ARCHIVESHISTORIQUES
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DOCUMENTS "COM"
COM(78)221
Vol.1978/0075

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(78)221final.
Brussels,25may1978
COMMISSION .POLICYONSECTORALAIDSCHEMES
(Communication from"theCommissiontotheCouncil)
1
r":
V
COM(78)221final.

COMMISSION POLICY ONSECTORAL AID SCHEMES
ΟΤ;:·.:.ΙΛ ??Υ
•i'heDanish Presidency hasrequested astatement onCommission policy
onsectoral aidschemes asa "basis foranexchange ofviews onthis
cubject between Council and Commission .
The attached memorandum underlines the Commission 'sinstitutional
responsibility inthis field .Itoutlines theTreaty policy oncompe­
tition ,itsdevelopment andrelevance tocurrent economic problems ,
particularly inview ofsocial pressures ,capacity problems andthe
danger ofprotectionism .Itexplains theCommission policy andmethods ,
emphasizing theflexibility ofapproach ,but stressing theCommunity
aspects ,theneed toobtain positive results ,particularly viable
economic structures ,and toovercome thedanger ofpreserving the
status quo ortransf erring difficulties from oneMember State to
another .Itdiscusses therelevance ofCommunity frameworks onaid
forwhole industries andtheprinciples involved inhandling individual
cases .Thememorandum concludes bystressing thecontinuing consultation
that takes place onstate aidpolicy between theCommission ,theParliament
and Member States .

Subject :Commission policy onSectoral Aid Schemes
Introduction .
1.TheCommission hasbeen requested ,by ,thecurrent President ofthe
Council toprepare astatement onitspolicy onsectoral aidschemes
•tofacilitate anexchange ofviews onthis subject between theCouncil
andtheCommission .Insubmitting this statement theCommission would
underline that inthefield ofdecisions onthecompatibility ofState
aids with theCommon Market theTreaty places responsibility onthe
Commission .
2.This exchange ofviews isparticularly welcome inthe light ofcurrent
circumstances .Theeconomic crisis ,with theresultant high levels of
unemployment andslow growth ,could lead tothedanger ofadrift towards
protectionism ,both internally within theCommon Market through thegrowth
innumber andintensity ofState aids ,aswell asexternally .While State
aids have arole toplay insecuring anorderly adjustment tonew economic
structures viable onaworld –wide basis inthelonger-term ,their useto
preserve thestatus quowill -serve only tohinder theadjustments to
Community industries that arenecessary tosecure theeconomic andsocial
future ofthe Community .
General Principles
3.TheTreaty lays down thebasic principle oftheincompatibility ofState
aids with theCommon Market (Article 92(l )EEC),implementing Article 3(f)
oftheEECTreaty ,which provides fortheinstitution ofasystem ensuring
that competition intheCommon Market isnotdistorted .Italso provides
forderogations infavour ofcertain categories ofaid (Article 92(2 )and
(3)EEC)andplaces responsibility forthemanagement oftheapplication
ofthese derogations onthe6ommission .

There arethree undeniable reasons foradhering tothis systems
–thecustoms union would "bequite useless andwould collapse if
Member States could invalidate itbygranting aids ;
–the Common Market makes little sense unless businesses tackle
themarket onthestrength oftheir ownresources without any
aidtodistort competition between them ,except where such aid
isclearly justified inthegeneral interest oftheCommunity ^
–lastly ,andasacorollary ,asystem which leaves thefield
open for competition anddoes notallow aids tointerfere with
theoptimum distribution ofproduction factors isessential to
economic and social progress .
\,
This does not ,however ,mean that arestrictive attitude must be
adopted towards aids designed toremedy situations inwhich market
conditions :
–obstruct progress towards certain economic andsocial objectives ;
–orpermit these objectives tobeachieved only within unacceptable
time limits orwith unacceptable social repercussions ; >
–orintensify competition tosuch anextent that itrisks
destroying itself®
The Commission considers that aid .should beauthorized when it
isneeded tocorrect serious regional imbalances ,toencourage or
speed upnecessary changes ordevelopments incertain industries ,
toenable for social reasons asmooth adjustment ofcertain activities
ortoneutralize ,atleast temporarily ,thedistortion ofcompetition
duetoaction outside theCommunity *
«
Theobjectives ,forms ,andconditions ofsuch aids ,whose justification
isthat they facilitate theorderly development ofCommunity structures ,
donotconflict with thegeneral objectives quoted in3.1.above .It
therefore follows that such aidmust n6tbegiven iftheneed for it

isnotclearly established ,ormerely topreserve thestatus quo ,nor
hasanexcessively destructive effect oncompetition ,ortransfers
difficulties unduly from oneMember State toanother .
The new context
4.Thegranting ofState aids hasassumed increasing importance asa
result oftheindustrial difficulties andparticularly thegrowing
unemployment that have resulted from therecession .Struc­
tural problems were developing inall ,Member States prior tothe
current economic crisis .However ,theresults ofthe increase in
petroleum prices ,thepersistence ofinflation ,theinstability of
exchange rates ,and thegrowth ofexport-orientated industries in
developing countries have accentuated theneed for structural adapt ar-
tiori ofeconomies .All the Member States find themselves ina
position oftransition ,characterized bytheneed toadapt their
industries tothe consequences ofthese changes .
TheEuropean Council ,conscious ofthis situation ,atitsmeeting in
Copenhagen on7/8April .1978 underlined theneed tore-establish the
competitivity ofindustries indifficulties andstated that this
remained thechief object forthepolicy of-Member States inthis
field .Inthis context theEuropean Council emphasized theneed
toovercome thegrave problems posed bystructural overcapacity in
many industries andtheneed topromote anindustrial structure which
could face uptoworld –wide competition . •
5.Theapplication oftheState aidrules oftheTreaty haspresented partic­
ular problems totheCommission during thepast fewyears .These
problems arose asaresult ofthegeneral economic pressures indicated
above .
5.1.During theperiod 1975-7 6itxvasnotclear whether theproblems were
essentially ofashort-term conjunctural nature ,which would beresolved
byanatural recovery intheeconomy ,orwhether theproblems were of
amore deep–seated structural nature .Bearing inmind also the
strong social pressures whioh were prevalent inmost Member States
topreserve existing structures asawayoffighting rising unemployment ,
there wasatendency tointroduce measures ofaidasashort –term palliative
inthehope that thebasic situation would correct itself fairly rapidly .

5.2.Ithas "been increasingly recognized that theeconomic problems ofMember
States areofa"basic structural ,nature andthat this structural problem
istheonethat requires tobetackled ifeconomic recovery istotake
place and anew phase ofsocial and economic progress istobeinitiated .
This objective cannot be -obtained byindirect protectionism brought about
through theuseofState aids which have theeffect ofimpeding the
exploitation oftheeconomic opportunities that exist inthechanging
world economy andwhich could undermine thecohesion oftheCommunity 's
economy which isapre–condition forfurther progress .
5.3 .Inthis context itshould benoted also that control ofState aids within
theCommunity istheresult ofcertain international obligations (Art­
icle XVIofGATT ).Moreover ,inthecurrent mutlilateral trade nego­
tiations (MTN)certain ofourpartners arepressing forastrengthening
ofsuch control asaquid proquoforalignment ofitslegislation on
countervailing duties with the GATT rules . ' .
5.4.Asfarasaids inEPTA countries areconcerned ,theCommission iswell
aware oftheproblems ofcompetition involved insome cases ,especially
asregards Scandinavian countries .This general problem iscurrently
under discussion with theMember States .Aslong asthese discussions are
under way ,theCommission does not consider itappropriate totake adecision
ofprinciple .However ,ifthere were specific complaints theCommission would
examine these onacase–by–case basis according totherelevant -dispositions
oftheexisting free–trade agreements concluded with these EPTA countries .
General applications ,
6.TheTreaty rules arenotastatic instrument butgive theCommission aflexi - ,
bility toaccept therealities ofthesituation atboth Community andMember
State level .Given conditions ofthepast fewyears ,acertain multiplication
ofsectoral aids ,particularly intheMember States with economic structures
less well adapted tothenewsituation intheworld eoonomy isseen asanin­
evitable reaction tothepressure towhich their economies aresubject ,bearing
inmind particularly thesocial pressures created bylimited growth andrising
"unemployment . " -
7.Indetermining itsposition onindividual aidproposals theCommission' has
developed anumber ofbasic criteria :
7.1.Inthecontext ofchanging economic andsocial situations toensure that
theCommunity dimension istaken into account within theactions ,ofMember
States ;inparticular that action is .taken only where there isreal need ,
that that action will lead toarestoration oflong-term viability andthat

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allthese actions will give added efficacy totheeconomic ,social and
regional policies of "theCommunity .State aids should seek "tosolve long-
term problems andnottopreserve thestatus quoorputoffdecisions and
changes which areinevitable .Inbalancing theCommunity andnational intei >-
ests ,theCommission endeavours toensure that industrial problems andun–
...employment arenottransferred from oneMember State toanother .
7.2.TheCommission accepts that theneed toadapt structures should bequalified
bytaking into account theshort-term social costs involved .Time isnece­
ssary foradjustment .While State aids should notbeused simply topreserve
existing structures limited use ofresources toameliorate the social and
economic costs ofchange ,forexample intheform ofrescue operations or
even controlled operating aids forastrictly limited period (crisis measures ),
canbeaccepted .
7.3.Theintensity ofaidgiven should beproportionate totheproblem itis
sought toresolve .Inthis respect problems ,whether regional orindustrial ,
should beovercome with aminimum disturbance tocompetition andrespect for
the difficulties which have tobesolved ineach Member State .
7.4.Moreover ,the Commission isalso concerned toensure that proposed aid
measures should bedegressive (e.g. intherate and/oramount ofaid);
limited intime ;andclearly linked toobjectives forrestructuring of
the sector concerned .
8.Theprinciples ofcompetition laid down intheTreaty limit theinitiatives
vthat the Commission can take inthefield ofState aids and determine the
role oftheCommission inhandling cases ofState aid ,which isprincipally
toreact tothe initiatives envisaged byMember States .
Therefore ,theprincipal method ofoperation oftheCommission isacase–by–case
examination ofproposals from Member States togrant aid.Such proposals ,if
their economic impact canbejudged inadvance ,areconsidered inthelight of
theprovisions oft]|eTreaty andinparticular thederogations ofArticle 92(3 )
EECTreaty .If,asisthecase inmost general aidschemes ,itisnotpossible
initially tojudge theeffect ofanaidproposal ,theCommission will review
theindividual cases ofapplication oftheaidinquestion inthelight ofthe
general principles outlined above .This examination will include theappli­
cation oftheprinciples defined inanyframework foraidtospecifio sectors .
./•

-6-
9.TheCommission does notsystematically define apriori such general principles
tobefollowed "byMember States because ofthedanger ofgeneralizing the
use oftheaids within Member States even where they arenotstrictly nece­
ssary andtheinflexibility which would result ,assuch frameworks cannot take
into account thespecific characteristics oftheindustry concerned ineach
Member State .However ,incases where ithasbecome evident that anindustry
faces asituation ofparticular difficulty throughout theCommunity ,or
shall face such difficulties ,itispossible todevelop certain guidelines
which indicate thepolicy the Commission will pursue inmatters ofsubsi­
dies forthis industry .Such guidelines have been developed inparticular
incases where industries are incrisis ,forexample textiles ,ship­
building and steel ,under therules ofCECA ,orbecause particular indus­
tries are growth points which should bestimulated inthe common interest .
Inother areas where Member States face problems ofasimilar nature or
intensity ,for example regional aidandaidfortheenvironment ,the
Commission has also developed this kind offramework .
10.The Commission has totake into account also the sectoral effects ofcertain
other types ofaidgiven ,for exa.mple ,aids for regional development or
social purposes ,such asemployment aids .TheCommission hasapplied re­
strictions when necessary (seepoint 13.below)®
Policy inspecific sectors
11.Acting within theabove policy theCommission hasapproached equally
theproblems created byindustries incrisis aswell asthose where the
problem isgrowth .Theformer group hasconcerned shipbuilding (four
successive Council Directives onaid),textiles (general principles on
aidfirst elaborated in1971 a-ndrefined andextended in1976 ),man-made
fibres (proposal ofappropriate measures under Article 93(1 ))andsteel
(general principles were proposed toMember States inApril 1977 anda
proposal foraDecision under Article 95ECSC sent tothe Council andthe
Consultative Committee inMay1978 ).

-7-
11.1 .TheCommission 'sapproach inthecase ofindustries incrisis cited
above has "been based oncertain common principles .TheCommission has
recognized that the crisis inthese industries hasthreatened either
adisorderly rundown oftheir activities with' serious adverse conse­
quences foremployment ingeneral ,oraseries ofinterventions by
Member States designed toprotect their industries ,possibly bytrans­
ferring difficulties toother Member States ,with aidlevels
being fruitlessly bid-up atsubstantial cost toallMember States .
Thegeneral purpose ofthe Commission 'sinitiatives hasbeen to
avoid both ofthese undesirable eventualities and atthe same time
toencourage the establishment ofindustries able tocompete freely
ontheworld market .Tothese ends ithasaccepted the justification
for aids where these have facilitated adaptation tothenew market
conditions inanorderly manner .Such adaptations require (a)either
anactual reduction incapacity ortheavoidance ofundesirable
increases incapacity ;and (b)therestoration ofthecompetitiveness
ofCommunity industry .
11.2 .Inmore concrete terms this has ledtothespecification ofthe
following principles in-these initiatives :
-aids should notbegiven where their sole effect would beto
maintain thestatus quo.Production aids assuch aretherefore
inprinciple inadmissible ,unless firstly they areconditional
onaction bytherecipient which will facilitate adjustment
(e.g.restructuring programmes )!andsecondly they arelimited
intime :

–similarly trescue measures have been recognized asnecessary to
provide abreathing space while longer term solutions toan
enterprise 'sdifficulties areworked out ,soasnottofrustrate
anyrequired capacity reductions ,such rescue measures should be
limited tocases where they are .required tocope with acute
social problems ; * 1
–aids forinvestment should notresult incapacity increases ,
since itisacommon feature ofthe industries concerned that
.capacity isexcessive .(TheCommission hassought incertain
instances toapply this .criterion intheoase ofregional aids –
apoint discussed inparagraph 13.below ).
• ' V
12.Asfarasconcerns industrial growth sectors ,theCommission ,while
itisinprinciple positively disposed totheir stimulation ,empha­
sizes initsdecisions thebenefits tobeobtained from Community *-
wide cooperation insuch actions .Theprincipal competitive
problems facing the Conujiunity come from States outside theCommunity ,in
particular those highly industrialized and/ortechnically 'advanced .
TheCommission hasencouraged Member States topromote anactive policy
ofdevelopment inthefields ofcomputer technology ,electronics ,aero­
nautics ,particularly bygeneral promotion ofresearch anddevelopment .
Ithasraised noobjections therefore totheuse ofState aids toattain
these objectives . .. 1
Inthis context mention should bemade also ofthefavourable position
the Commission hasadopted toproposals topromote theavailability of
finances forthecreation ofnewundertakings andthedevelopment ofsmall
andmedium-sized enterprises .
13.In -considering itspolicy onsectoral aidschemes theCommission has
also taken into account thesectoral effeots ofother types ofaids .
Inparticular :
–Aids toemployment .TheCommission hasdistinguished between aids
designed topromote newwork places andthose designed tomaintain
existing jobs .Inregard tothelatter ithasconsidered that ifsuch
• ' " " - '•/.

-9-
aids areconcentrated onsectors which face acute difficulties inall
Member States ,and .arenotassociated with substantial plans for
reorganization ,their granting will lead nottothesolution ofthe
4
social andindustrial difficulties ,buttotheir transfer toother
Member States *Forthese reasons ithasrecently imposed important
restrictions onsuch anemployment aid .
–Asconcerns regional aid ,bearing inmind thegeneral objectives of
theTreaty andinparticular thederogation ofArticle 92(3)(a )and
(c)EECTreaty covering thegrant ofregional aid,theaccumulation
'of sectoral with regional aids isnotexcluded inprinciple .However ,
where apoint ofextreme overcapacity hasbeen reached inaparticular
sector ,the Commission hasdemanded from Member States that even
regional aidwhich would encourage investment that would lead toan
inprincipleincrease incapacity should not/begranted ,forexample inthecase
/ v ofthesynthetic fibre industry ,andshipbuilding .
Conclusion
14.TheCommission welcomes this opportunity forafruitful exchange of
views onState aids with the Council ,which itisready torenew ,
without prejudice toitscompetences .Itwould note that Member States
arealready associated with itsdecisions onmatters ofState aidthrough
aconstant stream ofconsultation atboth bilateral andmultilateral level .
This practice oftheCommission wasexplained inletters ofthePresident
oftheCommission of5January 1977 and11April 1978 .Furthermore ,the
Commission would recall that initsAnnual Report ofCompetition Policy
addressed totheParliament itspolicies andactions aredescribed in
detail .Onthebasis ofthis report theCommission isprepared toxhold
periodic discussions onitspolicy with therelevant experts from the
Member States .