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EU Finds Fault With $40 Mil. Bailout France Gave

(CN) - The European Commission did not do enough to ensure competition when it let France give an appliance manufacturer a $40 million bailout, an EU court ruled Tuesday.

FagorBrandt obtained the restructuring aid by the French Ministry of Economic Affairs, Finance and Employment in 2007, according to the Luxembourg-based General Court of the European Union.

Before the European Commission would authorize France's decision, however, it set conditions to limit market distortion.

The commission ordered FagorBrandt to cease the marketing of refrigeration, cooking and dishwashing appliances under its Vedette brand for a period of five years. That, coupled with a 2004 sale of the company's Brandt Components subsidiary and FagorBrandt's repayment of an earlier - and unlawful - grant from the Italian government, made the bailout compatible with the common market, according to the commission.

After the 31 million euro aid finally came through in 2008, Sweden's Electrolux and Whirlpool Europe asked the General Court to annul the commission's decision.

Both companies argued "that the conditions laid down in the guidelines necessary for restructuring aid to be declared compatible with the common market are not met in this case," according to the ruling. The companies also objected to the commission's failure to follow its own guidelines to "take into consideration previous unlawful aid [from Italy] granted and not recovered when examined the grant of restructuring aid."

Electrolux further alleged that "the commission has failed to deal with the existence of structural overcapacity on the market, even though Electrolux had informed it during the administrative procedure of the existence of such overcapacity."

"According to Whirlpool, the commission should have stated the reasons why it did not consider it necessary to reduce the distortion of competition in member states other than France," the court added.

The General Court agreed Tuesday, calling the commission's analysis "manifestly erroneous" in a statement.

"The General Court states that, even if the sale of Brandt Components had the effect of reducing FagorBrandt's presence on the market for washing machine components, the commission itself ruled out the claim that that measure had a 'real effect' on the washing machine market," according to the statement.

"According to the commission, that market was the 'main market' in which FagorBrandt was active. For that reason, the General Court considers that the commission's analysis, according to which the cumulative effect of that measure with the measure consisting in the cessation by FagorBrandt of the marketing of certain products for five years under the Vedette brand limited proportionately the negative effects on competition, is manifestly erroneous."

"For the sake of completeness, the General Court also points out that, in the context of the examination of the effect on competition of the advantage conferred by the aid at issue, the commission failed to take into consideration the fact that FagorBrandt's Italian subsidiary had also received unlawful and incompatible aid granted by Italy," the statement continued.

"Furthermore, the recovery of that aid, which had already been ordered by the commission, had not been fully implemented," the court said. "In those circumstances, the General Court considers that the commission has committed a second manifest error of assessment in failing to examine the cumulative effect on competition of the advantage conferred from the grant of that Italian aid which had not been fully reimbursed with the advantage conferred by the grant of the aid at issue by France."

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