92/327/EEC: Commission Decision of 20 December 1989 concerning aid granted by the Belgian Government to undertakings in the pharmaceutical industry in the form of programme contracts (Only the French and Dutch texts are authentic)

Article 1

The system of aid in the form of programme contracts for various pharmaceutical undertakings is unlawful since it was introduced in breach of the procedural rules provided for in Article 93 (3) of the EEC Treaty. The aid is, moreover, incompatible with the common market within the meaning of Article 92 of the EEC Treaty.

Article 2

The Kingdom of Belgium shall not conclude any further programme contracts and shall abolish aid derived from contracts concluded in the past with effect from the date of this Decision.

Article 3

The Kingdom of Belgium shall inform the Commission within two months of the date of this Decision of the measures taken to comply with it.

Article 4

This Decision is addressed to the Kingdom of Belgium. Done at Brussels, 20 December 1989. For the Commission
Leon BRITTAN
Vice-President
(1) As a result of the conditions to which the conclusion of programme contracts is subject, in practice only pharmaceutical products developed and manufactured in Belgium may be covered by a programme contract; since the concept of programme contracts in the pharmaceutical sector is thus fundamentally incompatible with the establishment of a common market, the programme contracts are also the subject of proceedings for infringement of Article 30 of the EEC Treaty - A/86/40. (2) Budget of the Ministry for Economic Affairs for the financial year 1988 (10), 4/12 - 523/1 - 1988, page 135. (3) Parliamentary document of the Senate, 1984 - 1985 session, 83, p. 6, 23 May 1985.

Article 92

(1).
Where financial aid granted by a Member State strengthens the position of certain undertakings compared with their competitors in the common market, such competitors must be deemed to be affected by such aid. In the case in point, the aid in the form of permission to increase prices enables the beneficiaries to reduce costs which they would normally have had to bear in full.
The aid has thus distorted and is continuing to distort competition by facilitating the financing of investment (machinery, construction, etc.), research and measures to promote exports and by subsidizing employment costs.
VI

Article 92

(1) lays down the principle that aid having the characteristics which it stipulates is incompatible with the common market; as regards the exceptions to that principle, those provided for in Article 92 (2) are inapplicable in this particular case, given the nature and the objectives of the aid.
Under Article 92 (3), aid which may be considered to be compatible with the common market must be viewed within the Community context. So as to maintain the smooth functioning of the common market and take account of the principles laid down in Article 3 (f), derogations Article 92 (3) from the principle laid down in Article 92 (1) must be interpreted narrowly in examining individual aid measures.
In particular, the exemptions apply only if the Commission finds that, without the aid, market forces would not in themselves be sufficient to prompt recipients to take action in order to achieve one of the objectives pursued.
Applying the exemptions to cases which do not contribute to such an objective or where the aid is not necessary for this purpose would amount to conferring advantages on the industries or undertakings of certain Member States, whose financial position would be artificially strengthened, and to distorting competition, without any justification based on the common interest as referred to in Article 92 (3).
The Belgian Government has not been able to provide, or the Commission to identify, any reason that would allow the aid to be covered by one of the exemptions provided for in Article 92 (3).
VII
Accordingly, having regard to the provisions of Article 92 (3) (a) concerning aid to promote the development of certain regions, it must be concluded that the regions in which the beneficiaries of the price increases are situated do not suffer from an abnormally low standard of living or from underemployment within the meaning of the exemption provided for in Article 92 (3) (a). The regions concerned are not among the regions eligible for this exemption.
Nor does the aid fulfil the conditions laid down in Article 92 (3) (c) regarding the regional aspecct. The granting of aid to a number of undertakings in a given sector whose production sites are located in different regions is not aimed at facilitating the development of certain areas, nor has the Belgian Government in this case invoked such ground to justify the conclusion of programme contracts. Consequently, the aid is not eligible for this particular derogation.
As regards the exemptions provided for in Article 92 (3) (b), there are no elements whatsoever which indicate that the aid is intended to promote a project of common interest or to remedy a serious disturbance in the Belgian economy, nor has the Belgian Government invoked any such grounds as justification for the aid.
Lastly, as regards the exemption provided for in Article 92 (3) (c) concerning 'aid to facilitate the development of certain economic activities', it should be noted that, although the aid facilitates the development of the undertakings which have concluded programme contracts, it does not facilitate the development of the pharmaceutical industry at Community level and has an impact contrary to the common interest on intra-Community trade.
The system of setting maximum prices and the system of eligibility for reimbursement which are applied in Belgium have the effect of maintaining the prices for pharmaceutical products, and in particular for reimbursed pharmaceutical products, on the Belgian market at an excessively low level, to the extent of creating problems of profitability for a large number of operators.
A large number of pharmaceutical products are marketed in Belgium under precarious conditions of profitability. This fact was noted by the Belgian authorities (3) which, in setting up the fund for the reimbursement of Inami, stated that the need to reduce as far as possible the impact of the cost of the reimbursed pharmaceutical products meant that the Ministry for Social Affairs and Inami had to be very strict as regards the obtaining of a price for a pharmaceutical product eligible for reimbursement and that the consequence of this policy was harming the development of the pharmaceutical industry, which had to bear the costs of research and major investment and was by that very fact preventing certain undertakings from carrying out investment and recruitment of staff.
The conclusion of a programme contract between a pharmaceutical undertaking and the Belgian activities allows the prices of pharmaceutical products to be increased under a system of price setting (without loss of the right to reimbursement by the health insurance fund), leading to a continuous incrase in incomes which is used, depending on the contract concluded, to finance investment, research projects, staff recruitment and/or the promotion of exports.
However, such activities entered into by undertakings which have concluded contracts are in the aid recipients' own interests since they form part of the normal activities of any undertaking in the pharmaceutical industry wishing to maintain or improve its market position.
Given the intensity of competition on the Community pharmaceutical market and the volume of intra-Community trade, the granting of any aid, even indirectly through selective permission to increase prices within the framework of a price setting system, with reimbursement of additional sickness insurance costs by the relevant fund, has a particularly serious effect on competition between the different producers.
Such distortion is amplified by the fact that the Belgian pharmaceutical market is a regulated market. The Belgian authorities themselves have stated that the prices imposed have a serious effect on the profitability of the producers, preventing them in some cases from financing essential investment in research and development, production, the recruitment of staff and even the promotion of sales.
Although such activities are in the pharmaceutical undertakings' own interests so as to ensure their medium and long-term viability, because of the abovementioned low level of profitability imposed by the Belgian Government, only the undertakings which have concluded contracts are able to pursue them.
Furthermore, the granting of aid in the form of selective permission to increase prices within the framework of the price setting system has much more serious consequences than the granting of normal aid in the form of a capital grant or an interest subsidy on a loan of limited duration; contrary to such aid, the permission to increase prices leads to permanent additional revenue equivalent to the regular granting of an annual subsidy amounting to the product of the difference between prices before and after the increase and the volume of the pharmaceutical products sold. In the long term, the additional turnover generated by the conclusion of a programme contract should thus exceed the total costs of the investments and activities which the recipient has carried out.
Allowing aid in the form of contract programmes that enable a limited number of pharmaceutical undertakings to increase their prices on the Belgian market (rather than allowing an increase in the general price level) would amount to imposing on the competitors of such undertakings a disadvantage which might force them to withdraw in whole or in part from the market.
Consequently, the aid does not facilitate the development of the Community sector in question and adversely affects trading conditions to an extent contrary to the common interest, within the meaning of Article 92 (3) (c).
VIII
In conclusion, the aid in the form of programme contracts is unlawful, since the Belgian Government has failed to fulfil its obligations under Article 93 (3). In addition, the aid does not fulfil the conditions laid down in order to qualify for one of the exemptions provided for in Article 92 (2) and (3).
Accordingly, no new programme contract between pharmaceutical undertakings and the Belgian authorities may be concluded and the aid derived from the conclusion of such contracts must be abolished with effect from the date of this Decision,
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