OPINION OF MR ADVOCATE-GENERAL REISCHL

DELIVERED ON 7 NOVEMBER 1973 ( 1 )

Mr President,

Members of the Court,

Today, I have the honour for the first time — as required by Article 166 of the EEC Treaty — ‘with complete impartiality and independence, to make, in open court, reasoned submissions’…

They concern four references (119/73, 120/73, 121/73 and 141/73) from the Frankfurt Verwaltungsgericht, made by orders dated 19 March and 28 May 1973 and joined, for the purpose of having common oral proceedings, by an order of this Court of 18 September 1973.

To enable the proceedings to be more easily followed, I should like, by way of introduction to say this,

In the course of 1968 the Government of the Federal Republic of Germany drew up, as part of a programme for regional development, a draft law providing for investment grants and the modification of tax and premiums legislation. Its principal effect was to grant an investment subsidy of 10 % from taxation sources for construction or purchasing costs, to taxpayers in areas along the East-West border, Federal Development regions or Federal improvement areas, who construct or improve business premises or plant after 31 December 1968. The Commission of the European Communities was informed of the proposals in accordance with Article 93 (3) of the EEC Treaty, by means of a note verbale from the Permanent Representative of the Federal Republic of Germany dated 22 April 1969, after the draft law had had its first reading in the Bundestag. The communication was accompanied by the draft law and included an explanation that the draft was only a part of a wide programme for regional economic development. Accordingly the Commission was also informed of further proposals, which are of no further interest now (the Commission has included them in its written observations), partly by means of notes verbales, and partly on the occasion of various bilateral or multi-lateral consultations. After the second reading of the abovementioned draft law, which took place in the Bundestag on 18 June 1969, a number of German regional aid measures came up for discussion with representatives of the then Member States, with the exception of Luxembourg, during a multi-lateral conference arranged by the Commission on 20 June 1969. On that occasion the German delegates provided further details of the draft law and of amendments adopted during the second reading. The same version of the draft law as that issued on 20 June 1969, was approved later by the Bundesrat on 10 July 1969, and, following publication in the Bundesgesetzblatt of 21 August 1969, came into force under Article 5 thereof on 22 August 1969.

The plaintiffs in the main actions, who, in the course of 1969, had undertaken investments in various regions of the Federal Republic of Germany (Kaiserslautern, Kiel, Trier and Leimsfeld) by constructing a goods loading warehouse, building a new warehouse for a department store, opening a self-service fish-restaurant or extending a metal construction and metal working plant, wished to take advantage of this law. However, their applications for a certificate under Article 1 (4) of the Investment Allowance Law, a requirement for obtaining an investment grant, were rejected. One and all, they were refused on the ground that the requirements of the German law had not been met, or to be exact: the proposals could not be regarded as particularly deserving of support from the economic point of view within the meaning of Article 1 (4) of the Investment Allowance Law, since they would not make a significant contribution towards strengthening the economy of the region concerned.

The plaintiffs do not think this conclusion justified, and for that reason they took their claim to the Frankfurt Verwaltungsgericht, after equally unsuccessful appeals, to see if there they might finally obtain these certificates.

The Frankfurt Verwaltungsgericht has now had doubts, during the course of the proceedings, as to the validity of this German law. They are based on Article 93 (3) of the EEC Treaty, which is the provision stating that:

‘The Commission shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid. If it considers that any such plan is not compatible with the common market having regard to Article 92, it shall without delay initiate the procedure provided for in paragraph 2. The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision.’

In addition to this, it must be borne in mind that — as we heard from the Commission during the proceedings — the first comprehensive opinion of the proposals notified by the German Government during the period between February and September 1969 was submitted to the Commission by its staff on 18 December 1969. One must also know that on 9 January 1970 the Commission decided to initiate the procedure under Paragraph 2 of Article 93 in respect of the German legislation on regional aid. The Federal Government was notified of this in writing by the Commission on 13 January 1970, and was told, in particular, of the Commission's fear that in certain instances aid was being granted in a manner not compatible with the common market. The same information was given, moreover, to the Frankfurt Verwaltungsgericht at its request on 15 February 1973, with the express explanation that the Commission had not yet reached a final decision.

Nevertheless the Verwaltungsgericht thought it possible that the restriction in Article 93 (3) might continue in every case until the Commission expressed a final decision, and that for this reason a national law already in force might have to be regarded as inapplicable by virtue of Community law.

Since its decision, in the opinion of the court, will depend on clarification of this point, the proceedings were suspended by the abovementioned orders — which were, moreover, expressly declared not to be open to appeal — and the following questions identical in all four cases, were referred for a preliminary ruling:

“(a)

Has the third sentence of Article 93 (3) of the EEC Treaty to be interpreted as meaning that the Commission has in any case to reach a final decision, i.e. even when the proposed national law has been held by the Commission to be compatible with Article 92 of the EEC Treaty?

(b)

If the Commission does not “without delay initiate the procedure” in accordance with the second sentence of Article 93 (3) of the EEC Treaty, after being informed by the Member State in accordance with the first sentence of Article 93 (3) of the EEC Treaty, does this have the consequence in law that the prohibition contained in the third sentence of Article 93 (3) of the EEC Treaty ceases to apply and the aid scheme may be introduced?

(c)

Does the prohibition contained in this provision still apply if the procedure in accordance with the second sentence of Article 93 (3) of the EEC Treaty, in spite of the Commission having been informed by the Member State in sufficient time, is not initiated until after the system of aid has come into effect?

(d)

If question (b) is answered in the negative and question (c) in the affirmative, is the making of a “final decision” a precondition of the validity of the proposed national law, and must a national law enacted contrary to this provision be regarded as invalid or inapplicable until the decision has been reached?

(e)

Are the words “Member State” in the third sentence of Article 93 (3) EEC Treaty to be interpreted as meaning that failure to observe this provision infringes the direct rights of private parties, or must the national court, in the circumstances of question (d), of its own motion take account of the invalidity of the law in its decision?”

Now that the written observations of the plaintiffs in the main action, (with the exception of the plaintiff in Case 120/73), the Government of the German Federal Republic, the Government of the United Kingdom and the Commission of the European Communities have been given, and the oral observations of these parties have also been heard, it is my duty to examine the problems raised therein and to give you my opinion on them.

1. 

Allow me to begin by making two preliminary points.

The first concerns the fact that during the proceedings which led to the reference of Case No 122/73 an appeal was made against the making of the reference, and so the case was brought before the Hesse Verwaltungsgerichtshof. The other point relates to the problem of whether the questions referred are germane to a decision in the case.

(a)

Firstly, with regard to the appeal against the making of a reference in Case 122/73 the problem raised thereby (whether it is permissible for proceedings in the reference to cintinue meantime) has resolved itself meanwhile, since the Verwaltungsgerichtshof to which the appeal was made has by a decision of 22 June 1973 dismissed the appeal as inadmissible and the plaintiff in Case 122/73 has not made any further appeal.

I would just like to point out, however, that I am convinced that there was no ground for a suspension of the proceedings based on the precedent of Case 31/68 (Recueil 1970, p. 403), but the case could have continued in accordance with Cases 13/61 (Recueil 1962, p. 89) and 23/67 (Recueil 1967, p. 525). Justification for that view can be found in the mere consideration that here, unlike in Case 31/68, the court which had made the reference did not give us formal notification to the effect that the entering of an appeal had as a consequence that execution of the disputed decision was suspended. Besides, German law (Article 149 of the Rules of the Verwaltungsgerichte) states that appeals such as the one here in dispute do not, in principle, have suspensory effect.

(b)

The reason for commenting on the relevance of the questions referred can be found in the grounds given for the appeal mentioned above, which have been passed on to us. It is emphasized there that, when asked, the Commission expressly stated that only the Article 93, paragraph 2 procedure had been initiated by it. The appellant claims that this procedure does not operate as a bar to the national aid measures to which it relates, but leads at most to decisions with future effect. Thus a procedure under Article 93 (2) — it was argued — cannot influence an investment grant sought for the year 1969, with which the main action is alone concerned, and on this view there is no reason here to interpret paragraph 3 of Article 93.

In considering this argument, however, the first point to be borne in mind is that in principle, the view taken by the Court up to now in its preliminary rulings has been that it need not inquire whether a reference for a preliminary ruling is necessary to enable the court to reach a decision. Insofar as the possibility has been hinted at that this principle might have to be departed from in cases where the provision of Community law to be interpreted has clearly been referred to mistakenly, it should be noted that in the case before us, the court making the reference did in fact criticize the Commission's attitude towards the initiation of proceedings, that is, it raised doubts as to the legality of the Commission's conduct. But since these criticisms are not obviously wrong, it is certainly not a priori excluded that, despite the Commission's communication as to its initiation of the procedure under Article 93 (2) the decision in the national proceedings might rest on Article 93 (3).

In my opinion, therefore the Court should not refrain, on grounds of relevance to the national court's decision, from examining the questions raised and giving its answer to the court making the reference.

2. 

If we turn now to an examination of the actual questions, it must first be recollected that all of them relate to Article 93 (3) of the EEC Treaty. It is also clear that the questions — as the court making the reference noted — “qualify and overlap one another”. For that reason I think it relevant not to proceed forthwith to a separate examination of each one, but first to place the provision requiring interpretation — as the Commission has done — in its factual context and to start with a basic, systematic survey of the provisions in the Treaty relating to aids.

Article 92, which has already been discussed in a number of previous cases, states in paragraph 1 that any aid granted throught State resources favouring undertakings or the production of goods is in certain circumstances (distortion of competition, damage to trade between Member States) incompatible in principle with the common market. Certain kinds of aid are then stated, in paragraph 2 of Article 92, to be compatible with the common market; besides these, certain aids may, in accordance with Article 92 (3), be regarded as compatible with the common market. It has already been made clear, with regard to these provisions that they are not directly applicable within the meaning of the case law on that subject, that they do not contain any absolute prohibition which could be relied upon by private parties in the national courts. On this point, I refer the Court to the judgment in Case No 77/72, a fairly recent decision.

Of special significance in the scheme, then, are the provisions as to procedure contained in Article 93, which serve to give effect to Article 92. They distinguish between two situations: on the one hand, existing aid, i.e. State aid legislation already in being when the common market was established or introduced later in accordance with Article 93 (3), and on the other hand, proposals for legislation on State aid, i.e. aid introduced after the Treaty came into force or legislation to modify or prolong existing aid.

Article 93 (1) provides, as to existing aid, that it shall be kept under constant review by the Commission in cooperation with Member States. In so doing, the Commission may propose to the Member States any “appropriate measures”. Should it come to the conclusion that some incompatibility with the common market exists, then it shall introduce the procedure provided for by Article 93 (2) and, if necessary, reach a decision setting a time limit for abolishing or altering such aid. If the Member State concerned fails to comply with the decision, the Commission or any other Member State affected may, by way of exception to Articles 169 or 170, bring a direct action before the Court of Justice. In this connexion it is important to note, further, that in exceptional circumstances the Council may decide unanimously that a particular aid scheme is incompatible with the common market. For these reasons, the view has been correctly followed — and is invoked in the present proceedings, with emphasis on the fundamental principle of legal certainty — that decisions of the Commission concerning existing aid can have effect only for the future.

Different principles apply, however, in the case of proposals for granting aid, i.e. new aid legislation. Thus, recognizing that distortion of trade resulting from aid schemes can be remedied after the event only with difficulty, or perhaps not at all, provision is made for preventive control by the Commission, that is, aid is subject to examination before it is introduced. To that end Member States are obliged to inform the Commission of plans for granting or altering aid in sufficient time to enable the Commission to make an inquiry and give its comments. If after a summary inquiry the Commission finds itself of the opinion that the proposals are not compatible with the common market, then it shall initiate, without delay, the procedure provided for in paragraph 2 of Article 93. In this context it can, moreover, be regarded as sufficient — contrary to the view of the British Government — that the Commission has genuine doubts as to the compatibility of a provision; that, viewed in the light of Article 92, a provision appears to it to be suspect, for were it otherwise, i.e. if the Commission were in fact certain that a scheme for aid was incompatible, then a final decision could be taken immediately and there would be no need to initiate any further procedure of inquiry. Paragraph 3 third sentence, goes on to say: “the Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision”. It is vital here — for only thus can effective preventive measures be guaranteed — that Member States are bound to take no further action. Admittedly, such an obligation is clearly specified only in the event of the procedure in the final sentence (just quoted) of paragraph 3 being initiated. But from the purpose of the provision and the manner of its expression, “informed, in sufficient time to enable it to submit its comments”, the prohibition against taking further action is clearly meant to come into being earlier than that, indeed from the time the Commission is informed, or even if it is not. Any other meaning, for instance to the effect that it is open to Member States right up to the initiation of a procedure to bring the aid legislation into effect, would make little sense in the light of the general scheme of Article 93. So one can perfectly well — as did the Commission — speak of a general prohibition, applicable to all Member States alike, against taking action, on the one hand, and of a particular prohibition of extended duration on the other, and limit the latter to cases where the Commission initiates a procedure.

While all this seems reasonably clear from the context and wording of the provisions described, a number of particular problems still remain, and it is to these in particular that the questions referred by the court relate.

(a)

The principal difficulty concerns the duration of the prohibition after the Commission has been notified.

As to this difficulty, the argument put forward by one side is that the prohibition applies only for a period sufficient to allow the Commission to compile a reliable report on the aid legislation and to complete an examination of it. If a reasonable period for the purpose has elapsed without any procedure under Article 93 (3) having been initiated, then the prohibition ceases to apply, with the result that the aid legislation may be implemented and become “existing” aid within the meaning of Article 93 (1).

Against that, it is argued that a Member State which proposes to introduce an aid scheme must in every instance wait until the Commission has given a decision, and indeed, (since the extended prohibition arises automatically when there is a decision initiating a procedure), until a decision to the effect that the aid legislation is compatible with the common market.

The majority opinion appears to coincide with the first argument, and is the one hitherto followed by the Commission in practice. Some of the plaintiffs in the main action, and the Governments of the Federal Republic of Germany and the United Kingdom also support such an interpretation of Article 93 (3). The court making the reference, however, seems to incline towards the second-mentioned view.

Clearly, it must be conceded that there is something to be said for the argument that the Commission is obliged to express an opinion even when the legislation notified is unobjectionable, precisely because notification of aid legislation sets in motion a procedure for examination provided for by law. Similarly there is good reason for saying that it is in the interests of legal certainty to require Member States to take no action until such a decision has been given.

Ultimately, however, the problem must be decided on the basis of the wording of the relevant provisions in the Treaty and the general scheme of which they form part.

Now, I think it is significant that nowhere is it laid down that the Commission has a duty to give a decision even when the result of the summary examination which it has to perform is positive. Rather, a final decision — as is apparent from the French, Italian and English versions of the third sentence of Article 93 (3) — is only prescribed when the Commission has initiated a procedure following a preliminary summary inquiry. I quote the French text: “avant que cette procédure ait abouti à une decision finale”. It is obvious that here “cette procédure” refers to the procedure under the second sentence. In my opinion there are sound reasons for this. It does not only serve as a reminder that exaggerated formalism has no place in the relationships between Community institutions and Member States (as Mr Advocate-General Lagrange noted in his opinion in case 6/64, Recueil 1964, p. 1141). The consideration that Article 92 — as we have seen — does not confer direct rights on private parties, and that if a positive decision were given, which created the impression that the aid was approved, the Commission's right nevertheless to examine the aid legislation later under Article 93 (1) and (2) might be impaired or even negatived, may also have played a part therein. Consequently the most that can be required of the Commission at this juncture, i.e. after a purely summary investigation, (the British Government speaks of a desirable practice, whilst the Commission does not exclude even a legal duty to this effect), is an informal statement to the effect that no objections to the proposed aid legislation are apparent.

Another point which should not be forgotton concerning the obligation on Member States not to take action, which some would like to extend until the Commission makes an informal statement such as the above, is that State aid is not prohibited outright under the scheme of the Treaty, nor is it made subject to prior authorization from the Commission. The sole purpose of Article 93 (3) is precisely to ensure a balance between the interest of Member States in the speedy enactment of aid legislation, and the interest of the Community in securing competition free from distortion. According to the clear meaning of this provision, the measures adopted by States should not be such as to present the Commission with a fait accompli, but must allow sufficient time for it to complete its examination. If the matter is seen thus, however, it scarcely seems justifiable to prolong the waiting time to the detriment of Member States because the Commission happens to protract the inquiry and fails to fulfil its duty to comment within the appropriate time.

Nor — as the British Government has rightly emphasized — can it seriously be suggested here, with regard to the periods which must elapse, that in view of the provision for actions under Article 175 of the EEC Treaty, the Member State affected should initiate such proceedings for establishing an infringement, in order to obtain an opinion from the Commission. The only rational view, and one which avoids any unacceptable encroachment on the liberty of Member States, is that the general obligation on Member States not to take action, contained in Article 93 (3) ceases on expiry of a reasonable period for examination. Admittedly this has the disadvantage of introducing an element of uncertainty, since the period for examination may vary in length from case to case, depending on the particular features of the legislation in question (urgency of the State's proposals; information requirements of the Commission). However, doubts as to whether it has in fact expired should — as is correctly maintained by the British Government — arise only seldom in practice. In borderline cases, moreover, — the present proceedings are an example — the requisite clarification can be obtained by means of a reference for a preliminary ruling under Article 177, so long as the Council has not — as seems desirable — provided for such a clarification by making a regulation under Article 94 of the Treaty and determining precise time limits.

If this interpretation is adopted — and for myself, I have no doubt of its correctness — it instantly supplies the answers to the first three questions asked by the court making the reference.

Accordingly, as to Question 1, it must be confirmed that Article 93 (3) is not to be interpreted as meaning that the Commission has in all cases to reach a formal and final decision, i.e. even when it is of the opinion that a national law is compatible with Article 92 of the EEC Treaty. At most it has a duty to make an informal statement on conclusion of its summary examination. The statement may — if it has been decided not to initiate a procedure — be limited to the information that no objections to the national law are apparent, and naturally it does not, any more than does the Commission's failure to act, preclude the latter from reexamining the provision in the context of Article 93 (2), even when the factual circumstances remain unchanged.

As to the second question, it may be answered that failure by the Commission to initiate a procedure without delay, after being informed by a Member State and when a reasonable period for examination has passed, has the consequence that the prohibition under Article 93 (3) lapses, and the Member State concerned may therefore introduce the aid legislation, which thus becomes existing aid within the meaning of Article 93 (1). No specific question as to the duration of the prohibition in this instance has been asked. But perhaps it may be remarked that a provisional statement by the Commission could be of some significance if it states that the examination is still in progress and will not be completed until after a certain period of time. For the proceedings with which we are concerned at present, it is revealing that the Commission has not claimed that the period mentioned had not expired when the procedure was initiated in January 1970, and that it regards the aid in question rather as existing aid, i.e. legally introduced.

Finally, the third question — as the Commission rightly emphasizes — must be decided according to whether the general duty to refrain from action was or was not still continuing when the procedure was initiated. If the duty was still continuing, then initiation of the procedure — as I have said — brings into effect the extended prohibition under the third sentence of Article 93 (3), which then continues in force until a final decision is given. If, however, the appropriate period of examination has already elapsed when the State's law comes into force, then aid legislation has been introduced in accordance with the law and can be prohibited, by proceedings which are introduced later, only with future effect.

(b)

In view of these conclusions as to the first three questions, there is no need to go into the fourth question referred by the court. Hence it remains only to decide the last question, in which the court asks whether Article 93 (3) is to be interpreted as meaning that failure to observe this provision infringes the direct rights of private parties.

This does not call for any lengthy observations.

The third sentence of Article 93 (3) is dealt with in fact by the precedents of Cases 6/64 and 77/72. From these judgments it may be concluded that even the national court is bound by the abovementioned provision, i.e. it does create for private parties the right to enforcement of the prohibition effect thereby provided.

But if this is true of the so-called extended obligation of Member States not to take action, then it must be so also of the obligation (called by the Commission the general obligation), in the first sentence of Article 93 (3). That seems obvious, since otherwise there would be an inducement to Member States to disregard the obligation of informing the Commission and to bring aid legislation into force quickly. Moreover, the objection made by the British Government that the requisite clarity is lacking in this respect, cannot be upheld, for the same objection could be made when the extended duty not to take action began. Consequently one cannot draw a distinction between the general and the extended duties not to take action, but must adopt the same view in relation to the first, namely that breach of it can be asserted by private parties in the national courts.

It is also relevant here to add that breach of the duty not to act does not necessarily invalidate the national law concerned. Important information to that effect can also be gleaned from past cases, namely Case 34/67 (Recueil 1968, p. 359) in particular from the conclusion as to the applicability of an internal measure adopted by a State, which is incompatible with the law of the Treaty, that it is a matter for the “national courts to select from several paths open to them under the internal legal order those which seem appropriate for safeguarding the rights conferred on private parties by Community law”. This can in fact be applied to the difficulties which have arisen here, firstly in the knowledge that the Treaty contains no general prohibition against the introduction of new aid legislation, and secondly, bearing in mind the special powers vested in the Council under Article 93 (2). It must therefore, be kept firmly in mind that it is sufficient for the purposes of the provision in Article 93 (3) if a national regulation which contravenes this Article is temporarily not applied.

This may perhaps cover all that is required for the purposes of the national proceedings, even for the last question.

3. 

I shall just sum up once more. I am of the opinion that the questions from the Frankfurt Verwaltungsgericht are to be answered as follows:

(a)

The third sentence of Article 93 (3) of the EEC Treaty is not to be interpreted as meaning that the Commission must reach a final decision even when it has no objections to a proposed national law and therefore does not initiate the procedure under Article 93 (3). For the sake of legal certainty, however, it seems desirable for the Commission to give at least an informal opinion in such cases.

(b)

If, after being informed by a Member State in accordance with the first sentence of Article 93 (3), the Commission does not initiate the procedure under the second sentence of Article 93 (3) without delay, i.e. after a reasonable period for examination of the case has elapsed, then the prohibition under Article 93 (3) ceases to have effect, with the consequence that the aid legislation may be introduced and becomes an existing aid within the meaning of Article 93 (1). Later initiation of a procedure is not thereby precluded, but can be made under Article 93 (2).

(c)

If the Commission initiates the procedure under the second sentence of Article 93 (3) within a reasonable time, then the duty on the Member State which gave notification of aid legislation not to act is extended until that procedure is completed.

(d)

Both the general duty not to act, which arises on notification of aid legislation for the Member State notifying, and also the extended duty not to act which comes into effect for the Member State concerned when the Commission initiates proceedings within the appropriate time, have direct legal consequences in the Member States. Breach of the duty not to act does not necessarily invalidate the aid scheme in question. From the point of view of Community law it is, on the contrary, sufficient for the national courts to declare such a scheme temporarily inapplicable.

( 1 ) Translated from the German.