EFTA Court with early Christmas present to challenger in Norwegian dairy products market; subsidy to competitor likely to be state aid and aid schemes covering both products falling inside and outside the EEA Agreement must be notified

On the 15 December 2016 the EFTA Court handed down its judgement in case E-1/16, concerning a request for advisory opinion from the Oslo District Court (Oslo tingrett) in a case between the dairy products producer Synnøve Finden AS (“Synnøve Finden”) and the Norwegian State. For the EFTA Court the essence of the case was to answer questions from the national court on whether a special distribution subsidy exclusively granted to fellow dairy producer, the Q-Meieriene AS (“Q-Meieriene”), is to be considered as state aid in the meaning of Article 61 of the EEA Agreement, and to what extent ESA state aid law is applicable if the aid measure covers both products falling inside and outside the product scope of the EEA Agreement.
Thursday, December 22, 2016

Authors: Partner | Lawyer Thomas Sando, Partner | Lawyer Aksel Hageler, Senior Lawyer Lennart Garnes and associate Heidi Magnussen

The case and the EEA law interpretative issues that it triggers should be seen in light of the respective special regulatory regimes for dairy and agricultural products under national and EEA law. One of the schemes under the national regulatory regime is a equalisation system, having the purpose to grant milk producing farmers equal milk prices regardless of geographical place of production or end-use of the milk, and thereby also facilitate the market entry of competitors to the old monopolist, Tine SA. The product distribution costs subsidy which is the contentious feature of the case, is an integrated part of the price equalisation system. By a particular provision of the relevant national regulation a special distribution cost subsidy is granted exclusively to the Q-Meieriene.

When Synnøve Finden in 2014 was exploring the possibilities to take up domestic production of yogurt and milk it contacted the Norwegian Ministry of Agriculture and Food to obtain confirmation on the applicable regulatory framework conditions, the Ministry responded that the circle of recipients of the distribution costs subsidy would not be extended beyond the Q-Meieriene. Against that background Synnøve Finden has contested the exclusive subsidy scheme before the national courts, contending, inter alia, that it entails unlawful state aid, as the aid scheme also cover products falling inside the product scope of the EEA Agreement.

By its answers to the questions from the national court, the EFTA Court does not only provide a helping hand for Synnøve Finden`s national court case, the EFTA Court judgement also brings useful clarifications on some the state aid criteria, as well as the relationship between the limited product scope of the EEA Agreement and the application of its state aid rules.  

The EFTA Court first addresses the issue of whether the statutory based exclusive subsidy is to be considered state aid in the meaning of the EEA Agreement. As it also was undisputed between the parties of the case, the EFTA Court simply confirmed that it appears that the subsidy confers a selective advantage on the Q-Meieriene. Neither did it take the EFTA Court many paragraphs to conclude that the subsidy appears to be liable to affect trade between EEA States and to potentially distort competition, two of the other criteria that have to be fulfilled in order to conclude that state aid is present. It is worth noting, though, that the EFTA Court, as a response to the quite small subsidy amounts that can be attributed to products falling inside the product scope of the EEA Agreement, specified that “the fact that the aid amount or the beneficiary undertaking is relatively small does not in itself preclude the possibility that trade between the EEA States might be affected.”

Also the EFTA Court`s assessment of the criterion of intervention through State resources carries useful clarifications. Being directly based on a Norwegian regulation it was undisputed that the subsidy is attributable to the State. The disagreement between the parties concerned whether the subsidy is granted through State resources, as the subsidy is fully financed though levies on and collected from private companies, before apportioned and redistributed to the Q-Meieriene via the subsidy measure. Relying on previous case-law, and pointing at the national legislation and administrative authorities regulating all aspects of the collection and redistribution of the funds, the EFTA Court held that the subsidy is still to be considered as granted through state resources, regardless of the fact that it is financed by the levies obtained from the market players participating in the price equalisation scheme.

Secondly the EFTA Court examines the scope of the EEA Agreements state aid rules in light of the limited product scope of the EEA Agreement, as the latter excludes a majority of important marine and agricultural products, including many dairy products. The contentious subsidy measure mostly covers products falling outside the EEA Agreement. However, flavoured yogurt is product falling inside both the product scopes of the EEA Agreement and the distribution subsidy exclusively granted to the Q-Meieriene.

As a starting point the EFTA Court takes the view that as a general rule; products falling outside the product scope of the EEA Agreement also fall outside any rule of the EEA Agreement. The EFTA Court`s confirmation of this is quite noteworthy, both as the EFTA Court has not earlier had the opportunity to confirm this in the context of the state aid and as the court`s position is not uncontroversial.

The EFTA Court then moves on to confirm and extend to state aid its partly criticised approach from case E-4/04 Pedicel, holding that if the state aid measure in questions, i.e. the distribution subsidy, is “inseparably linked” to trade in products falling outside the product scope of the EEA Agreement, that state aid measure also falls outside the EEA Agreement. Also this principle finding may be considered debatable by some.

Yet, despite taking that interpretative position, and finding the concrete subsidy to be inseparably linked to the trade in the underlying products falling outside the product scope of the EEA Agreement, the EFTA Court nevertheless held that the subsidy scheme “is subject to the EEA rules on State Aid, in so far as it benefits products within the scope of the EEA Agreement.”  

Against that background the EFTA Court concluded, provided that the national court finds that state aid is present, that the subsidy scheme must be notified to the EFTA Surveillance Authority (“ESA”), in order for ESA to assess to what extent the subsidy is governed by the EEA state aid rules and whether the aid scheme is compatible with the functioning of the EEA Agreement.

If one first accepts the not uncontroversial Pedicel approach; that EEA state aid rules are inapplicable when the aid is “inseparably linked” to trade in products falling outside the product scope of the EEA Agreement, it appears as quite balanced by the EFTA Court to require a notification in such mixed situations where aid schemes covers both products falling inside and outside the product scope of the EEA Agreement. If the EFTA Court instead had come to the conclusion that the whole of such a mixed aid scheme would fall outside the scope of the EEA state aid rules, it would have opened up for circumventions, as it would make it possible for national authorities to subsidise the trade in products falling inside the product scope of the EEA Agreement by simply integrating such aid into aid schemes also covering products falling outside the product scope of the EEA Agreement. 

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Aksel Joachim Hageler
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