British Steel: Action for annulment of decision authorising State aid to Irish Steel dismissed

The European Court of First Instance (”CFI”) dismissed an action brought by British Steel against the Commission’s approval of state aid measures in favour of Irish Steel. The aid was based on a restructuring plan which allowed for pre-privatisation cash injections to write-off loans and to improve the company’s balance sheet position prior to privatisation. The company was subsequently purchased by Ispat International which was not required to re-imburse all of these sums to the Irish government.

British Steel’s first argument was that the Commission was not authorised to adopt the contested decision because the Fifth Code on Aid to the Steel Sector did not permit either operating or restructuring aid, except in case of aid for plant closures. According to British Steel, the Fifth Code constitutes an exhaustive legal regime which prohibits the authorisation of any aid incompatible with its provisions. The CFI, however, disagreed. It held that the Code is exhaustive and binding only for the types of aid which are specified in the document. Aid falling outside the categories of the Code may qualify for individual exemption. The aid covered by the contested decision, which enabled Irish Steel to be restructured and thereby privatised, did not fall within the scope of the Code. Therefore, the Commission was entitled to authorise such assistance on the basis of Article 95 of the ECSC Treaty.

As its second argument, British Steel claimed that the conditions imposed by the Commission’s decision were insufficient to eliminate distortion of competition because it did not impose capacity reductions. However, the CFI held that there is no rule or general principle of EC law requiring the Commission to impose capacity reductions as a condition for granting state aid in the steel sector. Instead, the only obligation imposed on the Commission was to require appropriate measures to limit the aid’s anti-competitive effects and to prevent unacceptable distortion of competition. Furthermore, where an undertaking is privatised to ensure its viability, this contributes to the attainment of the objectives of the Treaty. This is particularly so given the sensitive nature of the steel industry and the fact that any worsening of the crisis would lead to serious and long-term problems for the economy of the Member State concerned.

Finally, the CFI rejected British Steel’s argument that the authorisation discriminated in favour of a public undertaking to the detriment of private undertakings. According to the Court, discrimination exists only where the Member State has chosen between potential recipients and given preference to the public sector. In the present case, Irish Steel was the only steel producer in Ireland and there was no evidence that the authorisation was decisively influenced by the fact that Irish Steel was a public undertaking. Therefore, the contested decision could not have given rise to manifest discrimination. (British Steel v. Commission, Case T-89/96, judgment of 7.07.99.)