Report for the Hearing delivered in Joined Cases 62 and 72/87

I — Facts and procedure

1. SA Gfoverbel

SA Glaverbel is a major manufacturer of flat glass and processed products. It operates not only in Belgium but also in the Netherlands, through its subsidiary Maasglas BV. As part of a restructuring project, Glaverbel has made large investments in its various Belgian production centres, and in particular in its plant at Moustier (Province of Namur). Glaverbel has also devoted a great deal of effort to research and development.

The investments at Moustier, which amounted to BFR 1201725000, had two main aims: first, to renovate and modernize the production line for the manufacture of flat glass (a ‘float line’) at Moustier (approximately BFR 500000000) and, secondly, to develop production capacity, on that same line, of pyrolytically coated glass (approximately BFR 700000000). Pyrolytically coated glass is a high-quality glass which reflects heat inwards into buildings and thereby greatly improves the insulating properties of glass against cold. However, pyrolytically coated glass is not only used in buildings but also, for example, in the manufacture of household equipment and for car windscreens. It appears that Glaverbel is the first glass manufacturer in the world to have developed a new technology for producing laminated glass directly on float by pyrolysis. The previous method of making laminated glass was by vacuum-casting in processing units.

2. The aid in question

The Belgian Law of 17 July 1959 introducing and coordinating measures to encourage economic expansion and the creation of new industries, together with the Royal Decree of 17 August 1959 implementing that law, introduced general measures for assisting the Belgian economy. At that time the Commission took the view that it was impossible for it to assess whether the system as a whole was compatible with the EEC Treaty. It therefore decided, by Commission Decision 75/397/EEC of 17 June 1975 (Official Journal 1975, L 177, p. 13), that the Belgian Government should be required to notify it in advance of all individual significant cases in which the Law of 17 July 1959 was applied, namely those cases which involved aid exceeding a certain limit. On the basis of that notification the Commission would consider whether the aid in question was compatible with the common market.

Pursuant to that procedure, the aid at issue in these proceedings was notified to the Commission by letter of 15 November 1985.

The body authorized under the Law of 17 July 1959 to grant aid to undertakings established in Wallonia is the Exécutif régional wallon (Walloon Regional Executive). On 18 October 1984 the Exécutif régional wallon decided to grant aid to Glaverbel SA, subject to the prior approval of the Commission. The proposed aid was to take the form of an interest subsidy of 4% on an amount of BFR 531600000 over six years, a capital grant of 4% on an amount of BFR 269550000 over six years and an exemption from land tax for five years on the whole investment.

3. The contested decision

After initial consideration of the notification the Commission took the view that the aid was not compatible with the common market. The Commission thereupon commenced the procedure under Article 93 (2) of the EEC Treaty, which culminated in the contested decision. Article 1 of the decision provides that the Belgian Government must refrain from implementing its proposal to grant aid towards the investments at Moustier by a manufacturer of flat glass. Article 2 requires the Belgian Government to inform the Commission, within two months of the date on which the decision is notified to it, of the measures which it has adopted in order to comply with it.

In the preamble to the decision the Commission stated that the aid would relieve Glaverbel, at the expense of the national exchequer, of part of the investment cost which it would normally have to bear. It stated that the output of Glaverbel's two glassmaking float lines accounted for about 8% of rapacity within the Community and half of basic flat-glass production in Belgium. Flat glass was traded between Member States and was the subject of competition between groups of producers. Glaverbel exported about 50% of its output of float glass to other Member States and 20% to nonmember countries. The remainder was sold or processed in the Benelux countries. According to the Commission, the basic flat-glass industry had suffered from stagnant demand and underutilization of capacity, which had had an adverse effect on company finances and led to job cuts and plant closures. For those reasons the Commission considered that the planned aid would affect trade between Member States and distort competition within the meaning of Article 92 (1) of the Treaty.

The derogations provided for in Article 92 (3) are inapplicable in this instance. In the first place, they are not applicable unless the Commission finds that the free play of market forces is, in the absence of aid, insufficient in itself to encourage potential beneficiaries to take steps to attain one of the aims sought. The derogations under Article 92 (3) (a) do not apply because the standard of living is not abnormally low in any region of Belgium and there is no serious underemployment; furthermore, the Moustier area was not included amongst the areas requiring special regional aid under Commission Decision 82/740/EEC of 22 July 1982 on the designation of development areas in Belgium (Official Journal 1982, L 312, p. 18). As regards the derogations under Article 92 (3) (b), the Commission maintains that the aid in question is manifestly not intended to promote the execution of an important project of common European interest or to remedy a serious disturbance in the Belgian economy. Lastly, Article 92 (3) (c) is not applicable because the periodic renovation of a float line is a replacement investment, the cost of which is an item of the operating costs. According to the Commission, it is perfectly normal and in its own interests for the producer to use the most modern and economic techniques and materials. The Commission further observes that the two methods of making laminated glass (vacuum-casting and pyrolysis) yield products which differ in their composition; nevertheless, their uses are partly the same. In the sector of coated and tempered glass there is already a degree of unused capacity. For those reasons the Commission had prohibited certain aid schemes in that sector in the past. The Groupement européen des producteurs de verre plat (European Group of Flat-Glass Producers) was also opposed to any investment aid for the processing of flat glass for use in the car-making and building industries. In those circumstances, the aid in question would adversely affect trading conditions to an extent contrary to the common interest, even if the investment at issue included important technological innovations.

4. Procedure

The application of the Exécutif régional wallon was lodged at the Court Registry on 27 February 1987.

The application of SA Glaverbel was lodged on 9 March 1987.

By an order of 30 September 1987 the Court decided to join the two cases for the purposes of the oral procedure and the judgment.

Upon hearing the Report of the Judge-Rapporteur and the views of the Advocate General the Court decided to assign the case to the Sixth Chamber and to open the oral procedure without any preparatory inquiry.

II — Conclusions of the parties

The Exécutif régional wallon claims that the Court should:

1) Declare void the Commission's decision of 3 December 1986;

2) Order the Commission to pay the costs. SA Glaverbel claims that the Court should:

1) Declare the application admissible and well founded;

2) Declare void the contested decision of the Commission of 3 December 1986;

3) Order the Commission to pay the costs.

The Commission claims that the Court should:

1) Dismiss the applications as unfounded;

2) Order the applicants to pay the costs.

III — Submissions and arguments of the parties

A — Admissibility

The Exécutif régional wallon maintains that its application is admissible. In its capacity as the body providing the contested aid, it is directly and individually concerned by the Commission's decision, for the purposes of Article 173 of the Treaty, in the same way as the Belgian State to which the decision was addressed.

Glaverbel maintains that the decision affects it directly and individually in its capacity as recipient of the proposed aid. Its application is therefore admissible.

The Commission does not contest the admissibility of the applications.

B — Substance

In essence, both applicants put forward the same arguments. However, Glaverbel's arguments are presented as objections to the absence of a statement of reasons for the decision, whereas the Exécutif régional wallon uses the same arguments as substantive points.

The arguments concern:

i) the misapplication of Article 92 (1) of the EEC Treaty, and the reasons for its application;

ii) the refusal to apply Article 92 (3) (b) of the Treaty, and the reasons for that refusal;

iii) the refusal to apply Article 92 (3) (c) of the Treaty, and the reasons for that refusal.

In addition, the Exécutif régional wallon considers that the Commission infringed its right to a fair hearing.

1. Article 92 (1)

In the first place, the applicants maintain that the contested decision is based on a wrong assessment of the facts. The Commission was wrong to conclude that the flat-glass industry was in difficulties owing to stagnant demand and underutilization of capacity. On the contrary, a rate of between 85% and 90% is a high rate for a heavy industry such as the basic glass industry. Since 1982 the basic flat-glass industry has by no means found itself in a state of overcapacity. Moreover, the applicants emphasize that the investment made by Glaverbel does not involve any increase in its production capacity.

Secondly, Glaverbel claims that the Commission cannot properly determine that aid affects trade between Member States and distorts competition without considering whether its effects are ‘appreciable’. That requirement, developed in the Court's case-law on Article 85 of the Treaty, should also apply with regard to Article 92 in view of the similarity of the wording of the two articles on that point. Indeed, that requirement was implicitly recognized by the Court in its judgment in Case 730/79 Philip Morris v Commission [1980] ECR 2671.

Thirdly, the Exécutif régional wallon points out that the pyrolytically coated glass made by Glaverbel is a new product which competes with only a very limited number of existing products.

Lastly, the applicants argue that insufficient reasons are given for the applicability of Article 92 (1). The Commission based its decision on considerations of a general nature without providing any specific statement as to the effect of the aid on intra-Community trade and on competition. The recitals in the preamble do not disclose the reasoning followed by the Commission.

In its defence, the Commission contends that the demand for glass is very inflexible and that the market has been stagnant over recent years. The rates at which production capacity is used are low. In that connection, the Commission refers to the management reports of Glaverbel itself, which paint a fairly gloomy picture of the situation on the market for glass, and also to further data included in the annexes to Glaverbel's application.

The Commission further argues that the effect of the aid on trade and competition does not necessarily have to be ‘appreciable’. In its judgments the Court has not held that such effects must be appreciable for the purpose of interpreting Article 92 (1). According to the Commission, any parallels drawn between Article 92 (1) and Article 85 (1) are quite irrelevant.

Finally, the Commission contends that the reasons given for the decision are sufficient. It observes that its reasoning followed the criteria specifically set out in the judgment in Case 318/82 (Leeuwarder Papierwarenfabriek v Commission [1985] ECR 817). The decision demonstrates adequately that there is a large volume of intra-Community trade in the flat-glass sector, that Glaverbel is involved in that trade, that there is competition between producers and that Glaverbel's two flat-glass production lines at Moustier account for about 8% of Community capacity.

2. Article 92 (3) (b)

The Exécutif régional wallon and Glaverbel maintain that the investments at Moustier constitute an important project of common European interest. The introduction of new technologies makes it possible to manufacture products having a high technological content and a high added value. The new method has been patented throughout the world. The investments, if put into effect, would enable Glaverbel to maintain a technological lead over producers outside the EEC and thereby guarantee the independence of the Community in that sector. The Commission, however, had done no more than assert that it was clear that the aid in question was not intended to promote the execution of an important project of common European interest. The Exécutif régional wallon considers that finding to be incorrect, whilst Glaverbel takes the view that the reasons given for it are insufficient: the Commission had provided no demonstrable reason for supposing that the contested investment could not be regarded as a project of common European interest.

For its part, the Commission explains that a project may be described as being of common European interest when it forms part of the European transnational programmes supported jointly by the various governments acting together or when it is connected with concerted action taken by the various Member States to combat a common problem, for example the pollution of the environment. Consequently, the renovation and modernization of one of the 25 glass float lines in the Community cannot be regarded as a ‘project of common European interest’. That finding was so selfevident, at least for those practising Community law, that no further reasoning was necessary. Moreover, the Commission's attitude towards the application of Article 92 (3) (b) is well known.

3. Article 92 (3) (c)

The third criticism raised concerns the derogation in favour of aid designed to facilitate the development of a given sector. The applicants object to the Commission's treatment of the renovation of the float line as a replacement investment the cost of which is an item of operating costs. If seen in that light, aid towards such a renovation scheme would not meet the requirements of developing the sector as a whole. None the less, the Exécutif régional wallon maintains that, in reaching that conclusion, the Commission overlooked the major innovative aspect of the investment in question. Glaverbel complains that the reasoning adopted by the Commission cannot be understood.

The applicants go on to contest the Commission's finding that Article 92 (3) (c) is not applicable even if the investment involved technical innovations. The Commission stated that laminated glass may be made by two different methods yielding products which differ in their composition but whose uses are partly the same. Thus, on the grounds that the products would compete with one another and in view of the surplus capacity in the field of coated and tempered glass, the Commission had concluded that the aid would adversely affect trading conditions to an extent contrary to the common interest. The Exécutif régional wallon maintains, however, that there is no surplus capacity in the sector in question and that Glaverbel's products would not compete with other products. Glaverbel argues that the reasoning of the decision is not sufficiently specific and that the Commission has not answered the arguments that laminated glass obtained by different methods compete only to a minimal extent; production by pyrolysis would serve to intensify competition in the sector of tempered laminated glass.

The Commission replies that the renovation of a float-glass line is a routine operation which in no way justifies the application of Article 92 (3) (c). An element of modernization is inherent in any renovation. As far as the surplus capacity and competition between the two products are concerned, the Commission stands by its point of view, referring inter alia to the data contained in the annexes to Glaverbel's application. It adds that, since the aid was granted retrospectively, it was not at all necessary for the attainment of the aims envisaged by Article 92 (3). Lastly, the Commission observes that it has already opposed other aid schemes in the same sector.

4. Infringement of the right to a fair hearing

The Exécutif régional wallon takes the view that the Commission has infringed its right to a fair hearing. The decision mentions a number of observations submitted during the administrative procedure. However, none of the relevant documents were communicated either to the Exécutif régional wallon or to Glaverbel.

The Commission refers to the judgments of 10 July 1986 in Cases 40/85 and 234/84 (concerning Boch and Meura respectively Belgium v Commission [1986] ECR 2263 and 2321). In those judgments the Court held that if a decision is sufficiently supported by the objective information referred to in the statement of the reasons on which it was based, of which the government was fully apprised, the mere fact that the Commission mentioned those comments in its decision without having afforded the Member State concerned an opportunity to comment on them does not justify a declaration that the decision is void.

T. Koopmans

Judge-Rapporteur

1 Language of the Case: French.