RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/Q2/EEC/25
14 May 2001
(01-2399)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Replies to Questions from BRAZIL1 regarding the
Updating Notification of the EUROPEAN COMMUNITIES2
The following communication, dated 27 April 2001, has been received from the Permanent
Delegation of the European Commission.
                                                     
1 G/SCM/Q2/EEC/20
2 G/SCM/N/48/EEC/Add.6, G/SCM/N/48/EEC/Add.13, G/SCM/N/48/EEC/Add.9G/SCM/Q2/EEC/25
Page 2
GERMANY1
1. Bavarian Regional Programmes in Support of Commerce and Industry (Item 2 of the
notification)
(a) In response to Korea2, Germany affirmed that "the eligible companies are industrial
companies, arts and crafts and the service sector".  Will all companies from these
sectors that request the subsidy be automatica lly eligible to receive the investment grant
or the interest rate subsidy to subsidize loans under this programme?
Reply
The Bavarian regional programme in support of commerce and industry 1998 (BR5) have
been  notified to and approved by the European Commission being in term of content and financing a
supplement to the Joint Federal Government/Länder Scheme for Improvement of Regional Economic
Structures (JS). Therefore, the implementation of the BR had to be in accordance to the Regulation of
the 27th framework of the JS and where the  is not applicable, in accordance to the Community
Guidelines on State aid for small and medium sized enterprises. i.e:
• Industrial sectors and companies being excluded from subsidies under II.2. of the 27th framework
of the JS, were also excluded from subsidies under the BRP.
• Outside the application am of the JS, subsidies under BRS were limited to small and medium
sized enterprises in term of the Community Guidelines.
Until 1998 October 31, projects of the commercial touristic industry did not enter into the
application area of the BRS.
(b) Is this subsidy available for the entire territory of Bavaria?  What are the
assisted areas under the Joint Federal Government?  Laender Scheme for theImprovement of Regional Economic Structures?
Reply
Granting subsidies under the BRS 1998 were limited to projects being carried out:
• in the areas of JS3
• in the areas of EFRD, i.e where financing out of the EFRD is possible
• in the area of the regional development programme of Bavaria (RDP Bavaria) i.e areas with
agricultural character
• in the urban areas of Augsburg and Nürnberg/Fürth/Erlangen.
Projects of the commercial touristic industry of BRS 1998 have been included from 1998
November in the eligibility for subsidies under  the BRP , in case  there are carried out in the touristic
areas determined by the touristic concept of th e Bavarian State Government and section BIV, 1.5,
1.5.3. of the RDP Bavaria.
                                                     
1 G/SCM/N/48/Add.6
2 G/SCM/Q2/EEC/10
3 A graph is available to interested delegations who are requested to contact Ms. S. Aspinall,
Office 1028, Tel.  739 51 09.G/SCM/Q2/EEC/25
Page 3
Conclusions:  The application area of BRS 1998 subsidies were available, in the entire
territory of Bavaria excluding the urban areas of  Aschaffenburg, Würzburg, Bamberg, Regensburg,
Ingolstadt, Neu-Ulm (Ulm) and München. For the commercial touristic industries the above
mentioned limitations were applicable.
(c) Could the EC/Germany provide Members with a copy of the "Community
Framework on State Aid to SME"?  (EC OJ 213/04 of 23.07.96)
Reply
Community guidelines on State aid for small and medium sized enterprises
(Published in the Official Journal. Only the published text is authentic: OJ C 213, 23.7.1996)
1. Introduction
1.1 The Community guidelines on State aid for small and medium sized enterprises (SMEs),
which the Commission adopted on 20 May 19924, stated that the Commission would review their
operation no later than three years after the date of their publication.  The findings of that review have
been submitted to the Member States. On the basis of those findings the Commission has decided to
amend or clarify a number of points in the 1992 guidelines.  The de minimis rule, which appliesirrespective of the size of the recipient firm, will now be covered by a separate notice rendering it
more flexible.
5  Aid towards intangible investment in the form of transfers of technology will be
accorded the same favourable treatment as tangible investment.  The definition of SMEs has been
brought into line with the harmonised definition which the Commission has adopted.6   T h e  m a i n
purpose of these changes is to arrive at rules which are clearer and simpler to apply, and to takeaccount of developments in Community policy, particularly the recommendations set out in the White
Paper on Growth, Competitiveness and Employment.
1.2 At its meeting in Cannes in June 1995, the European Council emphasised in its conclusions
that SMEs "play a decisive role in job creation and, more generally, act as a factor of social stability
and economic drive". But it is generally accepted that SMEs suffer from a number of handicaps that
can slow down their development
7.  One of the main such handicaps is the difficulty in obtaining
capital and credit, the chief causes of which are imperfect information, the risk shy nature of financial
markets and the limited guarantees that SMEs are in a position to offer; SMEs' limited resources also
restrict their access to information, notably regarding new technology and potential markets.  The
introduction of new regulatory arrangements often entails higher costs for SMEs.  The imperfections
in the market which limit the socially desirable development of SMEs justify the favourableconsideration which the Commission has traditionally been prepared to give to State aid to SMEs,
provided that such aid does not affect trade to a disproportionate extent relative to the contribution it
makes to the achievement of Community objectives allowed by Article 92.  The Community has in
fact itself been implementing an action programme for SMEs.
8
                                                     
4 OJ No C 213, 19.8.1992, p. 2.
5 Commission notice on the de minimis rule for State aid: OJ No C 68, 6.3.1996, p. 9.
6 Commission Recommendation of 3 April 1996 concerning the definition of SMEs: OJ No L 107,
30.4.1996, p. 4.
7 Report from the Commission to the European Council meeting in Madrid:  CSE(95) 2087, pp.3 et seq
8 See, for example, Community Actions to assist SMEs and the Craft Sector; 1. Fourth Commission
Activity Report on Enterprise Policy Year 1993 2. Commission Report on Coordination of the Activities in
favour of Small and Medium-sized  Enterprises (SMEs): COM(94) 221 final, 7.9.1994G/SCM/Q2/EEC/25
Page 4
1.3 The approach which Commission competition policy takes towards State aid for SMEs has to
be consistent with its other policies, on such matters as enterprise, industrial competitiveness, research
and technological development, and economic and social cohesion.  The present guidelines are being
published in order to inform Member States of the rules the Commission intends to apply when it vets
aid to SMEs under Articles 92 and 93 of the EC Tr eaty, so that Member States know what to expect
from the vetting process and in order to ensure that they are treated equally.  For their part, Member
States must satisfy themselves that any aid they propose to grant is transparent and that the
Commission has been given all the information it needs to assess the impact on competition.  The
rules set out here apply regardless of the form taken by the aid.
2. When Community monitoring comes into play
2.1 Article 929 of the EC Treaty imposes a general ban, subject to certain exceptions, on "any aid
granted by a Member State or through State resources in any form whatsoever which distorts or
threatens to distort competition by favouring certain undertakings or the production of certain goods
....in so far as it affects trade between Member States". State aid given to SMEs will usually be caught
by this provision.  Such aid confers an advantage on particular firms, unlike general measures, whichmay benefit all enterprises throughout the economy.  And it may affect trade between Member States
because many SMEs export part of their output to other Member States and because in most industries
a strengthening in the position of SMEs on the local or national market will make it more difficult for
producers from elsewhere in the Community to penetrate that market.
Nevertheless, some SMEs, and certain microenterprises in particular, carry on businesses in
which there is no trade between Member States (providing local services, for example).  Aid given to
them for activities of this sort falls outside the scope of Article 92.
8
2.2 The de minimis rule
Any aid given to a firm is capable of distorting competition; but not all aid has a perceptible
effect on trade and competition between Member States. This is particularly true where the amount of
aid involved is small, although such aid is not, as a general rule, intended exclusively for SMEs.
Small amounts of aid are frequently granted under schemes administered by local or regional
authorities.
In 1992, in an effort to reduce the administrative burden on the Member States and on the
Commission itself which ought to be left to concentrate its resources on cases of real importance to
the Community and in order to simplify matters for SMEs, the Commission introduced what is known
as a de minimis rule10: this rule sets a threshold figure below which Article 110 can be said not to
apply, so that a measure need no longer be notif ied in advance to the Commission under Article 93.121
                                                     
9 OJ No C 213,  19.8.1992,  p.2
10 The Version currently in force is the one set out in the Commission notice on the de minimis rule for
State aid, referred to above.
11 OJ No c 213, 19.8.1992, p.2
12 Commission Recommendation of 3 April 1996 concerning the definition of SMEs: OJ No L 107,
30.4.1996, p. 4.G/SCM/Q2/EEC/25
Page 5
3. Scope of the guidelines
3.1 The Commission will follow these guidelines when it considers whether the exemption in
Article 9213(c) applies to State aid granted to SMEs.
3.2 Definition of SMEs
For purpose of applying the guidelines, an SME is defined in accordance with the
recommendation concerning the definition of SMEs adopted by the Commission on 3 April 1996.14
On the current definition, whose ceilings for turnov er and balance sheet total can be reviewed every
four years in accordance with Article 2 of the Annex to the Recommendation, an SME is an
enterprise which:
- has fewer than 250 employees15 and
- has either, an annual turnover16 not exceeding ECU 40 million, or an annual balance sheet
total not exceeding ECU 27 million, and
- conforms to the criterion of independence defined below.
Where it is necessary to distinguish between "small" and "medium-sized" enterprises, a
"small" enterprise is defined as one which:
- has fewer than 50 employees and
- has either, an annual turnover not exceeding ECU 7 million, or
an annual balance sheet total not exceeding ECU 5 million, and- conforms to the criterion of independence defined below.  An enterprise is considered
independent unless 25 per cent or more of the capital or of the voting rights is owned by an
enterprise falling outside the definition of an SME or of a small enterprise, whichever may
apply, or jointly by several such enterprises.  This ceiling may be exceeded in two cases:
If the enterprise is held by public investment corporations, venture capital companies or
institutional investors, provided no control is exerci sed either individually or jointly, if the capital is
spread in such a way that it is not possible to determine by whom it is held and if the enterprise
declares that it can legitimately presume that it is not owned as to 25 per cent or more by one
enterprise, or jointly by several enterprises, falling outside the definitions of an SME or a small
enterprise, whichever may apply.
The three tests workforce, turnover or balan ce sheet total, and independence are cumulative:
all three must be satisfied. The independence test, according to which a large enterprise must not hold
25 per cent or more of the SME's capital, is based on practice in a number of Member States where
                                                     
13 Commission Recommendation of 3 April 1996 concerning the definition of SMEs: OJ No L 107,
30.4.1996, p. 4
14 See footnote 5
15 The number of employees is the number of annual work units (AWUs), that is to say the number of
wage and salary earners employed full time for a whole year, with part-time or seasonal work being counted asfractions of a unit. The year to be taken is the last completed financial year.
16 The "turnover" referred to here is the "net turnover" defined in Article 28 of the Council's Fourth
Company Law Directive on the annual accounts of certain  types of companies (OJ No L 222, 14.8.1978, p. 11),
as last amended by Directive 94/8/EC (OJ No L 82, 25.3.1994, p. 33), that is to say "the amounts derived fromthe sale of products and the provision of services falling within the company's ordinary activities, afterdeduction of sales rebates and of value added tax and other taxes directly linked to the turnover".G/SCM/Q2/EEC/25
Page 6
this percentage is the threshold at which supervision becomes possible.  In order to ensure that only
genuinely independent SMEs are included, there has to be a way of eliminating legal arrangements in
which SMEs form an economic group much stronger than an individual SME.  In calculating the
thresholds referred to above, it is therefore ne cessary to cumulate the relevant figures for the
beneficiary enterprise and for all the enterprises which it directly or indirectly controls throughpossession of 25 per cent or more of the capital or of the voting rights.
3.3 Industries covered
The present guidelines apply to aid granted to SMEs in all industries, with the exception of
those where special Community rules governing Stat e aid have been laid down under the EC or ECSC
Treaty. Any aid given to SMEs in those industries is  subject to the relevant rules for the particular
industry.  Such rules currently exist for steel, coal, shipbuilding, synthetic fibres, the motor industry
17,
fisheries and transport, and for products of Annex II to the Treaty (for activities at the production
level plus those at the processing and/or marketing level).
4. The tests applied in assessing aid4.1 General principles
The Commission may consider aid compatible with the common market in accordance with
Article 92
18(c) if it is intended "to facilitate the development of certain economic activities... where
such aid does not adversely affect trading conditions to an extent contrary to the common interest".
To qualify for exemption under this provision, a State aid measure must in the first place be in the
nature of an incentive: it must under no circumstances have the sole effect of continuously or
periodically reducing the costs which the enterprise would normally have to bear, while otherwise
leaving the status quo untouched, as in the case of operating aid19, and it must be necessary in order to
achieve objectives which market forces alone would not secure.  The objectives pursued must be in
the Community interest.
Lastly, the aid must be proportionate to the handicaps which have to be overcome in order to
secure the socio economic benefits deemed to be desirable on grounds of the Community interest: the
positive effect must outweigh the damaging effect which State aid has on competition and trade.
4.2 Purpose of the aid and admissible intensities
4.2.1 Tangible investment
The 1992 guidelines did not define "investment" for the purposes of the thresholds it laid
down in point 4.1. In practice, the Commission has taken the view, for reasons of consistency, that the
definition applied should be the one laid down in the principles of coordination of regional aid
systems20:
"investment" must be investment in fixed assets:
                                                     
17 The rules will apply for as long as "codes", "guidelines", "frameworks" or the like are in force in the
two last-named sectors.
18 Commission Recommendation of 3 April 1996 concerning the definition of SMEs: OJ No L 107,
30.4.1996, p. 4.
19 There are certain exceptional circumstances in which operating aid is admissible in regions
qualifying for regional aid under Article 92(3)(a). See the Commission communication on the method forapplying Article 92(3)(a) and (c) to regional aid, and in particular point I.6 (OJ No C 212, 12.8.1988,p. 2).
20 OJ No C 31, 3.2.1979, p. 9.G/SCM/Q2/EEC/25
Page 7
"in the creation of a new establishment, the extension of an existing establishment or in
engaging in an activity involving a fundamental change in the product or production process of an
existing establishment (by means of rationalization, restructuring or modernization)" or "by way of
takeover of an establishment which has closed or which would have closed had such takeover nottaken place."
The intensity is to be calculated by reference to  the eligible costs, namely the actual costs of
land, buildings and plant. In the case of a takeover of an establishment the selling price of the assets
should be looked at.
Outside areas qualifying for domestic regional aid
21, the Commission may grant exemption
under Article 9222(c) for aid to SMEs where the intensity of the aid, measured in gross grant
equivalent23 as a proportion of the costs referred to in the preceding paragraph, does not exceed:
- 15 per cent in the case of small enterprises, or
- 7.5 per cent in the case of medium-sized enterprises.
In assisted areas, the Commission may approve aid to SMEs which exceeds the level of
regional
investment aid it has authorized for large enterprises in the area:
- by 10 percentage points gross in areas covered by Article 9224(c), provided the total does not
exceed 30 per cent net;
- by 15 percentage points gross in areas covered by Article 9225(a), provided the total does not
exceed 75 per cent net.
The aid ceiling will apply regardless of whether the aid is provided entirely from domestic
sources or is part financed by the Community from the Structural Funds, and more especially the
European Regional Development Fund (ERDF).
Where the Member State proposes financing in respect of costs other than the eligible costs
defined above, the aid will have to be recalculated by reference to the eligible costs.26  The Member
States are also free to grant aid within the limits authorized by the de minimis rule towards
expenditure which would not be eligible under the definitions given in the present guidelines.
4.2.2 Intangible investment in the form of transfers of technology
The Commission's White Paper on Growth, Competitiveness and Employment stresses the
important role which the promotion of intangible investment has to play in a general policy on
competitiveness and recommends that the tests of th e acceptability of aid to industry be reviewed in
                                                     
21 See the Commission communication on the method for applying Article 92(3)(a) and (c) to regional
aid, published in OJ No C 212, 12.8.1988, p. 2, as amended by the Commission notice published in OJ No C364, 20.12.1994, p. 8.
22 Commission Recommendation of 3 April 1996 concerning the definition of SMEs: OJ No L 107,
30.4.1996, p. 4.
23 That is to say, the nominal (before tax) value of grants and the discounted before tax value of interest
24 Commission Recommendation of 3 April 1996 concerning the definition of SMEs: OJ No L 107,
30.4.1996, p. 4.
25 Commission Recommendation of 3 April 1996 concerning the definition of SMEs: OJ No L 107,
30.4.1996, p. 4.
26 This rule does not apply to costs which are eligible for the classes of aid described below.G/SCM/Q2/EEC/25
Page 8
order to eliminate the bias in favour of tangible  investment.  The Commission's sympathetic approach
to aid for R&D, training and consultancy should accordingly be broadened to include aid that is
designed to encourage SMEs to use advanced technology which they would not have been able to
develop themselves, by authorizing limited assistance towards the transfer of technology to SMEs
from research laboratories or from other firms. Again, inequality in the information available tolicensors and licensees regarding new technology, and other types of market imperfection associated
with technology transfers, along with the irrecove rable character of the costs of acquiring specific
technology or know how, may provide justification fo r public assistance towards spending of this kind
by SMEs, while limiting the impact on competition. For SMEs outside areas qualifying for domestic
regional aid, therefore, the Commission may authorize aid which does not exceed the following gross
intensities, measured as a percentage of the cost of acquiring patent rights, licences, know how or
unpatented technical knowledge
27:
- 15 per cent in the case of small enterprises, or
- 7.5 per cent in the case of medium-sized enterprises.
In assisted areas the Commission may approve aid to SMEs which exceeds the level of
regional investment aid it has authorized for large enterprises in the area:
- by 10 percentage points gross in areas covered by Article 9228(c), provided the total does not
exceed 30 per cent net;
- by 15 percentage points gross in areas covered by Article 9229(a), provided the total does not
exceed 75 per cent net.
As at 4.2.1 above, the aid ceiling will apply regardless of whether the aid is provided entirely
from domestic sources or is partfinanced by the Community from the Structural Funds, and more
especially the ERDF.
4.2.3 Consultancy services, training and dissemination of knowledge
Aid of up to 50 per cent gross will generally be allowed for consultancy services provided by
outside consultants to new or established SMEs or for the training given to their staff in such fields as
management, financial matters, new technology (especially information technology), pollution
control, protection of intellectual property rights or the like, or for the purpose of assessing thefeasibility of new ventures.  But each scheme will be judged on its merits, with particular reference to
the distance of the activity from the marketpla ce, any cost ceilings for individual firms, any
possibilities of combination with other forms of aid, and other relevant factors. In certain exceptional
circumstances, the Commission may allow aid of more than 50 per cent.  Assisted areas are one such
case.  Aid for general information campaigns may also qualify for a higher intensity if the financialbenefit to the individual firm is small.
It is important to specify that such measures do not cover:
                                                     
27 The rules which follow do not concern the costs of acquiring patent rights, licences, etc. which form
part of the eligible costs of an R&D project put forward by the recipient in accordance with the fourth indent of
Annex II to the Community framework on State aids to research and development (OJ No C 45, 17.2.1987, p.5.) and which qualify for the rates admissible for the type of R&D project of which they form part.
28 Commission Recommendation of 3 April 1996 concerning the definition of SMEs: OJ No L 107,
30.4.1996, p. 4.
29 Commission Recommendation of 3 April 1996 concerning the definition of SMEs: OJ No L 107,
30.4.1996, p. 4.G/SCM/Q2/EEC/25
Page 9
- aid relating to investment liable to entered on the assets side of the enterprise's balance sheet
as intangible assets (costs of R&D, concessions, patents, licences, etc.) and dealt with at
points 4.2.2 and 4.2.5 above, or continuous or periodic aid not acting as an incentive and
relating to the enterprise's usual operating expenditure (routine tax consultancy services,
regular legal services, advertising, etc.).
4.2.4 Aid for the transfer of SMEs
In its recommendation of 7 December 1994 on the transfer of small and medium-sized
enterprises30, the Commission drew attention to the problem of SMEs, and particularly family
businesses, being forced to cease trading owing to insu perable difficulties in transferring them.  If the
buyer is an SME too, it may be given aid to help with the takeover in accordance with the rules on aidto tangible investment at point 4.2.1 above.
4.2.5 Aid for environmental protection
Aid for environmental protection will be consider ed in the light of the Community guidelines
on State aid for environmental protection.
31  Environmental aid granted to SMEs may be up to
10 percentage points gross above the rate ordinarily allowed in the case of large enterprises.
4.2.6 Aid for R&D
Aid for R&D will be considered in the light of the Community framework for State aid for
research and development.32  R&D aid granted to SMEs may be up to 10 percentage points gross
above the rate ordinarily allowed in the case of large enterprises.
4.2.7 Aid for employment
Aid for employment will be considered in the light of the guidelines on aid to employment.33
In particular, the Commission will be favourably di sposed towards aid to create new jobs in SMEs.
4.2.8 Aid for other purposes
The majority of the aid schemes for SMEs which are notified to the Commission fall into the
categories listed above.  But the Commission may be prepared to authorize aid towards other justified
measures designed to help SMEs, e.g. by encouraging cooperation between them, or towards
measures to promote culture and heritage conservation, provided that they do not affect trading
conditions and competition within the Community to an extent that is contrary to the common
interest.
5. Procedural aspects5.1 The present guidelines replace the Community guidelines on State aid for small and medium
sized enterprises (SMEs) adopted by the Commission on 20 May 1992.
34  They shall apply as from
the date of their publication in the Official Journal of the European Communities.
                                                     
30 OJ No L 385, 31.12.1994, p. 14. See also the Commission Communication on that Recommendation:
OJ No C 400, 31.12.1994, p. 1
31 The version which currently applies is the one published in OJ No C 72, 10.3.1994, p. 3.
32 The version which currently applies is the one published in OJ No C 45, 17.2.1996, p. 5.
33 The version which currently applies is the one published in OJ No C 334, 12.12.1995, p. 4.
34 See footnote 3.G/SCM/Q2/EEC/25
Page 10
5.2 The guidelines do not affect the obligation imposed on Member States by Article 9335 of the
EC Treaty to inform the Commission of all schemes of assistance to SMEs and of any alteration to
such schemes, unless the scheme is de minimis. To facilitate matters for both the Member States and
its departments, the Commission sent Member States a standard form for such notifications by letter
dated 22 February 199436. For cases where the amount or intensity of the aid is low, the Commission
has also introduced a simplified form and an accelerated clearance procedure37.
5.3 These guidelines are without prejudice to schemes already authorized when the guidelines are
published, but such schemes may be reviewed under Article 93.38
5.4 The operation of these guidelines will be revi ewed after they have been in force for three
years; they may be revised in consequence if necessary.
Q2. Consolidation programme of the Land Mecklenburg-Western Pomerania on the
granting of public financial aid to small and medium-sized commercial and industrial
enterprises – special fund to support companies (Item 4 of the Notification)
(a) The notification of this programme states that loans are made at market
conditions .  What are the criteria and parameters used as a reference for the
definition of these " market conditions "?  Could the EC/Germany present the
specific conditions under which the loans are made?
Loans made to the enterprises on the following terms:
- Non-recurrent fee of' not more then 2 per cent on disbursement
- Maximum duration of ten years .
- The fixed rate of interest for the entire duration is set in accordance with the customary
current rate of bank interest on longer term loans applying at the time of disbursement (at
:present 7 per cent).
A concession may be granted to the effect that a payment obligation for a specific year will
apply only up to 50 per cent of the profit  for the respective year before deduction of income and/or
corporation tax.  Interest due that is not paid in one year on account of such concession is payable in
the following year.
- The applicant may  be granted up to redemption free years and a further year’s deferral.
Repayments may be agreed according to the circumstances of the individual enterprise.
- Provision of collateral for the overall agreement may be selected so that the scope for any
necessary further borrowing is not disproportionately restricted.
(b) What are the eligibility criteria for the companies that desire to receive loans under this
programme?  The notification mentions that it is "usually restricted" to SMEs. What
kinds of companies and operating in which fields have in fact benefited from this
programme during the period covered by this notification?  Could the EC/Germanydescribe the characteristics and objectives of these projects?
                                                     
35 Commission Recommendation of 3 April 1996 concerning the definition of SMEs: OJ No L 107,
30.4.1996, p.4
36 Ref. SG(94) D/2472.
37 The version currently in force is the one set out in the Commission communication to the Member
States on the accelerated clearance of aid schemes for SM Es and of amendments of existing schemes,published
in OJ No C 213, 19.8.1992, p. 10.
38 OJ No C 213, 19.8.1992, p.2G/SCM/Q2/EEC/25
Page 11
Reply
Eligible for these loans are commercial, small and medium-sized enterprises with operational
facilities in Mocklenburg-Westem Pomerania having fewer than 250 full-time employees and eitheran annual turnover not exceeding € 40 million or a balance sheet total not exceeding € 27 million.
Not more than 25 per cent of the share capital may be held by enterprises that do not meet the above
criteria for small and medium-sized enterprise.  Specific sectors with excess capacity in industry,
farming, fisheries and agribusiness are excluded.
The granting of a consolidation loan is conditional upon the enterprise generally showing
prospects of positive development and demonstrating this by means of a correspondingly sustainableconsolidation concept.  In particular, the consolidation concept should show the contributions to be
made by the enterprise, the shareholders and the credit institutions involved.
The beneficiaries are small and medium-sized enterprises which demonstrate an acute need
for funds to finance consolidation and/or growth a nd whose operating facilities are important in terms
of labour market and structural policy for a region of Mecklenburg-Western Pomerania, There are no
exclusions of specific sectors other than those given above.
Q3. Joint Scheme on "Improving the Regional Economic Structure"
(a) What were the assisted areas in th e period covered by the notification?
In 1998, the new federal states represented assisted areas in their entirety.  The new federal
states qualified for “green box" treatment under Art. 8.2 of the Agreement on Subsidies andCountervailing Measures.
Assisted areas in the original states (not included the population of Berlin) covered 20.8 per
cent of the West German population in the period from 1997 to 1999.  The assisted areas; are
identified in the map and the table which are included as annexes 1 and 2.
(b) What are the investment projects promoted under this programme?
The Joint Scheme on 'Improving the regional economic structure" is the key instrument for
reducing regional disparities.  The primary aim of th e scheme is to help structurally weak areas to
reduce their disadvantages.  The intention is that these regions should catch up with the general
economic development and overcome deficiencies of development by creating/safeguardingcompetitive jobs. In order to achieve this, aim, funds are granted for investments in trade and industry.
The amount of the grant depends on the size of the relevant company, the location of the project and
on the intensity of the effects that are achieved by the investment. In addition to that, support can be
granted for commerce -related infrastructure measures, where such projects boost the competitiveness
and adaptability of business and new jobs are created or existing jobs safeguarded.
Moreover, support can be granted for certain non-investment-related business activities to
boost the competitiveness and innovative capacities of SMEs (e.g. advice, training, applied research
and development).
Annex 1
39
                                                     
39 A graph is available to interested delegations who are requested to contact Ms. S. Aspinall,
Office 1028, Tel.  739 51 09.G/SCM/Q2/EEC/25
Page 12
Annex 240
Q4. Investment allowance for companies in th e manufacturing and craft sectors in Eastern
Germany where the majority holding is in Eastern German hands (Section 5, para. 2 of the 1996Investment Allowance Act) and investment allowance for small and medium-sized companies
(up to 250 employees) in the manufacturing and craft sectors in Eastern Germany (Section 5,
para. 3 of the 1996 Investment Allowance Act) – Items 6 and 7 of the notification
(a) On items 6.5 and 7.5, Duration of subsidy and other time-limits attached to it ,
Germany states:  "Investment completed before 31 December 1998".  Does this
mean that these programmes have been terminated?
Reply
The programmes of the 1996 Investment Allowance Act have been terminated for
Investments completed before 1 January 1999.
The 1996 Investment Allowance Act is followed by investment Allowance Act.  It promotes
the equity capital base of manufacturing and craft enterprises in special sectors (e.g. research and
development, Institutes for Industrial design etc.)  In the area of Eastern Germany (Section 2 para. 2
of the 1999 Investment Allowance Act). Promot ed are investments begun after 31 December 1998
and completed before 1 January 2005 (small and medium-sized companies before 1 January 2002).
The tax allowance amounts between 5 per cent up to 25 per cent of investment.
Q5. Regional Economic Support Programme (Item 8 of the Notification) (Land North-
Rhine-Westphalia)
(a) Are the grants under this programme provided only to small and medium sized
businesses?
Reply
Under the RWP, SME as well as major enterprises based in municipalities identified as
assisted areas of the ‘Joint Federal/State task’, Improving Regional Business Structures, can receive
assistance.
(b) What are the eligibility criteria for the companies that are seeking grants under
this subsidy?
Reply
Assistance goes only to capital spending projects of private sector enterprises which create
jobs in the assisted area, or safeguard existing jobs.
(c) What kinds of projects are eligible for subsidization under this programme?
What kinds of projects have actually benefited from the programme?
Reply
                                                     
40 A graph is available to interested delegations who are requested to contact Ms. S. Aspinall,
Office 1028, Tel.  739 51 09.G/SCM/Q2/EEC/25
Page 13
Grants can be received for the acquisition of land, premises and machinery  as well as
intangible assets (limited where large enterprises are concerned) where:
• an establishment is set up
• an existing establishment is  enlarged
• during the Start-up phase of the business, an establishment is acquired or set up for the first time
• an establishment is acquired that has been closed down or is threatened with closure
• an establishment is converted or streamlined
Grants can also go to business infrastructure projects such as the development of industrial
and trade estates, and the establishment of ‘start-up centres', provided this is carried out by a local
authority or a non-profit entity, and the facilities are made available to commercial operators who are
in turn entitled to assistance.
Q6. State Aid for Research and Development in the Sector of Biotechnology (Item 11 of the
notification)
(a) What are the characteristics of the R&D projects supported under this
programme?
(b) What are the types of companies eligible under the programme criteria?
(c) What is meant by "preventive research"? (Item 11.4)
(d) How does this programme comply with the specificity criteria of Article 2 of the
Agreement on Subsidies and Countervailing Measures?
Reply
(1) The “Biotechnology 2000” programme is intended  to contribute to strengthen research in
biotechnology ,  one of the most important key technologies for the future.  The German
government thus provides a number of measures to support biotechnology and genetic
engineering.
-   development of strategically important platform technologies
-   commercialisation of know-how from science
-   reinforcing the knowledge base
-   contributions to a precautionary policy
(2) Priority in the programme is given to companies which have the aim of turning the existing
biotechnology know how into practical applicat ions, i.e. small start-up technology companies
not older than 5 years.
(3) The expression “preventive research” may be misleading.  Whet is meant are fields in which
the government has to make provisions to protect citizens against harmful developments(precautions principle). Such a field is e.g. “biosafetyresearch”.
(4) The programme comply the specific criteria of Article 2. Support of industry is only given for
applied basic research and as cost-sharing grant under consideration of the specific EC-
regulations for national subsidies.G/SCM/Q2/EEC/25
Page 14
ITALY1
Q1. Incentives to Manufacturing and Extractive Enterprises in Disadvantaged Regions
(Item 2)
(a) What are the disadvantaged areas covered by this programme?
Reply
The disadvantaged areas covered are the regions specified in the Objective 1 of the structural
funds policy.  It concerns the development and structural adjustment of regions whose development is
lagging behind, covering regions where per capita GDP is less than 75 per cent of the Communityaverage.  The Italian disadvantaged area are Campania, Apulia, Basilicata, Calabria, Sicily, Sardinia.
(b) What are the types of companies eligib le for the benefits of the programme?
Reply
The companies eligible have to operate in the areas covered by objective 1.
(c) What are the conditions and terms of the tax concession scheme?
Reply
The Law No.341/95 provides a “fiscal bonus” in tax payment in the following five years from
when subsidy is paid.
Q2. Soft Loans to companies that are entering  new markets by the opening of commercial
operations in non-EC countries
(a) Is this subsidy contingent upon export performance?  How does it comply with
footnote 4 of the SCM Agreement, which establishes that "This standard is met
when the facts demonstrate that the gr anting of a subsidy … … is in fact tied to
actual or anticipated exportation or export earnings. …" .  (Emphasis added)?
Reply
The measure is not specific to any sector and give a minimal effect on trade.
(b) Which are the types of companies elig ible for the benefits of the programme?
Reply
The programme is meant to facilitate the in ternationalisation of Italian companies (mostly
small and medium sized ones), by helping them to create stable commercial operations abroad.
(c) What are the conditions and terms of the tax concession scheme?
                                                     
1 G/SCM/N/48/EEC/Add.9G/SCM/Q2/EEC/25
Page 15
Reply
The soft loans are attributed to companies opening commercial operations in non-EU
countries.
Q3. Support to Innovation and Development of SME (Item 3 of the notification)
(a) What are the eligibility criteria for this programme?
The Beneficiaries are SME’s in industrial and services sector; SME’s consortia.
(b) What types of projects for the innovation and development of SMEs have in fact
been supported by this programme during the period covered by the
notification?
The measure is not considered specific, but is granted only to support Italian SME’s.
SPAIN1
1. Development of Non-Energy Mining
(a) The notification of this programme affirms that this subsidy "is confined to
zones defined by the EU Commission as Objective 1".  What are these zones in
Spain?  What are their characteristics in economic terms?
The Objective 1 of the European Regional policy consists of development and structural
adjustment of the regions whose development is lagging behind.  The Gross Domestic Product (GDP)
of these regions are of less than 75 per cent of the Community’s average.
The regions eligible under Objective 1 for 1994-1999 period in Spain are : Andalucia,
Asturias, Cantabria, Castilla y León, Castilla-La Mancha, Ceuta y Melilla, Comunidad Valenciana,
Extremadura, Galicia, the Canary Islands and Murcia.
Q2. Support Initiative for Technology, Quality and Industrial Safety (ATYCA)
(a) What is the total amount of resources granted by this subsidy?
Reply
As mentioned in the Spanish notification on subsidies to the WTO for 1998 exercise, the
amount granted was 19.926 million ESP.
Q3. Aid under technological programmes connected with the SEAT Modernization Plan
(1994-1997)
(a) What is the percentage of the total am ount of the research financing that is
supported  by this subsidy?
                                                     
1 G/SCM/N/48/EEC/Add.13G/SCM/Q2/EEC/25
Page 16
Reply
Approximately 10 per cent
(b) For a better evaluation of the effects of this programme on trade, could Spain
inform the annual sales of SEAT for the year of 1998?
Reply
The net turnover amount reached 827.534 million ESP
(c) Has this subsidy been terminated?
Reply
This subsidies programme terminated in 1998.
Q4. R&D plan for the aeronautical sector
(a) What were the aircraft companies that have signed a cooperation agreement
under this programme?
Reply
Five Spanish companies signed a cooperation agreement
(b) How is the amount of the repayable advances for a given company defined or
calculated?
Reply
The amount of the repayable advances granted to projects can be up to 70 per cent of the cost,
and was established for each project according to its merits and budgetary resources available.
(c) On what basis are the advances repaid?  Are they related to the sales of the
company?
Reply
The advances are repaid in all cases.  The rate of repayment varies according to the project, as
it is related to the sales which apply technology or know-how acquired from the R&D projects.
(d) Has this subsidy been terminated?
Reply
We recall the position of this Department, as contained in earlier correspondence on this
subject, not to answer this questionnaire from the Brazilian Delegation at the WTO as long as Brazil
does not provide sufficient information to that Organization concerning public aids granted in Brazil.
Q5. Regional Economic Incentives Scheme
(a) Which are the most disadvantaged areas that can receive aid from this subsidy?G/SCM/Q2/EEC/25
Page 17
Reply
The regions included in the Regional Economic Incentives Scheme are the Autonomous
Communities of Aragon, Andalucia, Asturias, Canarias, Cantabrica, Castilla-la-Mancha, Castilla-Leon, Extremadura, Galicia, Murcia, Valencia, Ceuta y Melilla. It consists of development and
structural adjustment of the regions whose development is lagging behind. The Gross Domestic
Product (GDP) of these regions are of less than 75 per cent of the Community’s average.
In 1998, the average subsidy per investment project in all these regions as a whole amounted
to 17.7 per cent of the investment eligible for the subsidy.
__________