State aid – Investment aid26/02/05 / cata_european-union-news

The present case rules on the status and interpretation of Commission guidelines in the area of state aid. The specific guideline concerned is the Multisectoral framework on regional aid for large investment projects of 1997 (Official Journal of European communities (OJEC) 1998, C 107, page 7), later replaced by a new communication from the Commission with the same title (OJEC 2002, C 70, page 8).

The Multisectoral framework on regional aid for large investment projects lays down the rules for assessing aid awarded for such projects, which falls within its scope. Under the multisectoral framework, the Commission decides on a case-by-case basis the maximum allowable aid intensity for projects which are subject to the notification requirement.

For the proper assessment of the awarded aid, an analysis aimed at determining whether the notified project will be implemented in a sector or subsector affected by structural overcapacity, needs to be executed. The Commission considers, at the Community level, the difference between the average capacity utilisation rate for manufacturing industry as a whole and the capacity utilisation rate of the relevant sector or subsector.

In 2001, the Commission approved granting of an investment aid by the German authorities to a large construction project of facilities for the production of wood products, namely oriented strand board and particle board. The Commission approved the aid following a preliminary examination, without opening a formal investigation procedure. The present Court of First Instance (the “CFI”) decision annulling the Commission’s decision results from a challenge to the decision of the Commission by a competitor of the company benefiting from the aid granted by the German authorities.

The main legal issue of the case is the interpretation and implementation of the Commission’s guidelines, here the Multisectoral framework on regional aid for large investment projects in force at the time. The Commission had literally interpreted the guidelines as allowing a decision to be taken on the sole basis of the absence of overcapacity on the product market without reviewing whether that market was a declining market.

The CFI first recalls that Commission’s guidelines must comply with the relevant EC Treaty rules (here Article 87 EC) and are binding upon the Commission. Further to its review, the CFI declares that the interpretation of the guideline made by the Commission in the present case achieves a result contrary to Article 87 EC.

The Commission had interpreted the sentence of the guidelines in the “absence of sufficient data on capacity utilization, the Commission will consider whether the investment takes place in a declining market” (point 3.4.) as meaning that if it concluded that there was no market overcapacity found, no research was needed regarding the existence of a declining market. The CFI, on the contrary rules that the above sentence must be read “as meaning that, where the data on capacity utilization in the sector concerned do not allow the Commission to reach the positive conclusion that there is structural overcapacity, the Commission must consider whether the market in question is a declining market”.

The CFI further declares that “that interpretation of the multisectoral framework is the only interpretation consistent with Article 87 EC and with the objective of undistorted competition which that provision seeks to achieve.” The CFI also observes that the Commission had followed the CFI’s interpretation of the guidelines in a previous case.

Beyond the particular facts of the case, the CFI decision confirms that the interpretation of EC law and of implementing guidelines is conducted on the basis of their objective and purpose rather than their letter.