Invitation to submit comments on the draft Commission Regulation on the application of Articles 87 and 88 of the EC Treaty to State aid for employment

(2002/C 88/02)

Interested parties may submit their comments within one month of the date of publication of this draft Regulation to:

European Commission

Directorate-General for Competition

Unit A3

Office J 70 5/7

B - 1049 Brussels

Fax (32-2) 296 98 13

E-mail: COMP-EMPLOYMENT-AID@cec.eu.int

Draft Commission Regulation on the application of Articles 87 and 88 of the EC Treaty to State aid for employment

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 994/98 of 7 May 1998 on the application of Articles 92 and 93 of the Treaty establishing the European Community to certain categories of horizontal State aid(1), and in particular points (a)(iv) and (b) of Article 1(1) thereof,

Having published a draft of this Regulation(2),

Having consulted the Advisory Committee on State Aid,

Whereas:

(1) Regulation (EC) No 994/98 empowers the Commission to declare, in accordance with Article 87 of the Treaty, that under certain conditions aid for employment is compatible with the common market and not subject to the notification requirement of Article 88(3) of the Treaty.

(2) Regulation (EC) No 994/98 also empowers the Commission to declare, in accordance with Article 87 of the Treaty, that aid that complies with the map approved by the Commission for each Member State for the grant of regional aid is compatible with the common market and is not subject to the notification requirement of Article 88(3) of the Treaty.

(3) The Commission has applied Articles 87 and 88 of the Treaty to employment aid in and outside assisted areas in numerous decisions and has also stated its policy, in the Community guidelines on State aid for employment(3), in the notice on monitoring of State aid and reduction of labour costs(4), in the guidelines on national regional aid(5) and in 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(6). In the light of the Commission's experience in applying those provisions, it is appropriate, with a view to ensuring efficient supervision and simplifying administration without weakening Commission monitoring, that the Commission should make use of the powers conferred by Regulation (EC) No 994/98.

(4) This Regulation is without prejudice to the possibility for Member States to notify aid for employment. Such notifications will be assessed by the Commission in particular in the light of the criteria set out in this Regulation, in Commission Regulation (EC) No 70/2001 or in accordance with the applicable Community guidelines or frameworks, if such guidelines and frameworks exist. This is currently the case for the sector of maritime transport. The guidelines on State aid for employment cease to apply from the date of entry into force of this Regulation(7), as do the Notice on monitoring of State aid and reduction of labour costs(8) and the Notice on an accelerated procedure for processing notifications of employment aid(9). Notifications pending at the entry into force of this Regulation will be assessed in accordance with its provisions. Employment aid which was granted before the entry into force of this Regulation in the absence of a Commission authorisation and in breach of the obligation in Article 88(3) of the Treaty will be assessed in accordance with the rules in force at the time the aid was granted.

(5) The promotion of employment is a central aim for the economic and social policies of the Community and of its Member States. The Community has developed a European employment strategy in order to promote this objective. Unemployment remains a significant problem in some parts of the Community, and certain groups of workers still find particular difficulty in entering the labour market. For this reason there is a justification for public authorities to apply measures providing incentives to enterprises to increase their levels of employment, in particular of workers from these disadvantaged categories.

(6) General measures to promote employment which do not distort or threaten to distort competition by favouring certain undertakings or the production of certain goods do not constitute State aid in the sense of Article 87(1) of the Treaty. Such measures, which may include reducing the taxation of labour and social costs, boosting investment in education and training, measures to provide guidance and counselling, general assistance and training for the unemployed and improvements in labour law are therefore unaffected by this Regulation. This is also the case of measures which are deemed not to meet all the criteria of Article 87(1) of the Treaty and therefore do not fall under the notification requirement of Article 88(3) of the Treaty by virtue of 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(10).

(7) Having regard to those considerations, the purpose and effect of the aid exempted by this Regulation should be to promote employment in accordance with the European Employment Strategy, in particular of workers from disadvantaged categories, without adversely affect trading conditions to an extent contrary to the common interest. Employment aid granted to a firm on an individual basis may have a major impact on competition in the relevant market because it favours that firm over others which have not received such aid. By being granted only to a single firm, such aid is likely to have only a limited effect on employment. For this reason individual awards of employment aid should continue to be notified to the Commission, and this Regulation should exempt aid only if given in the form of schemes.

(8) This Regulation should exempt any aid granted under a scheme that meets all the relevant requirements of this Regulation. With a view to ensuring efficient supervision and simplifying administration without weakening Commission monitoring, aid schemes should contain an express reference to this Regulation.

(9) This Regulation should apply without prejudice to special rules laid down in Council Regulations governing State aid in the shipbuilding and coal-mining sectors.

(10) This Regulation should apply in the transport sector. However, having regard to particular characteristics of competition in that sector, it is not appropriate to exempt aid for the creation of employment.

(11) The Commission has a consistently less favourable view of aid targeted at specific sectors, in particular at sensitive sectors experiencing overcapacity or in crisis. Aid schemes which are targeted at specific sectors should not therefore be covered by the exemption from notification provided by this Regulation.

(12) In accordance with the established practice of the Commission, and with a view to better ensuring that aid is proportionate and limited to the amount necessary, thresholds should be expressed in terms of aid intensities in relation to a set of eligible costs, rather than in terms of maximum aid amounts.

(13) In order to determine whether or not aid is compatible with the common market pursuant to this Regulation, it is necessary to take into consideration the aid intensity and thus the aid amount expressed as a grant equivalent. The calculation of the grant equivalent of aid payable in several instalments and aid in the form of a soft loan requires the use of market interest rates prevailing at the time of grant. With a view to a uniform, transparent, and simple application of the State aid rules, the market rates for the purposes of this Regulation should be deemed to be the reference rates(11), provided that, in the case of a soft loan, the loan is backed by normal security and does not involve abnormal risk. The reference rates should be those which are periodically fixed by the Commission on the basis of objective criteria and published in the Official Journal of the European Communities and on the Internet.

(14) Having regard to the differences between enterprises of different sizes, different ceilings of aid intensity should be set for small and medium-sized enterprises and large enterprises. In order to eliminate differences that might give rise to distortions of competition, in order to facilitate coordination between different Community and national initiatives, and for reasons of administrative clarity and legal certainty, the definition of "small and medium-sized enterprises" used in this Regulation should be that laid down in Commission Recommendation 96/280/EC of 3 April 1996 concerning the definition of small and medium-sized enterprises(12). That definition was also used in Regulation (EC) No 70/2001.

(15) The ceilings of aid intensity should be fixed, in the light of the Commission's experience, at a level that strikes the appropriate balance between minimising distortions of competition in the aided sector and the objective of promoting employment. In the interests of coherence, the ceilings should be harmonised with those fixed in the guidelines on national regional aid and in Regulation (EC) No 70/2001, which allowed aid to be calculated by reference to the creation of employment linked to investment projects.

(16) Employment costs form part of the normal operating costs of any enterprise. It is therefore particularly important that aid should have a positive effect on employment and should not merely enable enterprises to reduce costs which they would otherwise bear.

(17) Without rigorous controls and strict limits, employment aid can have harmful effects which cancel out its immediate effects on job creation. If the aid is used to protect firms exposed to intra-Community competition, it could have the effect of delaying adjustments needed to ensure the competitiveness of Community industry. In the absence of rigorous controls, such aid may be concentrated in the most prosperous regions, contrary to the objective of economic and social cohesion. Within the single market, aid granted to reduce costs of employment can lead to distortions of intra-Community competition and deflections in the allocation of resources and mobile investment, to the shifting of unemployment from one country to another, and to relocation.

(18) Aid to maintain jobs, defined as support given to a firm to persuade it not to lay off its workers, is similar to operating aid. Subject to any sectoral rules, therefore, such as those which exist in the sector of maritime transport, it should be authorised only in specific circumstances and for a limited period. It should continue to be notified to the Commission and should not be covered by the exemption from such notification provided by this Regulation. The limited circumstances in which it can be authorised include where, in accordance with Article 87(2)(b) of the EC Treaty, it is intended to make good the damage caused by natural disasters or exceptional occurrences; another instance is under the conditions applying to operating aid in the regional aid guidelines, in regions eligible for the derogation under Article 87(3)(a) of the EC Treaty concerning the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, including ultra-peripheral regions; a third is where such aid is granted in the context of the rescue and restructuring of a company in difficulty, consistently with the provisions of the relevant guidelines.

(19) A particular type of aid is aid granted to employers for the conversion of temporary or fixed-term employment contracts into contracts of indeterminate duration. Such measures should not be covered by the exemption from such notification provided by this Regulation and should be notified so that the Commission can determine whether they have positive employment effects. It should in particular be ensured that such measures do not allow the employment to be aided both at the creation of the post and at the conversion of the contract, in such a way that the ceiling for aid for initial investment or for creation of employment is exceeded.

(20) Small and medium-sized enterprises play a decisive role in job creation. At the same time, their size may present a handicap to the creation of new employment because of the risks and administrative burden involved in the recruitment of new personnel. Similarly, job creation can contribute to the economic development of less-favoured regions in the Community and thus improve economic and social cohesion. Enterprises in those regions suffer from the structural disadvantage of the location. It is therefore appropriate that small and medium-sized enterprises, and enterprises in assisted regions, should be able to benefit from aid to create employment.

(21) Large firms in non-assisted areas do not suffer from particular difficulties and employment costs are part of their normal operating expenses. For this reason, and in order to maximise the incentive effect of aid to create jobs in SMEs and in regions eligible for the derogations under Article 87(3)(a) and (c) of the EC Treaty, large firms in regions not eligible for these derogations should not be eligible for aid to create employment.

(22) Certain categories of workers experience particular difficulty in finding work, because employers consider them to be less productive. This perceived lower productivity may be either through lack of recent experience of employment (for example, young workers, long-term unemployed) or through permanent handicap. Employment aid intended to encourage firms to recruit such individuals is justified by the fact that the lower productivity of these workers reduces the financial advantage accruing to the firm and by the fact that the workers also benefit from the measure and are likely to be excluded from the labour market unless employers are offered such incentives. It is therefore appropriate to allow schemes providing such aid, whatever the size or location of the beneficiary.

(23) Workers with a disability may need permanent help to enable them to remain in the labour market, going beyond aid for initial recruitment. Schemes providing for such aid should be exempted from notification provided the aid can be shown to be no more than necessary to compensate for the lower productivity of the workers concerned or the ancillary costs of employing them.

(24) This Regulation should not prevent the cumulation of aid for the recruitment of disadvantaged workers or for the recruitment or employment of disabled workers with other aid granted in respect of employment costs, since in such cases it is legitimate to provide an incentive for workers from these categories to be employed in preference to others.

(25) In order to ensure that the aid is necessary and acts as an incentive to employment, this Regulation should not exempt aid for the creation of employment or for recruitment which the beneficiary would already undertake under market conditions alone.

(26) This Regulation should not exempt aid for the creation of employment where this is cumulated with other State aid, including aid granted by national, regional or local authorities, or with Community assistance, in relation to the same eligible costs or to the costs of investments to which the employment concerned is linked, when such cumulation exceeds the thresholds fixed in this Regulation or in the Community rules on State aid for investment, in particular the Guidelines on national regional aid and Regulation (EC) No 70/2001. The only exceptions to this principle should be for aid for the recruitment of disadvantaged workers or for the recruitment or employment of disabled workers.

(27) It is appropriate that large amounts of aid remain subject to an individual assessment by the Commission before they are put into effect. Accordingly aid amounts exceeding a fixed amount over a certain period to single enterprise or establishment are excluded from the exemption provided for in this Regulation and remain subject to the requirements of Article 88(3) of the Treaty.

(28) Aid measures to promote employment or other aid with objectives connected with employment and labour markets may be of a different nature from measures exempted by this Regulation. Such measures should be notified under Article 88(3).

(29) In the light of the World Trade Organisation (WTO) Agreement on subsidies and countervailing measures, this Regulation should not exempt export aid or aid favouring domestic over imported products.

(30) In order to ensure transparency and effective monitoring, in accordance with Article 3 of Regulation (EC) No 994/98, it is appropriate to establish a standard format in which Member States should provide the Commission with summary information whenever, in pursuance of this Regulation, an aid scheme is implemented, with a view to publication in the Official Journal of the European Communities. For the same reasons, it is appropriate to establish rules concerning the records that Member States should keep regarding the aid scheme exempted by this Regulation. For the purposes of the annual report to be submitted to the Commission by Member States, it is appropriate for the Commission to establish its specific requirements. In order to facilitate administrative treatment and in view of the wide availability of the necessary technology, the summary information and the annual report should be provided in computerised form.

(31) Having regard to the Commission's experience in this area, and in particular the frequency with which it is generally necessary to revise State aid policy, it is appropriate to limit the period of application of this Regulation. Should this Regulation expire without being extended, aid schemes already exempted by this Regulation should continue to be exempted for six months.

(32) It is appropriate that the Commission should propose appropriate measures to the Member States in order that schemes in force at the entry into force of this Regulation should be brought into conformity with its terms,

HAS ADOPTED THIS REGULATION:

Article 1

Scope

This Regulation shall apply to schemes which provide aid for the creation of employment, to schemes which provide aid for the recruitment of disadvantaged and disabled workers and to schemes which provide aid to cover the additional costs of employing disabled worker, including aid for the production, processing and marketing of agricultural products falling within Annex I of the Treaty, as well as in the forestry sector, and in the transport sector. However, aid in the transport sector for the creation of employment, in the sense of Article 4, is not exempted from notification by this Regulation.

Article 2

Definitions

For the purpose of this Regulation:

(a) "aid" shall mean any measure fulfilling all the criteria laid down in Article 87(1) of the Treaty;

(b) "small and medium-sized enterprises" shall mean enterprises as defined in Annex I;

(c) "gross aid intensity" shall mean the aid amount expressed as a percentage of the relevant costs. All figures used shall be taken before any deduction for direct taxation. Where aid is awarded in a form other than a grant, the aid amount shall be the grant equivalent of the aid. Aid payable in several instalments shall be discounted to its value at the moment of granting. The interest rate to be used for discounting purposes and for calculating the aid amount in a soft loan shall be the reference rate applicable at the time of grant;

(d) "net aid intensity" shall mean the discounted aid amount net of tax expressed as a percentage of the relevant costs;

(e) "number of employees" shall mean the number of annual working units (AWU), namely the number of persons employed full time in one year, part-time and seasonal work being AWU fractions;

(f) "disadvantaged worker" shall mean any person meeting at least one of the following criteria:

- any young person under 25 who has not previously obtained his or her first regular paid employment,

- any migrant worker who moves or has moved within the Community or becomes resident in the Community to take up work,

- any person who is part of an ethnic minority within a Member State and who requires development of his or her linguistic, vocational training or work experience profile to enhance prospects of gaining access to stable employment,

- any person who wishes to enter or to re-enter working life and who has been absent both from work and from education for at least two years, and particularly any person who gave up work on account of the difficulty of reconciling his or her working life and family life,

- any person older than 45 who has not attained an upper secondary educational qualification or its equivalent, and any person older than 55, who does not have a job or who is losing their job,

- any long-term unemployed person, i.e. any person who has been unemployed for 12 consecutive months, or six consecutive months in the case of persons under 25,

- any person recognised to be or to have been an addict in accordance with national law,

- any person who has not previously obtained his or her first regular paid employment following a period of imprisonment,

- any woman in a (NUTS II) geographical area where average unemployment has exceeded (100 %) of the Community average for at least (two) calendar years and where female unemployment has exceeded (150 %) of the average unemployment rate in the area concerned for at least (two) calendar years;

(g) "disabled worker" shall mean:

- any person recognised under national law to have serious disabilities which result from physical, mental or psychological impairments and yet capable of entering the labour market;

(h) "wage cost" comprises:

- the gross wage, i.e. before tax, and

- the compulsory social security contributions,

actually payable by the beneficiary in respect of the employment concerned;

(i) a job is "linked to the carrying-out of a project of investment" if it concerns the activity to which the investment relates and if it is created within three years of the investment's completion. During this period, the jobs created following an increase in the utilisation rate of the capacity created by the investment are also linked to the investment;

(j) "investment in tangible assets" shall mean an investment in fixed physical assets relating to the creation of a new establishment, the extension of an existing establishment, or the engagement in an activity involving a fundamental change in the product or production process of an existing establishment (in particular through rationalisation, diversification or modernisation). An investment in fixed assets undertaken in the form of the takeover of an establishment which has closed or which would have closed had it not been purchased shall also be regarded as tangible investment;

(k) "investment in intangible assets" shall mean investment in transfer of technology by the acquisition of patent rights, licences, know-how or unpatented technical knowledge.

Article 3

Conditions for exemption

1. Subject to Articles 9 and 10, aid schemes fulfilling all the conditions of this Regulation shall be compatible with the common market within the meaning of Article 87(3) of the Treaty and shall be exempt from the notification requirement of Article 88(3) of the Treaty provided that:

(a) any aid that could be awarded under such scheme fulfils all the conditions of this Regulation;

(b) the scheme contains an express reference to this Regulation, by citing its title and publication reference in the Official Journal of the European Communities.

2. Aid granted under the schemes referred to in paragraph 1 shall be compatible with the common market within the meaning of Article 87(3) of the Treaty and shall be exempt from the notification requirement of Article 88(3) of the Treaty provided that the aid granted fulfils all the conditions of this Regulation.

Article 4

Creation of employment

1. Aid schemes for the creation of employment and any aid that could be awarded under such scheme shall fulfil the conditions of paragraphs 2 to 4.

2. Where the employment is created in areas which do not qualify for regional aid pursuant to Article 87(3)(a) and (c) at the moment the aid is awarded, the gross aid intensity shall not exceed:

(a) 15 % in the case of small enterprises;

(b) 7,5 % in the case of medium-sized enterprises.

3. Where the employment is created in areas which qualify for regional aid pursuant to Article 87(3)(a) and (c) at the moment the aid is awarded, the net aid intensity shall not exceed the ceiling of regional investment aid determined in the map approved by the Commission for each Member State. In the case of small and medium-sized enterprises, and unless the map provides otherwise for such enterprises, this ceiling is increased by:

(a) 10 percentage points gross in areas covered by Article 87(3)(c), provided that the total net aid intensity does not exceed 30 %; or

(b) 15 percentage points gross in areas covered by Article 87(3)(a), provided that the total net aid intensity does not exceed 75 %.

The higher regional aid ceilings shall only apply if the beneficiary's contribution to financing is at least 25 %.

As far as employment is created in the production, processing and marketing of Annex I products in areas which qualify as less favoured areas defined in Council Regulation (EC) No 1257/1999 of 17 May 1999 on support for rural development from the European Agricultural Guidance and Guarantee Fund (EAGGF) and amending and repealing certain Regulations(13), these higher aid ceilings or, if applicable, higher aid ceilings of Regulation (EC) No 1257/1999 apply.

As far as employment is created in the steel sector, the ceilings in paragraph 2 of this Article apply.

4. The ceilings fixed in paragraphs 2 and 3 shall apply to the intensity of the aid calculated as a percentage of the wage costs over a period of two years relating to the employment created under the following conditions:

(a) the employment created must represent a net increase in the number of employees (as defined in Article 2(e)) both in the establishment and in the enterprise concerned, compared with the average over the past twelve months;

(b) the employment created shall be maintained for a minimum period of five years. The higher regional aid ceilings shall only apply if the employment is maintained within the qualifying region; and

(c) the new workers employed as a result of the creation of employment must have never had a job or have lost or be losing their previous job.

5. Where aid is granted for the creation of employment under a scheme exempted under this Article, additional aid may be granted in case of recruitment of a disadvantaged or disabled worker in accordance with the terms of Articles 5 or 6.

Article 5

Recruitment of disadvantaged and disabled workers

1. Aid schemes for the recruitment by any enterprise of disadvantaged and disabled workers and any aid that could be awarded under such scheme shall fulfil the conditions of paragraphs 2 and 3.

2. The gross intensity of the aid calculated as a percentage of the wage costs relating to the employment of the disadvantaged or disabled worker or workers over a period of two years following recruitment shall not exceed 20 %.

3. The following conditions apply:

(a) where the recruitment does not represent a net increase in the number of employees in the establishment concerned, the post or posts must have fallen vacant following voluntary departure, retirement on grounds of age, voluntary reduction of working time or lawful dismissal for misconduct and not as a result of redundancy; and

(b) except in the case of lawful dismissal for misconduct the worker or workers must be entitled to continuous employment for a minimum of [12] months.

Article 6

Additional costs of employment of disabled workers

1. Aid schemes for the employment of disabled workers and any aid that could be awarded under such a scheme shall fulfil the conditions of paragraphs 2 and 3.

2. The aid shall not exceed the level needed to compensate:

(a) for any reduced productivity, resulting from the disabilities of the worker or workers;

and for any costs:

(b) of adapting premises;

(c) of employing staff for time spent solely on the assistance of the disabled worker or workers;

(d) of adapting or acquiring equipment for their use;

which are additional to those which the beneficiary would have incurred if employing workers who are not disabled, over any period for which the disabled worker or workers are actually employed.

3. Schemes exempted by this Article shall provide that aid be subject to the condition that the beneficiary maintain records allowing verification that the aid granted to it meets the provisions of paragraph 1 and of Article 8, paragraph 4.

Article 7

Necessity for the aid

1. This Regulation shall only exempt aid under Article 4 if before the employment concerned is created, and shall only exempt aid under Article 5 if before the worker is recruited:

(a) either an application for aid has been submitted to the Member State by the beneficiary; or

(b) the Member State has adopted legal provisions establishing a legal right to aid according to objective criteria and without further exercise of discretion by the Member State.

2. In order to ensure that aid for the creation of employment is not granted in situations where, because an investment project has been undertaken, it is clear that the associated employment would be created in any event, this Regulation shall exempt aid under Article 4 in cases where:

- the employment created is linked to the carrying out of a project of investment in tangible or intangible assets, and

- the employment is created within three years of the investment's completion,

only if the application referred in paragraph 1(a), or the adoption referred to in paragraph 1(b), take place before work on the project is started.

Article 8

Cumulation

1. The aid ceilings fixed in Articles 4, 5 and 6 shall apply regardless of whether the support for the aided employment or recruitment is financed entirely from State resources or is partly financed by the Community.

2. Without prejudice to paragraph 4, aid under schemes exempted by Article 4 of this Regulation shall not be cumulated with any other State aid within the meaning of Article 87(1) of the Treaty, or with other Community funding, in relation to the same wage costs, if such cumulation would result in an aid intensity exceeding that fixed by this Regulation.

3. Without prejudice to paragraph 4, aid under schemes exempted by Article 4 of this Regulation shall not be cumulated:

(a) with any other State aid within the meaning of Article 87(1) of the Treaty, or with other Community funding, in relation to costs of any investment to which the created employment is linked and which has not yet been completed at the time the employment is created, or which was completed in the three years before the employment is created; or

(b) with any such aid or funding in relation to the same wage costs or to other employment linked to the same investment;

if such cumulation would result in an aid intensity exceeding the relevant ceiling of regional investment aid determined in the guidelines on national regional aid and in the map approved by the Commission for each Member State or the ceiling in 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. Where the relevant ceiling has been adapted in a particular case, in particular by the application of State aid rules applying in a particular sector, or by an instrument applying to large projects(14), the adapted ceiling shall apply for the purposes of this paragraph.

4. Aid under schemes exempted by Articles 5 and 6 of this Regulation may be cumulated with other State aid within the meaning of Article 87(1) of the Treaty, or with other Community funding, in relation to the same costs, provided such cumulation does not exceed limits established in rules applying to the aid concerned, or result in an aid intensity exceeding 100 %.

Article 9

Aid remaining subject to prior notification to the Commission

1. Aid schemes which are targeted at specific sectors are not covered by the exemption from notification provided by this Regulation and shall remain subject to the notification requirement of Article 88(3) of the Treaty.

2. This Regulation shall not exempt from notification the grant of aid to a single enterprise or establishment exceeding a gross aid amount of [EUR 15 million] over any three-year period. The Commission shall assess such aid, if granted under a scheme which is otherwise exempted by this Regulation, by reference solely to the criteria of this Regulation.

3. Aid to maintain jobs, defined as support given to a firm or firms to retain workers who would otherwise be laid off, shall remain subject to the notification requirement of Article 88(3) of the Treaty. Subject to any sectoral rules, such aid may be authorised by the Commission only where, in accordance with Article 87(2)(b) of the EC Treaty, it is intended to make good the damage caused by natural disasters or exceptional occurrences or, under the conditions applying to operating aid in the guidelines on national regional aid, in regions eligible for the derogation under Article 87(3)(a) of the EC Treaty concerning the economic development of areas where the standard of living is abnormally low or where there is serious underemployment.

4. Aid for the conversion of temporary or fixed-term employment contracts into contracts of indeterminate duration shall remain subject to the notification requirement of Article 88(3) of the Treaty.

5. Aid schemes for job-sharing, for provision of support for working parents and similar employment measures which promote employment but which do not result in a net increase in employment, in the recruitment of disadvantaged workers, or in the recruitment or employment of disabled workers shall remain subject to the notification requirement of Article 88(3) of the Treaty and shall be assessed by the Commission in accordance with Article 87 of the Treaty.

6. Other aid measures with objectives connected with employment and labour markets, such as measures to encourage early retirement, shall also remain subject to the notification requirement of Article 88(3) of the Treaty and shall be assessed by the Commission in accordance with Article 87 of the Treaty.

7. Individual cases of employment aid outside of any scheme shall remain subject to the notification requirement of Article 88(3) of the Treaty. Such aid will be assessed in the light of this Regulation and may be authorised by the Commission only if it is compatible with any specific applicable rules which may have been laid down in respect of the sector in which the beneficiary operates and only if it can be shown that the effects of the aid on employment outweigh the impact on competition in the relevant market.

8. This Regulation is without prejudice to any obligation on a Member State to notify individual grants of aid under obligations entered into in the context of other State aid instruments, and in particular the obligation to notify, or to inform the Commission of, aid to an enterprise receiving aid for restructuring in the sense of the Community guidelines on State aid for rescuing and restructuring firms in difficulty(15).

Article 10

Aid for export-related activities and aid contingent upon the use of domestic over imported goods

This Regulation shall not exempt the grant of:

(a) aid to export-related activities, namely aid directly linked to the quantities exported, to the establishment and operation of a distribution network or to other current expenditure linked to the export activity; or of

(b) aid contingent upon the use of domestic over imported goods.

Such aid is incompatible with the Community's international obligations under the WTO Agreement on subsidies and countervailing measures and may not therefore be exempted from notification, nor authorised if so notified.

Article 11

Transparency and monitoring

1. On implementation of an aid scheme exempted by this Regulation, Member States shall, within 20 working days, forward to the Commission, with a view to its publication in the Official Journal of the European Communities, a summary of the information regarding such aid scheme in the form laid down in Annex II. This shall be provided in computerised form.

2. Member States shall maintain detailed records regarding the aid schemes exempted by this Regulation and the individual aid granted under those schemes. Such records shall contain all information necessary to establish that the conditions for exemption, as laid down in this Regulation, are fulfilled, including information on the status of any company whose entitlement to aid depends on its status as an SME. Member States shall keep a record regarding an aid scheme for 10 years from the date on which the last individual aid was granted under such scheme. On written request, the Member State concerned shall provide the Commission, within a period of 20 working days or such longer period as may be fixed in the request, with all the information which the Commission considers necessary to assess whether the conditions of this Regulation have been complied with.

3. Member States shall compile a report on the application of this Regulation in respect of each whole or part calendar year during which this Regulation applies, in the form laid down in Annex III, in computerised form. Member States shall provide the Commission with such report no later than three months after the expiry of the period to which the report relates.

Article 12

Entry into force and period of validity

1. This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Communities.

It shall remain in force until 31 December 2006.

2. Notifications pending at the time of entry into force of this Regulation will be assessed in accordance with its provisions. Employment aid which was granted before the time of entry into force of this Regulation in the absence of a Commission authorisation and in breach of the obligation in Article 88(3) of the Treaty will be assessed against the rules in force at the time the aid was granted.

3. At the end of the period of validity of this Regulation, aid schemes exempted under this Regulation shall remain exempted during an adjustment period of six months.

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

Done at Brussels ...

For the Commission

...

Member of the Commission

(1) OJ L 142, 14.5.1998, p. 1.

(2) OJ ...

(3) OJ C 334, 12.12.1995, p. 4.

(4) OJ C 1, 3.1.1997, p. 10.

(5) OJ C 74, 10.3.1998, p. 9.

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

(7) Commission communication concerning the guidelines on State aid for employment (OJ C 371, 23.12.2000, p. 12).

(8) OJ C 1, 3.1.1997, p. 10.

(9) OJ C 218, 27.7.1996, p. 4.

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

(11) OJ C 273, 9.9.1997, p. 3.

(12) OJ L 107, 30.4.1996, p. 4.

(13) OJ L 160, 26.6.1999, p. 80.

(14) For example, the multisectoral framework on regional aid for large investment projects (OJ C 107, 7.4.1998, p. 7).

(15) OJ C 288, 9.10.1999, p. 2, in particular paragraphs 88 to 93.

ANNEX I

DEFINITION OF SMALL AND MEDIUM-SIZED ENTERPRISES

(extract from the Commission Recommendation of 3 April 1996 concerning the definition of small and medium-sized enterprises (OJ L 107, 30.4.1996, p. 4))

Article 1

1. Small and medium-sized enterprises, hereinafter referred to as "SMEs", are defined as enterprises which:

- have fewer than 250 employees, and

- have either,

- an annual turnover not exceeding EUR 40 million, or

- an annual balance-sheet total not exceeding EUR 27 million,

- conform to the criterion of independence as defined in paragraph 3.

2. Where it is necessary to distinguish between small and medium-sized enterprises, the "small enterprise" is defined as an enterprise which:

- has fewer than 50 employees, and

- has either

- an annual turnover not exceeding EUR 7 million, or

- an annual balance-sheet total not exceeding EUR 5 million,

- conforms to the criterion of independence as defined in paragraph 3.

3. Independent enterprises are those which are not owned as to 25 % or more of the capital or the voting rights by one enterprise, or jointly by several enterprises, falling outside the definitions of an SME or a small enterprise, whichever may apply. This threshold may be exceeded in the following two cases:

- if the enterprise is held by public investment corporations, venture capital companies or institutional investors, provided no control is exercised either individually or jointly,

- if the capital is spread in such a way that it is not possible to determine by whom it is held and if the enterprise declares that it can legitimately presume that it is not owned as to 25 % or more by one enterprise, or jointly by several enterprises, falling outside the definitions of an SME or a small enterprise, whichever may apply.

4. In calculating the thresholds referred to in paragraphs 1 and 2, it is therefore necessary to cumulate the relevant figures for the beneficiary enterprise and for all the enterprises that it directly or indirectly controls through possession of 25 % or more of the capital or of the voting rights.

5. Where it is necessary to distinguish micro-enterprises from other SMEs, these are defined as enterprises having fewer than 10 employees.

6. Where, at the final balance sheet date, an enterprise exceeds or falls below the employee thresholds or financial ceilings, this is to result in its acquiring or losing the status of "SME", "medium-sized enterprise", "small enterprise" or "micro-enterprise" only if the phenomenon is repeated over two consecutive financial years.

7. The number of persons employed corresponds to the number of annual working units (AWU), that is to say, the number of full-time workers employed during one year with part-time and seasonal workers being fractions of AWU. The reference year to be considered is that of the last approved accounting period.

8. The turnover and balance sheet total thresholds are those of the last approved 12-month accounting period. In the case of newly-established enterprises whose accounts have not yet been approved, the thresholds to apply shall be derived from a reliable estimate made in the course of the financial year.

ANNEX II

Information communicated by Member States regarding State aid granted under Commission Regulation (EC) No .../2002 of ... 2002 on the application of Articles 87 and 88 of the EC Treaty to State aid for employment

(to be provided in computerised form, by electronic mail, to stateaidgreffe@cec.eu.int)

Aid No:

Explanatory remark: This number will be filled in by DG COMP.

Member State:

Region:

Explanatory remark: Indicate the name of the region if the aid is granted by a sub-central authority.

Title of aid scheme:

Explanatory remark: Indicate the name of the aid scheme.

Legal basis:

Explanatory remark: Indicate the precise national legal reference for the aid and a publication reference.

Annual expenditure planned under the scheme:

Explanatory remark: Amounts are to be given in euro or, if applicable, national currency.

Indicate the annual overall amount of the budget appropriation(s) or the estimated tax loss per year for all aid instruments contained in the scheme.

For guarantees, indicate the (maximum) amount of loans guaranteed.

Maximum aid intensity under:

- Article 4: creation of employment,

- Article 5: recruitment of disadvantaged and disabled workers,

- Article 6: additional costs of employment of disabled workers.

Explanatory remark: Indicate the maximum aid intensity distinguishing between aid under Article 4, Article 5 and Article 6 of the Regulation.

Date of implementation:

Explanatory remark: Indicate the date from which aid may be granted under the scheme.

Duration of scheme:

Explanatory remark: Indicate the date (year and month) until which aid may be granted under the scheme.

Objective of aid:

- Article 4: creation of employment,

- Article 5: recruitment of disadvantaged and disabled workers,

- Article 6: employment of disabled workers.

Explanatory remark: The primary objective(s) of the measure should be identified from among the three options. This field also gives the opportunity to indicate further (secondary) objectives pursued.

Economic sector(s) concerned:

- All EC sectors(1),

- All manufacturing(1),

- All services(1),

- Other (please specify).

Explanatory remark: Choose from the list, where relevant. Aid schemes which are targeted at specific sectors are not covered by the exemption from notification provided by this Regulation.

Name and address of the granting authority:

Explanatory remark: Please include the telephone number and where possible the address for electronic mail.

Other information:

Explanatory remarks: If the scheme is co-financed by Community funds, please add the following sentence: "The aid scheme is co-financed under [reference]."

If the scheme's duration extends beyond the date of validity of this Regulation, please add the following sentence: "The exemption regulation expires on 31 December 2006 followed by a transitional period of six months."

(1) With the exception of the shipbuilding sector, and other sectors which are the subjects of special rules in Regulations and Directives governing all State aid within the sector.

ANNEX III

FORM OF THE PERIODIC REPORT TO BE PROVIDED TO THE COMMISSION

Annual reporting format on aid schemes exempted under a group exemption regulation adopted pursuant to Article 1 of Council Regulation (EC) No 994/98

Member States are required to use the format below for their reporting obligations to the Commission under group exemption regulations adopted on the basis of Council Regulation (EC) No 994/98.

The reports should be provided in computerised form to stateaidgreffe@cec.eu.int

Information required for all aid schemes exempted under group exemption regulations adopted pursuant to Article 1 of Regulation (EC) No 994/98

1. Title of aid scheme

2. Commission exemption regulation applicable

3. Expenditure

Separate figures have to be provided for each aid instrument within a scheme (e.g. grant, soft loans, etc.). The figures have to be expressed in euro or, if applicable, national currency. In the case of tax expenditure, annual tax losses have to be reported. If precise figures are not available, such losses may be estimated.

These expenditure figures should be provided on the following basis:

For the year under review indicate separately for each aid instrument within the scheme (e.g. grant, soft loan, guarantee, etc.):

3.1. Amounts committed, (estimated) tax losses or other revenue forgone, data on guarantees, etc. for new decisions to grant aid. In the case of guarantee schemes, the total amount of new guarantees handed out should be provided.

3.2. Actual payments, (estimated) tax losses or other revenue forgone, data on guarantees, etc. for new and current grants of aid. In the case of guarantee schemes, the following should be provided: total amount of outstanding guarantees, premium income, recoveries, indemnities paid out, operating result of the scheme under the year under review.

3.3. Number of new decisions to grant aid.

3.4. Estimated overall number of jobs created or disadvantaged or disabled workers recruited or employed under new decisions to grant aid (as appropriate).

3.5. Regional breakdown of amounts under 3.1 either by regions defined at NUTS(1) level 2 or below or by Article 87(3)(a) regions, Article 87(3)(c) regions and non-assisted regions.

3.6. Sectoral breakdown of amounts under 3.1. by beneficiaries' sectors of activity (If more than one sector is covered, indicate the share of each):

Coalmining

Manufacturing

of which:

Steel

Shipbuilding

Synthetic fibres

Motor vehicles

Other manufacturing (please specify)

Services

of which:

Transport services

Financial services

Other services (please specify)

Other sectors (please specify)

4. Other information and remarks

(1) NUTS is the nomenclature of Territorial Units for statistical purposes in the EC.