(2) (c) provides that aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, shall be compatible with the common market. The Commission has never considered the 'zonal border areas' of Germany to be automatically exempted from the control of State aid in favour of industrial sectors subject to a specific aid code established in order to combat a serious crisis. In particular in its letter of 6 November 1981 concerning the 10th joint Federal Government/Laender aid plan it had informed the German Government of this proviso, which the latter never contested.
Moreover, this policy was confirmed when in 1985 and 1986 the Commission prohibited the granting of State aid to synthetic yarn producers situated in Neumuenster (1) and Deggendorf (2) in the 'zonal border area'.
Thus, it has to be concluded that the aid granted or to be granted to Reinhold cannot benefit from the exemption provided for in Article 92 (2) (c) of the EEC Treaty.
(3) sets out which aids may be considered to be compatible with the common market. Compatibility with the EEC Treaty must be determined in the context of the Community and not of a single Member State. In order to safeguard the proper functioning of the common market and taking into account the principles of Article 3 (f) of the EEC Treaty, the exceptions from the principle of Article 92 (1) as set out in Article 92 (3) must be construed narrowly when an aid scheme or any individual award is scrutinized.
In particular, the exceptions may be applied only when the Commission is satisfied that the free play of market forces alone, without the aid, would not induce the prospective aid recipient to adopt a course of action contributing to attainment of one of the said objectives.
To apply the exceptions to cases where the aid is not necessary to achieve such an objective would be to give unfair advantages to certain Member States' industries or undertakings, the financial position of which would be bolstered, and could prejudice trading conditions between Member States and distort competition without any justification on grounds of Community interest as set out in Article 92 (3).
The German Government has been unable to give, or the Commission to discover, any justification for a finding that the aid falls within one of the categories of exception in Article 92 (3).
The exception provided for in Article 92 (3) (a) is applicable to aid which promotes the economic development of areas where the standard of living is abnormally low or where there is serious underemployment.
In its method for the application of Article 92 (3) (a) to regional aid (1), to which express reference is made here, the Commission stipulated that only regions having a per capita GDP/PPS of under 75 % of the Community average are eligible for an exemption arrangement under Article 92 (3) (a). As is clear from the list of eligible regions (2), the Commission considers that the economic and social situation of the Federal Republic of Germany, within its borders prior to 3 October 1990, does not justify the application of Article 92 (3) (a) either for the country as a whole or for individual regions.
As regards the exception provided for in Article 92 (3) (b), it is evident that the aid in question was not intended to promote the execution of an important project of common European interest, or to remedy a serious disturbance in the German economy. Aid in favour of one company in the synthetic yarn industry is not adequate to remedy the kind of situation described in Article 92 (3) (b).
With regard to the exemption provided for in Article 92 (3) (c) in favour of 'aid to facilitate the development of certain economic activities', it must be observed that as regards synthetic fibres and yarns in general, and polyamide and polypropylene yarns in particular, there is a high level of trade between Member States and competition is very keen, because of persistent and uncontested overcapacity as stated above. For these reasons, synthetic fibres and yarns including polyamide and polypropylene are also subject to the aid rules for synthetic fibres and yarns.
In its letters of 7 July 1987 and 6 July 1989 by which it extended this system of control of aid for two further two-year periods ending 19 July 1991, thus covering the period relevant in this aid case, the Commission pointed out to Member States that it would a priori express an unfavourable opinion with regard to proposed aids, be they sectoral, regional or general, which had the effect of increasing the net production capacity of companies in this sector. It also reminded Member States that it would continue to give sympathetic consideration to proposals to grant aid for the purpose of speeding up or facilitating the process of conversion away from synthetic fibres into other activities or restructuring leading to reductions in capacity.
In these letters the Commission also reminded Member States that it requires the prior notification of all aid proposals, of whatever type, in favour of companies in the synthetic fibre and yarn sector.
The main purpose of the investment in this case is to expand the production capacity of the company by 50 % by adding a third processing line to the two already installed thus reaching a total output (polyamide and polypropylene yarns) of 6 000 tonnes.
Moreover, the limited increase of the workforce (14 people) needed to operate this third line will result in a significant increase in the overall productivity and competitiveness of the company.
In view of the main purpose of Reinhold's investment plan, the aid at issue is contrary to the synthetic fibres and yarns aid code. At the same time, the investment contains no feature justifying the commission in exempting the aid concerned from the rules set out in the aid code under which any public support has to be avoided, since all new increases of capacity are contrary to the Community interest (which seeks a reduction in capacity) and aggravate the situation of competing undertakings all suffering from an oversupplied market.
In its comments in the course of the procedure, the German Government claimed that the types of yarn produced by Reinhold have special features (coarse filaments) and undergo special dyeing treatment which make them particularly appreciated by customers with special requirements and give Reinhold a competitive advantage. In this respect it has to be pointed out that polyamide and polypropylene yarns are in surplus in the Community as a whole and that the kind of filaments produced by Reinhold do not have any special innovative feature so that they can be produced in high quantities by a large number of other undertakings.
However, it has to be pointed out that the beneficiary has constantly recorded positive economic results, so that market forces would have been sufficient to secure a normal development of the company and the implementation of the investment in question without any State intervention.
In recent years the Commission has always prohibited Member States from granting financial assistance to sythetic fibre or yarn producers in similar or, indeed, identical situations, that is when the company in question was merely wishing to increase and modernize its production without effecting any of the changes required under the aid rules for synthetic fibres.
Therefore in view of all the foregoing considerations with regard to the exemption provided for in Article 92 (3) (c) of the EEC Treaty in favour of 'aid to facilitate the development of certain economic activities', it must be observed that the aid at issue, by artificially lowering the costs of the undertaking in question, weakened the competitive position of other producers in the Community and thereby had the effect of further reducing the overall capacity utilization to the detriment of producers who have, by their own efforts, hitherto survived by virtue of restructurization of their operations, and improvements in productivity and quality, and which may now be forced out of the market. The aid granted to the undertaking in question, whose market position is no longer solely determined by its own profitability, efficiency and financial position, cannot be considered as contributing to a development which from the Community point of view would be adequate to counteract the distortion of trade caused by the aid.
The exception provided for in Article 92 (3) (c) is also applicable to aid which facilitates the development of certain economic areas, but which does not adversely affect trading conditions to an extent contrary to the common interest.
Because of the weak condition of the man-made fibres industry, the sectoral effects of regional aid have to be checked even for the most underdeveloped areas - to which Selbitz does not belong. Above all, the Commission carries out its analysis of the economic and social situation in the context of the Community interest, which, in this sector, is to reduce capacity.
The limited impact of Reinhold's investments on the labour market, involving the creation of just 14 new jobs, are certainly insufficient to persuade the Commission to set aside its essentially negative attitude to aid in the man-made fibres sector as set out in the aid code.
For all the abovementioned reasons the exception provided for in Article 92 (3) (c) cannot apply to this case.
V
In view of all the foregoing considerations, the elements of aid contained in the DM 1,8 million soft loan paid in the spring of 1989 under the Bavarian regional assistance programme, is illegal because the German Government did not fulfil its obligation to notify pursuant to Article 93 (3) of the EEC Treaty. Moreover, as explained above, the aid unlawfully enjoyed by Reinhold does not meet the conditions which must be fulfilled in order for one of the exceptions of Article 92 (2) and (3) to apply. the aid must therefore be recovered. In quantifying this aid, the Commission has calculated the difference between the reference market rate at the time when the loan was granted (on the assumption that it was 1 April 1989: 7,8 %), and the 4 % interest rate attaching to the loan, namely 3,86 percentage points. At the time of adoption of this Decision the interest subsidy on the loan therefore resulted in a gain of DM 53 044.
Moreover the 10 % grant (DM 344 000) still to be paid under the Investment Premium Law does not meet either the conditions for the exceptions provided for in Articles 92 (2) and (3) and may not therefore be paid.
For each month of delay in complying with this obligation the German Government shall require Reinhold to repay the monthly interest subsidy of DM 2 588,
HAS ADOPTED THIS DECISION: Article 1
1. The aid granted by the Federal German Republic to Reinhold KG in April 1988 in the form of an interest subsidy on a loan of DM 1,8 million, valued at DM 53 044 at the date of the adoption of this Decision, is illegal as it was granted in breach of the provisions of Article 93 (3) of the EEC Treaty. Moreover, this aid is incompatible with the common market within the meaning of Article 92 of the EEC Treaty.
2. The aid granted to the same firm in the form of a grant of DM 344 000 is incompatible with the common market within the meaning of Article 92 and may not therefore be implemented. Article 2
1. The German Government shall require Reinhold KG to refund without delay the interest subsidy of DM 53 044 referred to in Article 1 (1).
2. The German Government shall furthermore without delay cancel the aid arising from the loan of DM 1,8 million referred to in Article 1 (1) by requiring the loan to be refunded or by making it liable to a market interest rate of 7,86 %, which rate corresponds to that charged on loans granted by the Kreditanstalt fuer Wiederaufbau (programmes M1 and M2).
For each month of delay in complying with this obligation the German Government shall require Reinhold KG to repay the monthly interest subsidy of DM 2 588. Article 3
The German Government shall inform the Commission of the measures taken to comply with this Decision within two months of its notification. Article 4
This Decision is addressed to the Federal Republic of Germany. Done at Brussels, 17 December 1990. For the Commission
Leon BRITTAN
Vice-President (1) OJ No C 158, 28. 6. 1990, p. 3. (2) [1973] ECR 813. (3) [1990] ECR 959. (4) Not yet published. (5) OJ No L 181, 13. 7. 1985, p. 42. (6) OJ No L 300, 24. 10. 1986, p. 34. (7) OJ No C 212, 12. 8. 1988, p. 2. (8) OJ No C 212, 12. 8. 1988, p. 6.
