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Private resources that come under the control of a public authority become state resources. The only defence for not recovering incompatible aid is absolute impossibility. Agricultural policy objectives take precedence over those of competition policy.

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Introduction

This article reviews a case involving transfer of state resources and a case concerning failure to recovery of incompatible State aid. It also draws attention to a third case that dealt with the issue of the primacy of agricultural policy over competition policy.

I. State resources

On 9 November 2017 the Court of Justice decided on three appeals [C-649/15 P, TV2/Danmark v Commission; C-657/15 P, Viasat Broadcasting UK v TV2/Danmark; C-656/15 P,  Commission v TV2/Danmark] that all concerned the judgment of the General Court in case T-674/11, TV2/Danmark v Commission.

The first appeal was dismissed in its entirety because it merely repeated the same arguments as in the proceedings before the General Court. The other two were successful and the Court of Justice proceeded to annul the judgment of the General Court. The judgment was annulled because the General Court erred in classifying certain payments to TV2/Danmark as state resources. The judgment of the General Court was reviewed here on 27 October 2015 (View the article here: http://stateaidhub.eu/blogs/stateaiduncovered/post/3961).

The General Court had grappled with the issue of the compensation of TV2/Danmark and whether it satisfied the Altmark conditions. In the end it found that although the Altmark conditions were not satisfied, the compensation constituted compatible aid. Surprisingly, the successful appeals did not concern Altmark. Because the rulings of the Court of Justice on the appeals brought by the Commission and Viasat Broadcasting are almost identical, this article reviews only the judgment in the case brought by the Commission.[1]

TV2/Danmark is the second public television station in Denmark. TV2/Danmark operates under a public service mission to produce and broadcast national and regional television programmes. TV2/Danmark is partly funded by licence fee and partly by advertising revenue.

Following a complaint, the Commission, in decision 2006/217, examined the funding arrangements for TV2/Danmark. The Commission found that the compensation granted to TV2/Danmark was State aid, that most of it was compatible with the internal market, but an amount that was classified as overcompensation was incompatible and had to be recovered.

The Commission decision was the subject of four actions for annulment brought by TV2/Danmark [T‑309/04], Denmark [T‑317/04] and by the competitors of TV2/Danmark, Viasat [T‑329/04] and SBS [T‑336/04]. In October 2008, the General Court annulled that decision. Although the General Court agreed with the Commission that TV2/Danmark was providing a service of general economic interest, it disagreed with the Commission on the items that were included in the compensation, such as advertising revenue, and with the Commission’s analysis of the second and fourth Altmark conditions.

Following the annulment of its 2006 decision, the Commission re-examined the compensation. It then adopted decision 2011/839 in which it found again that the compensation was State aid because it did not satisfy the second and fourth Altmark conditions. However, in contrast to the 2006 decision, the 2011 decision concluded that there was no overcompensation.

When the 2011 decision was appealed, the General Court also annulled with the judgment in case T-674/11 on the grounds that the Commission had considered the advertising revenue of TV2/Danmark to constitute State aid. Indeed Denmark had establish a rather unusual mechanism for making available to TV2/Danmark revenue from advertising. The advertising space on TV2/Danmark was sold not by TV2/Danmark itself, but by a third company, TV2 Reklame, and the income from those sales was transferred to TV2/Danmark through the TV2 Fund. TV2 Reklame and the TV2 Fund were also owned by the Danish State. They had been given the task of paying to TV2/Danmark the revenue from the sale of advertising.

The Court of Justice examined only whether that revenue could be classified as state resource.

State control

The Court began its analysis by reiterating the relevant principles in the case law and in particular that “(43) measures not involving a transfer of State resources may fall within the concept of ‘aid’, within the meaning of Article 107(1) TFEU”. This is an unfortunate phrasing. The Court should have referred instead to measures not involving a transfer of resources from the budget of a public authority. That this is what it meant is obvious from the next paragraph according to which “(44) the concept of intervention ‘through State resources’, within the meaning of that provision, is intended to cover, in addition to advantages granted directly by the State, those granted through a public or private body appointed or established by that State to administer the aid” and “(46) Therefore, even if the sums corresponding to the measure in question are not permanently held by the Treasury, the fact that they constantly remain under public control, and are therefore available to the competent national authorities, is sufficient for them to be categorised as ‘State resources’”.

“(47) It follows that, since the resources of public undertakings are subject to the control of the State and are therefore at its disposal, those resources fall within the scope of the concept of ‘State resources’, within the meaning of Article 107(1) TFEU. The State is perfectly capable, by exercising its dominant influence over such undertakings, of directing the use of their resources in order, as the occasion arises, to finance specific advantages in favour of other undertakings”. The case law cited in this paragraph is the landmark judgment of 16 May 2002, in case C-482/99, France v Commission (“Stardust Marine”), paragraph 38.

In that case the Court of Justice was explicit that the concept of transfer of state resources was based on two criteria: control of resources by a public authority and imputability or attribution of the decision to make the transfer to that public authority. In particular, the Court dismissed the interpretation that state control was sufficient for the qualification of a measure as State aid. As the Court said in Stardust Marine, “(51) such an interpretation of the condition that, for a measure to be capable of being classified as State aid within the meaning of Article 87(1) EC, it must be imputable to the State, which infers such imputability from the mere fact that that measure was taken by a public undertaking, cannot be accepted.” “(52) Even if the State is in a position to control a public undertaking and to exercise a dominant influence over its operations, actual exercise of that control in a particular case cannot be automatically presumed. A public undertaking may act with more or less independence, according to the degree of autonomy left to it by the State. […] Therefore, the mere fact that a public undertaking is under State control is not sufficient for measures taken by that undertaking, such as the financial support measures in question here, to be imputed to the State.” In the present the case, the Court of Justice remained silent on imputability. Perhaps it did so because, as will be seen below, those who provided advertising revenue to TV2/Danmark were also under the control of the state and they had no discretion to do otherwise. But even if this is what guided the thinking of the Court, it should have been explicit that the state control was such that they could exercise no decision making discretion.

 

The Court went on to reiterate that “(48) the fact that the resources concerned may be administered by entities that are distinct from the public authorities or that the source of those resources may be private is of no significance in that regard”. At this point, the Court recalled that TV2 Reklame and the TV2 Fund were state-owned and performed tasks assigned to them by the state. “(51) Accordingly, the entire distribution channel of that revenue ending with its transfer to TV2/Danmark was governed by Danish legislation, under which public undertakings specially appointed by the State had the task of administering that revenue.” “(52) The revenue in question was, accordingly, under public control and at the disposal of the State, which could decide how it was to be used.” And further the Court added that “(63) the present case concerns public undertakings, namely TV2 Reklame and the TV2 Fund, that were created, owned and appointed by the Danish State to administer the revenue produced by the sale of advertising space of another public undertaking, namely TV2/Danmark, and as a consequence that revenue was under the control and at the disposal of the Danish State.” Perhaps the word “disposal” was used in this context to indicate that the decision was attributed to the state.

On the basis of the above reasoning, the Court of Justice concluded that the General Court erred in law in holding that the advertising revenue did not constitute state resources. “(56) Moreover, the General Court was wrong to hold, […], that resources originating with third parties that are managed by public undertakings can constitute State resources only when they are voluntarily placed at the disposal of the State by their owners or abandoned by their owners and when the State has assumed the management of those resources.”

Accordingly, the Court of Justice proceeded to set aside the judgment of the General Court in case T-674/11, TV2/Danmark v Commission.

II. Failure to recover incompatible State aid

On 9 November 2017, the Court of Justice found, in case C-481/16, Commission v Greece, that Greece failed to comply with Commission decision 2014/539, which had ordered Greece to recover incompatible State aid from Larco Mining.[2] The aid amounted to EUR 136 million and was in the form of a state guarantee and a capital injection.

It so happened that on the same day that the Commission adopted decision 2014/539, it also decided in case SA.37954 that a sale of Larco’s assets through competitive tendering was free of State aid and that no aid would be transferred to the new owner of the assets as there was no economic continuity between Larco and the assets acquired by the new owner. In fact, Larco was to be put in liquidation after the conclusion of the sale.

Despite several requests from the Commission, Greece had failed to notify to the Commission the measures that it intended to take to recover the aid. Notification of such measures was required by decision 2014/539. This is standard practice in recovery procedures.

Principles of recovery

The Court of Justice began its assessment by recalling the legal principles concerning recovery of incompatible State aid. It first reiterated in paragraph 23 of its judgment that Member States are obliged to take all necessary measures to recover the aid in order to eliminate the distortion of competition caused by the aid.

The recovery has to be carried out promptly and according to procedures defined by national law, provided that such procedures result in effective execution of the decision of the Court [paragraph 24].

The fact that the beneficiary of the aid encounters financial difficulties does not affect the obligation to recover the aid. If necessary, the Member State concerned has to initiate bankruptcy proceedings against the beneficiary [paragraph 25].

According to the case law, the elimination of the distortion of competition can also be achieved when that Member State registers its claim against the beneficiary. However, in case the Member State cannot otherwise recover the aid, registering such a claim is sufficient only when the bankruptcy proceedings can lead to the closure of the beneficiary [paragraphs 26-27].

The only acceptable reason for not recovering incompatible aid is absolute impossibility. Legal, political, or practical difficulties do not constitute absolute impossibility, if the Member State does not try to recover the aid and does not propose to the Commission alternative means of recovering the aid [paragraphs 28-29].

Greece failed to recover the incompatible aid even if it encountered difficulties

Then the Court applied those principles to the Greek case. It first noted that Greece did not dispute that it neither recovered the aid, nor did it initiate bankruptcy proceedings against Larco [paragraph 30]. Greece argued, however, that the difficulty in the recovery of aid stemmed from the fact that it had to sell the assets of Larco before it would proceed to liquidate Larco [paragraph 31].

The Court rejected this argument because the two decisions of the Commission [i.e. 2014/539 and SA.34572] dealt with distinct issues [i.e. the recovery of incompatible aid and the finding of no aid in the sale of Larco’s assets]. For this reason, despite the fact that the two decisions were issued on the same day, they were not inseparably linked. Decision SA.34572 did not reverse decision 2014/539, nor was the latter dependant on the former. Moreover, decision SA.34572 did not force Greece to sell any assets before recovering the aid [paragraphs 32-38]. [It appears that the delay in the recovery was caused by difference in opinion between Larco and the Greek government concerning the valuation of the assets of Larco.]

III. Primacy of agricultural policy over competition policy

Article 42 TFEU says that the extent of the application of the rules of competition to agricultural markets is determined by the Parliament and the Council. Indeed, the Parliament and Council have decided that both anti-trust and State aid rules would have to apply. However, the same regulations that declare these rules applicable in principle also suspend their application to the activities and programmes defined in the regulations. The consequence, as far as State aid is concerned, is that products co-financed by the EU’s common agricultural policy [CAP] fall outside the scope of Article 107(1) and 108(3) TFEU. Consequently, State aid rules apply mostly to rural development and forestry and some other activities related to agriculture which are wholly funded by Member States and which are not listed in the relevant regulations.

On 14 November 2017 the Court of Justice delivered a judgment in a request for preliminary ruling submitted by a French court. The referring court asked whether associations of producers and wholesalers of endives could fix prices. The producer associations argued that price coordination contributed to the achievement of the objectives defined by the regulations on the common market organisation for agricultural products.

What is interesting is that the Court of Justice confirmed that the CAP has precedence over the objectives of competition policy. However, “the common organisations of the markets in agricultural products are not a competition-free zone”. The Court went on to explain that only practices which are “directly and strictly” connected to the objectives of the CAP are not subject to the rules of competition. In other words, the Court was saying that anti-competitive practices have to be inseparable and proportional to the objectives of the CAP.

In the context of State aid rules this ruling simply means that what escapes from Article 107(1) is only what is defined in the relevant regulations. Anything else remains subject to the prohibition, in principle, of State aid. A Member State that wants to grant State aid to an activity related to those which are defined in the relevant regulation will have to argue that the aided activity is inseparable from those in the regulation and that the aid is proportional to the objective it supports.

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[1] The full text of the judgment can be accessed at:

http://curia.europa.eu/juris/document/document.jsf?text=&docid=196507&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=648071.

[2] The full text of the judgment, that exists only in French and Greek, can be accessed at:

http://curia.europa.eu/juris/fiche.jsf?id=C%3B481%3B16%3BRD%3B1%3BP%3B1%3BC2016%2F0481%2FJ&pro=&lgrec=en&nat=or&oqp=&dates=%2524type%253Dpro%2524mode%253D8D%2524from%253D2017.11.04%2524to%253D2017.11.12&lg=&language=en&jur=C%2CT&cit=none%252CC%252CCJ%252CR%252C2008E%252C%252C%252C%252C%252C%252C%252C%252C%252C%252Ctrue%252Cfalse%252Cfalse&td=%3BALL&pcs=Oor&avg=&mat=CONC.AIDE%252Cor&etat=clot&jge=&for=&cid=109791.

 

 

 



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