1. Modification of the Multisectoral Framework text with regard to the establishment of a list of sectors facing structural problems

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1 EUROPEAN COMMISSION Brussels, C(2003)3905 fin Subject: State Aid E 3/2003 United Kingdom Multisectoral Framework on regional aid for large investment projects (2002) (1) modification of the framework with regard to the establishment of a list of sectors facing structural problems (2) decision not to include the shipbuilding sector under the multisectoral framework (3) proposal of appropriate measures pursuant to article 88 paragraph 1 EC Treaty. Sir, 1. Modification of the Multisectoral Framework text with regard to the establishment of a list of sectors facing structural problems The Multisectoral Framework on regional aid for large investment projects 1 (hereinafter the Framework) was adopted on 7 March 2002 and will be applicable for a period ending on 31 December The Framework provides for stricter rules in sectors with structural problems, in order to prevent serious distortions of competition. In this respect, the Framework currently foresees that the Commission establishes by 31 December 2003 a list of sectors facing serious structural problems and that, as from 1 January 2004, no regional investment aid to sectors included in the list will be authorised, subject to the provisions laid down in the Framework 2. 1 OJ C 70, Aid exceeding certain thresholds to be defined has to be notified individually. Projects above these thresholds in the listed sectors should not be eligible for regional aid, unless they are carried out in fast growing sub-sectors. The Right Hon Jack Straw MP Secretary of State for Foreign and Commonwealth Affairs Downing Street LONDON SW1A 2AL European Commission, B-1049 Brussel - Belgium - Telephone: exchange

2 In 2002, an external consultant was commissioned to develop a methodology for identifying sectors suffering from structural difficulties. In June 2003, a multilateral meeting with experts of the Member States was held to discuss the methodology for detecting sectors suffering from structural difficulties and the issuing of the list of sectors. Member States had the opportunity to transmit their comments further to the meeting. Most Member States, though considering the study of the external consultant as a sound economic work, expressed the view that the proposed methodology should be used only as a starting point, and should be complemented by further investigations. Most Member States considered that an automatic application of the proposed methodology would create uncertainty, cause significant workload both for the Member States and for the Commission, and would in general worsen the situation compared to the status quo 3. In view of the above, the Commission decided to further reflect on an appropriate methodology to identify the sectors suffering from structural difficulties. For reasons of transparency, the Commission proposes to accordingly modify the Framework and to take out all references to a list of sectors suffering from structural difficulties, to be put in place by 31 December The situation for these sectors will be re-assessed in the context of the review of regional aid guidelines for the period after The Commission has also decided to introduce a technical correction to the wording of the transitional rules to the motor vehicle sector, to become applicable for aid awarded after 31 December The text of the MSF is therefore modified as follows: Point 31 is modified as follows: 31. Sectors where serious structural problems prevail may be specified in a list of sectors to be annexed to the framework. No regional investment aid will be authorised in these sectors, subject to the provisions laid down in this section. The technical feasibility and political and economic opportunity to adopt such a list of sectors will be examined before the end of If the Commission should decide to adopt such a list of sectors, it will be adopted and published before 31 March 2006 and become applicable on the 1 st of January Any appropriate measures pursuant to Article 88 paragraph 1 EC-Treaty that may become necessary in this context will be proposed before 1 st July Point 32 is modified as follows: 32. For the purpose of examining the technical feasibility of drawing up the list of sectors, serious structural problems (omissis) are readily available. Other relevant data and information, including sectoral studies, may also be taken into account. No 3 A number of problems which hamper the proposed general methodology have been identified: irrelevance of many sectors that are identified, lack of homogeneity at level of sectors identification, non identification of sectors where the existence of problems was presumed etc. 2

3 sector will be included on the basis of a purely mechanistic statistical approach. The list of sectors may be updated whenever necessary. The first sentence of point 33 is modified as follows: 33. If the Commission should decide to adopt such a list of sectors, as from 1 January 2007, Point 42 is modified as follows: 42. Until 31 December 2006, and without prejudice to Regulation (EC) No 70/2001: (a) for aid amounts exceeding EUR 5 million, expressed in gross grant equivalent, the maximum aid intensity for regional investment aid in the motor vehicle sector as defined in Annex C to be granted under existing aid schemes, is limited to 30 % of the corresponding regional aid ceiling; (b) no expenditure incurred in the context of investment projects in the synthetic fibres sector as defined in Annex D will be eligible for investment aid. This modification enters into force as from 1 January Points 43 and 44 are repealed. After point 46, two new points 46bis and 46ter are inserted: 46bis. In order to have, in the absence of a list of sectors where serious structural problems prevail, a clear set of rules applicable to regional investment in the motor vehicle sector and in the synthetic fibres sector as from 1 January 2004, the Commission has decided to propose as appropriate measures under Article 88(1) of the Treaty: to continue to apply the existing transitional rules for the synthetic fibres sector as defined in Annex D until 31 December 2006; for aid amounts exceeding EUR 5 million, expressed in gross grant equivalent, to limit the maximum aid intensity for regional investment aid in the motor vehicle sector as defined in Annex C to be granted under existing aid schemes, to 30 % of the corresponding regional aid ceiling. 46ter. The Member States are invited to give their explicit agreement to the proposed appropriate measures within the deadline specified in the letter addressed to them. In the absence of any reply, the Commission will assume that the Member State in question does not agree with the proposed measures. 2. Decision not to include the shipbuilding sector under the Multisectoral Framework Point 44 of the Multisectoral Framework stipulates that the Commission examines before 31 December 2003 whether aid to the shipbuilding sector is to be covered by the framework, and included in the list of sectors. The existing rules under Regulation (EC) No 1540/98 will be in force until 31 December A multilateral meeting with experts of Member States on the future rules for shipbuilding took place on 18 July The Commission decided not to include the rules on regional investment aid to the 3

4 shipbuilding sector under the Multisectoral Framework, and to adopt sector-specific community rules before the end of Proposal of appropriate measures 3.1. Synthetic fibres and motor vehicle sector. For the motor vehicle sector and the synthetic fibres sector, the current 2002 provisions 4 foresee strict transitional rules that apply until the date of applicability (31 December 2003) of the list of sectors 5. Before such date, the Commission intended to decide whether and to what extent these sectors must be included in the list. In absence of a list of sectors by 31 December 2003, it is necessary to clarify the rules applicable to the two sectors concerned. The Commission cannot conclude at this stage, on the basis of the information available, that the sectors covered by the transitional rules of point 42 are no longer suffering from the structural difficulties that led to their initial qualification as sensitive sectors. The Commission services therefore took the preliminary view that regional investment aid to the synthetic fibres sector cannot, at this stage, be considered compatible with the common market. They also took the preliminary view that regional investment aid to the motor vehicle industry with an aid intensity exceeding 30% of the applicable regional aid ceiling in favour of an investment project exceeding eligible cost of 50 million, or a total aid amount of 5 million cannot, at this stage, be considered compatible with the common market. The Commission has informed Member States of this preliminary view in this respect by letter of 14 August 2003; by the same letter, the Member States were informed that the Commission may propose to the Member States, as an appropriate measure pursuant to Article 88 paragraph 1 of the Treaty, to continue to apply the existing transitional rules for the two sectors concerned by point 42 until 31 December The Member States were invited to submit comments on the Commission s preliminary view within the meaning of Article 17 of Council Regulation (EC) No 659/1999. The Member States were invited to provide their comments by 14 September 2003; fourteen Member States submitted their views in writing 6. With a view to ensuring the proper functioning of the common market and for the reasons cited under section 2 of the Framework, and taking into account the comments by Member States, the Commission has now decided to propose appropriate measures under Article 88(1) of the Treaty, in order to have a clear set of rules applicable to regional investment in the motor vehicle sector and in the synthetic fibres sector as from 1 January Point 42 and 43 of the Framework. 5 Transitional rules for the motor vehicle sector provide that the maximum aid intensity for regional investment aid granted under an approved scheme in favour of projects that involve either eligible expenditure above EUR 50 million or an aid amount above EUR 5 million will be equal to 30% of the corresponding regional aid ceiling. For the synthetic fibres, no expenditure occurred in the context of investment projects in the sector will be eligible for investment aid. 6 As far as the motor vehicle sector is concerned, a large majority of Member States agreed on the proposal of the Commission. As far as the synthetic fibres sector is concerned, all comments but one received from Member States are in line with the view of the Commission. 4

5 In particular, the Commission proposes, as appropriate measures under Article 88(1) of the Treaty: to continue to apply the existing transitional rules for the synthetic fibres sector (point 42 of the MSF) until 31 December 2006; for aid amounts exceeding EUR 5 million, expressed in gross grant equivalent, to limit the maximum aid intensity for regional investment aid in the motor vehicle sector as defined in Annex C to be granted under existing aid schemes, to 30 % of the corresponding regional aid ceiling. The Commission considers that these measures ensure transparency, efficiency and equal treatment across Member States as far as regional aid to the motor vehicle and the synthetic fibres is concerned. The aid levels which will continue to be applicable after 31 December 2003 and until 31 December 2006 reflect the situation in such industry and take into account the necessity of strict rules to strike an appropriate balance between the different core objectives of Community policies Shipbuilding sector By chapter 2 of the present letter Member States were informed that the Commission decided not to bring aid to shipbuilding under the Multisectoral Framework. Further to a discussion in the multilateral meting with experts from the Member States held on 18 July 2003 on future rules on state aid to shipbuilding, the Commission has decided that the existing provisions on regional investment aid (i.e. the rules provided for under Article 7 of the 1998 Shipbuilding Regulation) shall be maintained, as to their substance, until 31 December 2006 in the planned shipbuilding rules. The adoption of such rules is still outstanding. In view of the specific structural problems this sector is facing, the Commission took the preliminary view in the meaning of Article 17 of the Council Regulation (EC) No 659/1999 that the application of regional investment aid schemes to the shipbuilding sector has to continue to be assessed carefully also after Member States were informed of this preliminary view by letter dated 14 August 2003 and were informed that the Commission may propose to the Member States, as an appropriate measure pursuant to Article 88 paragraph 1 of the Treaty that the application of existing regional investment aid schemes to the shipbuilding sector shall be notified to the Commission as from 1 January 2004 to The Member States were invited to submit comments on the Commission s preliminary view, pursuant to Article 17 of Council Regulation (EC) No 659/1999, by 14 September 2003; fourteen Member States submitted their views in writing. With a view to ensuring the proper functioning of the common market, in view of the specific situation of the sector, and taking into account the comments by Member States, the Commission has now decided that the application of all regional investment aid schemes to the shipbuilding sector, as defined in the annex to this letter, shall be notified as from 1 January 2004 to 31 December 2006 in order to allow the Commission to assess the compatibility of such aid on the basis of the rules applicable to the shipbuilding sector as from 1 January The Commission proposes, as an appropriate measure under Article 88(1) of the Treaty, the same notification requirement for the application of all existing regional investment aid schemes to the shipbuilding sector. 5

6 The Member States are invited to give their explicit and unconditional agreement to the proposed appropriate measures within 5 working days from the date on which the present letter is notified to them. In the absence of any reply, the Commission will assume that the Member State in question does not agree with the proposed measure and will be entitled to initiate the procedure laid down in Article 88(2) of the EC Treaty. Yours faithfully, For the Commission Mario MONTI Member of the Commission 6

7 ANNEX DEFINITION OF SHIPBUILDING SECTOR The shipbuilding sector shall encompass all undertakings engaged in "shipbuilding", "ship repair" or "ship conversion", as well as all "related entities". (a) `shipbuilding' shall mean the building, in the Community, of self-propelled seagoing commercial vessels ; (b) `ship repair' shall mean the repair or reconditioning in the Community of selfpropelled seagoing commercial vessels ; (c) `ship conversion' shall mean the conversion, in the Community, of self-propelled seagoing commercial vessels of not less than gt, on condition that conversion operations entail radical alterations to the cargo plan, the shell, the propulsion system or the passenger accommodation; (d) `self-propelled seagoing commercial vessels' shall mean: vessels of not less than 100 gt used for the transportation of passengers and/or goods, vessels of not less than 100 gt for the performance of a specialised service (for example, dredgers and ice breakers), tugs of not less than 365 kw, fishing vessels of not less than 100 gt for export outside the Community, unfinished shells of the above mentioned vessels that are afloat and mobile. For the purposes of the above, `self-propelled seagoing vessel' shall mean a vessel that, by means of its permanent propulsion and steering, has all the characteristics of selfnavigability on the high seas. Military vessels (i.e. vessels which according to their basic structural characteristics and capability are specifically intended to be used exclusively for military purposes, such as warships and other vessels for offensive or defensive action) and modifications made or features added to other vessels exclusively for military purposes shall be excluded, provided that any measures or practices applied in respect of such vessels, modifications or features are not disguised actions taken in favour of commercial shipbuilding inconsistent with State aid control; (e) `related entity' shall mean any natural or legal person who: (i) owns or controls an undertaking engaged in shipbuilding, ship repair or ship conversion, or (ii) is owned or controlled, directly or indirectly, whether through stock ownership or otherwise, by an undertaking engaged in shipbuilding, ship repair or ship conversion. 1

8 Control shall be presumed to arise once a person or undertaking engaged in shipbuilding, ship repair or ship conversion owns or controls an interest of more than 25% in the other or vice versa. 2

REGULATION ON STATE AID TO SHIPBUILDING

REGULATION ON STATE AID TO SHIPBUILDING Under the art. 27 (1) of the Competition Law 21/1996, with subsequent modifications and completions, and under art. 30 (1) of Law 143/1999 on State Aid, with subsequent