment.

45. An examination of the whole of the file, as produced by the Commission following the order of the Court of 21 September 1999, shows that that was the sole response of the French Government to the allegation that the object of the intended aid was to eliminate the difference in taxation between liqueur wines and naturally sweet wines for products of French origin.

46. Neither in the contested decision nor in its letter to the French authorities of 21 November 1996, cited in paragraphs 17 and 18 of this judgment, did the Commission refer to the fact that the complaint by the AEVP was based essentially on a link between the difference in taxation between liqueur wines and naturally sweet wines and aid to French producers of liqueur wines.

47. Nor has the Commission explained why it concluded that that complaint was unfounded.

48. As the Advocate General has pointed out at point 90 of his Opinion, part of the aid in question appears to favour a category of producers which coincides largely with the category of French producers of liqueur wines fiscally disadvantaged by the system of taxation. It must therefore be acknowledged that the possible existence of a link between the system of taxation and the draft aid plan in question represented a serious difficulty in determining whether that plan was compatible with the provisions of the Treaty.

49. In those circumstances, only by initiating the procedure under Article 93(2) of the Treaty would the Commission have been in a position to appreciate the issues raisedin the complaints lodged by the AEVP and to determine whether or not the possible link between the difference in taxation and the draft aid plan constituted an infringement of Article 95 of the Treaty and consequently whether or not that plan was incompatible with the common market.

50. In any event, the contested decision is devoid of any statement of reasons on that point, contrary to the requirements of Article 190 of the Treaty.

51. It follows that, as a result both of the failure to initiate the procedure under Article 93(2) of the Treaty and of the breach of the duty to state reasons, the contested decision is unlawful. The first plea in law put forward by the Portuguese Republic must therefore be upheld.

52. It is therefore not necessary to examine the second plea.

53. In those circumstances, the application of the Portuguese Republic must be allowed and the contested decision annulled in consequence.

    Costs

54. Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs, if they have been applied for in the successful party's pleadings. Since the Portuguese Republic has applied for costs and the Commission has been unsuccessful, the latter must be ordered to pay the costs. Under the first subparagraph of Article 69(4) of the Rules of Procedure, Member States and institutions which intervene in the proceedings are to bear their own costs. In those circumstances, the Kingdom of Spain and the French Republic must bear their own costs.

On those grounds,

THE COURT

hereby:

1. Annuls the Commission's decision of 6 November 1996 concerning aid intended to be granted by the French Republic to producers of liqueur wines and eaux de vie in the form of aid for promotional measures and technical aid for research, technical support and investment;

2. Orders the Commission of the European Communities to pay the costs;

3. Orders the Kingdom of Spain and the French Republic to bear their own costs.

GulmannLa Pergola Wathelet Skouris Edward Puissochet Jann Sevón Schintgen

Delivered in open court in Luxembourg on 3 May 2001.

R. Grass G.C. Rodríguez Iglesias

Registrar President

---

1: Language of the case: Portuguese.