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

'All aid measures to be granted by public authorities within the scope of an approved aid scheme to (an) undertaking(s) operating in the motor vehicle sector as defined above, where the cost of the project to be aided exceeds ECU 12 million are subject to prior notification on the basis of Article 93(3) of the EEC Treaty. As regards aid to be granted outside the scope of an approved aid scheme, any such project, whatever its cost and aid intensity, is of course subject without exception to the obligation of notification pursuant to Article 93(3) of the EEC Treaty. Where aid is not directly linked to a particular project, all proposed aid must be notified, even if paid under schemes already approved by the Commission. Member States shall inform the Commission, in sufficient time to enable it to submit its comments, of any plan to grant or alter aid.

'- Regional Aid

[...]

The Commission acknowledges the valuable contribution to regional development which can be made by the implantation of new motor vehicle and componentproduction facilities and/or the expansion of such existing activities in disadvantaged regions. For this reason the Commission has a generally positive attitude towards investment aid granted in order to help overcome structural handicaps in disadvantaged parts of the Community.

[Such] aid is usually granted automatically in accordance with [detailed rules] previously approved by the Commission. By requiring prior notification of such aids in future, the Commission should give itself an opportunity to assess the regional development benefits (i.e. the promotion of a lasting development of the region by creating viable jobs, linkages into [the] local and Community economy) against possible adverse effects on the sector as a whole (such as the creation of [significant] overcapacity). Such an evaluation does not seek to deny the central importance of regional aid for the achievement of cohesion within the Community but rather to ensure that other aspects of Community interest such as the development of the Community's industry are also taken into account.

[...]

'1. From 1 May 1990, the Federal Republic of Germany shall notify to the Commission pursuant to Article 93(3) of the EEC Treaty all aid measures to be granted for projects costing more than ECU 12 million under the aid schemes set out in the Annex hereto to undertakings operating in the motor vehicle sector as defined in sub-section 2.1 of the Community framework for State aid to the motor vehicle industry. Such notification shall be effected in conformity with the requirements laid down in sub-sections 2.2 and 2.3. The Federal Republic of Germany shall, moreover, provide annual reports as required by the framework.

2. Further to the list of aid schemes set out in the Annex to this Decision (which list is not exhaustive), the Federal Republic of Germany shall also comply with the obligations of Article 1(1) with regard to all other aid schemes capable of benefiting the motor vehicle industry.

3. Aid to undertakings in the motor vehicle industry operating in Berlin which are granted under the Berlin Förderungsgesetz are excluded from the prior notification obligation provided for in the framework but shall be included in the annual reports required by that framework.

'has taken decisions which prohibit the implementation of State aid granted in certain sectors even if it were granted in the context of approved programmes (regional aid for example), or which make its implementation subject to the need for prior authorisation of each of the projects which it is intended to benefit ...

Such rules exist in the following areas:

(a) ...

- the motor-vehicle industry, in so far as the cost of an operation which it is intended to benefit exceeds 12 million ecus.

'[...] the Commission believes it necessary to renew the framework on State aid to the motor vehicle industry [...]. The only modification which the Commission has decided extends the prior notification obligation for the Federal Republic of Germany to Berlin (West) and the territory of the former GDR (Article 1(3) of the Commission's Decision of 21 February 1990, as published in OJ No L 188 of 20 July 1990, is no longer valid as from 1 January 1991).

After two years the framework shall be reviewed by the Commission. If modifications appear necessary (or the possible repeal of the framework) these shall be decided upon by the Commission following consultation with the Member States.

Factual background

- for the joint creation of Sächsische Automobilbau GmbH ('SAB), a company entrusted with the responsibility for maintaining jobs ('Beschäftigungsgesellschaft), 87.5% of whose capital was initially held by the THA and 12.5% by Volkswagen;

- for the reopening by SAB of the existing paint workshop (then under construction) and the final assembly workshop on the Mosel site ('Mosel I);

- for the reopening by Volkswagen Sachsen GmbH ('VW Sachsen), a wholly-owned subsidiary of Volkswagen, of an existing vehicle-production plant on the Chemnitz site ('Chemnitz I);

- for the resumption by VW Sachsen of cylinder-head production at the Eisenach site; and

- for the creation by VW Sachsen of a new motor vehicle construction plant in Mosel, comprising the four main activities of manufacture, namely metal pressing, skeleton bodywork, painting and final assembly ('Mosel II) and a new vehicle-production plant in Chemnitz ('Chemnitz II).

'[...] the aids proposed by [the German] authorities give rise to major concern for the following reasons.

- they have not been properly notified to the Commission according to the procedure of Article 93(3) of the EEC Treaty;

- the apparent high aid intensity proposed to a plan involving significant expansion of capacity within the European car market could give rise to unfair distortion of competition;

- not enough evidence has been presented to date which justifies the combination of the relatively high intensity of regional aid, the granting of indirect investment aid by the THA and the granting of a temporary operating aid also by THA by reference to the structural and economic problems which VW undoubtedly faces in the new Länder; on the contrary, the global aid intensity could be disproportionately high and incompatible with the criteria of the Community framework on State aid to the sector.

'On opening the procedure the Commission had regarded all Volkswagen's investment plans in Saxony as a single project and therefore intended to decide on all elements of State aid together. Even after its decision in 1993 to postpone investment in the new plants, Volkswagen initially argued that this did not affect the production technology, the labour input and other crucial variables. This year, however, on the basis of information collected during a site visit and through new expert advice, it became obvious that this view could no longer be maintained. Volkswagen also acknowledged to the Commission that their former plans had become obsolete and that they were being reworked. The new plans for the new car and engine plants Mosel II and Chemnitz II will now be closely linked to the development of the Golf A4 that will be put into production at the same time as Mosel II is now planned to come on stream, i.e. in 1997. A final version of the new plans will only be available at the end of 1994. On the basis of current information these new plans will include significant changes in technology and productionstructure. Under these circumstances it is obvious that the original link between the investment projects in the existing former THA plants and the new greenfield projects has been severed. The Commission has therefore decided to limit its current decision to the restructuring aid for the existing plants, on which it can form a clear opinion on the basis of the available information, and to postpone the decision on the aid to the greenfield projects until Volkswagen and Germany are able to present their definitive investment and aid plans.

'Article 1

The following aid proposed by Germany for the various investment projects of Volkswagen AG in Saxony is compatible with Article 92(3)(c) of the EC Treaty and Article 61(3)(c) of the EEA Agreement:

- aid granted by Germany to [the Volkswagen group] for [its] investment projects in Mosel (Mosel II) and Chemnitz (Chemnitz II) in the form of investment grants (Investitionszuschüsse) of up to DEM 418.7 million,

- aid granted by Germany to [the Volkswagen group] for [its] investment projects in Mosel (Mosel II) and Chemnitz (Chemnitz II) in the form of investment allowances (Investitionszulagen) of up to DEM 120.4 million.

Article 2

The following aid proposed by Germany for the various investment projects of Volkswagen AG in Saxony is incompatible with Article 92(3)(c) of the EC Treaty and Article 61(3)(c) of the EEA Agreement and may not be granted:

- the proposed investment aid for [the Volkswagen group] for [its] investment projects in Mosel II and Chemnitz II in the form of special depreciation on investment under the Assisted Areas Law (Fördergebietsgesetz) with a nominal value of DEM 51.67 million,

- the proposed investment aid to [the Volkswagen group] for [its] investment project in Mosel II in the form of investment grants (Investitionszuschüsse) in excess of the amount specified in the first indent of Article 1 and constituting an additional DEM 189.1 million.

Article 3

Germany shall ensure that the capacity of the Mosel plants in 1997 does not exceed a level of 432 units per day [...]

Furthermore, Germany shall send to, and discuss with, the Commission an annual report on the realisation on the DEM 2 654.1 million of eligible investments in Mosel II and Chemnitz II and the actual payments of aid so as to ensure that the combined effective aid intensity expressed in gross grant equivalent does not exceed 22.3% for Mosel II and 20.8% for Chemnitz II [...]

Article 4

Germany shall inform the Commission within one month of the notification of this Decision of the measures taken to comply herewith.

Article 5

This Decision is addressed to the Federal Republic of Germany.

Procedure

Forms of order sought by the parties

- annul Article 2 of the Decision;

- order the Commission to pay the costs.

- annul Article 2 of the Decision;

- annul Article 3 of the Decision in so far as the aids intensity expressed in gross grant equivalent is limited to 22.3% for Mosel II and 20.8% for Chemnitz II;

- annul Article 1 of the Decision in so far as the amount of investment grants declared compatible with the common market is limited to DEM 418.7 million;

- order the Commission to pay the costs.

- dismiss the application as inadmissible and, in the alternative, as unfounded;

- order the Free State of Saxony to pay the costs.

- dismiss the application as unfounded;

- hold Volkswagen and VW Sachsen jointly and severally liable for the costs.

The admissibility of the application in Case T-132/96

Arguments of the parties

Findings of the Court of First Instance

Substance

I - Infringement of Article 92(2)(c) of the Treaty

Arguments of the parties

Findings of the Court of First Instance

the economic development of either zone, which, moreover, it affected equally at the outset, and it has not prevented the economies of the original Länder from developing favourably thereafter.

II - Infringement of Article 92(3) of the Treaty

Infringement of Article 92(3)(b) of the Treaty

Arguments of the parties

'The derogation in Article 92(3)(b) can certainly not be applied to Germany. It is true that German unification has had negative effects on the German economy, but these alone are not sufficient to apply that provision to an aid scheme. Recently, the Commission took the view that an aid scheme remedied a serious disturbance in the economy of a Member State when, in 1991, aid was approved for a privatisation programme in Greece. In its decision the Commission noted that the privatisation programme was an integral part of the undertakings given pursuantto Council Decision 91/306/EEC of 4 March 1991 in connection with the consolidation of the national economy as a whole. The German situation is clearly different.

Findings of the Court

Infringement of Article 92(3)(a) of the Treaty

Arguments of the parties

Findings of the Court

Contravention of the general scheme of Article 92(3) of the Treaty

(a) The need for an investigation ex ante and the applicability of the Community framework

- Arguments of the parties

- Decision 90/381 of 21 February 1990, cited above, requiring the Federal Republic of Germany, 'pursuant to the Community framework, to notify aid exceeding a certain amount to the Commission, was not applicable to the new Länder, which did not yet form part of that Member State, and it could not have extended that framework, which expired on 31 December 1990, beyond its original duration;

- Findings of the Court

(b) The classification of the paint and final assembly workshops at Mosel II and Chemnitz II as 'extensions of existing capacity

- Arguments of the parties

- Findings of the Court

'The term greenfield project does not simply mean that the project is situated in a green field somewhere, but that, from the investing company's point of view, the site is a new, as yet undeveloped one. Consequently, the company faces the following typical special problems as compared with the extension of an existing plant: lack of adequate infrastructure, lack of organised logistics, no trained workforce adapted to the needs of the company, and no established supplier structure. If, however, these services can be provided by a nearby plant belonging to the same group, then the project is treated as an extension, even if it is located in a green field. The Community concept differs from the concept of new investments that may be defined in national law. Since, in the case of a greenfield project as defined in this way, more difficulties arise and the time-span for reaching full capacity and thus viability is somewhat longer, there is justification for calculating the operating cost disadvantages over a longer period.

'In the present case, the Commission had to take into account the fact that the different shops of the investment in Mosel come on stream at different times. Thus, the start-up problems associated with the different subprojects will also occur at different times. Furthermore, the Commission took account of the fact that, through the delay in project implementation, the character of the project has also changed. With the setting up of the press and body shops and their link with the modernised paint shop and final assembly halls of the old Mosel I plant, a fully operational car plant was established in Mosel by 1994. This is also demonstrated by the profitability of the VW companies in Saxony since 1994.

The future investment for a new paint and final assembly hall in Mosel II thus no longer constitutes a greenfield investment but represents an extension of existing capacity. Since a supplier structure is already in place [...], [...] the infrastructure exists and ... most of the workers will be taken over from Mosel I, the typical handicaps associated with greenfield investments will arise to a much lesser degree. This also applies to the Chemnitz II engine plant. As in other cases of capacity extension, the build up of production in these plants is very rapid. Although the German authorities and VW originally suggested an analysis of the period from 1998 to 2002 for all projects in Mosel and Chemnitz, the Commission has analysed the operating handicaps over five years for the proposed greenfield projects, i.e. for 1993 to 1997 (body shop) and for 1994 to 1998 (press shop), and over three years for the extension projects, i.e. 1997 to 1999 (paint shop, final assembly, Chemnitz II). It was also taken into account that the press shop and the body shop will be expanded from a production capacity of 432 cars/day to 750 cars/day during the same period in order to be able to supply fully the new Mosel II paint shop and final assembly. Therefore, the additional operating handicaps for this period (1997 to 1999) that can be attributed to this extension of capacity were also included in the analysis.

(c) The calculation of the costs and benefits of the investment

- Arguments of the parties

- Findings of the Court

(d) Top-up aid

- Arguments of the parties

- Findings of the Court

(e) The determination of the aid authorised

III - Breach of the principle of the protection of legitimate expectations

Arguments of the parties

- in its letter to the German Government of 19 September 1990, the Commission requested notification of all aid 'for Volkswagen's new investment;

- in its letter informing that Government of its decision to initiate the investigation procedure, the Commission distinguished between the 'retention of existing production units (Mosel I) and the 'construction of a new adjacent plant (Mosel II);

- during the years 1992 to 1994, the Commission carried out a cost-benefit analysis for Mosel II and Chemnitz II which was based on a reference period of five years;

- in the Mosel I decision, the Commission referred frequently to the 'new plants of Mosel II and Chemnitz II, which showed that, despite the delaysin completing the project, it regarded those investments not as an extension of Mosel I and Chemnitz I but as new investments;

- in its Decision 96/179 of 31 October 1995, referred to in paragraph 39 above, the Commission referred to those projects as 'new investments.

Findings of the Court

Costs

On those grounds,

THE COURT OF FIRST INSTANCE (Second Chamber, Extended Composition)

hereby:

1. Takes formal notice that the applicants discontinue their action in Case T-143/96 in so far as it seeks the annulment of the first indent of Article 2 of Commission Decision 96/666/EC of 26 June 1996 concerning aid granted by Germany to the Volkswagen Group for works in Mosel and Chemnitz;

2. Dismisses the applications as to the remainder;

3. Orders the applicants to bear their own costs and to pay the costs incurred by the defendant, save in so far as they have been incurred by the latter as a result of the intervention of the Federal Republic of Germany. The Federal Republic of Germany shall bear its own costs and pay the costs incurred by the Commission as a result of its intervention. The United Kingdom shall bear its own costs.

PotockiLenaerts Bellamy AziziMeij

Delivered in open court in Luxembourg on 15 December 1999.

H. Jung A. Potocki

Registrar President