# EUR-Lex - E1995C0106 - EN

Avis juridique important

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# E1995C0106

**EFTA SURVEILLANCE AUTHORITY DECISION No 106/95/COL of 31 October 1995 on a tax exemption for glass packaging from a basic tax on non-reusable beverage packaging (Aid No 95-002 (Norway)) **

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Official Journal L 124 , 23/05/1996 P. 0030 - 0040 *

EFTA SURVEILLANCE AUTHORITY DECISION No 106/95/COL of 31 October 1995 on a tax exemption for glass packaging from a basic tax on non-reusable beverage packaging (Aid No 95-002 (Norway))

THE EFTA SURVEILLANCE AUTHORITY,

Having regard to the Agreement on the European Economic Area (1) and in particular Articles 61 to 63 thereof,

Having regard to the Agreement between the EFTA States on the establishment of a Surveillance Authority and a Court of Justice (2), and in particular Article 1 of Protocol 3 thereof,

Having, in accordance with the abovementioned Articles, given notice to the parties concerned to submit their comments to it,

Whereas:

I. FACTS

1. The notification

By letter dated 20 January 1995, received by the EFTA Surveillance Authority on 24 January 1995 (reference 95-512 A), the Norwegian Government notified, in accordance with Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement, plans to grant a relief for glass packaging from the basic tax (3) on non-reusable packaging of beverages ('Grunnavgift på engangsemballasje for drikkevarer`, Parliamentary decision St. prp. 1 (1994-95)), i.e. any packaging not being used more than once for the same purpose without being processed. The EFTA Surveillance Authority, by letter of 3 February 1995 (reference 95-573 D), requested additional information from the Norwegian Government. The requested information was submitted to the Authority by fax (reference 95-979 A) dated 15 February 1995 and received on 16 February 1995.

2. The contents and the aim of the aid measure

The Norwegian Government has proposed to exempt glass containers from an indirect tax on non-reusable beverage packaging. The level of taxation is currently Nkr 0,70 per unit of inner packaging. The tax exemption will apply equally to all, both domestically produced and imported, glass containers. The objective of the aid is primarily sectoral, i.e. to ensure continued production at PLM Moss Glassverk A/S. The PLM group had initially decided to close down production in Norway due to non-profitability.

The profitability of PLM Moss Glassverk A/S has, according to the Norwegian authorities, been severely affected by the structure of environmental taxes in Norway, notably the taxes imposed on beverage packaging. Norwegian taxes on beverage packaging and energy related taxes are, according to the notification, extraordinarily high compared to other EEA countries. The Norwegian Government has found it necessary to counter these effects by introducing the proposed aid measure.

PLM Moss Glassverk A/S is the main user of glass waste collected and processed for recycling and therefore considered by the Norwegian Government to be a vital part of the Norwegian glass recycling system. The Norwegian authorities consider that the glass recycling system will be seriously threatened if the PLM group effectuates a closing down of its Norwegian subsidiary.

The Norwegian authorities consider that the aid is justified under the exemption provided for in Article 61 (3) (c) of the EEA Agreement with reference to the importance of maintaining glass production in Norway, the related environmental aspects and the effects the eventual closure of the company would have on employment in a region in industrial decline.

3. PLM Moss Glassverk A/S and the market for beverage packaging

PLM Moss Glassverk A/S

PLM Moss Glassverk A/S is the only Norwegian producer of glass packaging. The company's production facilities are located in Moss, the regional administration centre of the county of Østfold, where it is one of the major employers. The company is a subsidiary to the PLM group, which has its headquarters in Sweden (4). The PLM group acquired Moss Glassverk (5) A/S after the company's default in 1989. PLM Moss Glassverk A/S has experienced deficits since 1992. In 1993 the deficit was Nkr 10,3 million.

PLM Moss Glassverk A/S employs a work force of about 285 persons. The production facilities consist of two melting furnaces and four sets of production machinery which can procedure simultaneously along five production lines. The melting furnaces have a wear life of eight years, upon which they must be rebuilt. The wear life of one furnace expires in the course of 1995, while the wear life of the other will expire in 1996. The PLM group therefore had to make a decision either to repair one furnace temporarily at the cost of Nkr 20 million or to invest in a new melting furnace at the cost of Nkr 33 million. In both alternatives further investment in the other furnace would be needed.

The first alternative decision was subject to the assumption that production in Norway will be gradually phased out in the period 1995 to 1998 with increased investment and production at the PLM group's factory in Limmared in Sweden. The second alternative will make it possible to continue production in Norway beyond the year 2000. A condition set by PLM for choosing the second alternative is that production in Norway can be deemed profitable.

On 5 December 1994 the PLM group decided, initially, to gradually close down production at PLM Moss Glassverk A/S. However, after consultations between the PLM group and the Norwegian Government, the PLM group agreed to the second alternative referred to above.

The production statistics for PLM Glassverk A/S for the period 1990 to 1994 show significant fluctuations both in the value and the physical volume of the company's production. The unit value of one-way containers for soft drinks, the company's product category which is expected to be most affected by the exemption from the basic tax, has declined throughout the period of observation.

Aid to PLM Moss Glassverk A/S

The Norwegian authorities have estimated the financial advantage to PLM Moss Glassverk A/S of the tax exemption on glass packaging to be Nkr 13 million per annum by multiplying the number of non-reusable beverage containers made of glass produced by PLM Moss Glassverk A/S with the tax per item, Nkr 0,70.

In 1994 PLM Moss Glassverk A/S benefited from a direct grant of Nkr 11 million awarded by the Norwegian Government (6) in 1993 under a temporary grant scheme to secure the collection and recycling of glass in Norway. Norsk Glassgjenvinning A/S, the company specializing in collection and processing of glass for reuse as a raw material, benefited from an award of Nkr 1 million under the same scheme in 1994. The temporary grant scheme expired on 31 December 1994.

Beverage packaging market in Norway

The market for beverage packaging cannot be separated from the market for beverages. On the demand side the consumer will normally make a simultaneous choice between different beverages and different forms of packaging. On the supply side, depending on the packaging material, the production of the packaging often takes place simultaneously with production and 'bottling` of the beverage. Glass packaging, however, must be produced in a separate process.

The following information, which is derived from a broader material, displays some of the key characteristics of the Norwegian market for beverages and beverage packaging.

Beer is normally either sold in refillable glass bottles (market share 72 % in 1993) or as draught beer (market share 27 % in 1993). As concerns non-reusable packaging, metal cans cover only 1 % of the beer market. Plastic containers are apparently only to a very limited extent used for beer.

As concerns carbonated soft drinks, refillable plastic packaging has taken over this market at the expense of glass bottles. The market share of refillable glass bottles dropped from 88 % in 1990 to 26 % in 1993, while plastic containers increased their share from 1 % in 1990 to 73 % in 1993 (7). As for beer, metal cans hold a stable market share of 1 %. The market shares for glass packaging of juices and other non-carbonated soft drinks appear to be relatively stable although the available information indicates a slight decrease for glass containers in this market segment also.

Total consumption in Norway in 1994 was 219 million litres of beer, 526 million litres of carbonated soft drinks and 200 million litres of non-carbonated soft drinks.

Nearly all beer sold in refillable glass is of domestic production, whereas the imported beer is sold mainly in cans and non-refillable glass and to a smaller extent in refillable glass. Half of the brandy, wine and strong beer is sold in refillable bottles, half in non-refillable bottles. Almost all of these beverages sold in refillable glass are domestically produced, whereas those sold in non-refillable glass are all imported. Carbonated soft drinks sold in refillable packaging (glass and PET) are mainly domestically produced, whereas those drinks sold in non-refillable packaging (mainly cans) are exclusively imported.

Table 1 below is derived from statistics (8) published by the Norwegian federation of packaging producers (9). The HS classification system does not allow a unique identification of exports and imports of metal or plastic inner packaging for beverages. Such containers have therefore not been included in Table 1. The table reveals a general increase in the export of glass bottles for alcoholic and non-alcoholic products which can only have been produced at PLM Moss Glassverk A/S. This observation is consistent with a decision of the PLM group to close down one of its production plants in Sweden (Hammar) and transfer part of the production to Norway after its acquisition of Moss Glassverk A/S. The importation of glass bottles to Norway increased over the same period, although the volumes are smaller.

>TABLE>

4. Taxes on beverage packaging

The basic tax ('grunnavgift`) on non-reusable packaging of beverages was introduced on 1 January 1994 (10). The tax rate applying as from 1 January 1995 in Nkr 0,70 per unit. The tax is levied on all non-reusable containers independent of recovery or recycling rates. Non-reusable packaging is defined (11) as all packaging that may not be reused for the same purpose. The basic tax is levied on non-reusable packaging (12) for all beverages except: (a) milk and milk products, (b) beverages based on cocoa, chocolate and concentrates of such products and (c) products in powder form. An exemption for beverages based on tea and coffee was abolished as of 1 January 1995.

The tax is levied in the same manner for all packaging either at the time of importing or at the time of filling the beverage into the container/finishing the product. The basic tax is not paid directly by PLM Moss Glassverk A/S. The tax is not levied on beverage packaging which is exported from Norway.

This basic tax is currently under scrutiny by the Authority concerning its compatibility with Article 14 of the EEA Agreement.

A differentiated environmental tax (13) levied in principle on all beverage containers was introduced in parallel with the basic tax on 1 January 1994. The level of taxation is differentiated according to the recycling performance for each category of container in accordance with the regulations on return systems for beverage packaging. The full tax rate on containers which are not recycled is Nkr 3,00 per unit, while the reduced rate for recycled glass containers is Nkr 1,05. Collection and recycling systems do not exist for other beverage packaging than glass. However, such systems are currently being established (14).

5. The Norwegian system for collection and recycling of glass waste

The collection and recycling of glass packaging is based on rules laid down in the regulations on the return system for packaging of beverages of 10 December 1993.

Collection of glass waste in Norway started in 1988. In 1992 PLM Moss Glassverk A/S took the initiative to establish Norsk Glassgjenvinning A/S (NGG), the company specializing in collection and processing of glass for reuse as a raw material. NGG became operative in 1993 and is approved as a return system by the State Pollution Control Authority pursuant to the regulation referred to above. The expected return rate for NGG's return system is estimated at 65 % for 1995. The cost of this return system is covered by a recycling fee per unit of glass packaging to NGG paid by the members of NGG and the company's proceeds from the sale of processed glass waste. Members of NGG are therefore, depending on the environmental properties of the glass packages in question, liable to pay the basic tax (= Nkr 0,70 per unit), the environmental tax at the reduced rate (35 % of the environmental tax = Nkr 1,05 per unit) in addition to the recycling fee to NGG.

NGG buys glass waste from municipalities who collect it separately. The glass waste is processed by NGG before it is sold as raw material to PLM Moss Glassverk A/S or other buyers. NGG takes all glass waste including waste from glass produced at PLM Moss Glassverk A/S and imported glass. This means that more glass is collected (38 000 tonnes in 1995) than can be recycled by PLM Moss Glassverk A/S (25 000 tonnes in 1995). New ways of recycling glass waste have therefore been investigated. In 1995 this resulted in glass waste collected by NGG being used for the production of special quality mineral wool ('glava`). Deliveries from NGG for production of 'glava` are expected to amount to approximately 6 000 tonnes in 1995. A project is being launched by the Norwegian research institute Sintef for investigating the use of glass waste as a raw material in the production of special quality concrete ('glass-betong`). However, this project is still at a very early stage. No application has so far been found for the residual 7 000 tonnes, but export possibilities are being explored.

II. THE PROCEDURE PURSUANT TO ARTICLE 1 (2) OF PROTOCOL 3 OF THE SURVEILLANCE AND COURT AGREEMENT

1. Investigation procedure

The EFTA Surveillance Authority decided on 13 April 1995 (Decision No 40/95/COL) to open the formal investigation procedure with regard to the proposed aid. The Norwegian Government was informed of the decision by letter of 18 April 1995 (our reference 95-2478-D) containing a copy of the Authority's decision of 13 April 1995 whereby the Norwegian Government was invited to submit its comments within a period of one month from the receipt of the Authority's decision and to provide the Authority with all the information needed for examining the case. The Norwegian Government was reminded of the obligation not to put its proposed measures into effect until the investigation procedure had resulted in a final decision. The Norwegian Government submitted by letter of 30 May 1995, received on the same date (reference 95-3289 A), its comments to the Authority's decision. The proposed aid was discussed in a meeting with the Norwegian authorities on 12 June 1995.

The European Commission was informed, in accordance with Protocol 27 of the EEA Agreement, by means of a copy of the decision. The gist of the decision was published in the form of a notice in the EEA Section of the Official Journal of the European Communities (OJ No C 212, 17. 8. 1995, p. 6) and the EEA Supplement thereto, thereby informing other EFTA States parties to the EEA Agreement, EU Member States, and interested parties, and inviting them to submit comments within one month from the date of publication.

The Authority received comments from the following interested parties: Beverage Can Makers Europe (reference 95-5245 A), Elopak A/S (reference 95-5376 A), Tetrapak A/S (reference 95-5374 A), Prosess- og foredlingsindustriens Landsforening (reference 95-5416 A) and Norges Dagligvarehandels Forbund (reference 95-5618 A). The Authority forwarded by letters of 21 September (reference 95-5504 D) and 4 October 1995 (reference 95-5800 D) copies of the comments from the above interested parties to the Norwegian Government and requested it to submit its observations. The observations from the Norwegian Government were received by fax on 20 October 1995 (reference 95-6092 A).

2. Comments from the Norwegian Government

The Norwegian authorities emphasize two factors concerning derogation from the general prohibition against State aid according to Article 61 (1) with reference to Article 61 (3) (c) and the derived rules on State aid for environmental protection. The first is the major role played by PLM Moss Glassverk A/S in the Norwegian system for the recycling of glass waste and the second is the negative financial impact of the tax on the company. In combination with other environmental taxes and difficult and rapidly changing market conditions they consider the company to have been seriously affected by the introduction of new environmental taxation on beverage packages.

The Norwegian authorities acknowledge that the exemption proposed for glass packaging from the basic tax constitutes State aid in the meaning of Article 61 of the EEA Agreement and have therefore notified the proposed aid to the Authority. They also agree that Article 61 EEA Agreement cannot be used to frustrate the rules in the Agreement on the free movement of goods. However, it is held that an exemption for recyclable glass from the basic tax will not have such an effect. The authorities do not find that the tax relief gives rise to any discriminatory effect between domestic and imported products, referring to the fact that all non-reusable glass packages including imports will be exempted from the basic tax.

Further, the Norwegian authorities find that the derogation pursuant to Article 61 (3) (c) allows for the possibility of exemption, in the present case, from the general prohibition on aid pursuant to Article 61 (1). Reference is made to paragraph 15 (4) (3) (1) of the State Aid Guidelines (15) which allows for State aid in connection with waste management and temporary relief from new environmental taxes.

With reference to the market situation for processed glass waste in Norway and the recycling system for glass waste (16), the Norwegian authorities conclude that the recycling system for glass, is very much based on PLM Moss Glassverk A/S's capacity to recycle such glass as there is, today, no viable alternative. If the only Norwegian glass factory were to close down, this would threaten the entire system.

Referring to paragraph 15 (4) (3) (3) of the State Aid Guidelines which allows for a temporary relief from new environmental taxes when necessary in off-setting losses in competitiveness resulting from such taxes and the question raised by the Authority of whether a loss in competitiveness has in fact taken place, the Norwegian authorities find that the competitive disadvantage to PLM Moss Glassverk A/S has to be seen in a broader context. In accordance with their initial notification and as later supplemented by statistics, they find it to be sufficiently documented that PLM Moss Glassverk A/S has faced a sharp decline in the demand for their products, inter alia, because of the introduction of new products (plastic bottles) into the market. This situation was reinforced by the introduction of various environmental taxes, all of which have affected PLM Moss Glassverk A/S within a short period of time.

The fact that the basic tax is not levied on exported goods does not mean, according to the Norwegian authorities, that the international competitiveness of PLM Moss Glassverk A/S is not affected. The basic tax is seen as a hindrance with reference to the maintenance and establishing of a solid domestic production base, which is regarded as a prerequisite for being able to compete abroad. On the other hand, as glass is very much a domestic good since it is cheap, but voluminous, so that long distance transporting is not very profitable, it is not seen as appropriate in this case to analyse competitiveness in the context of exporting possibilities. It is however evident, according to the Norwegian authorities, that, put in a broader context, the company has suffered a loss in competitiveness, reinforced by the impact of the basic tax.

Finally, the Norwegian authorities emphasize, as in the initial notification, that the difficult employment situation prevailing in the county of Østfold where PLM Moss Glassverk A/S is an important part of the industrial base in Moss, the consequences the decision will have for the only glass producer in Norway and the element of uncertainty this will introduce into the Norwegian glass collection system should be taken into account when reaching a decision in the case.

3. Comments from interested parties

Beverage Can Makers Europe (17) (BCME) expresses that Norway already discriminates between reuse and recycling, as the basic tax penalizes those marketing beverages in non-reusable containers, irrespective of whether or not containers are recycled and that this penalty is exacerbated by the imposition of an additional differentiated environmental tax on recyclable containers according to the degree to which they are recycled. The proposed aid would therefore further discriminate against the beverage can as well as making recycling systems for glass more viable without facilitating recycling of other packaging materials by an equivalent exemption. BCME finds the aid proposal to be illogical as it threatens to distort competition and, consequently constitutes a barrier to trade.

Elopak A/S and Tetra Pak A/S) (18) consider that the proposed tax exemption for one-way glass packaging should not be allowed as it would discriminate against other types of beverage packaging and thereby be against the letter and the intention of the EEA Agreement. The basic tax as such is considered to be in conflict with the EEA Agreement and not defendable on environmental grounds. It is claimed that the basic tax penalises particularly beverage cartons, as more than two-thirds of the packaging on which the tax is imposed today, is of this category. The companies state that several life-cycle analyses document that beverage cartons are environmentally preferable to other forms of beverage packaging - including reusables for drinks like milk and juices. The fillers and producers of beverage cartons in Norway have now also established an industry financed collection and recovery system, Norsk Returkartong A/S, which solves the waste problems related to beverage cartons.

A tax relief for glass bottles could have a substantial negative impact on the sales and use of beverage cartons, as glass bottles are the most likely substitute for beverage cartons for juice packaging. A discrimination of Nkr 0,70 per item in favour of glass bottles could easily lead to a shift in demand for packaging of juice. As one-way glass bottles are substantially heavier (10 to 30 times) than cartons, the waste problems would increase dramatically with such a shift, even with a high rate of return. The consequences would thus be quite the opposite of the Norwegian Government's purpose of the basic tax.

Elopak A/S and Tetra Pak A/S find that the statistics presented by the Norwegian authorities are outdated. If 1994 figures had been presented, they would, according to the companies, have documented an increase in the use of one-way packaging based on the success of new drinks such as Snapple and Fruitopia, which are both sold in disposable glass bottles.

Prosess og foredlingsindustriens Landsforening (PIL) (19) holds the principal view that a tax policy which discriminates between different materials for beverage packaging has no environmental justification. PIL has recently (20) in cooperation with other industry organizations established agreements (21) for increased waste recycling with the Ministry of Environment and industry. The agreements concern return arrangements to be financed by private fees paid by the industry itself. PIL finds the present tax system for beverage packaging to constitute a hindrance for establishing a recycling system for all beverage packaging materials in line with systems for other packaging waste and incompatible in principle with the agreements referred to above.

Norges Dagligvarehandels Forbund (DF) (22) refer to the problems the suppliers of commodities for household use have experienced in establishing a return system for glass, metal and PET waste due to the Norwegian tax system for beverage packaging. Reference is made to the so-called 'Resirk-group` (23) where DF participates. The group has submitted an application to the Norwegian Pollution Control Authority (SFT (24)) for establishing a return system for one-way packaging. This return system for packaging waste may be approved by SFT. However, beverages contained in non-reusable packages, will still be subject to a per unit taxation of Nkr 1,30 plus VAT (25). The tax system for beverage packaging is considered by DF to undermine the economic viability of the 'Resirk`-system, thereby demonstrating that the Norwegian tax system for beverage packaging has the effect of discriminating against competition from imported goods.

The Norwegian Government did not make any specific observations with regard to the above comments.

III. APPRECIATION

The proposed measure constitutes State aid

The Norwegian authorities have by the notification of 20 January 1995 fulfilled their obligation pursuant to Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement to notify plans to grant or alter aid.

Since the aid is to be awarded in the form of a relief from a tax levied by the Norwegian Government it shall be granted by the State through State resources. Although the relief from the basic tax on non-reusable packaging for beverages will apply equally to both domestic and imported products and not favour the only Norwegian producer of glass packaging, PLM Moss Glassverk A/S, vis-à-vis other producers of glass packaging within the EEA, it may still be concluded that the measure constitutes State aid. A relief for glass containers from the basic tax will primarily benefit PLM Moss Glassverk A/S as the dominant producer of glass for the Norwegian market. The company's production will benefit from the relief of the basic tax on its production of non-reusable glass containers for beverages. The remaining economic benefits from the tax relief for glass packaging are likely to be distributed on a wide number of glass packaging producers or other operators in the beverage markets. However as the PLM Moss Glassverk A/S is facing actual and potential competition from close substitutes in other packaging material than glass within the EEA, the aid threatens to distort competition and affect trade within the territory covered by the EEA Agreement. It is therefore concluded that the proposed measure constitutes aid in the meaning of Article 61 (1) of the EEA Agreement. This conclusion is confirmed by the comments submitted to the Authority by interested parties and the Norwegian authorities.

Derogations from the general prohibition on State aid

The Authority assessed as part of the decision to open the investigation procedure whether any of the derogation clauses pursuant to Article 61 (2) and (3) of the EEA Agreement were applicable in order that the aid may be exempted from the general prohibition of aid pursuant to Article 61 (1). It was concluded that the exemptions referred to pursuant to Article 61 (2) (a) to (c) and Article 61 (3) (a), (b) and (d) are inapplicable in the case at hand.

The notification and the comments from the Norwegian authorities emphasize, as an additional justification for the proposed aid, the difficult industrial and employment situation in the county of Østfold where the company is an important part of the industrial base in Moss. The Authority has found that the derogations pursuant to Article 61 (3) (a) and (c) to allow regional aid are not applicable for the case at hand as the county of Østfold is not covered by the Norwegian map of assisted areas (26) eligible for regional aid, and the Norwegian authorities have neither proposed any amendment to the existing map of assisted areas nor is the aid granted under a general system of regional aid.

The notification and the comments submitted to the Authority by Norway during the investigation procedure seek to justify the proposed aid primarily with reference to the need to relieve PLM Moss Glassverk A/S from the negative economic effects of the basic tax on non-reusable beverage packaging in order to secure the Norwegian recycling system for glass waste. Therefore, and in accordance with the decision to open the investigation procedure, Article 61 (3) (c) in so far as it provides for the possibility of authorizing 'aid 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`, in particular in connection with the rules on aid for environmental protection as set out in Chapter 15 of the State Aid Guidelines, is considered as the only relevant derogation clause under which to examine the proposed aid.

In order to benefit from any of the exemption clauses, the measure must not conflict with other provisions of the EEA Agreement, such as the provisions relating to the free movement of goods.

The aid would primarily improve the financial performance of PLM Moss Glassverk A/S and/or allow the company to hold a higher market share in the packaging market. The aid would not be linked to initial investment, job creation or any other project limited in time and would, thus, constitute operating aid.

Operating aid on environmental grounds

According to paragraph 15 (4) (3) (1) of the State Aid Guidelines, the EFTA Surveillance Authority will normally not approve operating aid which relieves firms of costs resulting from the pollution and nuisance they cause. However, the Authority may make an exemption to this principle in certain well-defined circumstances. The European Commission has done so in the fields of waste management and relief from environmental taxes. Such cases are assessed on their merits and in the light of the strict criteria to be applied in the two fields just mentioned. These are that the aid:

1. must only compensate for extra production costs by comparison with traditional costs;

2. should be temporary and degressive, so as to provide an incentive to reduce pollution or introducing more efficient use of resources more quickly;

3. must not conflict with other provisions of the EEA Agreement and in particular those relating to the free movement of goods and services.

As regards the first of the above three criteria, the Authority notes that the extra costs of producing beverages in non-reusable glass packages caused by the basic tax are compensated by the proposed relief. Therefore, the proposed aid seems to meet the first condition.

As to the second condition, the Norwegian Government has made a commitment to 'follow developments in the market for recycled glass closely and if necessary reconsider the need for granting an exemption for recycled glass from the basic tax.` The Authority considers that this commitment is not sufficient to limit the period of availability of the aid. Therefore, the aid would not be temporary because it is to be granted for an indefinite period of time. Furthermore, the aid is not degressive and could even increase over time in the event that the rate of the basic tax, from which the relief is to be granted, is raised. Consequently, the second condition for allowing operating aid is not met.

Regarding the third condition, the Authority finds that the proposal to exempt glass from the basic tax, would lead to a different tax burden, as far as the basic tax is concerned, for recyclable glass containers as compared to other recyclable containers such as containers made of PET or metal. The differentiation seems to be motivated by rendering a recycling system for glass viable while recycling of other packaging material is not facilitated by an equivalent exemption from the basic rate. It must therefore be assumed that waiving of the basic tax on recyclable glass containers amounts to a different taxation of similar or competing domestic products. Furthermore, some of those containers which would continue to be subject to the basic tax, such as aluminium cans, are widely used for non-domestic products while those products exempt from the basic tax, be it due to their reusability or because of the exemption of glass bottles from the basic tax, would be typically used for domestic products. Thus the proposed exemption seems to lead to imposing a tax burden on certain imported products in excess of that imposed on similar or competing domestic products.

The observations in the preceding paragraph are to a wide extent confirmed by the comments submitted to the Authority by interested parties. The comments from the interested parties indicate also that the basic tax may be a hindrance to establishing recycling systems for packaging materials other than glass. The comments received from the Norwegian authorities do not contest this view. Therefore, the Authority cannot conclude that the proposed exemption of glass from the basic tax would result in a tax system which would be compatible with Article 14 of the EEA Agreement. Consequently the third condition above for allowing operating aid is not met.

Relief from environmental taxes

According to paragraph 15 (4) (3) (3) of the State Aid Guidelines temporary relief from new environmental taxes may be authorized where it is necessary to off-set losses in competitiveness, particularly at the international level. It should be noted that in the present case, this requirement must be seen as constituting an additional requirement to the conditions discussed above for granting operating aid on environmental grounds.

The present tax from which an exemption is proposed seems to have been intended to reduce the use of non-reusable beverage packages for environmental reasons as the Norwegian authorities in accordance with the concept of a waste hierarchy, give reuse a higher priority than material recycling and energy recovery. An inevitable consequence of this is that the producers and importers of such packages will suffer from the tax. In its decision to open the investigation procedure, the Authority stated that it appeared that PLM Moss Glassverk A/S should be able to at least partly compensate for losses in the non-reusable packages market by increased demand in the reusable packages market and, furthermore, that the tax on non-reusable glass packages applies to all such packages whether produced by PLM Moss Glassverk A/S or imported to Norway. On the other hand, the tax is not levied on the glass packages exported from Norway. Therefore, the international competitiveness of the production by PLM Moss Glassverk A/S appears not to be affected by the tax on non-reusable glass packages.

The Norwegian authorities argue that the question of loss of competitiveness, particularly at the international level, must be seen in a wider perspective, as the company has also been negatively affected by the introduction of other environmental taxes and has experienced a decline in the demand for its products, mainly because of the introduction of new products (plastic bottles). The Norwegian authorities state further that the fact that tax is not levied on exports, does not mean that the international competitiveness of the company is not affected, as it is evident that the company has suffered a loss and the basic tax is a hindrance in the maintaining and establishing of a sufficient domestic production base.

The Authority does not question in principle the argument that a certain domestic production base may be a requirement for competing at international level. However, the Norwegian authorities have not provided any estimates of additional losses the company has experienced due to other environmental taxes than the basic tax. The Authority does not question that the company has suffered a loss by the introduction of the basic tax. This is evident as it follows from the intended incentive effect of the basic tax, i.e. to reduce the demand for all non-reusable beverage packaging independent of the material. However, the demand for non-reusable beverage packaging or by developing new non-reusable beverage packaging, which in itself would be contrary to the Norwegian model of a waste hierarchy. Moreover, the Norwegian authorities have not provided any evidence suggesting that glass packaging has any less damaging effects on the environment compared to other packaging materials. Therefore the Authority concludes that the company's loss in competitiveness is primarily of a structural nature due to the introduction of competing substitutes. Consequently, also, this additional condition for granting a relief from environmental taxes is not met.

Conclusion

For the reasons above, and independently of what may be the final outcome of the Authority's examination of the compatibility of the basic tax with Article 14 of the EEA Agreement, it must be concluded that the proposed aid does not meet the requirements for an exemption pursuant to Article 61 (3) (c) for 'aid to facilitate the development of certain economic activities . . . where such aid does not adversely affect the trading conditions to an extent contrary to the common interest.` Norway must therefore not put the proposed measure into effect,

HAS ADOPTED THIS DECISION:

1. The EFTA Surveillance Authority has decided not to authorize the notified aid to PLM Moss Glassverk A/S in the form of an exemption for glass packaging from the basic tax on non-reusable beverage packaging (Aid No 95-002).

2. The Norwegian Government must not put the proposed measure referred to in Article 1 into effect.

3. The European Commission is informed, in accordance with Protocol 27 (d) of the EEA Agreement, by a copy of the Decision.

4. Other EFTA States parties to the EEA Agreement, EC Member States and interested parties are informed by the publication of the decision in the EEA Section of and the EEA Supplement to the Official Journal of the European Communities.

5. This Decision, which is authentic in the English language, is addressed to Norway.

Done at Brussels, 31 October 1995.

For the EFTA Surveillance Authority

KNUT ALMESTAD

President

(1) Hereinafter referred to as the EEA Agreement.

(2) Hereinafter referred to as the Surveillance and Court Agreement.

(3) The term basix tax ('grunnavgift`) is applied, inter alia, in order to distinguish this tax from the differentiated environmental tax according to recycling performance levied on recyclable containers.

(4) PLM is one of the leading packaging producers in Europe. PLM manufacturers and markets a range of consumer packaging in metal, glass and plastic.

(5) Established 1898.

(6) Budsjettinnstilling S II (1993-94), Chapter 1442, post 70.

(7) According to the Ministery of Industry and Energy the market share for refillable plastic packaging further increased to approximately 93 % in 1994 at the expense of glass packaging.

(8) Source: NOS Utenrikshandel.

(9) Den Norske Emballasjeforening - Emballasjeindustriens Landsforening (EIL).

(10) St.prp. nr. 1 (1994-95) Skatter og avgifter til statskassen, Grunnavgift på engangsemballasje for drikkevarer.

(11) Paragraph 2 point (b) of 'Forskrifter om grunnavgift på engangsemballasje for drikkevarer fastsatt av Finansdepartementet 30. desember 1993`.

(12) Volume less than four litres.

(13) The environmental tax and the regulations on return systems for beverage packaging are described in more detail in the Authority's decision of 13 April 1995 to open the investigation procedure (OJ No C 212, 17. 8. 1995, p. 6).

(14) Norwegian industry on 14 September 1995 concluded four agreements with the Ministry of Environment on recycling of other packaging materials.

(15) Procedural and Substantive Rules in the Field of State Aid adopted by the Authority on 19 January 1994.

(16) See point I.5 of this Decision.

(17) Beverage Can Makers Europe, founded in 1990, describes itself as a non-profit organization representing the European beverage can making industry.

(18) Elopak A/S and Tetra Pak A/S are Norwegian producers of beverage packaging based primarily on carton.

(19) Prosess- og foredlingsindustriens Landsforening counts most Norwegian producers of beverage packages, including PLM Moss Glassverk A/S, among its members.

(20) The agreements were concluded on 14 September 1995.

(21) The agreements lay down targeted collection/recycling levels for plastic, metal, carton and brown paper.

(22) Norwegian federation of suppliers of general comodities for household use (groceries).

(23) The 'Resirk-group` is formed by representatives of retailers and, inter alia, breweries and mineral water producers.

(24) Statens forurensningstilsyn.

(25) Value added tax.

(26) Decision of 16 November 1994 on the map of assisted areas (Norway), 157/94/COL (OJ No C 14, 19. 1. 1995, p. 4).