France Illegally Bailed Out Produce Industry

(CN) - Europe's General Court ruled France's $400 million bailout of its fruit and vegetable industry illegal, even though 30 to 50 percent of the money came from farmers' contributions.

The European Commission found the 10-year program to alleviate market surpluses constituted illegal state aid -- largely because it had not been notified -- and ordered the French government to recover the money.

However, France argued there was no precedent for the commission's decision since it had never before encountered a program financed by both state aid and voluntary private contributions.

In its ruling , the General Court said the relevant criterion in determining state aid is not the initial origin of the money, but the degree of intervention by the government.

"Firstly ... Oniflhor, a public industrial and commercial institution under the supervision of the state, decided unilaterally on the sums allocated to the contingency plans and on the amount of the contributions which the approved economic agricultural committees were to pay in respect of the contingency plans," the Luxembourg court wrote. "Those contributions were fixed by Oniflhor, which set a percentage of the quantity or value of the fruit and vegetables actually sold by the beneficiary farmers, and were called for by the approved economic agriculture committees from the national sections for each product, which then paid to them to Oniflhor. It then supplemented those sums with public aid representing 50 percent to 70 percent of the total aid. In the event of non-payment of the sectoral contribution by the farmers, the aid allocated by Oniflhor was not paid to the farmers and remained frozen at the level of the approved economic agricultural committees, which were required to reimburse it to Oniflhor."

While Oniflhor tasked the agricultural committees with managing the money, they had no discretion on how it was spent. And the farmers' only power was to participate, or not, in Oniflhor's system.

"[T]he disputed measures were determined by Oniflhor by means of decisions bearing the stamp of its director and the state financial controller and auditor and that the approved economic agricultural committees take no part in their definition and have no discretion in their application," the court wrote.

France played a predominant role in the program, even represented by the regional Préfet in meetings with the agricultural committees, according to the court.

"[T]he French Republic submits that, although the representative of the regional Préfet attends the meetings of the managing bodies of an economic agricultural committee, he does not, however, take part in the decisions adopted by those bodies. However, it is apparent from the provisions ... that the decisions of the managing bodies of the committees and the agreements concerning the use of public financing were only enforceable if they bore the approval of the regional Préfet or his representative," the court wrote.

"It follows from all the foregoing that it is Oniflhor which decided unilaterally on the measures to be financed by the contingency plans and how they should be implemented and that, although the approved economic agricultural committees had the task of managing the operational funds intended to finance those measures, they did not, however, have any discretion in their application. "In conclusion, it must be held that the definition of the disputed measures and how they were financed was carried out by Oniflhor, a public industrial and commercial institution under the supervision of the state. Conversely, the beneficiaries of the measures had the power only to participate or not in the system thus defined by Oniflhor, by agreeing or refusing to pay the sectoral contribution which Oniflhor fixed. Accordingly, the view must be taken that the disputed measures constituted state aid," the court concluded.

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