WRITTEN QUESTION P-1373/00

by Sérgio Marques (PPE-DE) to the Commission

(26 April 2000)

Subject: Madeira Free Zone

The Madeira Free Zone (MFZ), which was established in the 1980s, was set up in order to further the island's social and economic development. In order to provide the MFZ with the resources it needed in order to become fully established on the international markets, a financial and fiscal incentive scheme was set up to promote and secure new investment over a minimum operating period of 25 years (until 2011) a length of time which was essential if the MFZ was to be successfully launched on the international markets through the gradual building up an image of trust and credibility.

The scheme was notified to the Commission in 1986 (pursuant to Community rules on competition) and was over the years subjected to a number of reviews which always resulted in its being extended. At the last review the Commission authorised the scheme to continue in operation until 31 December 2000 and described it on the occasion as one of the most dynamic aspects of the region's economy.

The scheme was recently the subject of an analysis by the Working Party on the code of practice relating to company taxation (which, without taking due account of paragraph G of the code of practice, concluded that the tax incentives granted to the MFZ's financial activities were damaging, which could result in the dismantling of the free zone) and was reviewed in the light of the new Commission guidelines on state aid for the regions which, where the MFZ is concerned, impose a timelimit on the scheme and require aid for entities which have been granted a licence since 1 January 2000 to be made degressive. The future of the scheme is currently uncertain.

Despite the efforts which have been made by the regional, national and Community authorities and which have resulted in Madeira's moving significantly closer in economic terms to the Community average, the island continues to be one of the EU's ten most disadvantaged regions and one in which the commercial, industrial and financial activities carried on in the MFZ play, like tourism, a crucial development role.

In view of this, would the Commission answer the following questions:

1. How compatible are the new measures with Article 299(2) of the EC Treaty, which specifically allows special treatment for remote regions in areas such as fiscal policy, free zones and state aid?

2. Why, then, is an attempt being made to seriously undermine the type of state aid granted to the MFZ, which in recent years has provided tangible evidence of the contribution it makes to the region's social and economic development, in particular by enabling new investment projects to be established, the manufacturing sector to be diversified, know-how to be acquired and the local workforce to be trained, jobs to be created and Madeira to be promoted to the outside world?

3. Would the discontinuation of the scheme not drastically affect a focus of activity which is essential to Madeira's development and place the island at a disadvantage vis-à-vis other islands, European regions and dependent or associate territories of the Member States which, for many years, have had (or still have) the opportunity to successfully run similar schemes, many of which operate in highly-developed areas?

4. Is the Commission aware of the implications in terms of the damage which is being done to the MFZ by the atmosphere of uncertainty which surrounds it and which is having a detrimental effect on the image of trust and credibility which took years to create?

Answer given by Mr Bolkestein on behalf of the Commission

(16 June 2000)

1. The Commission would refer to its report of 14 March 2000(1) which outlines the measures aimed at implementing Article 299(2) (formerly Article 227) of the EC Treaty, notably in those areas mentioned by the Honourable Member. For instance, where state aid is concerned, the Commission indicates that it will amend its guidelines on regional aid(2) to allow operating aid that

is neither degressive and nor limited in time to be granted in the European Union's outermost regions. The conditions are that such aid must be intended to reduce those additional costs of carrying out an economic activity which arise out of the disadvantages identified in Article 299(2) of the EC Treaty, taking into account its contribution to the future development of the region and the particular characteristics of certain economic sectors. Where direct taxation is concerned, and without prejudice to the Commission's competence to assess the current aid arrangements, it will be up to the Commission to decide what guidelines to use, inter alia, in the light of the outcome of work currently being done by the Council's Code of Conduct working party.

2. The Commission has no intention of undermining the development of the Madeira region. On the contrary, it has demonstrated repeatedly that it is attentive to the special situation of the Community's outermost regions. However, it would remind the Honourable Member that, following adoption of the guidelines on regional state aid, the Commission proposed to the Member States in its letters of 24 February 1998 as appropriate measures that they alter all regional aid schemes that would still be in force on 1 January 2000 to bring them into line with the guidelines as from that date. Similarly, the Commission called on the Member States to communicate within six months any such changes that they were considering. On the question of the direct tax advantages granted to the Madeira Free Zone, and as the Honourable Member himself emphasises, the main effect of the changes would be that any operating subsidies granted after 1 January 2000 are limited in time may be granted and degressive. In addition, such aid may be granted only where it contributes to regional development and the amount granted is in proportion to the disadvantages it is intended to palliate. These are all conditions which will have to be met in any case when operating aid measures are evaluated in the light of Article 299(2) of the EC Treaty.

3. The Commission can but point out that some of the Member States' dependent territories are not subject to Community surveillance in matters of competition. Nevertheless, in the territories to which Articles 87 to 89 (formerly Articles 92 to 94) of the EC Treaty apply, discriminatory treatment of any kind is precluded by the strict and transparent application of the criteria for assessing whether state aids are compatible with the common market, published by the Commission in the form of notices and guidelines. It would therefore point out that, although they accepted the Commission's recommendations (appropriate measures), the Portuguese authorities have not yet adjusted the arrangements applicable to the Madeira Free Zone to make them compatible with the pertinent provisions of those guidelines.

4. The Commission regrets that a climate of uncertainty should be affecting the free zone. However, it would remind the Honourable Member that the Commission authorised application of the arrangements up to 31 December 2000 only and that any future implementing rules therefore have yet to be notified to, and examined by, the Commission prior to being implemented.

(1) COM(2000) 147 final.

(2) OJ C 74, 10.3.1998.