Framework on State aid to shipbuilding

(2003/C 317/06)

1. INTRODUCTION

1. Since the early 1970s, State aid to shipbuilding has been subject to a series of specific Community regimes. Compared to industrial sectors that have not been subject to specific rules, the regimes applicable to the shipbuilding sector have contained a mixture of both stricter and more lenient provisions. This Framework provides for new rules for the assessment of State aid to shipbuilding following the expiry of Council Regulation (EC) No 1540/98 of 29 June 1998 establishing new rules on aid to shipbuilding(1) on 31 December 2003.

2. The objectives of this Framework are, to the largest extent possible, to remove the differences between the rules applicable to the shipbuilding industry and to other industrial sectors and, thereby, to simplify and make more transparent the Commission's policy in this area, by extending general horizontal provisions to the shipbuilding sector.

3. Nevertheless, the Commission recognises that certain specific factors affecting the shipbuilding sector should be reflected in the Commission's policy of State aid control. These factors include:

(a) over-capacity, depressed prices and trade distortions in the world shipbuilding market;

(b) the nature of ships as very large, capital goods, which raises the potential of State-supported credit facilities to distort competition;

(c) the fact that World Trade Organisation ("WTO") unfair trade disciplines are difficult to apply in the shipbuilding sector;

(d) the existence of agreements within the Organisation for Economic Cooperation and Development ("OECD") in the shipbuilding sector, namely the 1998 OECD Arrangement on Guidelines for Officially Supported Export Credits with its Sector Understanding on Export Credits for Ships, which applies in the Community pursuant to Council Decision 2001/76/EC of 22 December 2000 replacing the Decision of 4 April 1978 on the application of certain guidelines in the field of officially supported export credits(2).

4. The Commission acknowledges that work is being undertaken within the OECD framework to replace the 1994 Agreement on respecting normal competitive conditions in the shipbuilding and repair industry(3), which has not entered into force. This Framework is in no way intended to prejudice the outcome of that work and may be reviewed in the light of an agreement within the OECD.

5. In the light of these special characteristics, the objectives of this Framework, in addition to simplifying the applicable rules, are to:

(a) encourage greater efficiency and competitiveness of Community yards, in particular through the promotion of innovation;

(b) facilitate the reduction of economically non-viable capacity where necessary;

(c) respect applicable international obligations in the field of export credits and development aid.

6. In order to achieve these objectives, this Framework provides for specific measures in relation to aid for innovation, closure aid, export credits and development aid and regional aid.

7. Certain features make shipbuilding unique and distinguish it from other industries such as short production series, the size, value and complexity of the units produced as well as the fact that prototypes are generally used commercially. As a consequence, shipbuilding is the only sector eligible for innovation aid. Investment aid for innovation was introduced by Regulation (EC) No 1540/98 and was intended to be authorised only in duly justified cases, as an incentive to technological risk-taking. However, the implementation of this provision was not satisfactory. It is considered that the unique characteristics of the shipbuilding industry justify maintaining a sector-specific innovation aid. Therefore, this Framework aims at improving support to innovation, by taking into account notably the difficulties of application of the previous provision.

8. The Commission may only consider aid to shipbuilding, ship repair and ship conversion to be compatible with the common market if it complies with the provisions of this Framework.

9. This Framework is without prejudice to the temporary measures established by Council Regulation (EC) No 1177/2002 of 27 June 2002 concerning a temporary defensive mechanism to shipbuilding(4).

2. DEFINITIONS

10. For the purposes of this Framework, the following definitions shall apply:

(a) "shipbuilding" means the building, in the Community, of self-propelled seagoing commercial vessels;

(b) "ship repair" means the repair or reconditioning in the Community of self-propelled seagoing commercial vessels;

(c) "ship conversion" means the conversion, in the Community, of self-propelled seagoing commercial vessels of not less than 1000 gt, on condition that conversion operations entail radical alterations to the cargo plan, the shell, the propulsion system or the passenger accommodation;

(d) "self-propelled seagoing commercial vessels" means:

(i) vessels of not less than 100 gt used for the transportation of passengers and/or goods,

(ii) vessels of not less than 100 gt for the performance of a specialised service (for example, dredgers and ice breakers),

(iii) tugs of not less than 365 kW,

(iv) fishing vessels of not less than 100 gt, with regards to export credits and development aid if in compliance with the 1998 OECD Arrangement on Guidelines for Officially Supported Export Credits and with its Sector Understanding on Export Credits for Ships, or with any agreement amending or replacing either of them, as well as with the Community rules governing State aid in the fishery and aquaculture sector,

(v) unfinished shells of the vessels referred to in points (i) to (iv) that are afloat and mobile.

For the purposes of the above, "self-propelled seagoing vessel" shall mean a vessel that, by means of its permanent propulsion and steering, has all the characteristics of self-navigability on the high seas. Military vessels (i.e. vessels which according to their basic structural characteristics and capability are specifically intended to be used exclusively for military purposes, such as warships and other vessels for offensive or defensive action) and modifications made or features added to other vessels exclusively for military purposes shall be excluded, provided that any measures or practices applied in respect of such vessels, modifications or features are not disguised actions taken in favour of commercial shipbuilding inconsistent with State aid rules;

(e) "related entity" means any natural or legal person who:

(i) owns or controls an undertaking engaged in shipbuilding, ship repair or ship conversion, or

(ii) is owned or controlled, directly or indirectly, whether through stock ownership or otherwise, by an undertaking engaged in shipbuilding, ship repair or ship conversion.

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

(f) "aid" means aid within the meaning of Article 87(1) of the Treaty establishing the European Community, including measures such as credit facilities, guarantees and tax concessions.

3. APPLICABLE PROVISIONS

3.1. Scope

11. Aid to shipbuilding shall include aid to any shipyard, related entity, shipowner and third party which is granted, whether directly or indirectly, for building, repair or conversion of ships.

3.2. Application of Horizontal Provisions

12. The general principle is that aid to shipbuilding may be granted in accordance with Articles 87 and 88 of the Treaty and all legislation and measures adopted on those bases, including the following provisions:

(a) Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty(5);

(b) Commission Regulation (EC) No 68/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to training aid(6);

(c) Commission Regulation (EC) No 69/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to de minimis aid(7);

(d) Commission Regulation (EC) No 70/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises(8);

(e) Regulation (EC) No 1177/2002;

(f) Community guidelines on State aid for rescuing and restructuring firms in difficulties(9);

(g) Community guidelines on State aid for environmental protection(10); and

(h) Community framework for State aid for research and development(11).

3.3. Specific Provisions

13. The general principle outlined in Section 3.2 is subject to the following exceptions, which are justified by the specific factors presented in Section 1.

3.3.1. Aid to research, development and innovation

14. Aid granted to defray expenditure by shipbuilding, ship repair or ship conversion undertakings on research and development projects may be considered compatible with the common market if it is in compliance with the rules laid down in the Community framework for State aid for research and development, or any successor arrangement.

15. Aid granted for innovation in existing shipbuilding, ship repair or ship conversion yards may be deemed compatible with the common market up to a maximum aid intensity of 20 % gross, provided that:

(a) it relates to the industrial application of innovative products and processes, i.e. technologically new or substantially improved products and processes compared to the state of the art existing in this industry in the Community, which carry a risk of technological or industrial failure;

(b) the aid is limited to supporting expenditure on investments, design, engineering and testing activities directly and exclusively related to the innovative part of the project. Exceptionally, additional production costs that are strictly necessary to validate the technological innovation can be eligible to the extent they are limited to the minimum necessary amount.

3.3.2. Closure aid

16. Aid to defray the normal costs resulting from the total or partial closure of shipbuilding, ship repair or ship conversion yards may be considered compatible with the common market provided that the resulting capacity reduction is of a genuine and irreversible nature.

17. The costs eligible for the aid referred to in paragraph 16 are:

(a) payments to workers made redundant or retired before legal retirement age;

(b) the costs of counselling services to workers made or to be made redundant or retired before legal retirement age, including payments made by shipyards to facilitate the creation of small enterprises which are independent of the shipyards in question and whose activities are not principally shipbuilding;

(c) payments to workers for vocational retraining;

(d) expenditure incurred for the redevelopment of the yard(s), its buildings, installations and infrastructure for use other than shipbuilding.

18. In addition, in the case of undertakings which totally cease shipbuilding, ship repair and ship conversion, the following measures may also be deemed compatible with the common market:

(a) aid of an amount not exceeding the higher of the following two values, as determined by an independent consultant's report: the residual book value of the installations, or the discounted operational profits obtainable over a projected three-year period, less any advantages the aided undertaking derives from the closure of the installations;

(b) aid such as loans or loan guarantees for working capital needed to enable the undertaking to complete unfinished works provided that this is kept to the minimum necessary and a significant proportion of the work has already been done.

19. Undertakings receiving partial closure aid must not have benefited from rescue or restructuring aid in the past 10 years. Where less than 10 years have elapsed since the rescue or restructuring aid was granted, the Commission will allow partial closure aid only in exceptional and unforeseeable circumstances for which the company is not responsible.

20. The amount and intensity of aid must be justified by the extent of the closures involved, account being taken of the structural problems of the region concerned and, in the case of conversion to other industrial activities, of the Community legislation and rules applicable to those new activities.

21. In order to establish the irreversible nature of aided closures, the Member State concerned shall ensure that the closed shipbuilding facilities remain closed for a period of not less than 10 years.

3.3.3. Employment aid

22. Aid granted for the creation of employment as well as for the recruitment of disadvantaged and disabled workers or to cover the additional costs of employing disadvantaged and disabled workers in shipbuilding, ship repair or ship conversion undertakings may be considered compatible with the common market if it is in compliance with the substantive rules laid down in Commission Regulation (EC) No 2204/2002 of 12 December 2002 on the application of Articles 87 and 88 of the EC Treaty to State aid for employment(12).

3.3.4. Export credits

23. Aid to shipbuilding in the form of State-supported credit facilities granted to national and non-national shipowners or third parties for the building or conversion of vessels may be deemed compatible with the common market if it complies with the terms of the 1998 OECD Arrangement on Guidelines for Officially Supported Export Credits and with its Sector Understanding on Export Credits for Ships or any successive terms laid down in such an arrangement or replacing the Arrangement.

3.3.5. Development aid

24. Aid related to shipbuilding and ship conversion granted as development assistance to a developing country may be deemed compatible with the common market if it complies with the terms laid down for that purpose by the 1998 OECD Arrangement on Guidelines for Officially Supported Export Credits and its Sector Understanding on Export Credits or any successive terms laid down in such an arrangement or replacing the Arrangement.

25. The Commission will verify the particular development content of the proposed aid, that the aid is necessary and that it falls within the scope of the 1998 OECD Arrangement on Guidelines for Officially Supported Export Credits and its Sector Understanding on Export Credits for Ships or any successive terms laid down in such an arrangement or replacing the Arrangement. The offer of development assistance must be open to bids from different yards. To the extent that Community public procurement rules are applicable, bidding procedures have to comply with them.

3.3.6. Regional aid

26. Regional aid to shipbuilding, ship repair or ship conversion may be deemed compatible with the common market only if it fulfils the following conditions:

(a) the aid must be granted for investment in upgrading or modernising existing yards, not linked to a financial restructuring of the yard(s) concerned, with the objective of improving the productivity of existing installations;

(b) in regions referred to in Article 87(3)(a) of the Treaty and complying with the map approved by the Commission for each Member State for the grant of regional aid, the intensity of the aid must not exceed 22,5 %;

(c) in regions referred to in Article 87(3)(c) of the Treaty and complying with the map approved by the Commission for each Member State for the grant of regional aid, the intensity of the aid must not exceed 12,5 % or the applicable regional aid ceiling, whichever is the lower;

(d) the aid must be limited to support eligible expenditure as defined in the applicable Community guidelines on regional aid.

4. NOTIFICATION OBLIGATION

27. All plans to grant new aid to shipbuilding, ship repair or ship conversion, either in the form of a scheme or as individual aid not covered by a scheme, shall be notified to the Commission except if they fulfil the conditions set forth in one of the Regulations exempting certain categories of State aid from the requirement of prior notification.

5. MONITORING

28. Member States shall submit to the Commission annual reports on all existing aid schemes pursuant to the rules set forth in Regulation (EC) No 659/1999 and in its implementing provisions.

6. OVERLAPPING AID FROM DIFFERENT SOURCES

29. The aid ceilings stipulated in this Framework are applicable irrespective of whether the aid in question is financed wholly or in part from State resources or from Community resources. Aid authorised under this Framework may not be combined with other forms of State aid within the meaning of Article 87(1) of the Treaty or with other forms of Community financing, the cumulation of which produces an aid intensity higher than that laid down in these guidelines.

30. In the case of aid serving different purposes and involving the same eligible costs, the most favourable aid ceiling will apply.

7. APPLICATION OF THIS FRAMEWORK

31. This Framework will be applicable from 1 January 2004 until 31 December 2006 at the latest. It may be reviewed by the Commission during this period, in particular in the light of the Community's international obligations.

(1) OJ L 202, 18.7.1998, p. 1.

(2) OJ L 32, 2.2.2001, p. 1. Decision as amended by Decision 2002/634/EC (OJ L 206, 3.8.2002, p. 16).

(3) OJ C 375, 30.12.1994, p. 1.

(4) OJ L 172, 2.7.2002, p. 1.

(5) OJ L 83, 27.3.1999, p. 1.

(6) OJ L 10, 13.1.2001, p. 20.

(7) OJ L 10, 13.1.2001, p. 30.

(8) OJ L 10, 13.1.2001, p. 33.

(9) OJ C 288, 9.10.1999, p. 2.

(10) OJ C 37, 3.2.2001, p. 3.

(11) OJ C 45, 17.2.1996, p. 5.

(12) OJ L 337, 13.12.2002, p. 3.