EFTA SURVEILLANCE AUTHORITY DECISION No 23/96/COL of 6 March 1996 on the seventh amendment of the procedural and substantive rules in the field of State aid (new rules on State aid to the synthetic fibres industry)

THE EFTA SURVEILLANCE AUTHORITY

has amended the procedural and substantive rules in the field of State aid (1), adopted on 19 January 1994 (2), as last amended on 6 December 1995 (3), as follows:

Chapter 22 of the State Aid Guidelines shall be replaced by the following:

'22. AID TO THE SYNTEHTIC FIBRES INDUSTRY (4)

22.1. Scope of control

1. The following rules on aid to the synthetic fibres industry apply, irrespective of the size of the prospective beneficiary, to all categories of aid, except aid for vocational training/retraining awarded under schemes that have been authorized by the EFTA Surveillance Authority or aid awarded under schemes that have been authorized by the Authority and falling within the scope of either the rules on Aid for environmental protection (5) or the rules on Aid for research and development (6).

2. In terms of generic types of fibres and yarns, their polymeric basis and their end-uses, the rules apply to all generic types of staple fibre and filament yarn based on polyester, polyamide, acrylic or polypropylene, irrespective of the products' end-uses.

3. In terms of industrial processes, the rules apply to aid in direct support of extrusion, texturization or polymerization (including polycondensation) where it is integrated with extrusion in terms of the machinery used, or in direct support of any ancillary process that, in the specific business activity concerned, is normally integrated with extrusion/texturization capacity in terms of the machinery used.

4. The rules do not apply to aid in direct support of processes upstream of polymerization - for example, the production of monomer. Similarly, the rules do not apply to processes downstream of extrusion/texturization which, in the specific business activity concerned, are not normally integrated with extrusion/texturization capacity in terms of the machinery used. Finally, the rules do not apply to yarn extrusion processes where the extruded yarns would only have a transitory existence before being spunlaid and spunbonded in order to produce non-woven products. The non-woven sector is an area of continuing innovation and high growth, and the machinery concerned in the extrusion of yarns of this type could not easily or cheaply be adapted to produce staple fibre of filament yarn.

22.2. Special notification requirements

1. Accordingly, under the rules the EFTA States are required to notify pursuant to Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement any proposal to award aid in whatever form, irrespective of whether or not the EFTA Surveillance Authority has authorized the scheme concerned, where the aid would not satisfy the de minimis criterion (7), in direct support of:

- extrusion/texturization of all generic types of fibre and yarn based on polyester, polyamide, acrylic or polypropylene irrespective of their end-uses, or

- polymerization (including polycondensation) where it is integrated with extrusion in terms of the machinery used, or

- any ancillary process linked to the contemporaneous installation of extrusion/texturization capacity by the prospective beneficiary or by another company in the Group to which it belongs and which, in the specific business activity concerned, is normally integrated with such capacity in terms of the machinery used.

2. The EFTA States are not required to notify certain categories of aid: aid for vocational training/re-training awarded under schemes that have been authorized by the EFTA Surveillance Authority; and aid awarded under schemes that have been authorized by the Authority and which come within the scope of either the rules on Aid for environmental protection or the rules on Aid for research and development.

3. Any proposal to award aid outside the scope of an authorized aid scheme is, of course, subject to the obligation of notification pursuant to Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement.

4. In addition to the information normally supplied when a proposal to award aid is notified to the EFTA Surveillance Authority (8), the EFTA States are asked to supply the following information:

- the full name of the prospective beneficiary, under which it is registered in the EFTA State concerned and, if it belongs to a Group, the full name of that Group and, if necessary, a description of the ownership structure;

- for the prospective beneficiary (and/or if appropriate, the Group to which it belongs) a statement of its current capacity, capacity in each of the previous three years and the capacity it would have after undertaking the investments that would be supported by the proposed aid (in tonnes per annum) to extrude and/or texturize the fibres and yarns coming within the scope of control, the volumes that have been or are expected to be extruded and/or texturized in each of these years, breaking down the data by the specific generic/poplymeric types of fibre or yarn concerned (identified using the Combined Nomenclature (9)) and, for yarn only, stating the average decitex on which the calculation of capacities has been made,

- a statement of the purpose of the investments that would be supported by the aid, and a description of them and the expected benefits to the prospective beneficiary (and, where the aid in question would support elements of a wider strategy within the Group to which it belongs, to the Group also),

- where the aid would support the installation, modernization or adaptation of extrusion and/or texturization machinery, a statement as to whether or not the machinery could be adapted to produce different generic types of products with the same polymeric basis, or products based on different polymers, and if so the cost of such adaptation and the ease with which it could be carried out,

- a description of the specific product and geographical markets that would be affected as a result of the proposed aid.

22.3. Criteria for assessment of aid cases

1. In assessing the compatibility of aid coming within the scope of these rules, the fundamental consideration is the effect of that aid on the markets for the relevant products, namely the fibre/yarn whose production would be supported by the aid. Average capacity utilization rates in many sectors remain unsatisfactory and the effect of State aid in support of production will generally be negative in terms of competition in the EEA market except where there is a structural shortage of supply of the relevant product.

2. In all cases and irrespective of the state of the market for the relevant products and the effect of the aid on that market, these rules provide for the limitation of the intensity of aid. However, in line with the rules on Aid to small and medium-sized enterprises (SMEs), SMEs will be able to receive aid at a higher intensity than larger firms. The rules also provide for SMEs to receive aid at an even higher rate if it would support the production of an innovative product.

3. Under the rules, the EFTA Surveillance Authority will assess the compatibility of an aid in up to three stages:

- the state of the markets for the relevant products,

- the effect that the aid would have on the relevant capacity, and

- depending on the outcome of the first two stages and the size of the company, the innovative character of the relevant products.

4. The relevant products are the fibres and/or yarns whose production would be supported by the proposed aid and which come within the scope of the measures. In the assessment, the EFTA Surveillance Authority will define the markets for such products in terms of the generic type of the fibre or yarn (whether carpet filament yarn, industrial filament yarn, textile filament yarn or staple fibre) and its polymeric basis (whether polyamide, polyester, acrylic or polypropylene). The Authority will also determine whether or not the equipment concerned is switch capacity and could, with ease and at relatively low cost, be adapted to produce different fibres and yarns, in which case it could affect more than one market.

5. In determining the state of the market for each of the relevant products - that is the structural balance between supply and demand - the EFTA Surveillance Authority will consider the evidence, which would have to be based on facts and not merely on allegations, conjecture or remote possibility. It might include:

- the average capacity utilization rate for production of the fibre or yarn, averaged on an annual basis over the previous two years, which would be expected to be ≥90 % if there were a structural shortage of supply,

- the level of imports of the fibre or yarn into the EEA, capacity and consumption volumes within the EEA, exports and prices and sales margins in the current year, in each of the previous three years and as they are forecast to develop in future,

- for the prospective beneficiary (and/or, if appropriate, the Group to which it belongs) its share of the market for the fibre or yarn in the current year and in each of the previous three years.

6. However, this list is not exhaustive, nor would any one or more of these factors necessarily give decisive guidance.

7. The relevant capacity is the total viable capacity of the prospective beneficiary (and/or, if appropiate, the Group to which it belongs) to extrude and/or texturize the relevant products. In all cases, viable capacity would include temporarily idle capacity (capacity that would be reactivated if sales improved) but would exclude obsolete capacity (capacity shut down before the application for aid was made and marked for scrapping or disposal outside the EEA).

8. In determining whether or not a product is innovative within the meaning of the rules, the EFTA Surveillance Authority will again consider the factual evidence as to the nature and structure and forecast development of the market for the specific product, the ease with which the equipment concerned could be adapted to produce standard or less significantly innovative products and the cost of such adaptation, and whether the product was distinctly and significantly different from any other product or simply the result of product diversification through only marginal variation in the technical characteristics of an existing product.

9. The EFTA Surveillance Authority will seek specialist advice and data where necessary, for example to help it to establish the structural balance between supply and demand for the relevant products, or to determine whether or not production equipment could, with ease and at relatively little cost, be adapted to produce different products, or to assess innovativeness. Furthermore, the Authority will open the formal investigation procedure provided for in Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement where, after an initial assessment, it is either convinced that the proposal is incompatible with the functioning of the EEA Agreement or unable to overcome all the difficulties involved in determining whether or not the proposal is compatible.

10. Under the rules, investment aid will only be authorized:

- for larger firms - that is, firms that are not SMEs - at up to 50 % of the applicable aid ceiling:

- if the aid would result in a significant reduction in the relevant capacity, or

- if the market for the relevant products was characterized by a structural shortage of supply and the aid would not result in a significant increase in the relevant capacity;

- for SMEs, at up to 75 % of the applicable aid ceiling if the market for the relevant products was characterized by a structural shortage of supply and the aid would not result in a significant increase in the relevant capacity;

- for SMEs, at up to 100 % of the applicable aid ceiling:

- if the aid would result in a significant reduction in the relevant capacity, or

- if the market for the relevant products was characterized by a structural shortage of supply and the aid would not result in a significant increase in the relevant capacity and the relevant products were innovative.

11. For proposals to award regional investment aid under schemes authorized by the EFTA Surveillance Authority, the applicable aid ceiling is that for the scheme in question. For proposals to award regional investment aid outside the scope of authorized schemes, and which do not come within the scope of the rules on Aid for rescuing and restructuring firms in difficulty (10), the applicable aid ceiling is that for the region concerned.

12. In determining whether or not a change in capacity would be significant in the context of the rules, the EFTA Surveillance Authority will consider the factual evidence, which might include:

- for the prospective beneficiary (and, where the aid would support elements of a wider strategy within the Group to which it belongs, for the Group as well):

- its current capacity, capacity in each of the previous three years and the capacity it would have after undertaking the investments that would be supported by the proposed aid (in tonnes per annum) to extrude and/or texturize each of the relevant products and the actual volumes that have been or are expected to be extruded and/or texturized in these years,

- its share of the market for each of the relevant products in the current year, in each of the previous three years and as it is expected to develop in the future,

- its size - that is, whether it is an SME or a larger firm, and

- its viability,

- the average capacity utilization rate for production of each of the relevant products, averaged on an annual basis over the previous two years,

- the expected effect of the aid on the region concerned in terms of the structural handicaps of that region.

13. But, as with the analysis of the state of the market for the relevant products, this list is not exhaustive, nor would any one or more of the factors listed necessarily give decisive guidance.

22.4 Ex-post monitoring

1. The implementatijon of investments supported by authorized aid totalling ≥ ECU 50 million will be subject to special ex-post monitoring to demonstrate that the conditions of authorization have been respected.

22.5. Time limit

1. The above rules will come into force on 1 April 1996 with a period of validity of three years. In principle, they will be abolished no later than six months after the date on which the planned horizontal framework on State aid in support of major investments comes into force.

Done at Brussels, 6 March 1996.

For the EFTA Surveillance Authority

The President

Knut ALMESTAD

(1) Hereinafter referred to as the State Aid Guidelines.

(2) OJ No L 231, 3. 9. 1994, p. 1.

(3) OJ No L 124, 23. 5. 1996, p. 41.

(4) This Chapter corresponds to the Code on aid to the synthetic fibres industry, adopted by the Commission on 16 January 1996 (OJ No L 94, 30. 3. 1996).

(5) See Chapter 15 of these Guidelines.

(6) See Chapter 14 of these Guidelines.

(7) See Chapter 12 of these Guidelines.

(8) See Annex I to these Guidelines.

(9) OJ L 241, 27. 9. 93, p. 1.

(10) See Chapter 16 of these Guidelines.`