WRITTEN QUESTION E-1585/96 by Jean-Pierre Bazin (UPE) to the Commission (24 June 1996)

Subject: Rules applicable by Member States of the Union when setting up a business originating in a third country on the territory of the European Community

YG-I Tool Company of Korea which currently sells large quantities of metal-reaming and -tapping tools on the European market at prices below the cost price of comparable European products is about to be granted special financial status in Northern Ireland to enable it to build a manufacturing plant trading as Europa Tool Company Ltd. The total investment is said to amount to £8.5 million, with £3.2 million in financial aid from the United Kingdom.

Various press reports suggest that the company plans eventually to produce three million reaming and tapping tools, which is close to the present total volume for the two products manufactured in France or the United Kingdom.

The establishment of this plant will clearly have substantial effects on employment in the cutting tool industry, not only in the UK but also in continental Europe. As one of the consequences of the initiative, the European market is likely to be flooded with products manufactured in Korea but marketed under the label of Europa Tools Company Ltd, Belfast. In the long term it could well have very serious effects on the European industry in this sector, far exceeding any benefits which may be derived by Northern Ireland from the venture.

Will the Commission say what are the general rules applicable to the establishment of a business originating in a third country on the territory of the Union, and give references to the documents laying down the law in this area?

More particularly, does the Commission agree that the rules applicable to granting financial aid for the establishment of a business originating in a third country require that, when the plans are being laid, evidence must first be produced to show that opening the plant in question with the aim of creating jobs in the region concerned will not have an equally large contrary effect elsewhere in the European Union?

Answer given by Mr Van Miert on behalf of the Commission (2 August 1996)

The competition rules of the Community in general do not consider whether the parent company of a subsidiary established in the Community is located within or without the Community. Consequently, there are no special rules applicable to the granting of financial aid for the establishment of a business originating in a third country.

Having regard to Europa Tools Company Ltd., Belfast, the Commission has already raised the matter of offering substantial grants to the company and consideration of possible resulting job displacement with the authorities of the United Kingdom, due to complaints earlier this year.

According to authorities of the United Kingdom, grants have been offered to the company in one of the most intensely deprived regions in Northern Ireland. It was said that at April 1996 the percentage unemployed across this area averaged 23.8%, with male unemployment being particularly high at 34.9%. This is compared with average total unemployment of 7.8% and 10.6% for male unemployment, in the United Kingdom as a whole. It was also said that the United Kingdom's granting body carried out its normal procedures for granting aid, including consideration of job displacement as part of the United Kingdom's internal rules. According to their comments, the granting body was satisfied that all requirements of the grant schemes were also met in full and therefore the aid is complementary to the economic environment for Northern Ireland.

As the Commission has received further information from the Honourable Member and complainants and some of the answers of the authorities of the United Kingdom require further clarification, the Commission again asked further questions to the authorities of the United Kingdom on the applied schemes and for the details of its procedures concerning its consideration of job displacement. The Commission will conclude on the compatibility of these measures with the state aid rules laid down in Article 92 and 93 of the EC Treaty when the requested information is submitted and fully examined.