COMMISSION OF THE EUROPEAN COMVIUNITIES 
C0M(94) 265 final 
Brussels, 21.06.1994 
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 
FRESH IMPETUS FOR RESTRUCTURING THF 
STEEL INDUSTRY IN THE COMMUNTTV 
•:**— 
FRESH IMPETUS FOR RESTRUCTURING THE 
STEEL INDUSTRY IN THE COMMUNITY 
INTRODUCTION 
Since the Council meeting on 22 April 1994 further difficulties have emerged. They are 
casting doubt over the credibility of the restructuring plan for the Community steel 
industry and call for urgent political discussions to explore ways of giving fresh impetus 
to the restructuring which is still vitally needed. 
The overall approach of the restructuring policy endorsed by the Council in its 
conclusions of 25 February 1993 mapped out two parallel courses of action, one being 
formulation of a precise and sufficiently extensive capacity shedding programme by the 
industry, the other establishment of a package of supporting measures by the 
Commission and/or the Council to smooth the way for this programme. All the 
supporting measures were introduced during 1993. On the other hand, the industry has 
yet to submit the full programme of further reductions in capacity which it must 
formulate. 
Ï. COUNCIL MEETING ON INDUSTRY ON 22 APRIL 1994 
At the abovementioned meeting the Council concluded, from the intermediate review by 
the Commission, that the minimum capacity reduction agreed by all concerned (between 
19 and 26 million tonnes of hot-rolled products) had not been attained. 
Nevertheless, the Council agreed that the accompanying measures should be extended 
temporarily, even though the original target date of 30 September 1993 had passed and 
the reductions had fallen some 8 million tonnes short of the minimum target of 
19 million tonnes. This was justified by the industry's assertions that the extra capacity 
reductions necessary could still be produced, primarily from the private sector in Italy 
(between 5 and 6 million tonnes). 
Under these circumstances, the Council agreed to defer conclusive discussion until 
submission of a further review by the Commission in September. The Council adopted 
this position bearing in mind the commitment by all the parties concerned to maintain 
strict discipline on State aid, in accordance with the joint declaration by the Council and 
the Commission of 22 December 1993. 
IL FURTHER DIFFICULTIES SINCE THE COUNCIL MEETING ON 22 
APRIL 1994 
2.1 Progress with aid pursuant to Article 95 
2.1.1 The Commission has noted certain problems with the monitoring exercise. In 
particular, most of the initial replies from the Member States concerned did not 
contain all the information requested. As a result, the Commission's first report to 
the Council was incomplete. Most of this information lias now been received and a 
supplementary report is about to be submitted to the Council. A number of points 
raised in the reports will require further examination by the Commission. 
2.Î.2 There is also renewed uncertainty about the fate of EKO-Stahl, since RIVA has 
abandoned the takeover authorized by the Council in December 1993. 
These uncertainties stem primarily from the fact that in the meantime EKO is 
continuing its operations even though this is virtually impossible without public 
support. The Commission immediately requested the German Government for 
detailed information on the financial arrangements applied by the Treuhandanstalt 
to enable EKO to remain in operation. The Commission will examine the 
information supplied by the German Government, in accordance with the Aid Code 
procedures. 
Nevertheless,the fundamental problem remains the future of the undertaking. To 
clarify this, a fresh viability plan will be needed; the German authorities must send 
it to the Commission as soon as possible. 
2-2 Private sector in Italy 
The closures announced by the Italian industry under the Decree on restructuring 
and the associated implementing regulation notified by the Italian Government 
must play a key role as they will make it possible to draw much closer to the 
minimum capacity-shedding target of 19 million tonnes. The Commission could 
not authorize the concomitant aid in its entirety without applying Article 4(2) of the 
Aid Code as described in the Annex. This matter must be referred to the Council 
urgestly. 
2.3 Klockner 
lit the mid-1993 agreement, Klockner gave a commitment to the Commission 
providing for the definitive closure of 500 (XX) tonnes of wide hot-rolled strip 
capacity by shotting down one blast furnace by 31 August 1994 at the latest, 
followed by a further effort to contribute to the restructuring plan in the form of 
synergies with other undertakings. 
In a cooperation agreement proposed with Sidmar (Arbed), the partners have 
retracted the closure of Klockner's blast furnace and the concomitant reduction in 
hot-rolling capacity, but offer alternative solutions. The Commission is 
considering these. It will not accept any alternative offered by the industry unless it 
would yield closures at least equal to those originally planned. 
Also, by the end of July the Commission should adopt a final decision on 
Klockner's new financial structure, on which the procedure provided for by 
Article 6(4) of the Aid Code has been initiated. 
HI. ASSUMING RESPONSIBILITY FOR GIVING FRESH IMPETUS TO THE 
RESTRUCTURING PROCESS 
In view of the abovementioned difficulties, the Commission considers it necessary to 
reach a new consensus within the Council and to remind the industry of its key 
responsibility in order to seize the last chances to complete the essential restructuring. 
3.1 Target for reduction of overcapacity 
In view of the current problems, the Commission opposes any attempt at downward 
revision of the minimum closure target (19 million tonnes). Any such approach 
would be economically unfounded and politically unacceptable, since it would 
produce no lasting improvement in the industry. The improvements beginning to 
be seen in the economy and the favourable climate on the world market are still too 
little and too weak to support any such assessment. 
What is more, there is a risk that this could leave the restructuring process 
unfinished, as happened with several similar exercises in the past. The 
Commission considers that this type of error must not be repeated, since it would 
soon lead to the same drama again. 
3.2 Sharing responsibility 
The Commission confirms its support for the approach originally agreed with all 
concerned. One key component in this approach is for the industry to identify the 
additional closures necessary by 10 September at the latest, in time for the next 
Council meeting. Neither the Commission nor the Member States can relieve the 
Community steel industry of this responsibility. The Commission and the Council 
have already provided the fullest support possible to enable the industry to 
discharge its responsibilities. 
3.2.1 Private-sector industry in Italy 
In view of the significant scope for closures revealed by the recent applications 
from the undertakings concerned, the Commission believes that in this case the 
important thing is to seek solutions yielding the maximum reduction in capacity 
compatible with the Aid Code, which could be achieved by applying Article~4(2) of 
the Aid Code in accordance with the conditions described in the Annex. 
32.2 Other private industry 
Apart from the potential closures planned and to be identified clearly by the private 
sector in Italy, other private producers remain responsible for making the further 
reductions in capacity still needed. Consequently, they must make good use of the 
next few months so that in September, in time for the next Council meeting, the 
Commission can confirm that the restructuring process has been completed and that 
every opportunity has been taken to shed capacity by rationalization, synergies, etc. 
In particular, the Commission remains prepared to authorize any closure 
agreements on the same conditions as it applied to the agreements pursuant to 
Article 53(a) of the ECSC Treaty. 
3.3 Conclusions 
The Commission stresses that the minimum closure target of 19 million tonnes 
must be maintained. Failure by private producers to submit a programme of further 
capacity reductions will make it extremely unlikely that this target will be met. 
Nevertheless, in view of the potential closures announced by the Italian authorities 
the Commission draws the Council's attention to the need to apply Article 4(2) of 
the Aid Code in accordance with the conditions described in the Annex. This would 
make it possible to draw closer to the closure target set, while leaving the task of 
making the further reductions still needed to the private industry. 
Meanwhile, the Commission will maintain the accompanying measures. However, 
should it find in September that still no sufficient commitments have been made on 
closures, it would be forced to take the necessary action as regards the future of the 
accompanying measures currently in force. 
In particular: 
it would not extend the measures taken to stabilize the market, on the basis of 
Article 46, beyond the fourth quarter of 1994; 
it would take the necessary action as regards the external measures, taking 
account of the Council's conclusions; 
it would definitively withdraw the general authorization for agreements based 
on Article 53(a), which would no longer be applicable; 
as regards the social measures for the steel industry, the Commission plans to 
maintain them, subject to the available funds, to support the closures still 
possible.1 
The Commission calls on the industry to assume its responsibilities and make its 
contributions so that the restructuring essential for a lasting improvement and for 
strengthening the international competitiveness of the Community's steel industry can be 
completed. The Commission also stresses the important role which the Member States 
must play in this process. 
* * * 
The future of the RESIDER II programme, which the 
Commission is about to adopt to support the conversion 
of regions heavily dependent on the steel industry, 
will not be affected by the decisions on the future of 
the restructuring plan. 
Annex 
Italian Private Sector 
Recent developments and application of Article 4(2) of the Steel Aids Code 
According to the latest information available, the Italian authorities have received 
applications from 68 companies to close capacities in the range of: 
Reinforcing bars more than 2 million tons 
Merchant bars 2 million tons 
Wire rod and beams up to 1 million tons 
Heavy plate, coils and strip around 1.5 million tons 
However, in view of continuing uncertainties on the firmness of these intentions, the 
Italian government's provisional estimate is a reduction of at least 5 million tons of 
hot-rolling capacity. In addition capacity reductions of up to 5 million tons in liquid steel 
and of 250 000 tons in cold-rolled strip are envisaged. 
According to the Italian authorities, among these applications it is estimated that around 
50% have been submitted by companies which are apparently not linked to other ECSC 
undertakings. These companies would totally cease their ECSC activities and would 
therefore be eligible for closure aid in accordance with Article 4(2) of the Steel Aids 
Code. The remaining 50% of the companies apparently have such links. The Italian 
authorities wish to provide financial assistance towards all these closures to facilitate 
these capacity reductions, otherwise the planned level of closures will not be achieved. In 
the case of closures of companies with links to other ECSC undertakings, the Italian 
authorities propose assisting only the closure of entire sites and not parts of them. It is 
envisaged in such cases that the closing site(s) would be put into liquidation and the 
remaining site(s) would become a separate new legal entity so that there would be no 
linkage between the aid beneficiary and other steel undertakings. 
In order to meet concerns relating to the application of Article 4(2), which aims at 
avoiding-spill-over effects from the closure aid on the steel activities that continue, the 
Italian authorities have undertaken that those undertakings who close sites but remain in 
ECSC activities in other places would not make any increase in capacity, except that 
arising from productivity improvements, for at least five years. They have also provided 
assurances that any closure aid granted would only be as prescribed in the second 
paragraph of Article 4(2) of the Code. 
In the light of this information it is clear that around half of the companies involved, 
representing a substantial but as yet undetermined proportion of the estimated total 
capacity reduction of at least 5 million tons, have links with other ECSC undertakings. It 
is also clear that these companies are unlikely to contribute towards the capacity 
reductions without aid, which would jeopardize the objective of the restructuring. The 
Commission recognizes that these closures of sites of undertakings, as envisaged under 
the draft Italian legislation, would facilitate the attainment of significant capacity 
reductions in the Italian private steel sector which would provide a major contribution 
towards the overall restructuring and enable the Community to move closer towards its 
target of an overall reduction of at least 19 million tons in the Community's hot-rolled 
capacity. However, in order to meet the requirements of Article 4(2) of the Steel Aids 
Code, any linkage between the ciosing companies and other steel undertakings that 
continue to operate must be removed. 
The Commission would therefore only be prepared to accept such an approach provided 
that at least the following conditions are fulfilled. 
(a) each individual case should, in accordance with Article 6(1) of the Code, be the 
subject of prior notification to the Commission; 
(b) the other Member States should be consulted by the Commission in accordance 
with Article 6(3) of the Code before each decision is taken; 
(c) closure aid should only be granted within the limits laid down in the second 
paragraph of Article 4(2) of the Code: 
(d) the closing site(s) and the remaining site(s) should be allocated to distinct legal 
entities, which are run independently: 
(e) there should be no increase in the remaining steel capacity of plants in which the 
aid beneficiary has a controlling interest, except that arising from productivity 
improvements, for at least five years starting from the date of payment of the 
closure aid or the date of closure, whichever is the later; 
(1) closed installations must be scrapped: 
(g) there should be no spill-over of aid between the closing part of the undertaking 
and the part that remains in operation: 
(h) there should be strict and continuous monitoring (e.g. to ensure in particular that 
the capacity limitation requirement is respected, no spill-over of aid etc.). 
ISSN 0254-1475 
COM(94) 265 final 
DOCUMENTS 
EN !3 10 
Catalogue number : CB-CO-94-283-EN-C 
ISBN 92-77-71073-X 
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