WRITTEN QUESTION P-0277/01

by Sérgio Marques (PPE-DE) to the Commission

(2 February 2001)

Subject: Madeira Free Zone

The regime of financial and fiscal aid constituting the Madeira Free Zone (MFZ) was authorised in due and proper form by the Commission in 1987. This authorisation was subsequently prolonged for two additional periods. Pursuant to the most recent prolongation decision, the Commission decided not to object to the application of the regime up to 31 December 2000, at which date the situation would be reviewed again.

Following the Commission's adoption in 1998 of the guidelines on state regional aid (guidelines which Portugal has never accepted), all the Member States were asked, under Article 88 of the EC Treaty, to alter their existing aid regimes as of 1 January 2000, so as to make them compatible in future with the criteria set out in the Commission document.

The Commission was not willing to change its position as regards, where state aid is concerned, taking account of the particular circumstances of Madeira, as explicitly referred to in the Treaty of Amsterdam (Article 299(2) of the EC Treaty permits specific measures directly related to free zones, state aids and fiscal policy). The Portuguese authorities insisted on the legitimacy of the existing aid regime for the MFZ. The result was the opening by the Commission in July 2000 of a formal investigation procedure, on the grounds that the compatibility of the existing aid regime in the MFZ with Community law had not been established. What is concerned is only the granting of operational aid to undertakings establishing themselves in the MFZ from 1 January 2000 on.

The Commission decision came as a surprise, since it was the Commission itself which established a new, more favourable framework for state aid to the outermost regions, both in the report on measures for the implementation of Article 299(2) of the EC Treaty and, subsequently, in its amendments to the guidelines on state regional aid in order to take account of the new status of the outermost regions, as notified to the Portuguese Republic in August 2000.

The opening of the formal investigation procedure has disturbed the climate of trust which is essential for the development of the MFZ, and has given the outside world an image of an inconsistent regime which may lead to operators shifting activities to other competing sites. It has also disturbed one of the main factors of regional development, since it is well known that the MFZ has brought added value to the economic and social development of Madeira, notably by making it possible to create new investment projects, diversify the productive structure, acquire know-how and generate skilled labour capacities, as well as creating jobs (currently some 2 700) and promoting Madeira abroad.

At stake is the development of one of the least-favoured regions of the EU and Portugal.

The Community rules on the conduct of formal investigation procedures allow the Commission a considerable period of time for the adoption of a decision concerning such procedures. This period may even exceed 18 months from the initiation of the procedure.

In view of the general lack of confidence affecting the MFZ in the wake of the publicisation of the investigation procedure and the obligation, imposed by the Commission, to inform potential aid recipients of its nature, does the Commission not consider that a decision must be adopted as a matter of urgency on this subject, within the shortest possible time-span?

Answer given by Mr Monti on behalf of the Commission

(5 March 2001)

As indicated by the Commission in its decision to initiate the procedure of Article 88(2) (formerly Article 93) of the EC Treaty, the financial and tax aid scheme for the Madeira Free Zone was authorised for the first time in 1987 by virtue of the derogation in former Article 92(3)(a) of the EC Treaty. Authorisation for prolonging the scheme was given by the Commission on two occasions, for periods of three and six years respectively. Under the terms of the Commission's most recent decision, tax aid (full exemption from direct taxes until the end of 2011) may be granted to industrial, financial and service firms that have been established in the Free Zone since before 1 January 2001.

Following adoption of the guidelines on national regional aid, the Commission proposed to all the Member States, as an appropriate measure under Article 88(1) of the EC Treaty, that all the regional aid schemes in force on 1 January 2000 be amended so as to bring them into line with the guidelines as of that date. In particular, the guidelines enshrine the principle of the prohibition of regional aid aimed at reducing a firms' current expenses (operating aid), while allowing aid in regions eligible for the derogation in Article 87(3)(a) (formerly Article 92) of the EC Treaty provided that it is justified in terms of its contribution to regional development and its nature and provided that its level is proportional to the handicaps it seeks to alleviate. This condition must also be verified in the case of operating aid (whether or not progressively reduced and limited in time) granted in outermost regions where such aid is intended to reduce the additional costs of carrying on economic activity that are inherent in the handicaps identified in Article 299(2) (formerly Article 227) of the EC Treaty.

The present scope of the financial and tax aid scheme for the Madeira Free Zone is considerable. Aid granted in the form of tax exemptions is reckoned to have amounted to more than 1 000 million and would seem to be concentrated on the financial services and international services centres. Since some 4 000 firms are currently active in these sectors even though no more than 1 000 individuals are directly employed by them, it is legitimate to question the contribution of the aid to regional development. Under the circumstances, the Commission has decided to examine the scheme's compatibility with Community law.

That said, and as already emphasised in its reply to Written Question No P-1373/00(1) by the Honourable Member, the Commission has no intention whatsoever of harming the development of Madeira and regrets that there is a climate of uncertainty surrounding the future of the Free Zone. It will, therefore, do its utmost to take a final decision in the matter as soon as possible.

(1) OJ C 46 E, 13.2.2001, p. 180.