EUR-Lex -  61999CC0321 - EN - Opinion of Mr Advocate General Geelhoed delivered on 6 December 2001

Opinion of the Advocate-General

1. The present case concerns an appeal brought by Associação dos Refinadores de Açúcar Portugueses (ARAP), Alcântara Refinarias - Açúcares SA and RAR - Rafinarias de Açúcar Reunidas SA (hereinafter known collectively as ARAP c.s.). They claim that the Court should set aside the judgment of the Court of First Instance of 17 July 1999. The other parties to the proceedings are the Commission of the European Communities - defendant at first instance -, and the Portuguese Republic and DAI - Sociedade de Desenvolvimento Agro-Industrial SA, interveners in support of the Commission. In its response the Commission also claims that the Court should - partially - set aside the contested judgment.

2. The case concerns the grant of investment aid by Portugal and the European Community for the setting up of a sugar refinery in Corruche in the Tagus and Sorraia valley. This involves the cumulative application of three national aid schemes and a - large - Community contribution in pursuance of the policy of strengthening economic and social cohesion. Each of the national aid measures satisfies, prima facie, the conditions which the Commission imposed on the application of the schemes on which they are based. The Community contribution also fulfils the requirements of the Community legislation applicable to it.

The principal question in the case is whether the cumulative application of the various aid measures - which total over 75% of the investments eligible for aid - requires a separate and explicitly reasoned assessment by the Commission of its effects on the conditions of competition on the relevant sugar market.

I - The economic and legislative background

A - The economic background

3. The world market in sugar is characterised by a production capacity which is greater than demand. In the decade from 1989/1990 to 1999/2000 stocks doubled from 31 million tonnes to an estimated 62 million tonnes. In 1999/2000 world sugar production amounted to approximately 135 million tonnes and consumption to approximately 127 million tonnes. In this regard it should be noted that the relationship between production and consumption on the world market is subject to large market fluctuations.

4. Production substantially exceeds demand also in the Community. In 1998/1999 18.1 million tonnes of sugar were produced, of which 14.2 million tonnes fell within the production quota, 2.2 million tonnes fell outside that quota, and 1.7 million tonnes related to refined cane sugar from preferential imports. In the same year consumption amounted to around 12.7 million tonnes. However, the surplus had no impact on prices within the Community because of the price support mechanism and the export programme of the common organisation of the market described below.

5. The common organisation of the market provides sugar beet growers with a good return per hectare which is considerably higher than that of other growers. It stabilises the price level and guarantees supplies of sugar. These characteristics make it very attractive - both for sugar beet growers and sugar producers - to produce sugar under the allocated quota.

6. The sugar producers can buy in their raw material (sugar beet) at a fixed price and sell their final product (white sugar) at a guaranteed price within the quota allocated. Within the European Union the sugar industry is extremely concentrated. In 10 of the 14 sugar-producing Member States, the entire national quota is in the hands of only one or two companies which remain largely in their home markets. The quotas, the price system and mild competitive forces provide stability and a guaranteed income to producers.

7. Domestic demand for sugar in Portugal amounts to approximately 300 000 tonnes. Prior to Portugal's accession to the European Communities that entire amount was supplied by Alcântara Refinarias - Açúcares SA and RAR - Rafinarias de Açúcar Reunidas SA. These undertakings refine into white sugar raw cane sugar imported from third countries. Only in the Azores was a small quantity of beet sugar produced (approximately 10 000 tonnes).

B - The legislative background

8. The legislative background to this case is governed by three sets of EC legislation:

a. the legislation concerning Portugal's accession to the European Communities and concerning the common organisation of the sugar market;

b. the legislation concerning State aid in general, and more particularly with respect to the sugar production sector;

c. the legislation concerning Community aid from the Guidance Section of the EAGGF.

1. Portugal's accession and the common organisation of the sugar market

9. At the time of Portugal's accession to the European Communities in 1986 the common organisation of the sugar market was governed by Council Regulation (EEC) No 1785/81 of 30 June 1981 on the common organisation of the markets in the sugar sector. The features of this common market organisation are as follows:

(a) a production quota scheme applied to the finished product (white sugar) rather than the basic agricultural products (beet and cane). The main quotas are the so-called A quotas. There are additional B quotas to which lower reference prices apply. Quotas are set for five to seven years by the Council on a proposal from the Commission;

(b) a price system in which beet prices and an intervention price for white sugar are fixed annually by the Council, based on a proposal by the Commission;

(c) an export programme through which quota and refined preferential cane sugar not sold on the EU market are exported with export refunds. The Commission manages this programme by deciding weekly on the refund rates based on offers made by sugar traders;

(d) an import programme for cane sugar at preferential rates;

(e) production levies to recover from the sugar industry the cost of the export refunds (less an amount equivalent to the preferential sugar imports) and storage levies to recover the payments made to companies storing sugar.

10. During the accession negotiations Portugal, which was almost entirely dependent on imported raw cane sugar for its supplies, pressed hard for a production quota for beet sugar so as to be able to benefit from the advantages offered by the common organisation of the sugar market. Pursuant to Article 26 and Annex I, Chapter XIV(c), of the Act concerning the conditions of accession of the Kingdom of Spain and the Portuguese Republic and the adjustments to the Treaties (hereinafter: the Act of Accession), Portugal was allocated a beet sugar quota of 70 000 tonnes. Ten thousand tonnes of this quota were intended for the Azores and 60 000 tonnes for mainland Portugal. The relevant provisions of the Act of Accession brought about an amendment to Regulation No 1785/81. One of the consequences of this decision in the Act of Accession was that the production surplus of sugar which already existed in the European Community in 1986 would become even greater.

11. According to the terms of the Act of Accession, the quota of 60 000 tonnes for mainland Portugal was intended for undertakings established there to begin production of sugar. By Council Regulation (EC) No 1599/96 of 30 July 1996 amending Regulation (EEC) No 1785/81 on the common organisation of the markets in the sugar sector, this quota was raised from 60 000 tonnes to 70 000 tonnes.

12. For some time the sugar quota allocated to Portugal by the Act of Accession remained unused on account of a lack of processing capacity in that country. Sugar beet cannot be transported over long distances. Therefore, beet sugar refineries must preferably be set up in or close to areas of production. The file shows that the attempts by the Portuguese authorities to induce the two sugar refineries established in Portugal to set up a beet sugar refinery were ultimately unsuccessful.

2. State aid and the sugar production sector

13. Under Article 42 of the EC Treaty (now Article 36 EC), the general rules on competition apply to production of and trade in agricultural products only to the extent determined by the Council. Under Article 44 of Regulation No 1785/81, Articles 92, 93 and 94 of the EC Treaty (now Articles 87, 88 and 89 EC) apply to the production of, and trade in, the products listed in Article 1(1), which include sugar and sugar beet.

14. This provision is elaborated further in Article 46 of the regulation. It authorises Italy and France to grant adaptation aid in the sugar sector under certain well-defined conditions. This article does not refer to the grant of aid for the setting up of a refinery in Portugal.

15. In accordance with the Guidelines for state aid in connection with investments in the processing and marketing of agricultural products of 2 February 1996 (hereinafter: the guidelines), all State aid for investments in the sugar sector is excluded with the exception of inter alia investments for utilisation of the sugar quota allocated to Portugal under the Act of Accession. These guidelines are consistent with 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, referred to at paragraphs 23 and 24 below.

16. The Commission approved Decree-Law 95/90 amending the Estatuto dos Benefícios Fiscais (Tax benefits measure) by decision of 3 July 1991 addressed to the Portugese Government. This decree-law provides for special tax reliefs, limited to a period of 10 years, for companies making investments in excess of PTE 10 billion. The maximum aid available is 10% of the net investments made or, in exceptional cases, 20%.

17. The Commission made its approval subject to the condition that the individual aid was in conformity with the rules and guidelines laid down by Community law in relation to certain industrial, agricultural and fisheries sectors. The approval decision also requires the Portuguese Government to notify all projects enjoying reliefs of between 10 and 20% and all those in sensitive sectors.

18. By decision notified to the Portuguese Government on 30 May 1996, the Commission approved the extension of the scheme relating to tax reliefs under the same conditions until 1999. However, in that decision the obligation to give notice of projects in sensitive sectors was no longer mentioned.

3. The legislation concerning Community aid from the Guidance Section of the EAGGF

19. Council Regulation (EEC) No 2052/88 of 24 June 1988 on the tasks of the Structural Funds and their effectiveness and on coordination of their activities between themselves and with the operations of the European Investment Bank and the other existing financial instruments sets out the objectives and tasks of the Structural Funds. In the present case the following are of particular relevance:

...

1. promoting the development and structural adjustment of the regions whose development is lagging behind (hereinafter referred to as "Objective 1");

...

5. (a) speeding up the adjustment of agricultural structures, and

(b) promoting the development of rural areas

(hereinafter referred to as "Objective 5(a) and 5(b)").

Under the annex to this regulation Portugal as a whole is regarded as a region which comes under Objective 1.

20. Article 3(3) of Regulation No 2052/88 sets out in detail the tasks of the EAGGF Guidance Section. One of these tasks includes strengthening and reorganising agricultural structures, including those for the marketing and processing of agricultural ... products (Article 3(3)(a)). Under Article 3(4) of the regulation, [t]he specific provisions governing operations under each Structural Fund shall be laid down in the implementing Decisions adopted pursuant to Article 130e of the Treaty [now Article 162 EC]. ... Under Article 7(1) of the regulation, [m]easures financed by the Structural Funds or receiving assistance from the EIB or from another existing financial instrument shall be in keeping with the provisions of the Treaties, with the instruments adopted pursuant thereto and with Community policies, including those concerning the rules on competition, the award of public contracts and environmental protection.

21. Council Regulation (EEC) No 4256/88 of 19 December 1988 laying down provisions for implementing Regulation (EEC) No 2052/88 as regards the EAGGF Guidance Section sets out the criteria which the EAGGF must take into account in financing activities which come under objectives 1 and 5(a) and (b) of Regulation No 2052/88. Under Article 10(1), the Council must lay down detailed rules on the forms of and the conditions for the EAGGF contribution to measures to improve the conditions under which inter alia agricultural products are processed and marketed.

This regulation was amended by Council Regulation (EEC) No 2085/93 of 20 July 1993. The latter regulation defines in detail the criteria for financing measures by the EAGGF Guidance Section, particularly with regard to the reform of the common agricultural policy which was carried out in 1992.

22. Pursuant to Article 10 of Regulation No 4256/88, the Council adopted Regulation (EEC) No 866/90 of 29 March 1990 on improving the processing and marketing conditions for agricultural products. Article 1(2) of this regulation lays down the criteria under which the EAGGF Guidance Section may contribute to the financing of investments to facilitate the improvement and rationalisation of the treatment, processing and marketing of agricultural products. Under this provision, the investments must satisfy at least one of the following criteria:

(a) helping to guide production in keeping with foreseeable market trends or encouraging the development of new outlets for agricultural products, in particular through facilitating the production and marketing of new products or of high-quality products, including organically-grown products;

(b) relieving the intervention mechanisms of the market organisations by furthering long-term structural improvement where this is needed;

(c) being located in regions which are faced with special problems in adapting to the economic consequences of developments on the agricultural markets, or being of benefit to such regions;

(d) helping to improve or rationalise marketing channels or processing procedures for agricultural products;

(e) helping to improve the quality, presentation and preparation of products or encouraging a better use of by-products, particularly by recycling waste.

23. Under Article 2 of Regulation No 866/90, the Commission must lay down detailed criteria of selection of investments eligible for Community financing (the selection criteria). The selection criteria are to lay down priorities and indicate investments which must be excluded from Community financing (final sentence of Article 8(1)). Furthermore, the selection criteria are to be drawn up in accordance with the guidelines of the Communitys policies, particularly the common agricultural policy (Article 8(2)). Pursuant to Article 8(3) of the regulation, the Commission adopted 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.

24. According to the preamble to Decision 94/173, the selection criteria must reflect the guidelines of the common agricultural policy (seventh recital) and their application should also take account of the demonstrated specific needs of certain local productions (fifth recital).

In the annex to this decision all investments in the sugar sector are excluded, with the exception of those which provide for:

- ...

- utilisation of the quota provided for in the Act of Accession of Portugal (for mainland Portugal, 60 000 tonnes of sugar).

25. According to the guidelines referred to at paragraph 15 above, when applying Articles 87 EC, 88 EC and 89 EC, the Commission is to apply by analogy the limitations of a sectoral nature relating to the co-financing of such investments by the Community. According to those guidelines, all State aid granted in connection with investments referred to in point 1.2 of the Annex to Decision 94/173, or in point 2 thereof, is excluded unless the special conditions laid down therein are met.

26. This summary of the system of rules governing the behaviour of the Guidance Section of the EAGGF reveals the following:

- in general the rules closely follow the guiding principles of the common agricultural policy;

- as regards the sugar sector in particular, they are almost congruent with the restrictive rules applicable to State aid in connection with the common organisation of the sugar market which were highlighted above. These restrictive rules are also reflected in the Guidelines for state aid in connection with investments in the processing and marketing of agricultural products;

- as regards more specifically the exceptional position of Portugal, the rules concerning Community co-financing by the Guidance Section of EAGGF and those concerning State aid in connection with the sugar sector are also largely congruent. This is not the case with the rules concerning the common organisation of the sugar market. They do not grant Portugal special status in respect of State aid.

4. National measures to implement Regulation No 2052/88 and Regulation No 866/90: plans, programmes and implementing regulations

27. Under Article 8(4) of Regulation No 2052/88, the Member States must draw up regional development plans. These plans are to include in particular a description of the regional development priorities selected and of the corresponding operations and an indication of the use to be made of assistance from the Structural Funds, the EIB and the other financial instruments in implementing the plans.

28. On 9 July 1993, the Portuguese authorities submitted their development plan. Pursuant to Article 8(5) of the abovementioned regulation, the Commission responded, by decision of 25 February 1994, by establishing the Community support framework for structural assistance for Portugal covering the period 1994-1999. This Community support framework also covered the development priorities for the agricultural sector.

29. On 4 March 1994, the Commission approved the operational programme for Portugal which was required for the grant of actual assistance. The section of that programme relating to agriculture makes express provision for the establishment of a refinery to process sugar beet with a view to exploiting the sugar quota allocated to Portugal.

30. On 2 May 1994, the Portuguese authorities also submitted to the Commission a specific implementation plan for the structural improvement of the processing and marketing of agricultural and forestry products. This plan makes specific mention of the setting up of a refinery to process sugar beet. Together, the operational programme and the abovementioned implementation plan form the sectoral plan prescribed in Article 2 of Regulation No 866/90.

31. Under Article 16(3) of Regulation No 866/90, the Member States must undertake to participate in financing the investments selected by the Commission for assistance from the [EAGGF], to at least 5% of the eligible costs. On 25 September 1995, the Portuguese authorities notified the Commission of their measures to implement inter alia this provision. In that respect they referred to Article 93(3) of the EC Treaty (now Article 88(3) EC). Since these measures were to form the statutory basis for the national contributions towards investment projects which might be eligible for co-financing by the Community - in this case the Guidance Section of the EAGGF - and were not therefore an independent basis for State aid, the Commission found that the notified measures contained no elements of State aid within the meaning of Articles 92 and 93 of the EC Treaty (now Articles 87 EC and 88 EC). It informed the Portuguese authorities accordingly.

32. In order to be able to make a national contribution to an investment project for the processing of sugar beet, the Portuguese authorities decided to adapt the statutory basis for such contributions. They subsequently submitted this amendment to the Commission. In accordance with its earlier decision, set out in the letter of 27 November 1995, the Commission found that this measure likewise did not fall within the scope of the rules on State aid. By letter of 11 January 1996 it informed the Portuguese authorities of its decision of 20 December 1995.

33. The plans, programmes and other measures adopted by the Portuguese authorities and the Commission to implement Regulation No 2052/88 and Regulation No 866/90, which are described in this Opinion, show that the investment in the establishment of a refinery to process sugar beet was given undeniable priority. It was intended to enable Portugal to utilise the sugar quota allocated to it upon its accession. Great importance was undeniably attached to this project as regards the development of rural areas in Portugal.

5. The investment project

34. After the negotiations with Alcântara Refinarias - Açúcares SA and RAR - Rafinarias de Açúcar Reunidas SA over the setting up of a beet sugar refinery had become deadlocked, the Portuguese Government entered into talks with another potential candidate, DAI - Sociedade de Desenvolvimento Agro-industrial SA (hereinafter: DAI).

35. In order to secure funds from the European Regional Development Fund (hereinafter: the ERDF) and because the investment would amount to over ECU 15 million, the original plans were notified to the Commission. In the letter of notification the total cost of the planned investments was estimated at PTE 16 125 000 000 (approximately EUR 81 740 000). The costs eligible for aid amounted to PTE 12 752 900 000 (approximately EUR 64 643 000). The Portuguese authorities proposed that financial aid totalling PTE 9 560 290 000 (approximately EUR 48 461 000) be provided for this investment, partly from Community sources and partly from national sources.

36. The Portuguese Government subsequently changed its request for Community co-financing from the ERDF to a request for co-financing from the EAGGF. This also had consequences as regards the national legal provisions under which the national contribution to the planned investment had to be financed. Therefore, the Portuguese Government amended the statutory measures which it had notified to the Commission inter alia pursuant to Regulation No 866/90 to include aid for investments in the sugar sector. The Portuguese authorities stated that additional financial aid would be granted under Decree-Law 95/90.

37. Earlier, in December 1995, the Portuguese authorities had decided to notify the planned aid for DAI to the Commission pursuant to Article 93(3) of the EC Treaty.

38. Contacts between the Commission and the Portuguese Government following this notification resulted in the following formulation of the project and the public aid to be granted for it.

I. Investments

- Total investments PTE 16 125 000 000

- For investments PTE 12 752 900 000 (79% of the

eligible for aid total investments)

II. Aid

Sources Amounts Percentage

1. Aid under Regulation

No 866/90

a. Community PTE 6 372 065 000 49.97%

b. National PTE 1 912 935 000 15.00%

Total under (1) PTE 8 285 000 000 64.97%

2. Tax relief

(Decree-Law 95/90) PTE 1 275 290 000 10.00%

Total (1 and 2) PTE 9 560 290 000 74.97%

3. Training aid PTE 380 000 000 2.98%

Total PTE 9 940 290 000 77.95%

II - The Decision of 11 January 1996

39. In its decision of 11 January 1996 the Commission examined:

- aid of PTE 1 275 290 000 in the form of tax reliefs under Decree-Law 95/90;

- aid of PTE 380 000 000 for vocational training for staff at the sugar refinery to be established;

- aid of PTE 1 912 335 000 under Regulation No 866/90 as the national contribution required for projects eligible for Community financing.

40. With regard to the aid under Decree-Law 95/90 the Commission noted that it did not exceed the 10% limit and was consistent with the Community rules applicable to the agricultural sector. In particular the Commission noted that application of the tax reliefs in question was not excluded by Decision 94/173 which lays down the selection criteria for investments eligible for co-financing under the Guidance Section of the EAGGF. Since national aid in this sector must be consistent with the choices made by the Commission regarding the grant of Community aid for improving the processing and marketing of agricultural products, this examination led the Commission to conclude that the aid in question was lawful.

41. As regards the training aid, the Commission merely concluded that measures of this kind are authorised for up to 100% of the eligible expenses. Since the aid did not exceed 68% of such expenses in this case the Commission regarded it as lawful.

42. In respect of the aid intended as a national contribution to the Community aid under Regulation No 866/90 the Commission noted that it was not covered by Articles 92, 93 and 94 of the EC Treaty. The Commission would thus examine this national co-financing also under that regulation.

43. By letter of 19 March 1996 the Commission informed ARAP c.s. of its decision of 11 January 1996 not to raise any objection under Article 92 of the EC Treaty with regard to the Portuguese aid.

III - Proceedings before the Court of First Instance and the contested judgment

A - The proceedings before the Court of First Instance

44. By application lodged with the Registry of the Court of First Instance on 29 May 1996 the applicants brought an action, which was registered as Case T-82/96.

45. By applications of 8 and 18 November 1996 the Portuguese Republic and DAI sought leave to intervene in support of the forms of order sought by the Commission as defendant. The two applications were granted by order of 18 March 1997.

46. By judgment of 17 June 1999 (hereinafter: the contested judgment), the Court of First Instance dismissed the action in substance and ordered the applicants to bear their own costs and to pay those of the Commission and the intervener, DAI.

B - The contested judgment

47. The Court of First Instance began by considering the admissibility of the claim for annulment.

48. The claim was dismissed as inadmissible in so far as it was directed against the decision of 19 March 1996. The Court of First Instance held, at paragraphs 29 and 30 of the contested judgment, that the letter addressed to ARAP c.s. was purely informative and did not therefore constitute a measure against which proceedings may be instituted under Article 173 of the EC Treaty (now Article 230 EC).

49. The Commission raised an objection of inadmissibility with regard to the claim for annulment of the decision of 11 January 1996 in so far as it concerned the part thereof relating to aid granted in the form of tax reliefs under Decree-Law 95/90. The Commission claimed that the applicants had no interest in securing an annulment of the contested decision of 11 January 1996 because even if it were annulled the tax reliefs at issue would be maintained since those tax reliefs, granted under a general aid scheme approved by decision of 3 July 1991, constituted existing aid which the Portuguese authorities would still be entitled to grant. At paragraphs 35 and 37 of the contested judgment, the Court of First Instance held that if it were to annul the contested decision because the tax reliefs granted to DAI were incompatible with the rules of the common agricultural policy, or because the approval decision were held to contain irregularities, the consequences could be of considerable interest to the applicants. In the Court's view, they could indeed have an interest in bringing legal proceedings. However, this could be established only by examining the substance of the action for annulment.

50. Lastly, the Court of First Instance rejected the second objection of inadmissibility raised by the Portuguese Government in so far as the application concerned the part of the contested decision relating to the Portuguese general tax relief scheme. The Portuguese Government submitted that the applicants were not directly and individually concerned. The Court held that where the Commission decides not to initiate the procedure provided for by Article 92(2) of the EC Treaty, the applicants can, as third parties, secure compliance with the procedural guarantees granted by this provision only if they are able to challenge that decision before the Court. Moreover, the applicants could appraise the extent to which their interests were affected only after this decision had been adopted.

51. As regards the substance, the Court of First Instance considered in turn the pleas the applicants put forward challenging the three types of aid granted, namely, tax reliefs, aid for vocational training and aid for investment under Regulation No 866/90.

52. The applicants put forward three pleas in law to challenge the tax reliefs. First, they alleged that the decision of 3 July 1991 was illegal under Article 184 of the EC Treaty (now Article 241 EC). Second, they claimed that those tax reliefs in any event represented new aid which the Portuguese Government was required to notify under Article 93(3) of the EC Treaty. Third, that aid was contrary to the common agricultural policy.

53. According to the Commission and the interveners, the applicants should have brought an action to challenge those tax reliefs before the national court since the application of an - approved - aid scheme is at issue here. They should then have relied on Article 184 of the EC Treaty in order to preclude implementation of the decision of 3 July 1991. Consequently, the applicants' first plea challenging the tax reliefs was inadmissible.

54. At paragraphs 46 to 50 the Court of First Instance held that the objection raised by the Commission could not be upheld. It considered that the interest in affording effective protection to the applicants' rights could be assured only if they had an opportunity to raise an objection alleging the irregularity of that decision in proceedings challenging the Commission decision relating to the individual aid. Such a measure alone allowed them to determine precisely the extent to which their interests were affected.

55. In the first part of the first plea the applicants claimed that a general scheme of national aid cannot be approved without the imposition of the express condition that any application of it to the agricultural sector must, in all cases, be preceded by its notification to the Commission under Article 93(3) of the EC Treaty. At paragraphs 55 to 57 of the contested judgment, the Court of First Instance rejected that part of the plea. It held that the applicants had not demonstrated that compliance with the rules applicable to the sugar sector had not been ensured by the conditions laid down in the approval decision. Furthermore, the aid granted in the sugar sector under the general scheme of tax reliefs at issue did not thereby escape Commission control, since the Commission may at any time verify the compatibility of individual aid with the approval decision and in particular with the rules applicable to the sugar sector.

56. In the second part of the first plea the applicants complained that the Commission had adopted the approval decision of 3 July 1991 under Article 93(3) of the EC Treaty without initiating the procedure under Article 93(2), which alone upholds the right of interested parties to be heard. The legitimate interests of third parties were thus not respected. This part of the plea was rejected by the Court of First Instance at paragraphs 61 to 63 of the contested judgment. The Court held that the lack of notification of State aid by the Member State concerned and the Commissions examination under Article 93(3) of the EC Treaty, together with its decision not to initiate the Article 93(2) procedure, could not be likened to a lack of transparency in the system for examining State aid. The summary examination of State aid forming part of the preliminary stage under Article 93(3) of the EC Treaty is fully justified by the need to avoid delay where the measure notified by the Member State concerned or complained about by a third party does not constitute State aid or constitutes aid compatible with the common market. The Court went on to state that the procedure also incorporates sufficient guarantees since the rights of third parties are protected by the possibility of their instituting proceedings, if appropriate, against the Commission's decision not to initiate the Article 93(2) procedure.

57. The Court of First Instance also rejected, at paragraphs 66 to 68 of the contested judgment, the third part of the first plea, which alleged that there were irregularities in the internal procedure for the adoption of the decision. The Court held that the applicants had not produced any evidence capable of raising serious doubts as to the legality of the procedure for adoption of the approval decision.

58. In the second plea the applicants alleged that the Commission failed to carry out the, in their view, mandatory examination of the individual tax reliefs for DAI in the light of Articles 92 and 93 of the EC Treaty. The Court of First Instance rejected this plea at paragraphs 72 to 75 of the contested judgment. In that regard, it referred to the Italgrani judgment in which the Court of Justice held that once a general aid scheme has been approved by the Commission, the individual implementing measures do not need to be notified to it unless reservations to that effect were expressed in the approval decision. Indeed, direct examination of each individual aid in the light of Article 92 of the EC Treaty would entitle the Commission to go back on its approval decision and would be contrary to the principles of protection of legitimate expectations and legal certainty. In the light of those principles, the Court of First Instance then held that an individual aid granted in implementation of a general aid scheme cannot in principle be regarded as an unforeseeable application of that scheme. In the case at issue, the Court of First Instance held finally that the decision of 3 July 1991 imposes no obligation to notify individual grants of aid in the sugar sector. It followed that the Commission was not entitled to examine the tax reliefs granted to DAI directly in relation to Article 92 of the EC Treaty since they were in conformity with the conditions that they must not exceed 10% of the investments made and must be compatible with the Community provisions applicable to the agricultural sector concerned, as it had found them to be in the contested decision.

59. The third plea concerning tax reliefs, based on the alleged incompatibility of such reliefs with the common agricultural policy, was rejected by the Court of First Instance at paragraphs 84 to 94 of the contested judgment. By way of preliminary observation, the Court recalled that the Commission had the power and the duty to examine only the propriety of the tax reliefs granted in this case to DAI in the light of the conditions it imposed in its approval decision and, in particular, of the rules applicable in the sugar sector. The Court went on to verify whether the tax reliefs, which were intended to facilitate the development of certain economic regions in accordance with Article 92(3)(c) of the EC Treaty, were compatible with the aims pursued by the rules applicable to the sugar production and processing sector.

60. The Court of First Instance held, following an analysis of those rules, that the tax reliefs, which were intended to promote the setting up of a beet sugar refinery in mainland Portugal, conformed with the aims pursued and the rules laid down, in connection with the common agricultural policy, by Regulation No 1785/81. It also held that the tax reliefs were compatible with the Community policy on public intervention in favour of structural actions in the field of agriculture. The Court thus concluded that the applicants' arguments concerning aggravation of the overproduction of sugar in the Community and an increase in the charges borne by the Guidance Section of the EAGGF were not such as to call into question the compatibility with the common agricultural policy in the sugar sector of the aid for the setting up of a beet sugar refinery in Portugal.

61. Finally, the Court of First Instance held that the file contained no persuasive evidence casting doubt on the viability of the beet sugar refinery receiving the aid at issue.

62. At first instance, the applicants put forward a single plea in law to challenge the aid for vocational training, namely infringement of Article 92(3)(c) of the EC Treaty. The Court of First Instance rejected this plea at paragraphs 98 to 101 of the contested judgment. The Court first held that each of the three types of aid examined in the contested decision was covered by different sets of legal provisions and must therefore be examined individually in the light of those rules and the aims which they pursue. Secondly, it observed that it is settled case-law that, in its review of legality, the Court must restrict itself to determining whether the Commission has exceeded the scope of its discretion by a manifest error of assessment or by misuse of powers. The Court held, lastly, that the applicants had put forward no argument sufficient to call into question the Commission's appraisal of the aid for vocational training. This aid would be able to contribute to the development of beet sugar production in Portugal without adversely obstructing intra-Community trade to an extent contrary to the common interest.

63. The applicants put forward two pleas to challenge the part of the decision of 11 January 1996 relating to investment aid under Regulation No 866/90. In the first plea they submitted that State aid satisfying the conditions laid down by that regulation to qualify for Community co-financing was nevertheless subject to the application of Articles 92 and 93 of the EC Treaty. In the second plea they submitted that co-financing aid for the Portuguese beet sugar sector was incompatible with the common agricultural policy under Regulation No 866/90.

64. At paragraphs 111 to 120 of the contested judgment, the Court of First Instance rejected the first of those pleas. The Court considered that the plea was essentially based on Article 44 of Regulation No 1785/81, which provides, on the basis of Article [42 of the EC Treaty (now Article 36 EC)] that [Articles 92, 93 and 94 of the Treaty] apply to production of and trade in agricultural products only to the extent determined by the Council. The Court held first of all that actions of a structural nature conducted under the auspices of the Guidance Section of the EAGGF do not fall within the scope of Regulation No 1785/81 but within that of Regulation No 866/90, which is based on Articles 42 and 43 of the EC Treaty (now Articles 36 EC and 37 EC). It concluded from the absence of any provision in Regulation No 866/90 expressly providing for the application of Article 92 of the EC Treaty to aid eligible for Community co-financing under the Guidance Section of the EAGGF that such aid must be assessed in the specific context of the common action undertaken in accordance with that regulation and cannot be the subject of examination under Articles 92 and 93 of the EC Treaty.

65. The Court of First Instance went on to observe that even if Article 44 of Regulation No 1785/81 could be interpreted as specifically providing for the application of Articles 92, 93 and 94 of the EC Treaty to every aid measure concerning sugar production and trade, it must, in any event, be applied having regard to the aims of the common agricultural policy, whose precedence over the application of the Treaty provisions relating to competition is enshrined in the EC Treaty itself, namely in Article 42 thereof.

The application of Articles 92 and 93 of the EC Treaty to aid eligible for Community co-financing in the context of Regulation No 866/90 would be liable to frustrate the realisation of certain aims of the common agricultural policy through specific structural action undertaken in conformity with the criteria laid down in Decision 94/173, which establishes priorities for co-financing of investments covered by that regulation. In this regard the Court observed that Regulation No 866/90 itself ensures consistency with the common agricultural policy of investment aid co-financed by the Community and the Member State concerned under that regulation. The Court concluded that the application of Article 92 of the EC Treaty to investment aid eligible for Community co-financing under Regulation No 866/90 is incompatible with the precedence over the rules on competition accorded by the Treaty to the common agricultural policy. On those grounds, the Court held that such aid was not subject to the application of Article 92 of the EC Treaty.

66. Lastly, at paragraph 124 of the contested judgment, the Court of First Instance held that the applicants' second plea in law was based essentially on the argument that the investment aid at issue was excluded by Regulation No 866/90 because it was incompatible with the common agricultural policy and could not be based on Decision 94/173, which was itself incompatible with that policy. The Court merely pointed out in that regard that aid granted with a view to utilising the quota allocated to mainland Portugal was not incompatible with the aims of the common agricultural policy. That plea could not therefore be upheld.

67. The Court of First Instance ruled that the action for annulment must be dismissed as unfounded in its entirety.

IV - The proceedings before the Court of Justice and the forms of order sought by the parties

68. By document lodged at the Registry of the Court of Justice on 27 August 1999, the applicants brought an appeal against the contested judgment.

69. They claim that the Court should:

- declare the appeal admissible;

- set aside the contested judgment to the extent required by the appeal;

- annul the decision of 11 January 1996 addressed to the Portuguese Government or, in the alternative, refer the case back to the Court of First Instance in accordance with Article 54 of the EC Statute of the Court of Justice;

- order the Commission to pay the costs of both proceedings.

70. The Commission contends that the Court should:

- set aside paragraphs 35 to 95 of the contested judgment and decide that the application was inadmissible in so far as it was directed against the Commission letter dated 11 January 1996 relating to the tax reliefs; failing which

- set aside paragraphs 35 to 41 and 46 to 50 of the contested judgment but confirm the remainder of the judgment; failing which

- set aside the words in their view contained in paragraph 36 of the contested judgment and such other parts of the judgment the Court considers appropriate, and decide on the pleas of admissibility raised by the Commission but dismissed by the Court of First Instance;

and

- dismiss the appeal as manifestly inadmissible and/or unfounded without opening the oral procedure and order the appellants to bear the costs;

or

- dismiss the appeal and order the appellants to bear the costs.

71. The Portuguese Republic contends that the Court should:

- uphold the contested judgment;

- dismiss the appeal against that judgment in its entirety.

72. DAI contends that the Court should:

- dismiss the appeal as inadmissible with respect to the first and second limbs of the first plea, the second and third limbs of the second plea, the fourth plea and the sixth plea;

- dismiss the remainder of the appeal as unfounded; and

- order the appellants to pay the costs of both proceedings,

or, in the alternative:

- dismiss the appeal in its entirety as unfounded; and

- order the appellants to pay the costs of both proceedings.

V - Pleas in law and arguments of the parties and their appraisal

A - Preliminary remarks

1. The economic relationships

73. In analysing and appraising the pleas by ARAP c.s. and the Commission set out below, it should be borne in mind that the set of facts to which they relate is characterised by an unmistakable internal relationship.

74. The case essentially concerns investment in a sugar refinery intended for the production of a quota of 70 000 tonnes of beet sugar which was allocated to mainland Portugal in tranches of 60 000 tonnes (by the Act of Accession) and 10 000 tonnes (by Regulation No 1599/96) respectively. Around 75% of the eligible investments were financed using public funds which originate in part from the Community in the form of investment contributions from the Guidance Section of the EAGGF and in part from a system of national aid measures. (See for more details paragraph 38 above.)

75. The diverse nature of the sources of public finance, which are governed by different Community and national laws, does not alter the fact that from a business and micro-economic point of view these - in legal terms - heterogeneous aid measures are homogeneous in terms of their result: the question whether the sugar refinery is viable also depends on the total amount of investment aid, and the question whether the public aid measures unlawfully distort the conditions of competition can be assessed solely on the basis of the sum total of the aid granted.

76. As has already been noted above, the Community legislature was fully aware of this economic relationship. It can be seen in Regulation No 1785/81, which was amended on two occasions, first on Portugal's accession and then again in 1996. It is also evident from the system of the rules which govern the actions of the Guidance Section of the EAGGF as regards Community policy to strengthen economic and social cohesion (Articles 130a to 130e of the EC Treaty, now Articles 158 EC to 162 EC) and from the quasi-statutory guidelines for examining State aid for investments for the processing and marketing of agricultural products, as set out in paragraphs 19 to 25 above.

2. Approach to the pleas in law

77. To avoid losing sight of the legislative and substantive economic relationships which are so characteristic of this case, I will deal with the various pleas in groups when analysing and assessing the individual pleas in law.

78. The first three pleas of ARAP c.s. raise questions of law concerning the Commission's approval of Portuguese Decree-Law 95/90 by approval decision of 3 July 1991 and the application of this decree-law to the grant of investment aid for the setting up of a sugar refinery in Portugal.

79. The fifth and sixth pleas of ARAP c.s. raise questions of law concerning the interpretation and application of Regulation No 866/90.

80. The fourth plea of ARAP c.s. raises the question of principle, set out at paragraph 2 above, as to whether, where various, already approved, national aid schemes are allocated in combination to a project to which a Community contribution has also been made, their cumulative effect must be examined separately and reasons must be stated. In analysing and assessing this question of law certain elements which arise from the assessment of the other pleas of ARAP c.s. may appear important. Therefore, the fourth plea will be considered last.

81. The pleas which the Commission puts forward to challenge the parts of the contested judgment assessing the admissibility of the action brought by ARAP c.s. at first instance will be dealt with after the pleas raised by ARAP c.s. These pleas are based primarily on the contention that the parts of the letter of 11 January 1996 relating to the tax reliefs under Decree-Law 95/90 are purely informative and not directed at any legal consequence. Since the question of the legal nature of the relevant parts of the letter is also raised in the second plea of ARAP c.s., the Commission's pleas can best be assessed in the light of a prior assessment of that plea.

B - The admissibility of the appeal

82. The Commission and DAI claimed that the Court should declare the appeal inadmissible in its entirety. They contend that the pleas put forward do not clearly indicate the contested parts of the judgment or the legal arguments on which they are based. They contend that in reality they merely repeat the pleas in law raised at first instance and seek a re-examination of the application submitted to the Court of First Instance.

83. The Commission's contention is based on judgments in which the Court has held that an appeal is not admissible where it ... confines itself to repeating or reproducing word for word the pleas in law and arguments previously submitted to the Court of First Instance, including those based on facts expressly rejected by that Court; in reality, such an appeal amounts to no more than a request for a re-examination of the application submitted to the Court of First Instance, a matter which falls outside the jurisdiction of the Court of Justice ... .

84. As Advocate General Jacobs stated in his Opinion in Salzgitter v Commission, this formula must be applied cautiously. It is apparent from the case-law that it is intended only to ensure that an appeal is formulated correctly and does not aim in reality at a retrial of the case. The repetition of several arguments already used at first instance does not of itself imply that the appeal fails to comply with those requirements. That is particularly true in cases such as the present where the Court of First Instance upholds decisions of a Community institution on the basis of the same or similar interpretation of Community law as the defending institution. If in such a case an appellant could not rely in its appeal on arguments already used when challenging the initial decision, the appeal procedure would be deprived of its meaning. The Court confirmed, at paragraphs 42 to 44 of the judgment in the abovementioned case, the abovementioned understanding of Advocate General Jacobs.

85. Since in the present case the appeal states clearly which aspects of the contested judgment are criticised and the legal arguments which specifically support the appeal, this appeal is admissible in its entirety.

C - The approval decision of 3 July 1991

86. Central to the first three pleas is the Commission's approval decision of 3 July 1991. The first plea raises the question whether the approval decision ought to have been given in this form. The applicants consider that the Court of First Instance was wrong to hold that the general condition attached to this decision, that is to say that the application of Decree-Law 95/90 must comply with the provisions of Community law relating to certain industrial, agricultural and fisheries sectors, also adequately safeguards compliance with the rules applicable to the sugar sector. The second and third pleas are directed at certain conclusions which the Court of First Instance drew in this case from its view that the imposition of a general condition could be sufficient.

87. However, before I come to an assessment of these three pleas and the arguments of the parties and interveners in that regard, I would like to make a preliminary comment in the light of the contested judgment and the case-file at first instance.

88. The conditions attached to the approval decision at issue are set out as follows at paragraph 15 of the contested judgment:

The scheme introduced by Decree-Law 95/90 was approved pursuant to Article 92 of the EC Treaty by Commission decision of 3 July 1991 ... , subject to the condition that the individual aid was in conformity with "the rules and guidelines laid down by Community law in relation to certain industrial, agricultural and fisheries sectors". The approval decision also requires the Portuguese Government to notify "all projects enjoying reliefs of between 10 and 20% (ESL) and all those in sensitive sectors". That general aid scheme remained in force until 31 December 1995. By decision notified to the Portuguese Government on 30 May 1996 the Commission approved the extension of the scheme under the same conditions until 1999, but removed the obligation to give notice of projects in sensitive sectors, which was no longer mentioned.

89. The file at first instance shows that the decision, which was notified to the Portuguese Government on 11 January 1996 and in which inter alia approval was given for the aid to DAI under Decree-Law 95/90, was taken by the Commission on 20 December 1995. I therefore conclude that this decision on the application of Decree-Law 95/90 still comes within the scope of the approval decision of 3 July 1991 and must be examined in relation to the conditions attached to that decision.

90. Neither the contested judgment nor the documents exchanged in the present proceedings show that the parties paid any attention to the particular condition attached to the approval decision of 3 July 1991 relating to the obligation always to notify proposals to grant aid under Decree-Law 95/90 in sensitive sectors.

Even the Court of First Instance disregards this particular condition in its analysis and assessment of the pleas raised by ARAP c.s. at first instance.

91. There are good grounds for concluding from the characteristics of the sugar sector set out above at paragraphs 4 to 7 that it is an extremely sensitive sector. This finding is confirmed in Articles 44 and 46 of Regulation No 1785/81 which show that the Community maintains, in respect of the sugar sector, a very restrictive aid scheme which in principle permits no aid for the processing of sugar beet and sugar cane other than under Article 46 of that regulation. It does not actually mention State aid for the establishment of a sugar refinery in Portugal.

92. Both these facts make plausible the conclusion that the Portuguese authorities, who were acting pursuant to the approval decision of 3 July 1991, should, in any event, have notified to the Commission aid granted under Decree-Law 95/90 for the setting up of a sugar refinery.

93. It is evident from paragraphs 54 to 74 of the contested judgment that the Court of First Instance understood and interpreted the approval decision of 3 July 1991 as not including the particular condition that aid for sensitive sectors must always be notified. This omission is all the more striking since the approval decision is reproduced in full at paragraph 15 of the contested judgment.

94. Since the Court of First Instance gives no explanation at all in the contested judgment as to why it understood and interpreted the approval decision as not including the abovementioned particular condition, the parts of the judgment relating to the approval decision are based on incomplete and therefore defective reasons.

95. Although the parties at first instance also disregard the abovementioned particular condition in their pleas and arguments, the Court of First Instance should have considered it of its own motion. This condition attached to the approval decision touches upon the powers of the Commission which it exercises pursuant to Articles 92 and 93 of the EC Treaty.

96. In so far as the individual implementing measures under Decree-Law 95/90 satisfy the general conditions attached to them by the approval decision, they must be regarded as existing aid within the meaning of Article 93(1) of the EC Treaty. The Commission's review is limited to a - non-systematic - examination of whether or not these conditions are complied with when the abovementioned decree-law is implemented. However, individual implementation measures which do not satisfy the general conditions - aid projects in which the tax reliefs amount to over 10% of the investments made and aid projects in sensitive sectors - must be notified to the Commission. The obligation to give notice makes them new aid which is covered by the Commission's powers under Article 93(2) and (3).

97. As the Court of Justice has again recently ruled in Salzgitter v Commission, cited above, where a finding touches on the competence of the Commission it must be raised by the Court of its own motion even though none of the parties has asked it to do so.

98. Moreover, the context and scope of the provision, and the circumstances of the case, indicate that the Court should conduct an examination of its own motion.

- After all, a provision is concerned which by its nature seeks to serve an essential Community objective, namely to safeguard uniform conditions of competition on the common market. This objective is particularly vulnerable in the case of State aid in sensitive sectors.

- The provision also seeks to protect the interests of third parties. They are almost always at issue in the case of aid in sensitive sectors.

- The non-compliance with the provision is manifest. Both the Court and third parties can see without difficulty that it has been infringed.

99. It follows from the foregoing that since the Court of First of Instance failed to do so, the Court of Justice must, in the appeal, consider of its own motion the question whether the Portuguese Government should have notified its intention to apply Decree-Law 95/90 in the case of the aid granted to DAI, in accordance with the condition attached to the decision granting relief. To that end, I refer to the Opinion of Advocate General Jacobs in Salzgitter v Commission, cited above, paragraphs 141 to 143 and, in particular, 148: One of the main functions of the appeal procedure, which is limited to points of law only, is precisely to ensure that the principle of legality is respected.

100. In my appraisal of the second plea in law below, I will examine in more detail how the relevant provision of the approval decision of 3 July 1991 must be interpreted in this case and the conclusions which must be drawn from the non-compliance therewith.

D - The first three pleas in law of ARAP c.s.

1. The first plea in law

(a) Arguments of the parties

101. In their first plea the applicants contend that the Court of First Instance erred in law by holding that the approval decision of 3 July 1991 ensured proper compliance with the rules applicable to the sugar sector. The general condition, contained in this decision, that the application of Decree-Law 95/90 must comply with Community law relating to certain industrial, agricultural and fisheries sectors is too imprecise and too general to safeguard adequately the interests of the common agricultural policy and of sensitive sectors such as the sugar sector.

102. They contest the view, expressed by the Court of First Instance at paragraph 56 of the contested judgment, that the power of the Commission under Article 93(1) of the EC Treaty provides sufficient safeguards to ensure that the application of the approved general aid scheme is compatible with the rules applicable to the sugar sector. The Commission's powers under Article 93(1) of the EC Treaty cannot be regarded as an appropriate alternative to the procedures provided for by Article 93(2) and (3) of the EC Treaty. Article 93(1) of the EC Treaty makes no provision for suspending implementation of a general aid scheme. Moreover, the position of third parties is substantially weaker in the case of constant review under Article 93(1) of the EC Treaty than it is in the case of the application of Article 93(2) and (3) of the EC Treaty.

103. The Commission agrees with paragraphs 55 to 57 of the contested judgment. It considers that it is entitled to approve general national aid schemes. The distinctive feature of such a general aid scheme is that the individual aid measures can be adopted by the Member States without prior notification to the Commission under Article 93(3) of the EC Treaty.

(b) Appraisal

104. It is established that the Commission may approve general aid schemes as part of the review of State aid granted by Member States which it is required to carry out under Articles 92 and 93 of the EC Treaty. In accordance with a consistent policy it has examined and approved a large number of such general aid schemes over the years. The legal consequences of such approval have been considered in the case-law of the Court on several occasions. In this case-law the Commission's power to declare a general national aid scheme compatible with the Treaty has always been upheld.

105. Nor is there any doubt that the Commission, where it approves general national aid schemes, may attach general or more specific conditions to them in order to ensure that the individual application of the relevant aid measures is consistent with Community law and policy in the relevant sector and in the relevant field of policy. It is thus ensured that Community policy pursuant to Articles 92 and 93 of the EC Treaty remains consistent with the policy pursued by the Community in other areas.

106. The Commission enjoys a certain discretion in formulating the conditions which it attaches to the approval of a general national aid scheme. However, its discretion is limited by the requirements which stem from the need to maintain the necessary internal cohesion of Community policy.

107. I note here that the protection of vulnerable interests or sensitive sectors does not per se require that specific conditions centering on such interests or sectors be attached to the approval of a general aid scheme. If, with that in mind, the Commission considers that it is sufficient to lay down one or more general conditions, it must ensure that the conditions laid down are complied with in such a way that no harm comes to the vulnerable interests or sensitive sectors protected by the Community rules to which the general conditions refer.

108. Naturally, the Commission may also attach to its approval of a general national aid scheme specific conditions aimed at protecting such vulnerable interests or sensitive sectors. Such conditions may include the obligation to give notice of every individual aid granted under the approved general aid scheme relating to the relevant vulnerable policy area or sensitive sector, of which an assessment must then be made pursuant to Article 93(2) and (3) of the EC Treaty.

109. When choosing one of the methods described above for examining the implementation of approved general national aid schemes, considerations of legislative economy - as emphasised by the Portuguese Government - or effectiveness of implementation can play a role. However, as long as it is probable that the method selected will adequately ensure that the individual aid measures are compatible with Community rules to protect vulnerable interests, such as environmental interests, or sensitive sectors, such as the sugar sector in this case, it will not be contrary to the relevant Community law.

110. The finding, contained in paragraphs 55 to 57 of the contested judgment, that compliance with the rules applicable to the sugar sector can be ensured by the general condition, attached to the approval decision, that individual aid must be consistent with the Community rules concerning, in particular, the agricultural sector, is therefore not per se contrary to Community law.

111. This conclusion is not altered by the applicants' argument that such a general condition results in the legal position of third parties being weaker where the approved aid scheme is applied individually than where certain cases of sectoral aid always have to be notified to the Commission.

112. In the case of obligatory notification of individual cases of the application of an approved general aid scheme, third parties can indeed make their objections known prior to the actual application of that measure, whereas they have no such opportunity where only the general condition requiring conformity with existing sectoral Community rules is attached to the approval of a general aid scheme. However, in that case too they are able to assert their interests. They can complain to the Commission about the application of an approved national aid scheme which they consider to be contrary to the Community rules referred to in the general condition. Moreover, they can bring an action against such application before the national courts on the ground that the national authorities have failed to comply with the relevant Community provisions.

113. This change in the procedural position of possible third parties occurs whenever the Commission decides to approve a general aid scheme. As such it does not frustrate the Commission's policy, which has existed since the early 1970s, of approving general forms of national aid with the result that, where the Commission has granted approval, no prior notification is necessary for the individual application of the approved scheme. The fact that third parties may have a particular interest where approved general aid schemes are applied individually, does not oblige the Commission to take account of it beforehand in the formulation of its approval decision. The imposition of such a requirement would impose a disproportionate burden on a long-standing, generally accepted policy.

114. In the light of the foregoing, I conclude that the applicants' first plea in law must be dismissed as unfounded.

115. With reference to my comments at paragraphs 86 to 100, I should also point out that this plea is actually misplaced since it gives the impression that only the contested general condition was attached to the approval decision of 3 July 1991. However, this does not alter the conclusion that the plea is unfounded.

2. The second plea in law

(a) Arguments of the parties

116. In their second plea the applicants complain that the Court of First Instance held, contrary to Community law, at paragraphs 72 to 75 of the contested judgment, that the Commission was not entitled to examine the individual application of the approved general aid scheme for compatibility with Article 92 of the EC Treaty. They submit that, on the contrary, the Portuguese Government was under an obligation to notify the aid scheme at issue and the Commission is under an obligation to examine the scheme in accordance with the procedure provided for by Article 93(2) and (3) of the EC Treaty.

117. In support of this plea they submit that the Court of First Instance misinterpreted the exception to the obligation to give notice which follows from Italgrani. In their view, the exception which that judgment makes to the obligation to give notice must be interpreted strictly as meaning that the individual applications of an approved aid scheme escape the procedure provided for by Article 93(2) and (3) of the EC Treaty only in so far as they constitute the mere and foreseeable application of this scheme. However, where they constitute individual aid schemes which have also to be assessed in the light of other factors than the general aid scheme itself, or where they might exacerbate existing market imperfections such as excess capacity, the applicants consider that the obligation to notify such aid schemes remains.

118. The applicants submit that in this case the individual application of the approved general aid scheme to the aid granted to DAI satisfies the criteria under which prior notification is required. The Court of First Instance therefore infringed Community law by not accepting this interpretation of Italgrani.

119. The Commission rejects the interpretation of Italgrani put forward by the applicants. Once it has approved a general aid scheme, the Commission cannot open the procedure under Article 93(2) of the EC Treaty in relation to individual aid granted under the approved scheme, unless, exceptionally, it has first ascertained that the individual aid was not in fact covered by the terms of the approved scheme.

(b) Appraisal

120. It appears to me that the second plea in law is in fact well founded, albeit on the basis of different arguments from those put forward by the applicants.

121. I agree with the Commission that it follows from Italgrani, which was confirmed inter alia by Siemens v Commission, that cases of individual application of an approved general aid scheme are not subject to the procedure set out in Article 93(2) of the EC Treaty if they satisfy the conditions laid down in the relevant approval decision.

122. I am not convinced by the applicants' attempts to limit the scope of the rule laid down in Italgrani. The restrictive criteria which they put forward, such as individual cases of application which could not be foreseen at the time of approval and/or cases in which an assessment must take place on account of interests and aspects other than those taken into account in the approval decision, are, in my view, unacceptable. Since they are vague, insufficiently objective and inadequately foreseeable in terms of their application, they undermine the ratio in Italgrani, that is to say, the legal certainty and legitimate expectations which third parties derive from the Commission's approval of a general aid scheme.

123. Nevertheless, I consider that in the present case the application of Decree-Law 95/90 in connection with the grant of fiscal assistance to DAI should, in any event, have been notified to the Commission on the basis of the approval decision.

124. As already stated at paragraphs 86 to 100, the application of Decree-Law 95/90 to the project in question should, in any event, have been notified if it was likely that investment in a sensitive sector was involved. Both the European sugar market and the Portuguese part of the market display the objective economic characteristics of markets which are extremely sensitive to State aid. That is certainly so in the case of State aid aimed at increasing sugar production capacity on the European market and the national market which forms part of that market.

125. The sensitivity to distortions is also expressed in the relevant Community legislation on the sugar market. In that respect I have referred above (paragraph 26) to Articles 44 and 46 of Regulation No 1785/81 and to the extremely restrictive policy which the Commission has consistently pursued in respect of State aid for sugar production. The fact that a sector which is extremely sensitive to distortion is involved is also evident from Decision 94/173 which limits the application of financial measures to strengthen economic and social cohesion in the sugar sector to two cases set out in Annex 2.8, which include the investments in Portugal in question.

126. A reasonable interpretation of the conditions attached to the approval decision of 3 July 1991 would be, in respect of the sugar sector, that it follows from the general condition that the aid measures must be in conformity with the rules and guidelines laid down by Community law in relation to [agriculture] that in principle no aid for investment in the sugar sector was permitted. If the Portuguese Government had nevertheless wished to use Decree-Law 95/90, it should have notified its intention to do, as it related to a sensitive sector.

127. This conclusion is not altered by the exemptions made in respect of investment in the Portuguese sugar sector in Decision 94/173 and in the guidelines of 1996. The Commission could not have taken them into account when adopting the approval decision in 1991. Moreover, although these decisions provide some guidance as to the possible permissibility of public aid for the investment concerned, they contain no indication of any exemption from the obligation to give notice attached to the approval decision.

128. In the light of the foregoing, I conclude that the Court of First Instance incorrectly interpreted the approval decision in finding that the intention to apply Decree-Law 95/90 did not have to be notified.

129. In the alternative, I would point out that the Court's finding, in the final sentence of paragraph 74 of the contested judgment, that the tax reliefs are in conformity with the two abovementioned conditions [of the approval decision], is incorrect.

130. According to the general conditions attached to the approval decision, cases in which tax relief of between 10 and 20% is granted under Decree-Law 95/90 must always be notified. In the present case, pursuant to the decree-law, DAI was granted aid in the form of a 10% tax relief. Therefore, notification would appear, prima facie, not to be necessary.

131. However, it is evident from the outline of the total public, Community and national aid set out at paragraph 38 above that the total amount of national Portuguese aid for DAI's investment amounts to around 25% of the eligible aid, albeit that 15% of this total amount was granted under national rules other than Decree-Law 95/90.

132. It would be contrary to the ratio of the condition requiring notification of all cases in which tax relief of over 10% is granted under Decree-Law 95/90, if the obligation to give notice did not apply to cases in which the application of the decree-law amounted, together with aid under other national rules, to - much - more than 10%.

133. Such a restrictive interpretation is difficult to defend from an economic point of view. The economic effect of an investment aid of 20% under Decree-Law 95/90 is precisely the same as a similar investment aid, 10% of which is granted under this decree-law and another 10% of which is granted under other national rules. Moreover, such an interpretation might encourage the spreading of - excessive - amounts of State aid across various national aid schemes in order to escape the obligation to give notice and, in addition, seriously impede the Commission's monitoring of compliance of approved national aid schemes.

134. Lastly, I consider that the combined application of national aid schemes, which result in aid granted in an individual case being considerably higher than the maximum which may be given under an approved general aid measure without notification, is contrary to what was intended in Italgrani. According to that judgment, cases of individual aid measures which are implemented entirely within the margins of previously approved general aid schemes are not subject to the procedure provided for in Article 93(2) and (3) of the EC Treaty. However, the protection of legal certainty and legitimate expectations of the persons concerned in the case of an unamended application of the approved scheme cannot go so far as to exempt from closer examination by the Commission individual cases of State aid in which the total of the aid granted in each case - far - exceeds the bounds of that scheme.

135. Therefore, the Court of First Instance should have held that, since Decree-Law 95/90 was applied in combination with other aid measures and the total investment aid granted to DAI far exceeded the relevant 10% threshold, the application had to be notified.

136. Furthermore, I would like to draw attention to the following. The Portuguese Government has observed that the application of Decree-Law 95/90 to the grant of investment aid to DAI should be regarded as an aid measure which is subject to conditions or rules concerning granting which differ from those provided for in this Regulation, or, where the amounts of aid exceed the ceilings specified herein within the meaning of Article 16(5) of Regulation No 866/90. Under this article, the Member States may take such aid measures on condition that they comply with Articles 92, 93 and 94 of the Treaty. In order to have that established by the Commission in this case, it notified to the Commission its intention to apply Decree-Law 95/90.

137. Article 16(1) to (4) of Regulation No 866/90 lays down the rates of Community aid and the rules governing its grant for projects eligible for financing by the Guidance Section of the EAGGF. They fix inter alia ceilings for Community contributions, the minimum level of national co-financing, the minimum contributions from recipients and the form in which contributions or subsidies are to be granted. Article 16(5) supplements them.

138. It must be concluded from the scheme of Article 16 that State aid granted in derogation from or in addition to the amounts set out in Article 16(1) to (4) must be examined separately, case by case, in relation to Articles 92, 93 and 94 of the EC Treaty. It is obvious that such examination must be carried out in the context of the, for the most part, already large Community and national contributions which have been made pursuant to Article 16(1) to (4). Only then is it possible to assess the possible effects of the additional State aid both on the aims pursued by Regulation No 866/90 and the functioning of the common market in the relevant sector. Article 16(5) of Regulation No 866/90 would largely be deprived of its intended effect if it were not applicable to aid granted under previously approved general aid schemes in addition to the contributions made under Article 16(1) to (4).

139. Therefore, it follows that in the event that additional national aid is granted under a previously approved general aid scheme, notification must always take place where, in the relevant case, that aid has been combined with national and Community contributions or subsidies in pursuance of the policy to strengthen economic and social cohesion in the Community. Consequently, the Portuguese Government correctly took the decision to notify to the Commission the application of Decree-Law 95/90 to investment aid for DAI, because it was combined with Community and national contributions under Regulation No 866/90.

140. It follows from the foregoing that at paragraph 74 of the contested judgment the Court of First Instance held, contrary to applicable Community law, that the Commission was not entitled to examine the tax reliefs granted to DAI under Decree-Law 95/90 directly in relation to Article 92 of the EC Treaty.

141. It follows that the second plea in law is well founded.

3. The third plea

(a) Arguments of the parties

142. In their third plea the applicants contest the finding of the Court of First Instance, at paragraphs 84 to 94 of the contested judgment, that the individual application of Decree-Law 95/90 to the sugar industry is not incompatible with the aims of the common agricultural policy.

143. In support of this plea they put forward the following arguments:

(a) unlike the Act concerning the conditions of accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden, the Act of Accession relating to the Portuguese Republic does not contain any exception under which Portugal could grant aid to the sugar industry. In the absence of such an exceptional entitlement in the Act of Accession, it must be concluded that the provisions relating to the common organisation of the sugar market, as laid down in Regulation No 1785/81, apply to the Portuguese sugar industry. These provisions prohibit the grant of aid for the processing of sugar beet and sugar cane unless specifically permitted in Article 46 of the abovementioned regulation;

(b) according to the applicants, it is evident that the aid granted under Decree-Law 95/90 constitutes an infringement of the common market in sugar and of Article 92(1) of the EC Treaty. Such aid contributes to the creation of an entirely artificial sugar producer, distortion of competition on the sugar market, and an increase in overproduction on the common market in sugar. In particular, the Court of First Instance erroneously ruled, at paragraphs 89 and 91 of the contested judgment, that the grant to Portugal of a sugar quota establishes an entitlement to grant State aid for the setting up of a sugar refinery in mainland Portugal;

(c) the references which the Court makes at paragraph 90 of the contested judgment to Regulation No 866/90 and Decision 94/173 do not support the conclusion that the aid concerned is compatible with the common organisation of the sugar market. The applicants contend that Decision 94/173 is unlawful in so far as it makes investment in the Portuguese beet sugar industry eligible for Community co-financing. In the view of the applicants, the Commission was wrong to establish in its decision a link between the grant to Portugal of a sugar quota of 60 000, and subsequently 70 000, tonnes, and its eligibility for Community co-financing for the necessary processing capacity. This error is perpetuated in the Commission Guidelines for state aid in connection with investments in the processing and marketing of agricultural products which in principle permit national aid for the setting up of a sugar refinery in mainland Portugal.

144. On the basis of these arguments the applicants submit that, in the abovementioned paragraphs, the Court of First Instance incorrectly interpreted and applied the provisions of the Treaty relating to agriculture (Article 39 of the EC Treaty (now Article 33 EC)) and to aid (Article 92 of the EC Treaty (now Article 87 EC)) and Regulation No 1785/81.

145. The Commission contests the applicants' first argument, stating that in the present case no argument against the application of Decree-Law 95/90 can be derived from the differences between the Portuguese Act of Accession, on the one hand, and the Finnish and Austrian Act of Accession, on the other. The legal basis for the applicability of the decree-law is the approval decision of 3 July 1991, which in turn is based on Article 92(3)(a) of the EC Treaty.

146. The Commission contests the applicants' second and third arguments, by stating that Regulation No 866/90 and Decision 94/173 are an integral part of the common agricultural policy. Therefore, Regulation No 1785/81 - which actually provides for a very restrictive scheme for the sugar sector - must be interpreted in the context of this regulation and decision. Moreover, the Commission points out that Regulation No 866/90 and Decision 94/173 seek to strike a balance between the restrictive sectoral policy applicable to aid in the sugar sector and the regional policy objectives pursued by this regulation and decision. Having regard to that balance, Portugal could reasonably be entitled to grant aid for the setting up of a sugar refinery to process the sugar quota allocated by the Act of Accession.

(b) Appraisal

147. The applicants essentially argue that the restrictive provisions of Regulation No 1785/81 relating to State aid in the sugar sector mean that any national aid is per se contrary to Community law on the sugar sector, even where it is expressly permitted under other provisions of Community law, in this case Regulation No 866/90 and Decision 94/173.

148. The first argument which the applicants put forward in support of this plea is manifestly incorrect. The fact that in the Act of Accession Portugal is not authorised to grant aid to the sugar industry does not mean that this Member State cannot be authorised after accession to grant investment aid for the setting up of a sugar refinery, provided that such aid is consistent with the relevant Community law and policy.

149. The second and third arguments, that the common organisation of the sugar market laid down in Regulation No 1785/81 in any event precludes national aid for the setting up of a sugar refinery in Portugal, are also untenable.

150. The characteristics of the common market in sugar do in fact justify the pursuit by the Community legislature of a very restrained policy on State aid for the sugar sector. However, it cannot be inferred either from Article 39 of the EC Treaty or Regulation No 1785/81 that any aid not covered by the cases set out in Article 46 of this regulation is impermissible. Nor can any argument be derived from that provision to challenge the lawfulness of detailed Community rules which, in a restrictive number of cases including the present one, authorise investment aid.

151. The contrary view fails to appreciate that the common agricultural policy seeks to attain more objectives than the establishment and maintenance of balance on the relevant product markets. Article 39(2) of the EC Treaty (now Article 33(2) EC) stipulates that this policy must take account of the particular nature of agricultural activity, which results inter alia from the structural and natural disparities between the various agricultural regions.

152. Moreover, the applicants' view is contrary to the meaning and scope of Articles 130a and 130b of the EC Treaty (now Articles 158 EC and 159 EC). The second paragraph of Article 130a of the EC Treaty provides that the Community is, in particular, to aim at reducing disparities between the levels of development of the various regions, including rural areas. Under Article 130b of the EC Treaty, the Community must take into account the objectives set out in Article 130a in formulating and implementing its policies and in implementing the internal market.

153. Accordingly, it was possible for Regulation No 866/90, which is based on Articles 42 and 43 of the EC Treaty and also forms part of the body of Community rules to implement the policy of strengthening economic and social cohesion, to provide that public - Community and national - aid may be granted for projects to improve the processing and marketing of agricultural products. The balance between sectoral and regional interests which must be struck in that respect, as reflected in Decision 94/173, is likewise not contrary to Community law applicable to the sugar sector.

154. In the light of the foregoing, I conclude that the Court of First Instance was able to rule that the application of Decree-Law 95/90 to investments in the sugar sector is not as such incompatible with the objectives of the common agricultural policy, as developed in the applicable Community rules.

E - The fifth and sixth pleas in law

155. The fifth and sixth pleas are directed at what the applicants consider to be an incorrect interpretation by the Court of First Instance of Regulation No 866/90 and the incorrect examination of the Portuguese aid in relation to this regulation at paragraphs 111 to 120 and paragraph 124 of the contested judgment.

1. The fifth plea in law

(a) Arguments of the parties

156. In their fifth plea, the appellants contend that the Court of First Instance erred in law by deciding that aid eligible for Community co-financing was not subject to the application of Articles 92 and 93 of the EC Treaty.

157. They maintain that Community co-financing of investments in the agricultural sector is only permissible where the national aid measures concerned do not conflict with the common agricultural policy, do not jeopardise its objectives, and can be exempted from the prohibition laid down in Article 92(1) of the EC Treaty.

158. The applicants add that it is by no means certain whether a national decision to grant aid for a project which may be eligible for co-financing will be followed by a Community decision that this is in fact the case. What, the applicants ask, is the legal situation pending the Community decision on the application for co-financing?

159. Furthermore, the applicants stress that neither Regulation No 1785/81 nor Regulation No 866/90 contain any provision which supports the conclusion that the applicability of Articles 92 and 93 of the EC Treaty, which was expressly provided for by Regulation No 1785/81, has been revoked by Regulation No 866/90. Moreover, it cannot be assumed that Regulation No 866/90 excludes the applicability of Articles 92 and 93 of the EC Treaty to State aid co-financed by the Community. In the absence of a clear position in that regard on the part of the Council, which expressly provided for the applicability of Articles 92 and 93 of the EC Treaty to the sugar sector in Regulation No 1785/81, the Court's reasoning by contrary inference at paragraphs 113 and 114 of the contested judgment, which is based on Article 16(5) of Regulation No 866/90, is not well founded. A decision of such significance and importance requires the legislature to adopt an express position.

160. The Commission stresses that the question of the applicability of Articles 92 and 93 of the EC Treaty to State aid eligible for Community co-financing must be answered in the light of the scheme of the applicable legislation. It points out that both Regulation No 1785/81 and Regulation No 866/90 are based on Articles 42 and 43 of the EC Treaty. They must therefore be read in relation to each other. The Commission concludes from the relationship between Article 44 of Regulation No 1785/81 and Article 16(5) of Regulation No 866/90 that the Council has provided that the provisions of the Treaty relating to State aid do indeed apply to State aid which goes beyond the framework laid down in Regulation No 866/90, but not to the measures for which Regulation No 866/90 makes express provision. Consequently, the measures provided for by Article 16(1) to (4) of Regulation No 866/90 do not necessitate a decision as to the applicability of Articles 92 and 93 of the EC Treaty.

(b) Appraisal

161. This plea essentially raises the legal question as to whether or not the Community legislature sought to exclude from the application of Articles 92 and 93 of the EC Treaty State aid in the sugar sector which was eligible for Community co-financing.

162. In answering this question the Court of First Instance applied, at paragraphs 113 and 114 of the contested judgment, an interpretation based on the scheme of the law. This is based on the fact that both Regulation No 1785/81 and Regulation No 866/90 have Articles 42 and 43 of the EC Treaty as their legal basis. It follows from Article 42 of the EC Treaty that Articles 92, 93 and 94 of the EC Treaty apply to agricultural products only in so far as the Council so determines. Since the - later - Regulation No 866/90 declares Articles 92, 93 and 94 only applicable to the aid measures defined in Article 16(5) of that regulation, it must be concluded, according to the Court, that these articles of the Treaty do not apply to the aid from the EAGGF defined in Article 16(1), (2) and (3) or the national contributions which complement it.

163. These arguments of the applicants challenging the reasoning of the Court of First Instance are based in part on the economic conditions on the sugar market, which are characterised by overcapacity, and in part on the restrictive provisions on State aid contained in Articles 44 and 46 of Regulation No 1785/81 and the restrictive policy which the Commission has always pursued in respect of State aid in the sugar sector.

164. As has already been noted above in the appraisal of the third plea in law, the applicants' view overlooks the fact that Regulation No 866/90 does indeed have Articles 42 and 43 of the EC Treaty as a basis, but in functional terms forms part of the set of rules which seeks to strengthen economic and social cohesion. This policy seeks to reduce geographical differences in prosperity within the Community inter alia by means of aid from the Structural Funds. Under that policy a balance must be achieved between the interests of sectoral policy, such as that relating to the sugar sector, as against those of regional economic policy.

165. The abovementioned balance by the Community legislature is reflected in Regulation No 866/90 and Decision 94/173 which is based thereon. For the sugar sector this weighing of interests means that, save for certain exceptions listed exhaustively in point 2.8 of the Annex to Decision 173/94, investments in the sugar sector are not eligible for aid under Article 16(1) to (3) of Regulation No 866/90. By virtue of Article 16(5) of this regulation, the normal, in this case extremely restrictive, aid scheme continues to apply to these investments.

166. Since agricultural products are involved here, the Community legislature was able to express its assessment correctly in terms of the legislative scheme by providing in Regulation No 866/90 that Articles 92, 93 and 94 of the EC Treaty are applicable only to the aid measures referred to in Article 16(5).

167. In substantive terms, it follows from the relationship between Regulation No 1785/81 and Regulation No 866/90 that the aid scheme for the sugar sector continues to be restrictive. The fact that the Community legislature was permitted to make an exception thereto in respect of aid for investment in a sugar refinery in mainland Portugal is difficult to dispute, having regard to the scope of Regulation No 866/90, the lower level of prosperity in Portugal and the fact that this country still had an unused sugar quota. The relevant assessment of interests could take place within the margin of discretion which the Community legislature enjoys in that regard.

168. In the light of the foregoing, I propose that the Court should declare this plea in law unfounded.

2. The sixth plea in law

(a) Arguments of the parties

169. In their sixth plea, the applicants complain that the Court of First Instance incompletely reproduced, at paragraphs 121 to 125 of the contested judgment, the arguments which they put forward at first instance alleging that the aid concerned did not, in this case, satisfy the procedural and substantive requirements of Regulation No 866/90, and did not consider them in its statement of reasons.

170. It is clear from the file at first instance that the applicants put forward the following five arguments inter alia in support of their contention that the aid is incompatible with Regulation No 866/90:

- the sugar refinery in question was not included in the Community support framework for the period from 1993 to 1999, as required under the first and second paragraphs of Article 2 of Regulation No 866/90;

- the investment concerned does not satisfy the requirements laid down in Article 11 of the abovementioned regulation for investments to be eligible for Community aid;

- the requirements under Article 12(1) and (3) of the regulation, according to which sufficient evidence must be given that the investments will be profitable and in particular, having regard to the specific nature of each sector, they must guarantee the producers of the basic products an adequate and lasting share in the resulting economic benefits, are not fulfilled;

- Article 13 of Regulation No 866/90 excludes investments in the processing of products from third countries, including cane sugar imported into Portugal. This implies that Community co-financing of a beet sugar refinery in Portugal would aggravate the already unfair competitive situation for the cane sugar industry in Portugal;

- the allocation of a sugar quota to Portugal in the Act of Accession does not necessarily mean that State aid for the processing of beet sugar is therefore compatible with Regulation No 866/90. In any event, the particular requirements which this regulation imposes on the grant of Community assistance and State aid must be satisfied.

171. The Commission considers that the arguments which the applicants put forward in this plea are for the most part reiterations of their general claim that the aid in question is contrary to the common agricultural policy. The Court of First Instance rejected this claim at paragraphs 89 and 90 of the contested judgment. Since the Court referred to these paragraphs at paragraph 124 of its judgment, the Commission considers that it can be concluded that the Court also dismissed, at least implicitly, the specific arguments which the applicants based on Regulation No 866/90.

(b) Appraisal

172. It is clear from the contested judgment that the Court of Justice merely rejected one of the arguments put forward at first instance in support of the plea that the aid measure in question was incompatible with Regulation No 866/90, namely that the investment aid at issue could not be based on Decision 94/173. That decision is claimed to be unlawful in that it does not comply with the conditions for co-financing imposed by Regulation No 866/90 which preclude the co-financing of aid which is incompatible with the common agricultural policy.

173. The arguments reproduced at paragraph 170 above are not set out specifically in the relevant paragraphs of the contested judgment. In so far as these are arguments which were rejected either implicitly or explicitly in previous parts of the contested judgment, this plea cannot be upheld. Nor did the Court have to examine specifically contentions which are devoid of any factual or legal basis.

174. In the contested judgment the Court of First Instance did not explicitly consider the first of the five arguments summarised.

It is based on two specific questions of law:

- must the investments to be co-financed by the Community be defined project by project in the Community support framework and if so,

- does the absence of a project co-financed by the Community in the relevant Community support framework have any bearing on the legality of such financing?

A detailed interpretation of Article 8 of Regulation No 4253/88, as amended by Regulation No 2082/93, read in conjunction with Articles 2 and 7 of Regulation No 866/90, is necessary to answer these questions.

175. In the contested judgment the Court of First Instance did not rule either implicitly or explicitly on these questions of law. Since the answer to them might have been relevant to the question whether the co-financing by the Community of the project in question was legal, the Court should have ruled expressly on them. In that regard the reasons stated at paragraphs 121 to 124 of the contested judgment are incomplete and therefore defective.

176. In this connection I note, however, that the applicants' argument is incorrect. It must be concluded from Article 8 of Regulation No 4253/88, read in conjunction with Articles 2 and 7 of Regulation No 866/90, that the Community financial support frameworks do not have to be specified at project level. The Community financial support frameworks form the financial complement to operational programmes and sectoral plans. They include inter alia a statement of the priorities for Community intervention, the total amount of the financial assistance chargeable to the Guidance Section of the EAGGF and an indicative figure for the rate of aid envisaged as the Fund's contribution. According to the wording of Article 7(2) of Regulation No 866/90, they are established [in relation] to sectoral plans.

Since the investment in the present case was referred to both in the operational plan for Portugal and the relevant sectoral plan (see paragraphs 28 to 30 above), it must be concluded that, in this regard, the Community aid for it was procedurally correct.

177. The second argument in no way demonstrates why the aid for investment in a sugar refinery in mainland Portugal might be contrary to Article 11 of Regulation No 866/90. On the contrary, under Article 11(1) thereof, investments relating to the processing of agricultural products are eligible for aid. A contention based on grounds which are so obviously incorrect need not be expressly refuted by the Court.

178. The third argument necessitates an examination of the project by reference to Article 12(1) and (3) of Regulation No 866/90. As regards the satisfaction of Article 12(1) in this case, the applicants' contention is clearly so groundless that the Court of First Instance was able to pass over it without comment. As the applicants must be aware, under the scheme of the common market in sugar the - potential - sugar beet producers will almost automatically benefit from the availability of processing capacity for the sugar beet they cultivate. The applicants' argument that the requirement relating to profitability in Article 12(3) had not been satisfied in this case was answered implicitly by the Court at paragraph 92 of the contested judgment where it held that the file contains no persuasive evidence casting doubt on the viability of the beet sugar refinery receiving the aid at issue. From this passage it may be deduced that the Court, unlike the applicants, considers that the requirement relating to profitability is satisfied where the aided undertaking has a reasonable prospect of remaining in business after the aid has been granted. This interpretation is in keeping with the aims of Regulation No 866/90 which seeks to stimulate economic activity which would not come about without public aid.

179. The fourth argument is directed at Article 13 of Regulation No 866/90 which excludes from Community aid investments in the processing of products from third countries. The fifth argument is, in somewhat different terms, a reiteration of the first three arguments, namely that the aid in question must not be contrary to Regulation No 866/90 and the common agricultural policy.

Both arguments again raise the issue of the balance which the Community legislature reached between the sectoral interests of the Community sugar sector and the regional economic interests in connection with the policy of strengthening economic and social cohesion. The Court of First Instance examined this assessment in detail at paragraphs 84 to 95 of the contested judgment. The applicants' contention that the Court disregarded this argument is therefore incorrect.

180. Although the Court of First Instance was wrong not specifically to examine the first of the arguments set out in that plea, it should not consequently be concluded that the relevant part of the judgment is rendered invalid since the finding at paragraph 124 of the contested judgment is correct, namely that the investment aid concerned is not incompatible with the common agricultural policy, as also elaborated in Regulation No 866/90.

F - The fourth plea in law

1. Arguments of the parties

181. In this plea the applicants contend that the Court of First Instance erred in law at paragraphs 98 to 100 of the contested judgment by failing to take account of the overall effect of the aid measures taken together when it assessed the lawfulness of the contested decision of 11 January 1996 and the way in which the Commission exercised its discretion.

182. In support of this plea the applicants submit that the various aid measures examined in the contested decision and by the Court of First Instance are covered by different sets of rules and must therefore be assessed separately in the light of those rules and the aims which they pursue.

However, in order to assess the effect of these measures on the position of the beneficiary undertaking (in this case DAI) and the extent to which they affect the competitive situation and thus the competitive position of the applicants, it is necessary to examine and assess the combined effect of the aid measures as a whole.

183. It may in itself be true that the aid for vocational training examined at the abovementioned paragraphs of the contested judgment does not affect trade between Member States in such a way that it harms the general interest, but, taken together with the other aid measures in this case, DAI is granted aid totalling over 60% of the total investments and over 75% of the eligible investments. In the view of the applicants, it is self-evident that such aid does, in its entirety, indeed have a considerable effect on the competitive situation on the relevant market in sugar.

184. The Commission submits that in this plea the applicants start from the false premiss that it is for the Court of First Instance to take account of the combined effect of the various aid measures and whether there is an adverse affect on trading conditions to an extent contrary to the common interest. The assessment of such matters comes within the competence of the Commission, in respect of which it has wide discretion. The Court can annul the Commission decision only if it concludes that it contains a manifest error of assessment. The Commission refers to its letter of 11 January 1996 in which it listed the three different measures. It adopted the decision in application of the various provisions relating to them. It states at paragraph 67 of its response that it adopted its decision in full knowledge of the effect of the combination of the various measures.

2. Appraisal

185. Of the four points in the contested judgment against which this plea is directed, paragraphs 98 and 99 contain the crux of the reasoning followed by the Court of First Instance. I reproduce them in full below:

98 The three types of aid examined in the contested decision, namely the tax reliefs, aid for vocational training and investment aid under Regulation No 866/90, are covered by different sets of legal provisions and must therefore be examined individually in the light of those rules and the aims which they pursue, subject, if appropriate, to verification of their compatibility with the specific rules applicable in the sugar processing and marketing sector. The aid for vocational training must therefore be considered separately in the light of Article 92(3)(c) of the Treaty.

99 In that connection, it is settled case-law that, as regards the application of Article 92 of the Treaty, the Commission enjoys a wide discretion, the exercise of which involves assessments of an economic and social nature which must be made within a Community context. In its review of legality, the Court must therefore restrict itself to determining whether the Commission has exceeded the scope of its discretion by a manifest error of assessment or by misuse of powers (Matra v Commission [C-225/91 [1993] ECR I-3203], paragraphs 24 and 25).

186. In assessing this plea I recall my observations at paragraphs 75 and 76 of this Opinion, namely that the business and micro-economic effects of a body of aid measures are determined by the totality of those measures. Even though each of the measures complies individually with the specific provisions applicable thereto, any examination which goes no further does not, by definition, go far enough. It fails to appreciate that the interests and objectives protected by the Treaty and secondary Community legislation do not permit a fragmented assessment of action whose effects are determined by the sum total of those affects. Any other view may have consequences which contravene the relevant Community law, in this case Articles 92 and 93 of the EC Treaty and Regulations Nos 2052/88 and 1785/81.

187. Therefore, when examining national aid in relation to Articles 92 and 93 of the EC Treaty the Commission tends, as a consistent policy, always to lay down a ceiling below which national aid must remain. With regard to cases of combined national aid in which the accumulated aid exceeds the specified ceilings, it tends to be strict even where the individual aid measures viewed in isolation do in fact comply with the provisions applicable to them. I have already explained the legal and economic reasons for this consistent policy in my appraisal of the second plea at paragraphs 132 to 134 above.

188. In addition, I note that proper safeguarding of the legal interest protected by Articles 92 and 93 of the EC Treaty - a Community market with conditions of undistorted competition - requires an examination of the overall effect of a body of aid measures. In the absence of such an examination it is not possible to establish, in a specific case, whether and to what extent conditions of competition are influenced by such a body of measures.

189. By analogy with the judgment of the Court in Eco Swiss China Time v Benetton International it must be concluded that according to Article 3(g) of the EC Treaty (now, after amendment, Article 3(1)(g) EC), Article 92 of the EC Treaty constitutes a fundamental provision which is essential for the accomplishment of the tasks entrusted to the Community and, in particular, for the functioning of the internal market. The importance of such a provision led the framers of the Treaty to provide expressly, in Article 93 of the EC Treaty, that new aid must always be notified so that the Commission can assess its impact on the unity and functioning of the common market, and that existing aid measures must be kept under constant review by the Commission.

190. Although the Commission has a - sometimes broad - margin of discretion in the exercise of its powers under Articles 92 and 93 of the EC Treaty, the exercise of those powers must remain within the bounds imposed inter alia by the legal interest protected by these articles. Since the consequences of a body of aid measures for the conditions of competition on the common market - the protected legal interest - are determined by the total amount of aid granted in a specific case, the Commission must always bear that in mind when exercising the powers granted to it and express its view in that regard explicitly together with a statement of reasons.

191. In the light of the foregoing, I consider that the reasoning of the Court of First Instance at paragraph 98 of the contested judgment is fundamentally untenable because it could undermine the safeguards which Article 92 of the EC Treaty provides for conditions of competition on the common market.

192. I find the Commission's defence equally unacceptable. According to the settled case-law of the Court, the Commission enjoys a wide discretion as regards the assessment of national aid, the exercise of which involves assessments of an economic and social nature. Since complex economic assessments are involved, such as the examination of the compatibility of aid with the common market, when reviewing the Commission's actions the Court must confine itself to verifying whether the relevant rules governing procedure and the statement of reasons were complied with, whether the facts on which the contested decision was based are correct, and whether the Commission has exceeded the scope of its discretion by a manifest error of assessment or by misuse of powers.

193. Also according to the settled case-law of the Court, the obligation to state reasons under Article 190 of the EC Treaty (now Article 253 EC) must be adapted to the act at issue and disclose in a clear and unequivocal fashion the reasons of the institution which adopted the measure in question in such a way as to enable the persons concerned to ascertain the reasons for the measure and to enable the Court to carry out is review. It is also clear from this case-law that such reasoning does not necessarily have to set out all the relevant facts and points of law to meet the requirements of Article 190 of the EC Treaty. The question whether the statement of reasons meets the requirements must be assessed not only on the basis of its content but also of the context of the decision and of all the legal rules governing the matter in question. Moreover, the requirement relating to the statement of reasons must be assessed in the light of the circumstances of the case, the content of the decision in question, the nature of the pleas put forward and the interest which those to whom the decision is addressed and others directly and individually concerned may have in securing a more detailed interpretation. The requirement which the Court laid down in a recent judgment, namely that a contested decision must be supported by the relevant lines of reasoning, defines more closely the content of the obligation to state reasons.

194. Having regard to the foregoing, the Commission's view that it has a margin of discretion in assessing the possible effects of a body of aid measures is correct. However, the exercise of that discretion and the reasons for the decision stemming from its assessment must be clear from the relevant decision. Otherwise, it would be quite impossible for the Court to review its legality. However, there is nothing in the contested decision of 11 January 1996 to provide any grounds for a finding that the Commission carried out any separate assessment of the overall effect of the aid measures applied cumulatively, let alone that it stated reasons for its assessment. Consequently, the decision does not fulfil the requirements stemming from the case-law summarised above. The Commission's statement in its response that it adopted its decision in full knowledge of the effect of the combination of the various measures is not apparent from the decision itself and, moreover, is not as such a statement of reasons open to examination. Therefore, this statement is too late, in the wrong place and substantively inadequate.

195. The need to assess the effect of a number of cumulative aid measures in their entirety and to state separate reasons in that regard is not altered by the fact that in the present case provision was made for the investment in a sugar refinery in mainland Portugal in a sectoral plan drawn up pursuant to Regulation No 866/90 or that the Community co-financing and the complementary State aid were expressly permitted in the annex to Decision 94/173. The fact it is a Community contribution which is combined with one or more national aid measures that are not included in the contributions by Member States referred to in Article 16(3) of Regulation No 866/90 does not affect the Commission's obligation to assess specifically the effect of the total aid on conditions of competition when it examines these national aid measures in the light of Article 92 of the EC Treaty. The source of that aid is irrelevant as regards that effect. Otherwise, the examination of national contributions not included in Article 16(3), for which express provision is made in Article 16(5) of Regulation No 866/90, would largely be deprived of its practical effect. In that regard I refer to my appraisal of the second plea in law at paragraphs 136 to 139 of this Opinion.

196. For the sake of completeness, I will also consider the question whether a further statement of express reasons for the level of aid granted in a specific case is necessary where a Community contribution is made together with a complementary national contribution under Community rules to strengthen economic and social cohesion. The answer to this question is - strictly speaking - not necessary to assess the reasons stated by the Court of First Instance at paragraphs 98 to 101 of the contested judgment and those stated by the Commission in the decision of 11 January 1996. They involve the accumulation of contributions made pursuant to the policy of strengthening economic and social cohesion with other national aid schemes. Nevertheless, an answer to this question, on which there is no case-law, is not without importance for the relevant Community policy.

197. Under Article 7(1) of Regulation No 2052/88, as subsequently amended by Regulation No 2081/93, the measures financed by the Structural Funds, thus also those financed by the EAGGF Guidance Section, must be in conformity with Community policies, including those concerning the rules on competition. The Community legislature had to take account of this principle when laying down the rules governing the behaviour of the Structural Funds. This is evident inter alia from Article 16 of Regulation No 866/99 which lays down maximum amounts for total public aid from the Community and the Member States and minimum contributions from the recipient producers. This principle also applies to the drafting of the relevant sectoral plans, as is evident inter alia from Article 4 of Regulation No 866/90. Under this provision, the sectoral plans must also contain information on the situation in the sector, especially the existing capacity of the undertakings concerned.

198. Article 16 of Regulation No 866/90 places ceilings on the total aid granted by the Community and the Member States. Therefore, it follows that the total aid for a project may be less than what is required.

199. In cases in which the total public aid is very large, both in absolute and relative terms, and relates to activities in a sensitive sector in which overcapacity exists and, furthermore, the conditions of competition are vulnerable to distortion, either the sectoral plans or the decisions granting the aid concerned must state reasons for the level of that aid. Even if there were good grounds for considering the projects concerned eligible for contributions from the Structural Funds together with complementary national aid, it does not automatically follow that the maximum permissible aid may be granted to those projects. The Commission's observation, made in response to the applicants' sixth plea, that the profitability of the investment concerned was assured, within the limits of the quota, by guaranteed fixed prices and guaranteed sales, immediately raises the question as to why this investment had to be subsidised on such a massive scale. Having regard to the genuine risk of serious disturbances of competition, a statement of explicit reasons would therefore not be superfluous.

200. Were that not the case, assistance from the Structural Funds, which was otherwise entirely consistent with the rules and scope of Community law, to strengthen social and economic cohesion might nevertheless appear contrary to Article 7(1) of the framework Regulation No 2052/88. A mechanical application of Article 16(1) to (4) to the cases set out above is not compatible with this provision which lays down an important principle for the coordination of Community policy. Without wishing to restrict the scope of the Commission's discretion in any way, I consider that in these cases it is required to state express reasons why public aid is necessary and justified by reference to a certain relative and absolute extent.

201. In this regard I consider that the reasons stated in the letter of 11 January 1996 regarding the Community contribution and the complementary national contribution are insufficient because they in no way show why the Commission considers that a contribution of approximately 65% of the total eligible investment is necessary and justified in this case. This omission is all the more glaring since the Commission has, precisely in the sugar sector, always taken consistent action against distortions of conditions of competition which are, in precisely this sector, vulnerable to distortion either as a result of State aid or the anti-competitive behaviour of sugar producers.

G - The admissibility of the action before the Court of First Instance

1. Arguments of the parties

202. In its response the Commission requests the Court of Justice to set aside paragraphs 35 to 37 of the contested judgment. In the Commission's view, these paragraphs reveal an error of law in so far as the Court holds therein that a letter from the Commission containing information that an individual aid is covered by an existing aid scheme already approved by the Commission always constitutes an act susceptible to legal review under Article 173 of the EC Treaty (now Article 230 EC). The Commission takes the view that at first instance the appellants could not have had a legal interest in seeking annulment of the letter of 11 January 1996 since it related to the application of Decree-Law 95/90 by the Portuguese Government when aid was granted to DAI. Since the letter had no legal effects in respect of such application, it could not be regarded as constituting a decision.

203. The Commission puts forward six arguments against the findings of the Court of First Instance at paragraphs 35 to 37.

204. The first argument is that insufficient reasons are stated for paragraphs 35 and 36 in that the Court of First Instance holds, at paragraph 35, that the objection of inadmissibility raised by the Commission cannot be upheld and, at paragraph 36, that the question of inadmissibility cannot be examined at that stage of the judgment.

205. The second to sixth arguments develop the Commission's central argument, already set out above, that the letter of 11 January 1996 is not in the nature of a decision but rather a statement of facts in so far as it relates to the application of Decree-Law 95/90 to aid for setting up a sugar refinery in mainland Portugal. In the view of the Commission, the reasoning followed by the Court of First Instance might result in third parties always being able to force a decision where a general aid scheme, which has already been approved, is applied. If the applicants were then permitted to bring an action against such a decision before the Court of First Instance, they would be provided, as it were, with a springboard to contest the approval decision underlying this decision. The Commission considers that such a course of action is incompatible with the principles of legal certainty and legitimate expectations which, according to the case-law of the Court, the Member States and the recipients may derive from the approval of a general aid scheme.

206. In the alternative, the Commission requests the Court to set aside paragraph 36 of the contested judgment in so far as it relies on the words in their view. The Commission considers that it reveals an error in law, that is to say that an action for annulment is admissible simply on the basis of the view of a complainant.

207. The appellants submit that the parts of the judgment contested by the Commission do not reveal an error in law. They submit that it is precisely the answer to the question whether or not the application of Decree-Law 95/90 was covered by the approval decision of 3 July 1991 which is decisive in determining whether or not the action against it is admissible.

208. As regards the Commission's request in the alternative, the appellants state that they do not believe that the Court of First Instance intended to rule that the point of view of a complainant alone can constitute a ground for the admissibility of a request.

2. Appraisal

209. The Commission's first argument is based on an imprecise reading of the relevant passages at paragraphs 35 and 36 of the contested judgment. At paragraph 35 the Court of First Instance rejects the Commission's general submission that the action is inadmissible in so far as it is directed against the parts of the decision of 11 January 1996 relating to the application of Decree-Law 95/90. At the end of paragraph 36 the Court considers the Commission's more specific submission that the objection of inadmissibility raised by the appellants in respect of the approval decision is inadmissible. In that regard, the Court rules that it is linked with the substance of the action for annulment and will be examined in relation thereto. This specific question of admissibility is in fact dealt with separately later in the judgment at paragraphs 44 to 50. Therefore, there can be no question of any contradiction in the reasons stated claimed by the Commission. This argument must therefore be dismissed.

210. The second to sixth arguments are all based on the presumption that the application in this case of Decree-Law 95/90 was effected entirely in accordance with the conditions imposed by the approval decision.

211. On this assumption, it follows from the judgment in Italgrani that the application of an approved general aid scheme entirely in accordance with the conditions attached thereto does not require notification to or an express decision by the Commission. Thus, a letter from the Commission, in which the application of the general aid scheme concern is, as it were, registered by the national authorities, does not establish an act against which interested parties may bring an appeal before the Court of First Instance.

212. However, if the assumption made by the Commission is incorrect or serious doubts exist in that respect, its reasoning does not hold true. If the application in this case of Decree-Law 95/90 should in fact have been notified or if there were serious doubts in that regard, a statement by the Commission concerning that application could indeed have far-reaching legal consequences. It might express an implicit approval of individual measures which were otherwise subject to notification or an implicit opinion as to whether or not this aid measure was subject to notification, depending on the conditions on which the general aid scheme, whose application it constitutes, was approved.

213. As was evident in the assessment of the applicants' second plea in law, there is at least doubt as to whether or not the application of Decree-Law 95/90 requires notification in the case of investment aid granted to DAI and whether or not it gives course for a direct examination of it compatibility with Article 92 of the EC Treaty. The answer to this question requires an assessment of the substance of the applicants' pleas directed against the parts of the letter of 11 January 1996 relating to the application of Decree-Law 95/90.

214. Therefore, I share the view of the Court at paragraph 35 of the contested judgment that [t]he first objection of inadmissibility, alleging that the applicants have no interest in bringing proceedings for annulment of the contested decision because even if it were annulled the tax reliefs at issue, constituting as they do existing aid, would be maintained, cannot be upheld.

215. However, the reasons stated by the Court of First Instance at paragraph 36 of the contested judgment could give rise to misunderstanding. Contrary to the Court's view at paragraph 36 of the contested judgment, I consider that it is not the applicants' interest in securing annulment of the contested decision in which the Commission raised no objections to the tax reliefs granted to DAI which is, as such, decisive as regards the admissibility of the action. What is more important is whether or not the approved general aid scheme was applied in accordance with the conditions attached thereto. Consequently, the key question as regards admissibility was whether or not the Commission could decide that the individual aid measure concerned satisfied the conditions laid down in the approval decision and that question required an examination of the substance of the pleas put forward by the applicant. The objection of inadmissibility raised by the Commission should have been rejected for those reasons.

216. Although - on different grounds from those of the Commission - I do not consider that the reasons stated at paragraphs 33 to 37 of the contested judgment are entirely correct, this defect is not, in my view, such that it must therefore be concluded that the relevant part of the judgment must be set aside. The decision of the Court of First Instance to reject the objection of non-admissibility resulted in the examination, which was necessary in this case, of whether the application of Decree-Law 95/90 to the aid granted to DAI was compatible with the conditions attached to that application in the approval decision of 3 July 1990.

217. The Commission's alternative plea can be dealt with swiftly. In the relevant passage of paragraph 36 in which the words in their view appear, the Court of First Instance puts forward the idea that the aid granted to DAI is not covered by the approval decision because it might be incompatible with the rules of the common agricultural policy. To render this supposition, use is made in the French and Dutch versions of the conditional which, in keeping with the scope of the argument, emphasises its hypothetical nature. The use of the words in their view in English, the language of the case, places the stress somewhat differently in that it appears to emphasise the subjective view or opinion of the applicants. If this impression is correct, I agree with the Commission's objection to it because the answer to the question whether or not a claim is admissible in law cannot be made contingent on the subjective views of an applicant as to the alleged inconsistency of an aid measure with the rules of the common agricultural policy. Therefore, the words in their view must be removed from paragraph 36 of the contested judgment. Even without these words the conditional nature of the passage in question is adequately expressed in the language of the case.

VI - Conclusion

218. To sum up, I conclude that the applicants' second and fourth pleas in law are well founded. I consider that the sixth plea in law is partially well founded.

Of the pleas which the Commission raised to challenge paragraphs 35 to 37 of the contested judgment, I consider that the plea in the further alternative is well founded.

219. The declaration that the first and fourth pleas are well founded means that it is necessary to re-examine the contested Commission decision of 11 January 1996. The case must be referred back to the Court of First Instance for that purpose.

By virtue of the first paragraph of Article 122 of the Rules of Procedure there is no need for a decision as to costs.

In the light of the foregoing, I propose that the Court should:

- set aside the contested judgment;

- refer the case back to the Court of First Instance; and

- reserve the decision as to costs.

Full & Egal Universal Law Academy