Germany, 3 boulevard Royal, defendant, for service in Luxembourg at the Embassy

CASE JUDGMENT OF 12. 7. 1973 70/72 interim measures, where necessary, decisions taken under Article 93 (2) only take full effect on condition that the Commission indicates to the Member State concerned the aspects of the aid regarded as incompatible with the Treaty to abolition or alteration. and therefore subject In Case 70/72 Commission of the European Communities, represented by its Legal Adviser, Jochen Thiesing, acting as agent, with an address for service at the office of its legal adviser Pierre Lamoureux, 4 boulevard Royal, applicant, v The Federal REPUBLIC of Germany, represented by Martin Seidel, Regierungsdirektor in the Federal Ministry of Economics, acting as agent, with an address for service in Luxembourg at the Embassy of the Federal Republic of Germany, 3 boulevard Royal, defendant, Application for a declaration that the Federal Republic of Germany has disregarded the Decision of the Commission of 17 February 1971 on aid granted under Article 32 of the Law on the Adaptation and Rationalization of the German Mining Industry and Mining Regions, THE COURT composed of: R. Lecourt, President, R. Monaco and P. Pescatore (Rapporteur), (Presidents of Chambers), A. M. Donner, J. Mertens de Wilmars, H. Kutscher, C. Ó Dálaigh, M. Sørensen and A. J. Mackenzie Stuart, Judges, Advocate-General: H. Mayras Registrar: A. Van Houtte gives the following 814

Summary of COMMISSION v GERMANY JUDGMENT Issues of fact and of law I of facts construction, in the form of a deduction from income tax or corporation tax. By letter of 15 June 1967 the Government of the Federal Republic of Germany notified the Commission of the European Communities of a draft Law on the Adaptation and Rationalization of the German Mining Industry and Mining Regions. By letter of 30 November 1967 the Commission informed the Government of the Federal Republic of Germany that it was not opposed to the entry into force of the measures proposed with a view to improving the economic structure of the German mining regions and, in arriving at this point of view, the Commission had taken account of the fact that it was necessary to maintain a balanced development of the different regions of the Community. On 15 May 1968 the Federal Republic of Germany enacted the Law, known as the 'Kohlegesetz', on the Adaptation and Rationalization of the German Mining Industry and Mining Regions (Bundesgesetzblatt I, p. 365). This law contains measures designed, first, to adapt the production of the mining industry and the market for that product to the changing situation in the energy sector and, secondly, to improve the economic structure of the mining regions. In connection with these last measures, paragraph 1 of Article 32 of the 'Kohlegesetz' provides that taxpayers who calculate their profits in accordance with the acknowledged principles of business accountancy and who construct or enlarge an industrial establishment in a mining zone may obtain, on request, an investment grant representing 10 % of the expenses of purchase and This grant was limited to investments made after 30 April 1967 and prior to 1 January 1970 (incentive period). The Government of the Federal Republic of Germany, by Note Verbale of 16 July 1969, informed the Commission that in the course of the debate on the Tax Modification Law of 1969 the Bundestag had on 18 June 1969 decided to extend by two years the period of application originally due to terminate on 31 December 1969 the system of incentives in the form of investment grants, provided for in Article 32 of the Law of 15 May 1968. The Commission intimated to the Federal Government of Germany by letter of 1 August 1969 that in accordance with the first sentence of Article 93 (3) of the EEC Treaty it should have been informed in sufficient time of the alteration planned and it asked to be notified of the details of and the reasons for the extension of the period. On 18 June 1969, the Federal Republic enacted the Law regarding the grant of investment subsidies, which also amended certain provisions relative to the taxation system and the system of grants (Tax Modification Law, 1969; Bundesgesetzblatt I, p. 1211). Article 9 of that Law amended Article 32 of the Law of 15 May 1968 on the Adaptation and Rationalization of the German Mining Industry and Mining Regions, substituting, in the first sentence of the first paragraph of the latter, the year '1972' for the year '1970' and thus prolonging the original incentive period from 1 January 1970 to 1 January 1972. By Note Verbale of 1 October 1969, in 815

CASE (Steueränderungsgesetz). JUDGMENT OF 12. 7. 1973 70/72 reply to the letter from the Commission of 1 August, the Federal Government had stated in particular that an amendment of Article 32 of the 'Kohlegesetz' had not been provided for in the Government's proposal and that it had therefore been impossible to notify the Commission at that stage of the proceedings: Article 9 of the Tax Modification Law, 1969, had been initiated by the Bundestag itself. It emerges from an extract from the written report of the Finance Committee of the Bundestag, which was appended to the Note Verbale, that when the Tax Modification Law 1969 established a system of investment subsidies for the region bordering on East Germany and other regions requiring assistance, the Committee had considered whether the mining regions should also be allowed to participate in these subsidies and that with the exception of the mining region of the Saar, the Committee was of the opinion that it would be sufficient to prolong the validity of Article 32 of the 'Kohlegesetz' by two years. By letter of 30 July 1970, the Commission notified the Federal Government in particular that owing to the new circumstances in the coal-mining sector and to the favourable economic progress which had been recorded in the 'Land' under consideration, the non-selective award of investment grants in all the mining 'Land' regions of the of North Rhine-Westphalia could no longer be considered as compatible with the Common Market and in particular with Article 92 (3) of the EEC Treaty. The Commission consequently requested the Federal Government to ensure that from 1 December 1970 no new decisions to award investment grants were taken in North Rhine-Westphalia, and invited it to submit its comments in accordance with Article 93 (2). In accordance with tne first sentence or Article 93 (2), the Commission, by letter of 30 July, and by communication published in the Official Journal on 14 August 1970 (C 104, p. 1) invited the respective Member States and other interested parties to submit their comments on the extension of the period for awarding investment grants authorized by Article 32 of the 'Kohlegesetz'. The Federal Government delivered its comments to the Commission by Note Verbale of 5 November 1970. Following bilateral discussions on 8 December 1970 the Federal Government laid fresh considerations before the Commission by January 1971. Note Verbale of 6 By Decision of 17 February 1971, regarding the subsidies granted under Article 32 of the Law on the Adaptation and Rationalization of the German Mining Industry and Mining Regions (OJ L 57, p. 19), the Commission required the Federal Republic to take without delay all necessary measures to put an end, in the mining regions of North Rhine-Westphalia, to the awarding on a non-selective basis of investment grants provided for by the first paragraph of Article 32 of the Law on the Adaption and Rationalization of the German Mining Industry and Mining Regions (Kohlegesetz), as amended by Article 9 of the Law of 18 August 1969 The Federal Government was notified of this decision by letter of 19 February 1971 which it received on 24 February. Following another bilateral meeting on 4 May 1971 and further correspondence (letter of 18 May; Notes Verbales of 29 June and 3 September 1971 from the German Government; telex message of 14 July and letter of 4 October 1971 from the Commission), the Commission informed the Federal Government by letter of 16 December 1971 that the selective award of investment grants in certain clearly defined zones of North Rhine-Westphalia could be considered as compatible with the Common Market until the expiry of the extended incentive period (31 December 1971), but it opposed the issue outside these areas by 816

declare reject Submissions COMMISSION v GERMANY the Federal Delegate for the Coal-Mining Industry, under Article 32 of the 'Kohlegesetz', of certificates for investments undertaken or for applications made after 20 August 1970 (6 days after the publication of the Commission's communication in the Official Journal). On the basis of information supplied to it by the Federal Government, in particular, a telex message of 22 December 1971 and letters of 16 February and 22 June 1972, the Commission, by letter of 1 August 1972, took formal note of the fact that the German authorities had continued, after 24 February 1971, to grant aid covering a total investment of DM 133 million, for applications lodged after 20 August 1970 in respect of investments in zones where these aids were no longer justified. The Commission consequently informed the Federal Government that it had decided to refer the matter to the Court of Justice in accordance with the second subparagraph of Article 93 (2), in order that these infringements might be placed on record and that the Federal Republic of Germany might be caused to withdraw the certificates for the payment of aid which had been improperly granted. The Advocate-General presented his opinion at the hearing on 19 June 1973. III of the parties The Commission submits that the Court should that the Federal Republic of Germany has not complied with the Decision of the Commission of 17 February 1971 (71/121/EEC) in that, after 24 February 1971, it granted subsidies under Article 32 of the Law on the Adaption and Rationalization of the German Mining Industry and Mining Regions (Kohlegesetz) for investments made after 1 January 1970 in North Rhine-Westphalia outside the following towns and districts: Aachen Bekkum Castrop- (Landkreis), (Landkreis), Bottrop, Rauxel, Dortmund, Ennepe-Ruhr (Landkreis), Erkelenz (Landkreis), Essen, Gladbeck, Herbede, Herne, Lüdinghausen (Landkreis), Lünen, Moers (Landkreis), Oberhausen, Recklinghausen Tecklenburg (Landkreis), Unna (Land (Landkreis), kreis), Wanne-Eickel, Wattenscheid; order the Federal Republic or Germany to require repayment of grants awarded after 24 February II Procedure 1971, unless the investments which benefited therefrom were commenced prior to 21 August 1970 or unless the application for the issue of the The application of the Commission was lodged at the Court Registry on 2 October 1972. The written procedure followed the normal course. certificate referred to in the second paragraph of Article 32 of the ('Kohlegesetz') was made prior to 21 August 1970; order the defendant to pay the costs. Upon hearing the report of the Judge-Rapporteur and the opinion of the Advocate-General, the Court decided to open the oral procedure without any preparatory inquiry. The Government of the Federal Republic of Germany submits that the Court should the action as inadmissible or, alternatively, as unfounded; The oral observations of the parties were made at the hearing on 22 May 1973. order the applicant to pay of the action. the costs 817

Pleas CASE 'without JUDGMENT OF 12. 7. 1973 70/72 IV and arguments of the parties delay' the measures which it calls upon the latter to take, it had fixed a period of time. As it is generally The pleas and arguments of the parties may be summarized as follows: A Admissibility The Government of the Federal Republic of Germany disputes the admissibility of the action as a whole on various grounds: (a) The Decision of the Commission of 17 February 1971 was expressly founded on Article 93 (2) of the EEC Treaty; owing to the circumstances in which it was taken, it cannot be considered as anything but a decision within the meaning of that provision; the Commission itself did not, at the time, consider the extension of the system of aid provided for by Article 32 of the 'Kohlegesetz' as the alteration of an already existing measure relating within the meaning to aid of Article 93 (3). There was therefore no doubt that this was a case for the application of Article 93 (2). (b) A decision taken by the Commission under Article 93 (2) of necessity involves the fixing of a period of time within which the Member State concerned shall abolish or alter the aid which is considered to be incompatible with the Common Market; the text itself clearly stipulates that this period of time shall be determined, and it is only such determination which makes possible the appeal to the Council provided for by the third subparagraph of Article 93 (2); it accounts also for the right conferred on the Commission, in derogation from Article 169 to refer to the Court direct the shortcomings of a Member State: the requirement for an action based on Article 93 (2) is that the State has failed to act within the period of time prescribed. The Decision of 17 February 1971 lays down no period of time; the Commission could not claim ordering that, by the Federal Republic to enact understood, this concept involves a period expressed in determinate units of time; and it is also to be understood in this sense in Community law under Regulation No 1182/71 of the Council of 3 June 1971 determining the rules applicable to periods, dates and time limits (OJ L 124, p. 1). It was necessary in this case to fix a period of time: the Decision of the Commission does not establish the criteria on which the grant of the aid referred to in Article 32 of the 'Kohlegesetz' could lawfully have continued and almost a year would have elapsed before the criteria defining the geographic scope of the Decision could have been defined and laid down by the Commission in agreement with the Government of the Republic; it Federal would, moreover, have been impossible to modify the detailed practical procedures for aid and to adapt them to the Decision of the Commission at short notice. The passage of time could not affect the right to invoke this point. It is of little importance that the decision in dispute has become final; it is not a question of disputing its validity, but of establishing whether the period of time which is categorically required by Article 93 (2) as a condition of bringing the action has indeed been prescribed and whether it has expired. Furthermore, whilst the Federal Republic was disposed to comply with the Decision as it interpreted it, it did not thereby intend to renounce its right to plead the absence of a period of time. The text of the enacting formula and the legal basis quoted for the Decision of the Commission do not make it possible to construe the Decision as having been taken in application of Article 93 (3). On any interpretation the objection based on Article 93 (2) is equally valid if the Decision must be regarded as having been taken on the basis.of "Article 93.(2) 818

COMMISSION v GERMANY in conjunction with Article 93 (3). In fact where the obligation not to put a proposed measure into effect, prescribed by the latter provision, is not observed, the Commission may either call upon the Member State in question, by way of Decision, to abolish totally or partially in future the aid introduced without the prior authorization of the Commission, or action may be taken on grounds of an infringement of the Treaty. In the former case, the Commission would take its decision in pursuance of the power conferred upon it under Article 93 (1); with regard to the implementation procedure, Article 93 (3) refers on this point to Article 93 (2); in so far as it concerns the decision to be taken by the Commission, this reference also categorically requires that a period of time be established. In the second case the Commission acts within the framework of its general task of supervising compliance by the Member States with their obligations, on the basis both of Article 169 and of subsequent Articles; the Commission must, therefore, comply with the requirements of the preliminary procedure laid down categorically by Article 169. In neither case can the Commission initiate legal proceedings unless the Member State in question has been allowed a period of time to eliminate the measures relating to aid which are contrary to the Treaty. (c) The object of the Decision of 17 February 1971, as it is now interpreted by the Commission, is to declare that there has been an alteration of aid carried out in contravention of the Treaty and in the meantime to prohibit the Federal Republic of Germany from making any investment grants; the Decision therefore involves noting an infringement of the Treaty and a prohibition limited in duration for the time being of incentive measures. According to Article 169 of the EEC Treaty, the Commission does not have the power to establish by way of decision that an infringement of the Treaty has been committed by a Member State; such a finding is reserved to the Court of Justice. Moreover Article 93 (2) of the Treaty does not give the Commission powers to prohibit the granting of aid, and thus to take a decision equivalent to an injunction, until the expiry of the investigation procedure. (d) The second head of the submissions of the applicant is equally inadmissible in that it is designed to cause the Federal Republic to be ordered to carry out specific domestic measures, which would be contrary to Article 171 of the EEC Treaty. In terms of that provision the Court of Justice must limit itself to finding that a Member State has failed to fulfil an obligation under the Treaty; it is for that State to draw its conclusions from the judgment and to enact the necessary measures to make good the failure; in particular the Court may not order the Federal Republic to repay aid the grant of which is alleged to have infringed Community standards. Article 171 is to be applied in this case: the second subparagraph of Article 93 (2) derogates only from Articles 169 and 170. Moreover it is necessary to bear in mind that if the Court were to find against the Federal Republic in accordance with the second head of the submissions, this would result in 18 undertakings being obliged to repay aid which they had received. Thus the judgment of the Court would affect the interests of third persons, present case who were not parties to the and who could not even intervene. An action between a Community institution and a Member State on the content and scope of an obligation of that State towards the Community must affect only the parties to the action. two The Commission disputes the relevance of these pleas of inadmissibility which the Government of the Federal Republic of Germany has put forward. (a) The prolongation by two years of the incentive period initially provided for by Article 32 of the 'Kohlegesetz' 819

CASE JUDGMENT OF 12. 7. 1973 70/72 undoubtedly constitutes an alteration of aid within the meaning of Article 93 (3). With regard to that alteration, which was effected in August 1969, the Commission initiated the procedure provided for by Article 93 (2), not 'without delay' in accordance with the second sentence of Article 93 (3) but only in July 1970. This delay is to be explained by the fact that the Commission did not possess precise information which could justify the extension of the incentive period; since it had been unable to obtain this information from the Federal Republic of Germany, the Commission decided to proceed in accordance Article 93 (2) and, by the Decision of 17 February 1971, to put a stop grants on a to the award of investment non-selective basis until it was certain that the scheme could be operated on a selective basis. The Decision in dispute must therefore be considered as a Decision having as its object the alteration of existing aid within the meaning of the first subparagraph of Article 93 (2). This legal classification, however, has no bearing on the admissibility of the action: even in the case of Decisions which relate to aid already in existence, the Commission may refer the matter to the Court direct in accordance with the second subparagraph of Article 93 (2). It is therefore irrelevant to know whether the Decision rests on Article 93 (2) alone or on both that provision and on Article 93 (3). On any interpretation, in the case of an infringement of the obligation to provide information laid down by Article 93 (3), the Commission cannot content itself with requiring the Member State in question to undertake an alteration of the illegal aid for the future. Such an interpretation would benefit the Member State which failed to comply with obligations, practising the policy of the fait accompli as against the state which, by informing the Commission a sufficient time in advance, allowed it to prevent the grant or alteration of aid which had been contemplated by initiating proceedings in accordance with Article 93 (2). (b) In fact, in the view of the Commission, it is impossible to claim that the Decision of 17 February 1971 does not include any period of time. The first subparagraph of Article 93 (2) does not contain any rule as to the length of the period of time which the Commission is to allow the State concerned to abolish or alter aid which is incompatible with the Common Market; in particular, it does not oblige the Commission to fix a period expressed in determinate units of time. The period of time must be adapted to the requirements of each case. Article 155 of the EEC Treaty obliges the Commission to ensure that the harmful effects of the long-term grant of aid incompatible with the Common Market are kept to the minimum possible. The Commission is required to make the period of time specified in the first subparagraph of Article 93 (2) as long as necessary and at the same time as short as possible. When it is possible for the Member State to conform with the decision by a domestic administrative act, the Commission must require that it comply without delay with this obligation. This is what it had done in the present case, in which the Government of the Federal Republic of Germany was able and was required, by issuing the necessary instructions to the Federal Delegate for the Coal-Mining Industry, to ensure without delay that the award on a non-selective basis of investment grants in North Rhine-Westphalia was stopped pending the preparation of an amendment taking account of the rules of the Treaty, in the light of regional criteria. A longer period of time for implementing the Decision was not required by reason of the fact that the Member States could appeal to the Council. The third subparagraph of Article 93 (2) permits a Member State to have the procedure initiated by the 820

COMMISSION v GERMANY Commission suspended, but this does not apply in the case of a Decision which the Commission has already taken after having given all the parties concerned an opportunity to submit their comments. After the Decision has been notified the general provisions of the Treaty apply: the Member State in question is then only entitled to bring the matter before the Court of Justice in accordance with Article 173. (c) The substance of the Decision of 17 February 1971 was limited to requiring that the award of investment grants be terminated pending a decision establishing a geographical differentiation with a view to a selective application of the scheme. The Commission was conscious of the fact that the non-selective award of grants in North Rhine-Westphalia distorted competition; it could have required complete cessation of the subsidy and left it to the Federal Republic to submit fresh proposals. The purely temporary suspension of aid was not therefore cf such a nature as to prejudice the Federal Republic. (d) Since the Commission had brought the case directly before the Court on the basis of the second subparagraph of Article 93 (2), there were no grounds for the application of Articles 169 et seq. As the reference of the matter to the Court direct was intended to secure not only the most rapid cessation of the grant of aid regarded by Decision as incompatible with the Common Market but also the most complete elimination of the effects of this aid, it would be lawful for the Court to order the State in question to take specific measures to this end. However in this case the Commission does not ask that the Federal Republic of Germany be ordered to carry out specific domestic measures; the method of carrying out its obligation, that is to say the repayment of the aid granted in breach of the Decision of the Commission, is left to its discretion. The Commission has therefore restricted itself to the limits implied by Article 171. Moreover the essential precedence of Community law requires not only that Member States should allow their nationals to enjoy the advantages conferred upon them by such Community law, but that they must also withdraw from certain undertakings advantages which they have allowed them in breach of Community law. The necessity for a uniform application of the Community rules with regard to competition must take precedence over purely individual interests. In this case there can be no question of retroactivity or of the infringement of rights already acquired: all the undertakings concerned were informed by the publication in the Official Journal of the Communities on 14 August 1970 of the communication of the Commission that the payment on a non-selective basis of investment grants in all the mining areas of North Rhine-Westphalia could no longer be considered as compatible with the Common Market. B Merits First head of submissions The Commission points out that, under the terms of Article 191 of the EEC Treaty, decisions take effect upon their notification to those to whom they are addressed. The Decision of 17 February 1971 was notified on 24 February to the Federal Republic of Germany which failed to comply therewith. (a) The first Article of the Decision called upon the Federal Republic to take without delay all measures necessary to put an end, in the mining regions of North Rhine-Westphalia, to the non-selective payment of investment grants provided for by the first paragraph of Article 32 of the 'Kohlegesetz'. The meaning of that provision is perfectly clear, above all when taken in conjunction with Section V of the preamble to the Decision and with the accompanying letter of 19 February 1971: the Commission required 821

CASE JUDGMENT OF 12. 7. 1973 70/72 the Federal Republic of Germany to suspend without delay the payment of grants pending the alteration of the aid scheme on the basis of a geographical differentiation in order to prevent the continued distortion of competition within a part of the Common Market. The federal Government failed to issue instructions in this sense to the Federal Delegate for the Coal-Mining Industry; the latter therefore continued to issue certificates after 24 February 1971 and did not conform to the geographical criteria which the Commission had laid down until after the letter of 16 December 1971 had been received. (b) On a technical level, the Commission submits, it is of little importance whether the grant of aid is effected by an alteration of fiscal indebtedness in the field of income tax or in that of corporation tax. The decisive factor is the issue by the Federal Delegate of the certificate mentioned in the second paragraph of Article 32 of the 'Kohlegesetz'. The revenue authorities automatically deduct the amount of the investment grant, namely 10 % of the expenses of purchase or of construction, from the tax due from the taxpayer to whom such certificate has been granted. In fact therefore by issuing this certificate the Federal Delegate settles the grant of the aid. The ract that this aid is not granted in the form of budgetary credits but is deducted from the tax due does not affect the legal position with regard to Articles 92 et seq. of the Treaty. Owing to the procedure adopted by Article 32 of the 'Kohlegesetz', the use of the resources of the state was hidden as it did not appear under any budgetary item of expenditure, but took effect as a diminution of public revenue. The statements of the Federal Government on the importance of aid from the point of view of the national political structure are irrelevant at the present stage of the proceedings: it would have been possible to dispute the Commission's appraisal of this aid in an appeal against the Decision of 17 February 1971. Moreover, these statements are not at all convincing. (c) The Federal Republic of Germany could and should have complied with the Commission's decision by instructing the Federal Delegate, without delay, not to issue additional certificates until further notice. No amendment of the law would have been necessary for this; this view is confirmed by the fact that after the receipt of the letter from the Commission of 16 December 1971, the Federal Delegate, according to the Federal Government, applied to the issue of certificates the regional criteria specified in that letter. As soon as it was notified of the Decision of 17 February 1971, the Federal Government could therefore have issued instructions to the Federal Delegate to suspend the issue of certificates pending a decision with regard to the regions which could still benefit from the measures concerning aid. (d) The Commission submits that the Federal Republic of Germany therefore failed to comply with the Decision of the Commission of 17 February 1971; it cannot justify this disregard of its obligations under the Treaty by invoking applicable in its the principles allegedly national legal system. The uniform application of Community law would be compromised if the Member States were in a position to invoke such principles so as to refuse to apply the decisions of the Community. The Government of the Federal Republic of Germany raises preliminary objections to both heads of the submissions of the application on the ground that owing to their imprecise wording they go beyond the material aim of the Commission's application. The payment of investment grants is effected by a reduction in the tax due from the taxpayer; the first head of the submissions, taking 24 February 1971 as the reference date, therefore implies that the Decision of the Commission has been disregarded even in those cases where the certificate 822

COMMISSION v GERMANY provided for in Article 32 of the 'Kohlegesetz' was issued prior to that date but in which the amount of the tax was only subsequently ascertained. The same observation holds good for the second head of the submissions. In the present case the sole point at issue is the grant of certificates after 24 February 1971. (a) With regard to the extent and scope of the Decision of the Commission of 17 February 1971, it must be noted first that the prohibition which the Commission imposes is limited to the granting of aid for investments begun after 24 February 1971 and for which an application for the issue of a certificate was made after that date; and secondly that the prohibition must be viewed in the light of the legal concept of the issue of investment grants within the meaning of the 'Kohlegesetz'. This is a complicated process comprising a programme of private investment carried out by an undertaking and an administrative procedure of public law. An undertaking's decision to invest is decisively linked with the availability of aid offered, in the public interest, by the regional development programme of the State, and with its permanent nature. The issue by the Federal Delegate of the certificate provided for by Article 32 of 'Kohlegesetz' only constitutes one of the factors in this process of canalizing investments made by private undertakings in the public interest. As it does not occur at the beginning of the process, nor does it coincide with its end; it does not indicate any precise stage in the aid process. The Government of the Federal Republic of Germany was bound to take account of the complex structure of this process in ascertaining the precise extent and scope of the obligation which was imposed upon it by the Decision of the Commission of 17 February 1971. In this connection it emerged clearly that the order to end the award of grants had no retroactive effect but related only to the future, and that the issue of a certificate by the Federal Delegate could not be regarded as a decisive criterion, taking account first of the structure of the aid process, and secondly principle of equality of the of treatment. The Federal Government therefore had to rely on objective criteria: the date when the applications were received by the Federal Delegate and the date when the investments were put in hand. A date prior to 24 February 1971 could not, by reason of the structure of the aid process, have been adhered to in this connection, since it would violate the principles of legal certainty, of the retention of public confidence and of equality of treatment, by giving retroactive effect to the Decision in dispute. For their part, the undertakings concerned could not have given a different interpretation to the Decision of the Commission. The communication published on 14 August 1970 in the Official Journal did not affect the legal position of these undertakings on the basis of domestic law; in particular it was not capable of destroying the confidence which these undertakings had in the long-term nature of the aid. Nothing had led them to imagine that investment aids would no longer be permitted by Community law after the publication of the said communication. (b) After the notification of the Decision of the Commission, the Federal Government had complied with it in the light of the interpretation which it had of necessity to give it: it had no longer adjudicated on applications made after 24 February 1971 or in connection with investments undertaken after that date; it had not thus continued the grant of non-selective aid. The Federal Government could not have Commission, whilst retaining forseen that the the same objective criteria of definition, would in its notification of 16 December 1971 take another date, namely 1970, as the reference date. 20 August (c) In its implementation of the Decision of the Commission the Federal Government did not disregard either the 823

CASE JUDGMENT OF 12. 7. 1973 70/72 principle of the uniform application of Community law nor that of its precedence. This would only be the case if the legal principles of equality of treatment and of legal certainty were not applied as scrupulously in Community law as in national law; it is clear however from the decisions of the Court that these two principles are to be considered as part of the foundations of Community law. The Decision of the Commission for its part does not legal enunciate any principle whose uniform application and precedence is assailed by the Government of the Federal Republic of Germany: the decisions arrived at by the Commission in implementation of Article 93 (2) of the EEC Treaty are not aimed at standardizing either the legal structure of national aid or, more particularly, laws affecting the national economy. (d) In conclusion, the Government of the Federal Republic of Germany considers that it was both able and required to interpret the Decision of the Commission as meaning that the prohibition in Article 1 thereof did not apply to investment arrangements for which were set in hand prior to 24 February 1971 or in connection with which an application for the issue of a certificate had been made prior to that date. In accordance with a general principle of law, also recognized by Community law, in cases of a decision of this kind, requiring an interpretation and imposing an act, an obligation to abstain from a decision-making authority must be effective: it would have required almost a year of discussions before the Commission, in agreement with the Federal Government, could have laid down the criteria applicable to selective aid. The Government of the Federal Republic of Germany did not, therefore, infringe the Decision of the Commission of 17 February 1971, which simply imposed a prohibition on adjudicating on investment schemes embarked upon after the day of notification of the prohibition. (e) The defendant further submits that alternatively there are grounds for finding that, moreover, the decision in dispute has not been infringed if its aim was to provide a legal basis for a general temporary prohibition of the application of Article 32 of the 'Kohlegesetz' in North Rhine-Westphalia. Moreover, since the Decision of the Commission was totally lacking in any retroactive effect it is impossible to find, as the first head of submissions requests, that the Federal Republic of Germany infringed the Decision by issuing certificates after 24 February 1971, not only for investments commenced prior to 20 August 1970, but also for investment schemes commenced between 1 January and 20 August 1970. A retroactive effect extending beyond 20 August 1970 would moreover contradict the argument of the Commission on the effects of its communication of 14 August 1970. accept the interpretation which the person to whom it is addressed can and must give to that decision, having regard to a reasonable appraisal of the facts and taking account of the interests of the decision-making authority. In this connection it must be recalled that in the present case the Decision in dispute required an interpretation not only as to the objective scope of the prohibition on the allocation of grants but also as to the geographical area within which it was to Second head of submissions The Commission stresses that the aim which its Decision of 17 February 1971 had in view cannot be attained by a mere finding that the Federal Republic of Germany has not complied with it; the Federal Republic must also be required to bring about the legal position which would have existed if it had complied with the Decision without 824

COMMISSION v GERMANY delay. Consequendy it should obtain repayment of the aid which it granted in disregard of that Decision. It would only be possible waive the enforcement of that obligation with regard to recipients who commenced their investments prior to 20 August 1970 or who, prior to that date, applied for the issue of the certificate referred to in the second paragraph of Article 32 of the 'Kohlegesetz'. The method or complying with that obligation is left to the choice of the Federal Republic of Germany; various Republic of Germany is not even justified by the case law of the German courts. The Commission respects the principle of the retention of public confidence: the Decision in dispute has no retroactive effect. The Commission takes note of the information made available by the Federal Government regarding the actual amount of the aid granted after 24 February 1971 but stresses that the outcome of this action does not depend thereon, since the second head of the submissions indicates neither the number solutions are possible depending on of cases nor the amount of the aid of whether the taxpayers have or have not already availed themselves of the certificates, issued in breach of Community law, to obtain a tax deduction. The Federal Government could have avoided the difficulties to be expected in fulfilling its obligation if, in accordance with the Decision, it had suspended the grant of aid without delay in North Rhine-Westphalia and if, further, it had limited the aid to investments made in the regions indicated by the Commission. It was only in the course of the discussion of 4 May 1971 that the Commission learned that the Federal Republic had purely and simply ignored the Decision and continued to allow the issue of certificates before the geographical differentiation, which the Decision indicated as necessary, had been effected. The Commission in no way fails to recognize that respect for fundamental rights forms part of the common legal principles which the Community institutions must safeguard; but the application of legal principles which are recognized only in certain Member States cannot be allowed to endanger the uniform and equal application of Community law. For the application of the Decision of 17 February 1971 Community law alone is decisive; it would be merely superfluous to note also that the point of view of the Federal which repayment was demanded, and the Federal Government does not deny that in a certain number of cases it granted aid after 24 February 1971 for investments commenced after 20 August 1970 in regions of North Rhine-Westphalia which no longer required aid. The second head of the submissions is therefore well founded. The Government of the Federal Republic of Germany claims that the second head of the submissions is unfounded, by reason of the legal considerations set forth in connection with the first head. Moreover according to the defendant no provision of Community law establishes any obligation to require the reimbursement of payments which the Commission considers as contrary to the Treaty. Member States are no doubt obliged to end a situation which is contrary to Community law but they may do so in such a manner and by such means as they think fit; this obligation does not extend to requiring the Member State in question to undertake a specific measure. In fact, it would be appropriate to put the actual extent of the alleged infringement of the Decision of the Commission of 17 February 1971 by the Federal Republic of Germany into its proper perspective: certificates for investments undertaken after 20 August 1970 were issued only for a sum of DM 33 million, which was the equivalent of investment grants of DM 3-3 million. 825

CASE JUDGMENT OF 12. 7. 1973 70/72 Grounds of judgment 1 By an application lodged at the Registry on 2 October 1972, the Commission, under Article 93 (2) of the EEC Treaty, brought an action before the Court for a declaration: 1. that the Federal Republic of Germany has disregarded the Decision of the Commission of 17 February 1971 on aid granted under Article 32 of the Law of 15 May 1968 on the Adaptation and Rationalization of the German Mining Industry and Mining Regions (termed 'Kohlegesetz', Bundesgesetzblatt 1968 I, p. 365), extended by Article 9 of the Law of 18 August 1969 on the grant of investment subsidies, which also amended certain provisions relative to the taxation system and to the system of grants (termed 'Steueranderungsgesetz 1969', Bundesgesetzblatt 1969 I, p. 1211); 2. that the Federal Republic of Germany is obliged to require repayment from the recipients of certain grants awarded in disregard of the Decision referred to. The subject of the action 2 Article 32 of the Law of 15 May 1968 (Kohlegesetz) made it possible to grant, for a fixed period, aid in the form of a reduction of taxation making certain investments attractive so as to improve the economic structure of the German regions affected by the coal crisis. The draft of that Law was duly notified to the Commission on 15 June 1967 and the Commission stated on 30 November 1967 that it had no objection to put forward. 3 The effects of paragraph 32 of the Law of 15 May 1968 were extended for a period of two years under Article 9 of the Law of 18 August 1969 (Steueränderungsgesetz), following an amendment proposed by a Committee of the Bundestag which was adopted by approved by the Bundesrat on 10 July 1969. the latter on 18 June 1969 and The Government of the Federal Republic of Germany notified the Commission of this fact on 16 July 1969. 826

to (Steueränderungsgesetz)'. other COMMISSION v GERMANY While the said Government was late in fulfilling the obligation imposed on Member States by the first sentence of Article 93 (3) to provide information, the Commission, for its part, did not exercise the powers conferred upon it by the second and third sentences of Article 93 (3) but confined itself in a communication dated 1 August 1969 to protesting and to requesting further information. In these circumstances, the legislation approved by the Bundestag force as a result of the promulgation of the Law, August 1969. came into which took place on 18 By Note Verbale of 1 October 1969 the German Government supplied the Commission with brief explanations of the circumstances in which the amending law had been approved. 4 Only by letter of 30 July 1970 did the Commission give the German Government notice under Article 93 (2) of the Treaty, requesting it in addition not to take any further decisions on the grant of aid in North Rhine-Westphalia from 1 Decmeber 1970. 5 The Commission published a communication in the Official Journal of 14 August 1970 giving notice to all interested persons States than Member submit their comments on the extension of the period for the award of the investment grants in question. In the view of the Commission this notification took effect, with regard to the persons to whom it was directed, on 20 August 1970. 6 On 17 February 1971 the Commission took the Decision which it accuses the Federal Republic of Germany of disregarding; this Decision took effect on 24 February 1971, upon its notification to the German Government. Article 1 of the Decision provides that 'the Federal Republic shall take without delay all necessary measures to put an end, in the mining regions of North Rhine-Westphalia, to the non-selective award of investment grants provided for by the first paragraph of Article 32 of the Law on the Adaptation and Rationalization of the German Mining Industry and Mining Regions (Kohlegesetz), as amended by Article 9 of the Law of 18 August 1969 827

CASE award' JUDGMENT OF 12. 7. 1973 70/72 7 Subsequently, the Commission commenced discussions with the German Government with a view to laying down the criteria for the 'selective of subsidies, in order to enable the defendant to comply with the obligations arising out of the Decision of 17 February 1971. Although these discussions ended in a solution by mutual agreement with regard to the geographical field of application of the Decision, this was not the case with regard to the timing of its application by the German authorities. In implementing the Decision of 17 February 1971 the latter adopted a transitional procedure which the Commission regards as a failure to comply with the obligations arising from the said Decision. Admissibility 8 The Federal Republic of Germany disputes the admissibility of the action, which has been brought on the basis of the first subparagraph to Article 93 (2), on the ground that the Decision of the Commission of 17 February 1971, contrary to a formal requirement of the Treaty, does not fix a period of time for compliance, but requires the system of aid in dispute to be ended 'without delay'; and that according to the categorical requirements of Article 93 (2) the determination of such a period of time is a necessary condition precedent to the reference of the matter to the Court in accordance with the special requirements of the provision in question. 9 In reality this plea is concerned not with the admissibility of the action but with the validity of the Decision of 17 February inadmissibility must therefore be rejected. 1971. The plea of 10 In the second place the defendant pleads in particular the inadmissibility of the second head of the action under which the defendant is to be ordered to require from the recipients the repayment, within certain time limits, of the grants awarded after the Decision of 17 February 1971. According defendant it follows from Article 171 of the Treaty to the that in the course of an action directed against a Member State, the Court of Justice must limit itself to finding a failure to fulfil an obligation, and has no power to order the Member State to take any specific steps, so that it is in fact the responsibility of the Member State alone to determine the necessary measures to comply with the judgment of the Court so as to eliminate the results of its failure to comply. 828

does may COMMISSION v GERMANY 11 By the second subparagraph of Article 93 (2) 'if the State... not comply with this decision within the prescribed time, the Commission... the matter to the Court of Justice direct'. refer 12 The head of submissions in question requests the Court to find that the defendant, by its failure to require the repayment by the recipients of the aid wrongly received, has not fulfilled an obligation incumbent upon it by virtue of the Decision of 17 February 1971. 13 Such a request is admissible since the Commission is competent, when it has found that aid is incompatible with the Common Market, to decide that the State concerned must abolish or alter it. To be of practical effect, this abolition or modification may include an obligation to require repayment of aid granted in breach of the Treaty, so that in the absence of measures for recovery, the Commission may bring the matter before the Court. Moreover an application from the Commission, within the scope of the procedure under Articles 169 to 171, for a declaration that in omitting to take specific measures, a Member State has failed to fulfil an obligation under the Treaty, is equally admissible. Since the aim of the Treaty is to achieve the practical elimination of infringements and the consequences thereof, past and future, it is a matter for the Community authorities whose task it is to ensure that the requirements of the Treaty are observed to determine the extent to which the obligation of the Member State concerned may be specified in the reasoned opinions or decisions delivered under Articles 169 and 93 (2) respectively and in applications addressed to the Court. This plea must therefore be rejected. Merits 14 The infringement with which the Federal Republic of Germany is charged consists in having continued to award, by virtue of the amending Law of 18 August 1969, investment grants in regions of North Rhine-Westphalia which no longer qualified for the grant of aid provided for under the Law of 15 May 1968. 829