WRITTEN QUESTION P-1706/00

by Christa Randzio-Plath (PSE) to the Commission

(18 May 2000)

Subject: Relocation of jobs as result of the granting of subsidies

One objective which characterises regional economic development is the notion that structural change and the resultant job losses must be cushioned by state aid. However, it is apparent

that some undertakings are relocating to assisted areas instead of continuing or expanding their business activities in their original location. Competitive enticement of undertakings by assisted areas adversely affects the main idea behind regional economic development. It is to be feared that the displacement effects caused by the granting of subsidies will increase even further if the applicant countries are also assisted by the European Union when it is enlarged to include the countries of Central and Eastern Europe. How will the Commission counteract the displacement effects? To what extent do the derogations from the ban on subsidies take into account the question whether the assisted relocation of jobs and the simultaneous destruction of jobs in the original location can ever be eligible for subsidy?

Answer given by Mr Barnier on behalf of the Commission

(19 June 2000)

The question raised by the Honourable Member is well known to the Commission and has been addressed on a number of occasions during recent years(1).

The right of firms within the Community to choose a geographical location appropriate to their particular needs is assured by the right of establishment enshrined in the EC Treaty. Any decision to relocate an existing establishment is a complex matter affected by many factors such as companies' wider strategies to restructure, specialise or concentrate their operations in the interest of improving efficiency.

The Community has, however, a particular interest where a firm undertaking a relocation has been supported by public funds either in its present or future location. In examining individual cases, the Commission takes into account all the circumstances, bearing in mind that among the options open to the firm are those of relocating outside the Community, or complete closure.

The success of the single market depends to an important degree on Community competition rules, in particular, the rules on state aid which seek to prevent distortions and to underpin fair competition. The Commission has included specific provisions in the recently adopted rules in the fields of both state aid and of the structural funds, to address possible problems linked to relocation. In particular, the Commission's state aid guidelines reduce permitted intensities for investments in officially notified assisted regions. The new levels seek to allow less favoured regions to attract mobile new investment through inducements, while at the same time the reductions can be expected to reduce the risk of regions engaging in competitive bidding. Furthermore, both the guidelines and the structural funds regulation (Council Regulation (EC) No 1260/1999 of 21 June 1999 laying down general provisions on the structural funds(2)) introduce the condition that the supported investment should remain in place for a minimum of five years.

The same rights and obligations of membership will apply to new Member States after accession.

Finally, the Commission pays particular attention to major projects as it has to confirm or modify the support by the structural funds for such projects (investment level of more than 50 million) on an individual basis. Part of its analysis consists in analysing the employment effects of such projects on a Community level.

(1) Cf. among others the Commission's replies to Written Questions E-1396/99, E-1446/99 and P-1805/99.

(2) OJ L 161, 26.6.1999.