The packaging giant will hear the crucial judgment of the Luxembourg-based European Court of Justice next 10 July. The firm lodged its application to the ECJ in August 2008.

Smurfit Kappa wants reversed a 2008 decision by the commission to approve €83m in funding granted to its rival by the Brandenburg-Nordost region in Germany to build a major manufacturing facility.This  included a paper mill and a related power plant to produce corrugated case material and a base to produce corrugated packaging.

Construction of the rival packaging plant, owned by Progroup, whichSmurfit Kappa claimed would be the largest of its kind in the European Union, proceeded after the European Commission granted Progroup state aid. It has since been commissioned.

The facility is located in Eisenhüttenstadt, a border town beside Poland. The state aid was paid to Progroup’s Propapier PM2 unit. Aside from the aid, the company spent €640m on the project.

‘Disadvantaged area’

In a press release published in 2008, the EC said that the region of Bradenburg-Nordost, was a disadvantaged area eligible for aid under Article 87 (3) (a) of the EC Treaty as a region with an abnormally low standard of living and high unemployment. It also said that the project intends to create about 150 direct jobs as well as more than 450 indirect jobs.

As PN went published this story this morning (5 July), nobody from Smurfit Kappa was available to comment on the legal action. It is also looking for the Commission to pay what are likely to be fairly substantial legal costs incurred by the group in taking the action.

The company has argued in court that while there were clear indications that the subsidised investment would have serious and disproportionate effects on it and on the sector as a whole, the European Commission did not believe that a formal investigation into the planned aid was necessary.

Market share

The Commission made its decision on the basis that the regional aid would not meet market share and capacity increase thresholds laid down under regional aid guidelines. The Commission said that it found that Progroup’s share would remain below the threshold on the relevant markets for corrugated case material and for corrugated board, both before and after the planned investment.

The Commission also said the additional production capacity created through the project would remain below 5% of the apparent consumption of the product concerned in the European Economic Area.

Smurfit Kappa has insisted that the Commission erred in its findings, and that it should have launched a formal probe into the planned state aid. In its pleas in law and main arguments, Smurfit Kappa argued that the contested decision is vitiated by errors of fact and manifest errors of assessment in respect of market definition and capacity increase.

Finally, the firm also argues that the Commission infringed its obligations in relation to the preliminary investigation to state adequate reasons on which it based its decision.

The European Commission’s existing regional aid guidelines expire next year. Earlier this year, it launched a public consultation process as part of a revision of those rules.