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COMMISSION DECISION No 3484/85/ECSC

of 27 November 1985

establishing Community rules for aid to the steel industry

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Coal and Steel Community, and in particular the first and second paragraphs of Article 95 thereof,

Having consulted the Consultative Committee and with the unanimous assent of the Council,

Whereas:

I

To assist the restructuring of the Community steel industry, Commission Decision No 2320/81/ECSC (1), as amended by Decision No 1018/85/ECSC (2), established rules under which aid could be granted to the industry until 31 December 1985.

The results so far indicate that the objectives which the Community then set itself of bringing Community production capacity more closely into line with demand and putting steel firms into a technical and financial shape such that they would be financially viable under normal market conditions will be achieved.

Nevertheless, the industry is still left with considerable overcapacity, for some product categories more than for others, which on forecast market trends will require the majority of firms to continue their restructuring, since, although the industry has been substantially turned round, it is still in a vulnerable condition. In this situation, it is necessary to ensure that government subsidies to the industry from 1 January 1986 do not undo what has been achieved in the restructuring exercise that has just been conducted or delay or prevent the further adjustments that are still necessary to bring supply and demand into balance.

From now on, firms should, in general, have to rely on their own financial performance to sustain their activities and to finance the further structural adjustments that will become necessary as market forces are gradually restored.

For that purpose, it is necessary to establish comprehensive Community rules to ensure that all aid which may still be granted to the steel industry is treated uniformly under a common procedure. These rules must cover both specific aid, that is, that given under schemes mainly intended for or benfiting the steel industry, and aid granted to the industry under general or regional schemes. They must also extend to all transfers of State resources to steel firms in the form of acquisitions of shareholdings or provisions of capital or similar financing, which in certain circumstances can have similar economic effects to those produced by aid properly so-called and must therefore be subject to the same procedure.

The Community thus finds itself faced with a situation not specifically provided for in the ECSC Treaty and yet requiring action. In these circumstances, recourse must be had to the first paragraph of Article 95 of the Treaty, so as to enable the Community to pursue the objectives set out in the initial Articles thereof. The comprehensive set of Community rules thereby established means that any subsidies in any form whatsoever, and whether specific or non-specific, which Member States might grant to their steel industries, other than aid expressly provided for and duly authorized under this Decision, could not in any circumstances be justified under Article 67 of the Treaty and would have to be regarded as prohibited by Article 4 (c) thereof.

II

Under Decision No 2320/81/ECSC the Commission, as was required of it, made sure that the restructuring programmes of aided firms gave them reasonable prospects of viability from 1986. In the course of this scrutiny, it also satisfied itself that the amount of aid authorized by

it was necessary and sufficient to enable the aided firms to carry out normal renewal of plant. Consequently, there is no justification for allowing operating or investment aid to such firms after 1985.

On the other hand, it would be unreasonable for Member States whose steel industry had not had any aid authorized for it under Commission Decisions No 257/80/ECSC (1), and 2320/81/ECSC to be prohibited from granting aid to their industry under general regional schemes where the aided investment does not increase capacity.

It would also be unjustified, and would be treating the industry differently from other industries, to deny the Community steel industry aid for research and development or for bringing plant into line with new environmental standards. Aid for these purposes which is in the public interest and satisfies the conditions laid down in this Decision should be available to the steel industry, just as similar aid is permitted to other industries under Articles 92 and 93 of the EEC Treaty.

The overcapacity that persists in a number of product categories also justifies the authorization of aid to accelerate the closure of inefficient plants which, if kept in service, even only temporarily, could depress the market to the detriment of all firms in the sector, and to encourage the least competitive firms to cease production entirely.

To avoid discrimination due to the variety of forms which State aid may take, transfers of State resources to public or private steel firms in the form of acquisitions of shareholdings or provisions of capital or similar financing must be subject to the same procedures as aid so that the Commission can determine whether such operations involve an aid element. This will be the case where the financial transfer is not a genuine provision of risk capital according to usual investment practice in a market economy. The compatibility of any such aid elements with the Treaty must be assessed by the Commission in the light of the criteria laid down in this Decision. For this purpose, all such financial transfers must be notified to the Commission and may not be implemented if before the end of the standstill period laid down in Article 6 (5) the Commission determines that they contain aid elements and initiates the procedure provided for in Article 6 (4).

To ensure the orderly functioning of the common market during a period which will see Community steel firms, although already in a better technical and financial shape than before, having to make further substantial adjustments, this Decision should apply until 31 December 1988.

The Act of Accession of Spain and Portugal contains special provisions on aid to the steel industries of these two new Member States; this Decision is without prejudice to those provisions,

HAS ADOPTED THIS DECISION:

Article 1

1. Aid to the steel industry, whether specific or non-specific, financed by Member States or their regional or local authorities or through State resources in any form whatsoever may be deemed Community aid and therefore compatible with the orderly functioning of the common market only if it satisfies the provisions of Articles 2 to 5.

2. The term 'aid' also covers the aid elements contained in transfers of State resources by Member States, regional or local authorities or other bodies to steel undertakings in the form of acquisitions of shareholdings or provisions of capital or similar financing (such as bonds convertible into shares, or loans the interest on which is at least partly dependent on the undertaking's financial performance) which cannot be regarded as a genuine provision of risk capital according to usual investment practice in a market economy.

3. Aid coming within the terms of this Decision may be granted only after the procedures laid down in Article 6 have been followed and shall not be payable after 31 December 1988.

Article 2

Aid for research and development

1. Aid granted under general aid schemes to defray expenditure by steel undertakings on research and development projects may be deemed compatible with the orderly functioning of the common market provided that the research and/or development project has one of the following objectives:

- reduction in production costs, in particular through energy conservation or improvements in productivity,

- improvements in the quality of products,

- improvements in the performance of iron and steel products or extensions of the range of applications of steel,

- improvements in the environment and in working conditions (higher health and safety standards).

2. The total amount of aid granted for this purpose may not exceed 35 % net grant equivalent of the eligible costs in the case of basic industrial research and 25 % in the case of applied research and development.

3. Basic industrial research is defined as original theoretical or experimental work whose objective is to achieve a new or better understanding of the laws of science and technology as they apply to an industrial sector or the activities of a particular undertaking.

4. The eligible costs shall be only those directly related to research and development, excluding those related to industrial applications or commercial exploitation of the results.

Article 3

Aid for environmental protection

1. Aid granted to steel undertakings under general aid schemes for bringing into line with new statutory environmental standards plants which entered into service at least two years before the introduction of the standards may be deemed compatible with the orderly functioning of the common market.

2. The total amount of aid granted for this purpose may not exceed 15 % net grant equivalent of the investment costs directly related to the environmental measures concerned. Where the investment is associated with an increase in the capacity of the plant, the eligible costs shall be proportionate to the initial capacity of the plant.

Article 4

Aid for closures

1. Aid towards the cost of payments to workers made redundant or accepting early retirement may be deemed compatible with the orderly functioning of the common market provided that:

- the payments do not exceed those customary under the rules in force in the Member States on 1 October 1985 and actually arise from the partial or total closure of steel plants that have been in regular production up to the time of notification of the aid and whose closure has not already been taken into account for the purposes of applying Decisions No 257/80/ECSC or No 2320/81/ECSC or granting a favourable opinion under Article 54 of the ECSC Treaty,

- the aid does not exceed 50 % of that portion of such payments which is not defrayed directly by the Member State or by the Community pursuant to Article 56 (1) (c) or (2) (b) of the ECSC Treaty but is payable by the undertaking concerned.

2. Aid to steel undertakings which permanently cease production of ECSC iron and steel products may be deemed compatible with the orderly functioning of the common market, provided that the undertakings:

- became a legal entity before 1 October 1985,

- have been regularly producing hot-rolled products up to the date of notification of the aid,

- have not reorganized their production or plant structure since 1 October 1985, and

- are not directly or indirectly controlled, within the meaning of Decision No 24-54 of the ECSC High Authority (1), by, and do not themselves directly or indirectly control, an undertaking that is itself a steel undertaking or controls other steel undertakings,

and that the closure of their plants has not already been taken into account for the purposes of applying Decisions No 257/80/ECSC or No 2320/81/ECSC or granting a favourable opinion under Article 54 of the ECSC Treaty.

The amount of aid may not exceed the higher of the following two values, as determined by an independent consultant's report:

- the discounted value of the contribution to fixed costs obtainable from the plants over a three-year period, less any advantages the aided firm derives from their closure, or

- the residual book value of the plants (ignoring that portion of any revaluations since 1 January 1980 which exceeded the national inflation rate).

Article 5

Aid granted to steel undertakings for investment under general regional aid schemes may be deemed compatible with the orderly functioning of the common market, provided that:

- the aided investment does not lead to an increase in production capacity, and

- the aided undertaking is located on the territory of a Member State which was not authorized to grant any aid under Decisions No 257/80/ECSC or No 2320/81/ECSC.

Article 6

1. The Commission shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid of the types referred to in Articles 2 to 5. It shall likewise be informed of plans to grant aid to the

steel industry under schemes on which it has already taken a decision under the EEC Treaty. The notifications of aid plans required by this Article must be lodged with the Commission by 30 June 1988 at the latest.

2. The Commission shall be informed, in sufficient time for it to submit its comments, and by 30 June 1988 at the latest, of any plans for transfers of State resources by Member States, regional or local authorities or other bodies to steel undertakings in the form of acquisitions of shareholdings or provisions of capital or similar financing.

The Commission shall determine whether the financial transfers involve aid elements within the meaning of Article 1 (2) and, if so, shall examine whether they are compatible with the common market under the provisions of Articles 2 to 5.

3. The Commission shall seek the views of the Member States on plans for closure aid and other major aid proposals notified to it before adopting a position on them. It shall inform the Member States of the position it has adopted on all aid proposals, specifying the form and volume of the aid.

4. Where, after inviting interested parties to submit their comments, the Commission finds that aid in a given case is incompatible with the provisions of this Decision, it shall inform the Member State concerned of its decision. The Commission shall take such a decision not later than three months after receiving the information needed to assess the proposed aid. Article 88 of the ECSC Treaty shall apply in the event of a Member State's failing to comply with that decision. The planned measures falling within paragraphs 1 or 2 may be put into effect only with the approval of and subject to any conditions laid down by the Commission.

5. If the Commission fails to initiate the procedure provided for in paragraph 4 or otherwise to make its position known within two months of receiving notification of a proposal, the planned measures may be put into effect provided that the Member State first informs the Commission of its intention to do so.

6. All individual awards of the types of aid referred to in Articles 4 and 5 shall be notified to the Commission in accordance with the procedure provided for in paragraph 1. The Commission also reserves the right to require that some or all individual awards of aid of the types referred to in Articles 2 and 3 be notified in accordance with paragraph 1.

Article 7

The Member States shall supply the Commission twice a year with reports on the aid disbursed over the previous six months, the uses to which the aid was put and the results in terms of restructuring obtained over the same period. The reports shall include particulars of all financial operations carried out by the Member States or local or regional authorities in relation to publicly-owned steel undertakings. They must be supplied within the two months following the end of each six-month period and be set out in a form determined by the Commission.

Article 8

The Commission shall draw up regular reports on the implementation of this Decision for the Council and, for information, for the Parliament and the Consultative Committee.

Article 9

This Decision shall not apply to aid governed by the Act of Accession of Spain and Portugal.

Article 10

This Decision shall apply from 1 January 1986 until 31 December 1988.

This Decision shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 27 November 1985.

For the Commission

Karl-Heinz NARJES

Vice-President

(1) OJ No L 228, 13. 8. 1981, p. 14.

(2) OJ No L 110, 23. 4. 1985, p. 5.

(1) OJ No L 29, 6. 2. 1980, p. 5.

(1) OJ of the ECSC No 9, 11. 5. 1954, p. 345/54.