Proposal for a COUNCIL DECISION on the fulfilment of the conditions laid down in Article 3 of the Additional Protocol to the Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and Bulgaria, of the other part, with regard to an extension of the period foreseen in Article 9(4) of Protocol 2 of the Europe Agreement

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. According to Article 9(4) of Protocol 2 of the Europe Agreement with Bulgaria, during the first five years after the entry into force of the Agreement, and by derogation from paragraph 1 (iii) of the same Article, Bulgaria could exceptionally, as regards steel products, grant public aid for restructuring purposes, provided that this leads to the viability of the benefiting firms under normal market conditions at the end of the restructuring period, the amount and intensity of such aid are strictly limited to what is absolutely necessary in order to restore such viability and are progressively reduced and the restructuring programme is linked to a global rationalisation and reduction of overall production capacity in Bulgaria.

2. This initial period expired on 31 December 1997 for Bulgaria.

3. Bulgaria requested an extension of the above-mentioned period on 21 November 2002.

4. A realistic restructuring programme, including individual company viability plans, respecting the criteria set out in Article 9(4) of Protocol 2 of the Europe Agreement, are the necessary basis for agreeing the requested extension of the period during which Bulgaria may grant state aid for restructuring purposes.

5. In May 2002, the Commission proposed an extension of the period during which Bulgaria, the Czech Republic, Poland and Romania may grant aids to restructure their steel sector, in view of the urgent need to find an acceptable solution to move forward the steel restructuring process in the candidate countries concerned, and pave the way for bringing the accession negotiations on the Competition Chapter to a conclusion.

6. This extension would provide the legal basis for granting restructuring aid in the period before accession in the framework of the required restructuring plans (i.e. the aid provided should be limited and proportional to capacity reduction); it would also have the effect of retroactively legalising aid that may have been granted illegally since the entry into force or the Europe Agreement.

7. The extension will come into effect only after the adoption and assessment of a restructuring plan and business plans, which fulfil the criteria of Protocol 2 of the Europe Agreements.

8. With a view to achieving this aim, and considering that Protocol 2 of the Europe Agreement with Bulgaria does not, as in the case of the Europe Agreement with Poland, grant the authority to the Association Council to decide on such an extension, an Additional Protocol to the Europe Agreement with Bulgaria was drawn up.

9. The Additional Protocol to the Europe Agreement was signed by the Community and Bulgaria on 21 November 2002. A provisional application before entry into force, as envisaged by Article 300 (2) of the Treaty establishing the European Community is in place, as foreseen by Article 1 of Council Decision (EC) No [.....] of 29 July 2002 on the signature and provisional application of an Additional Protocol to the Europe Agreement.

10. The Additional Protocol provides for extension of the period foreseen by Protocol 2 by a further eight years starting on 1 January 1998 or until the date of Bulgaria's accession to the European Union, whichever comes first, subject to the fulfilment of certain conditions.

11. The first condition has been fulfilled by Bulgaria, by submitting to the Commission a restructuring programme and a business plan, which have been assessed and agreed by its National State Aid Authority (the Commission for Protection of Competition);

12. The second condition is the final assessment of the restructuring programme and business plan by the Commission, with a view to determining whether the requirements of Article 9(4) of Protocol 2 of the Europe Agreement are met;

13. The Commission services have made a final assessment which concludes that the restructuring programme and plan submitted by Bulgaria meet the requirements of Article 9(4) of Protocol 2 of the Europe Agreement;

14. The Commission is proposing a Council Decision approving the Commission's final assessment, as foreseen in Article 3 of the Additional Protocol. Once the Council has granted its approval, the conditions laid down in Articles 2 and 3 of the Additional Protocol will have been met and the extension of the period foreseen by Protocol 2 will take effect.

15. The Council is therefore requested to approve the attached draft proposal for a Decision on the fulfilment of the conditions laid down in Article 3 of the Additional Protocol to the Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and Bulgaria, of the other part, with regard to an extension of the period foreseen in Article 9(4) of Protocol 2 of the Europe Agreement.

Proposal for a COUNCIL DECISION on the fulfilment of the conditions laid down in Article 3 of the Additional Protocol to the Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and Bulgaria, of the other part, with regard to an extension of the period foreseen in Article 9(4) of Protocol 2 of the Europe Agreement

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty Establishing the European Community;

Having regard to Council Decision (EC) No [.....] of 29 July 2002 on the signature and provisional application of an Additional Protocol to the Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and Bulgaria, of the other part, with regard to an extension of the period foreseen in Article 9(4) of Protocol 2 of the Europe Agreement;

Having regard to the Additional Protocol to the Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and Bulgaria, of the other part, with regard to an extension of the period foreseen in Article 9(4) of Protocol 2 of the Europe Agreement, and in particular Article 3 thereof;

Having regard to the proposal of the Commission;

Whereas:

(1) A Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and Bulgaria, of the other part [1], came into force on 1 February 1995.

[1] OJ L 358, 31.12.1994, p.3

(2) Article 9(4) of Protocol 2 of the Europe Agreement with Bulgaria lays down that during the first five years after entry into force of the Agreement, and by derogation from paragraph 1 (iii) of the same Article, Bulgaria may exceptionally, as regards steel products, grant public aid for restructuring purposes, provided that this leads to the viability of the benefiting firms under normal market conditions at the end of the restructuring period, the amount and intensity of such aid are strictly limited to what is absolutely necessary in order to restore such viability and are progressively reduced and the restructuring programme is linked to a global rationalisation and reduction of overall production capacity in Bulgaria;

(3) The initial period of five years expired on 31 December 1997;

(4) Bulgaria requested an extension of the above-mentioned period on 21 November 2002;

(5) It is appropriate to grant an extension of this period for an additional period of eight years starting on 1 January 1998 or until the date of Bulgaria's accession to the European Union, whichever comes first;

(6) To this effect, an Additional Protocol to the Europe Agreement was signed by the Community and Bulgaria on 21 November 2002 and is provisionally applied from that date.

(7) Under Article 2 of the Additional Protocol, the extension of the above-mentioned period is made conditional on the submission by Bulgaria to the Commission of a restructuring programme and business plans that meet the requirements of Article 9(4) of Protocol 2 of the Europe Agreement and have been assessed and agreed by its National State Aid Authority (the Commission for Protection of Competition);

(8) In March 2004, Bulgaria submitted to the Commission a restructuring programme and a business plan for its only company having benefited or benefiting of a state support for restructuring;

(9) Under Article 3 of the Additional Protocol, the extension of the above-mentioned period is made conditional on a final assessment of the restructuring programme and business plans by the Commission;

(10) The Commission has made a final assessment of the restructuring programme and the business plan submitted by Bulgaria; this assessment indicates that the implementation of the restructuring programme and the business plan will allow the company concerned to reach viability under normal market conditions. It also shows that the amount of State aid for restructuring purposes as specified in the plan is strictly limited to what is necessary to allow the company concerned to reach viability and will be progressively reduced and stopped by 2005. The assessment provides also that a global rationalisation and reduction of excess capacity of the beneficiary company will be reached. The assessment therefore concludes that the restructuring programme and the business plan meet the requirements of Article 9(4) of Protocol 2 of the Europe Agreement;

HAS DECIDED AS FOLLOWS:

Article 1

The restructuring programme and business plans submitted to the Commission by Bulgaria pursuant to Article 2 of the Additional Protocol to the Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and Bulgaria, of the other part, with regard to an extension of the period laid down in Article 9(4) of Protocol 2 to the Europe Agreement are in compliance with the requirements of Article 9(4) of Protocol 2.

Article 2

The period during which Bulgaria may exceptionally, as regards steel products, grant public aid for restructuring purposes in accordance with the provisions of Article 9(4) of Protocol 2 is hereby extended by an additional period of eight years starting on 1 January 1998 or until the date of Bulgaria's accession to the European Union whichever comes first, as foreseen by Article 1 of the Additional Protocol.

Done at Brussels,

For the Council

The President