DECISION OF THE EFTA SURVEILLANCE AUTHORITY No 4/94/COL of 19 January 1994 on the adoption and issuing of the Procedural and Substantive Rules in the Field of State Aid (Guidelines on the application and interpretation of Articles 61 and 62 of the EEA Agreement and Article 1 of Protocol 3 to the Surveillance and Court Agreement)

Having regard to the Agreement of the European Economic Area (1), in particular to Articles 61 to 64, points 2 to 37 of Annex XV and Protocol 26 thereof,

Having regard to the Agreement between the EFTA States on the establishment of a Surveillance Authority and a Court of Justice (2), in particular Articles 5 (2) (b) and 24 and Article 1 of Protocol 3 thereof,

Whereas pursuant to Article 24 of the Surveillance and Court Agreement the EFTA Surveillance Authority shall give effect to the provisions of the EEA Agreement concerning State aid, and, upon the entry into force of this Agreement, adopt acts corresponding to those of the EC Commission listed in Annex I to the Surveillance and Court Agreement;

Whereas pursuant to Article 5 (2) b of the Surveillance and Court Agreement the EFTA Surveillance Authority shall issue notices and guidelines on matters dealt with in the EEA Agreement, if that Agreement or the Surveillance and Court Agreement expressly so provides or if the EFTA Surveillance Authority considers it necessary;

Recalling the objective of the acts to provide guidance for governments by indicating the principles and rules which will guide the EFTA Surveillance Authority when applying the EEA Agreement, in particular Articles 49 and 61 to 64, as well as the Surveillance and Court Agreement, in particular Protocol 3 thereof, to a particular case in order to ensure a uniform application of the EEA State aid rules throughout the European Economic Area,

HAS ADOPTED THIS DECISION:

1. The EFTA Surveillance Authority adopts and issues the Procedural and Substantive Rules in the Field of State Aid (Guidelines on the application and interpretation of Articles 61 and 62 of the EEA Agreement and Article 1 of Protocol 3 to the Surveillance and Court Agreement) annexed to this Decision.

2. These guidelines shall be authentic in the English language and shall be published in the EEA Section of and the EEA Supplement to the Official Journal of the European Communities.

Done at Brussels, 19 January 1994.

For the EFTA Surveillance Authority.

Knut ALMESTAD,

President

(1) Hereinafter referred to as the 'EEA Agreement'.

(2) Hereinafter referred to as the 'Surveillance and Court Agreement'.

PROCEDURAL AND SUBSTANTIVE RULES IN THE FIELD OF STATE AID

Guidelines on the application and interpretation of Articles 61 and 62 of the EEA Agreement and Article 1 of Protocol 3 to the Surveillance and Court Agreement

TABLE OF CONTENTS

Part I: Introduction

1. Introduction . 7

2. Legal basis and general provisions . 8

Part II: Procedures

3. Notification procedure regarding plans to grant or alter aid . 9

3.1. Legal Provisions . 9

3.2. Notification arrangements . 9

3.2.1. Scope of the notification requirement . 9

3.2.2. Obligation to notify 'in sufficient time' . 10

3.2.3. Notification formalities . 10

3.2.4. Requests for additional information . 10

3.3. Prohibition against implementing the proposed aid measure during the EFTA Surveillance Authority's investigation . 10

4. Decisions not to raise objections . 11

4.1. Time limits . 11

4.2. Requirements of decisions . 11

5. Formal investigation procedure . 12

5.1. Legal Provisions . 12

5.2. Cases in which the EFTA Surveillance Authority must open an investigation . 12

5.3. Conduct of proceedings . 12

5.3.1. 'Due process' rights of the EFTA State concerned . 13

5.3.2. 'Due process' rights of other EFTA States, the EC Member States, the EC Commission and interested parties . 13

5.4. Final decision . 13

5.5. Failure of EFTA State to comply . 14

6. Specificities regarding aid unlawful on procedural grounds . 14

6.1. Notion of aid unlawful on procedural grounds . 14

6.2. Request for information . 14

6.2.1. Injunction ('interim measures') . 15

6.2.2. Conduct of proceedings . 15

6.2.3. Recovery orders . 15

7. Procedure in existing aid cases . 15

7.1. Legal provisions . 15

7.2. Notion of existing aid . 16

7.3. Purpose of the existing aid procedure . 16

7.4. Procedure . 16

7.4.1. Initiation of review . 16

7.4.2. Proposal of 'appropriate measures' . 16

7.4.3. Legal consequences of a proposal of 'appropriate measures' . 17

8. Counting of time limits . 17

9. Publication of decisions . 17

Part III: Rules on horizontal aid

10. Aid to small and medium-sized enterprises (SMEs) . 18

10.1. Introduction . 18

10.2. Definition of SMEs . 18

10.3. SME aid falling within Article 61 (1) . 19

10.4. Generally acceptable intensities of aid for SMEs . 19

10.4.1. Aid for general investment . 19

10.4.2. Aid for environmental protection investment . 20

10.4.3. Aid for consultancy help, training and dissemination of knowledge . 20

10.4.4. Aid for R& D . 20

10.4.5. Aid for other purposes . 20

11. Criteria for applying the accelerated clearance procedure . 20

11.1. New aid schemes for SMEs . 21

11.2. Modifications of existing schemes . 21

12. Application and implementation of the de minimis rule . 21

12.1. Definition of the categories of expenditure . 22

12.2. Principles for calculating the cash grant equivalent of de minimis aid . 22

12.3. Monitoring of the de minimis rule by the EFTA States . 23

12.4. Calculation of the cash grant equivalent of a soft loan . 23

12.4.1. No-grace period . 23

12.4.2. With-grace period . 23

13. Rules applicable to cases of cumulation of aid for different purposes . 24

13.1. Notification of significant cases of cumulation of aid . 24

13.2. Derogations . 24

13.3. Aid concerned . 24

13.4. Special rules . 25

14. Aid for Research and Development . 25

14.1. Definition of Research and Development and applicability of Article 61 of the EEA Agreement to aid for R& D . 25

14.2. Assessment of Aid for R& D under Article 61 of the EEA Agreement . 26

14.3. Additional notification requirements . 26

14.4. Intensity . 27

14.5. Eligible R& D costs for the purpose of calculating the aid intensity . 27

14.6. Implementation . 28

15. Aid for environmental protection . 28

15.1. Introduction . 28

15.2. Main types of State aid given for environmental protection . 29

15.2.1. Investment incentives, possibly associated with regulation or voluntary agreements . 29

15.2.2. Aid for horizontal support measures . 29

15.2.3. Operating aid in the form of grants, relief from environmental taxes or charges and aid for the purchase of environmentally friendly products . 30

15.3. The aim and scope of the rules to be applied with regard to aid for environmental protection . 30

15.4. Assessment of aid for environmental protection under Article 61 of the EEA Agreement . 31

15.4.1. Aid for investment . 31

15.4.1.1. Aid to help firms adapt to new mandatory standards . 32

15.4.1.2. Aid to encourage firms to improve on mandatory environmental standards . 32

15.4.1.3. Aid in the absence of mandatory standards . 32

15.4.2. Aid for information activities, training and advisory services . 33

15.4.3. Operating aid . 33

15.4.4. Aid for the purchase of environmentally friendly products . 33

15.5. Basis of the exemption . 34

15.6. Cumulation of aid from different sources . 34

15.7. Notification and review of the rules on aid for environmental protection . 34

16. Aid for rescue and restructuring . 34

17. State guarantees . 35

18. Aid to employment . 35

Part IV: Rules on state ownership of enterprises and on aid to public enterprises

19. Public authorities' holdings . 36

20. Application of State aid provisions to public enterprises in the manufacturing sector . 38

20.1. Introduction . 38

20.2. Public enterprises and the rules of competition . 39

20.3. Principles to be used in determining whether aid is involved . 40

20.4. Increased transparency of policy . 41

20.5. Practicality of the market economy investor principle . 41

20.6. Compatibility of aid . 43

20.7. Different forms of state intervention . 44

20.7.1. Capital injections . 44

20.7.2. Guarantees . 45

20.7.3. Loans . 45

20.7.4. Return on investments . 46

Part V: Rules on sectoral aid

21. Aid to the textile and clothing industry . 47

21.1. Special features of the textile/clothing industry . 47

21.2. Sectoral conditions for aid to the textile/clothing industry . 47

21.2.1. Aid to joint measures in the textile/clothing field . 48

21.2.2. Aid for improving the structure of the textile/clothing industry . 48

21.2.3. Aid to investment in the textile/clothing industry . 48

21.3. General principles to be applied . 49

22. Aid to the synthetic fibres industry . 49

22.1. General principles . 49

2.2. Special notification requirements . 50

22.3. Criteria for assessment . 50

22.4. Time limit . 51

23. Aid to the motor vehicle industry . 51

23.1. Introduction . 51

23.2. Definition of sector . 51

23.3. Special notification requirements . 51

23.4. Criteria for assessment of aid cases . 52

23.4.1. Rescue and restructuring aid . 52

23.4.2. Regional aid . 52

23.4.3. Investment aid for innovation, modernization or rationalization . 52

23.4.4. Aid for research and development . 53

23.4.5. Aid for environmental and energy saving . 53

23.4.6. Aid for vocational training linked to investments . 53

23.4.7. Operating aid . 53

23.5. Reporting . 53

24. Aid to non-ECSC steel industries . 54

24.1. Introduction . 54

24.2. Special notification requirements . 54

24.3. Criteria for assessment of aid cases . 54

24.4. Reporting . 55

Part VI: Rules on regional aid

25. Introduction . 56

26. Principles for assessment of regional aid . 57

26.1. Differentiated ceilings of aid intensity . 57

26.2. Transparency . 58

26.3. Regional specificity . 60

26.4. Sectoral repercussions . 60

26.5. System of supervision . 60

27. The common method of assessing aid . 61

28. Methods for the application of Article 61 (3) (a) and (c) of the EEA Agreement to regional aid . 62

28.1. Method for the application of Article 61 (3) (a) to national regional aid . 62

28.1.1. Principles of method . 62

28.1.2. Choice of indicators . 63

28.1.3. Exceptional regions . 63

28.1.4. Aid ceilings . 63

28.1.5. The range of aid instruments required to promote regional development in Article 61 (3) (a) regions . 64

28.2. Method for the application of Article 61 (3) (c) to national regional aid . 64

28.2.1. Principles of method . 65

28.2.2. First stage of analysis . 65

28.2.3. Second stage of analysis . 66

28.2.4. Ceilings of aid intensity . 66

Part VII: Specific rules

29. General investment aid schemes . 67

30. Standardized annual reporting . 67

31. Other specific provisions . 68

31.1. Conversions between national currencies and ECU . 68

Annexes . 69

PART I INTRODUCTION

1. INTRODUCTION

(1) By ratifying the Agreement on the European Economic Area (EEA Agreement) and the Agreement between the EFTA States on the establishment of a Surveillance Authority and a Court of Justice (Surveillance and Court Agreement) the EFTA States have agreed to establish a Surveillance Authority. The Authority is, pursuant to Article 5 (1) (a) of, and in accordance with Article 1 of Protocol 3 to the Surveillance and Court Agreement, entrusted by the EFTA States to ensure the fulfilment of their obligations pursuant to Article 61 of the EEA Agreement. This Article declares State aid in the meaning of Article 61 (1) to be incompatible with the functioning of this Agreement except in certain circumstances where an exemption is or may be granted (Article 61 (2) and (3) and Article 49).

(2) When applying these Articles, EFTA Surveillance Authority shall take due account of the principles and rules contained in the acts listed under the third subheading of Annex XV to the EEA Agreement and in Annex I to the Surveillance and Court Agreement respectively ('Acts of which the EC Commission and the EFTA Surveillance Authority shall take due account') (1).

(3) By listing the relevant acts issued by the EC Commission in the abovementioned Annexes, the Contracting Parties emphasized the relevance of the basic principle of homogeneity for the field of State aid and the need for a uniform State aid control throughout the territory covered by the EEA Agreement in accordance with the substantive and procedural principles set out in these acts. Moreover, the EFTA States committed themselves, pursuant to Article 3 of the EEA Agreement, to contribute to the objectives of the EEA Agreement by taking all appropriate measures to ensure fulfilment of the obligations arising out of the Agreement and to abstain from any measure which could jeopardize their attainment.

(4) In order to achieve this objective in the field of State aid, the EFTA States undertook, inter alia, to notify to the EFTA Surveillance Authority any plans to grant or alter aid as laid down in Article 62 of the EEA Agreement and Article 1 of Protocol 3 to the Surveillance and Court Agreement, interpreted in conformity with the relevant rulings of the Court of Justice of the European Communities given prior to the date of signature of the EEA Agreement (Article 6 of the EEA Agreement). Provisions on the notification of aid are also contained in the acts listed under the third subheading of Annex XV to the EEA Agreement and in Annex I to the Surveillance and Court Agreement respectively. Under these acts, applied in the EEA context, individual awards of aid as specified in the acts listed in points 15, 16, 30 to 34 and 37 of Annex XV to the EEA Agreement (i.e. points 14, 15, 29 to 33 and 36 of Annex I to the Surveillance and Court Agreement) are to be notified to the EFTA Surveillance Authority as from the entry into force of the EEA Agreement.

(5) The EFTA Surveillance Authority is obliged, pursuant to Article 24 of the Surveillance and Court Agreement, to adopt acts corresponding to those listed in Annex I to the Agreement. The Authority considers to fulfil this obligation best by adopting and issuing the corresponding acts in a single and consolidated document, the present Procedural and Substantive Rules in the Field of State Aid. Thus, the present guidelines should contribute to the general target of transparency in the field of State aid.

(6) These guidelines contain all rules corresponding to the acts listed in Annex I of the Surveillance and Court Agreement and all rules corresponding to similar acts adopted by the EC Commission between 1 August 1991 and the entry into force of the EEA Agreement. Their purpose is to provide national administrations and enterprises with information on how the EFTA Surveillance Authority interprets and applies the provisions of the EEA Agreement governing State aid. By adopting these guidelines, the EFTA Surveillance Authority aims at ensuring a uniform implementation, application and interpretation of Articles 61 and 62 of the EEA Agreement as foreseen in Protocol 27 to the EEA Agreement.

(7) Moreover, when applying Articles 61 and 49 of the EEA Agreement, the EFTA Surveillance Authority will have regard to the Joint Declaration on Article 61 (3) (b) of the EEA Agreement, the Joint Declaration on Article 61 (3) (c) of the EEA Agreement and the Joint Declaration on shipbuilding.

2. LEGAL BASIS AND GENERAL PROVISIONS

(1) These guidelines have been adopted by the EFTA Surveillance Authority pursuant to Articles 5 (2) (b) and 24 of the Surveillance and Court Agreement.

(2) It should be noted that in these guidelines the term 'EFTA States' shall read 'EFTA States contracting parties to the EEA Agreement in respect of which the Agreement has entered into force'.

(3) These guidelines may be amended or supplemented in the light of experience or to accord with the frameworks and guidelines issued by the EC Commission in the field of State aid. Parts of the guidelines are limited in time (2). Any amendments or supplements will be made by the EFTA Surveillance Authority in accordance with the principles on cooperation with the EC Commission as laid down in Protocol 27 of the EEA Agreement.

(4) These guidelines and future amendments and additions thereto will be published in the EEA Section of the Official Journal of the European Communities and the EEA Supplement thereto in accordance with the arrangement with regard to publication of EEA relevant information, referred to in the Final Act of the EEA Agreement.

PART II PROCEDURES (3)

3. NOTIFICATION PROCEDURE REGARDING PLANS TO GRANT OR ALTER AID

3.1. Legal provisions

(1) Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement states: 'The EFTA Surveillance Authority shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid. If it considers that any such plan is not compatible with the functioning of the EEA Agreement having regard to Article 61 of the EEA Agreement, it shall without delay initiate the procedure provided for in pararaph 2. The state concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision'.

(2) This provision essentially places three procedural obligations on the EFTA State concerned:

It is under the obligation:

(a) to notify any plans to grant or alter aid (first sentence);

(b) to do so 'in sufficient time' (first sentence); and

(c) not to put the proposed measure into effect until the EFTA Surveillance Authority has taken a decision on the case (third sentence).

(3) The EFTA Surveillance Authority considers, on the basis of the case-law of the ECJ (4), as its obligation to:

(a) 'submit its comments', i.e. to take a decision on the case (first sentence). The EFTA Surveillance Authority might at this stage either authorize the aid or open the formal investigation procedure pursuant to Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement. Authorizing decisions taken at this stage shall be known as 'decisions not to raise objections';

(b) take a decision without delay (first and second sentences); and

(c) initiate the formal investigation procedure pursuant to Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement if it is in any doubt about the compatibility of the aid with the functioning of the EEA Agreement (5) (second sentence).

3.2. Notification arrangements

3.2.1. Scope of the notification requirement

(1) EFTA States are required to notify all planned aid schemes and individual aid cases outside of an existing scheme for approval to the EFTA Surveillance Authority.

(2) Once a scheme has been authorized by the EFTA Surveillance Authority, individual awards of aid under the scheme need not be notified. However, for particular industries or particular types of aid, individual notification may be required of all awards of aid or of awards exceeding a certain amount. These exceptions are stated either in the substantive part of the guidelines or in a decision authorizing a scheme.

(3) The obligation to notify plans to grant or alter aid does not apply solely to the initial plan, but also covers subsequent substantive (not purely administrative) alterations to that plan (6). The notification of the alteration is regarded as a new notification.

(4) No notification is required for aid falling under the 'de minimis' rule as explained in Chapter 12.

(5) When an EFTA State has doubts whether or not a planned measure contains State aid elements, the EFTA Surveillance Authority should be informed of it before the measure is put into effect.

3.2.2. Obligation to notify 'in sufficient time'

(1) The first sentence of Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement provides that the EFTA Surveillance Authority shall be informed of plans to grant new or alter existing aid 'in sufficient time to enable it to submit its comments' i.e., to take a decision on the case. Therefore, except in cases qualifying for the accelerated procedure (see Chapter 11), EFTA States should take into account the period of two months for the EFTA Surveillance Authority to take its decision.

3.2.3. Notification formalities

(1) A notification should refer expressly to Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement or to other provisions requiring notification and be sent to the EFTA Surveillance Authority.

(2) The date of receipt is the reference date for the calculation of the time limit by which the EFTA Surveillance Authority must take a decision on the case.

(3) The EFTA Surveillance Authority sends the Mission of the EFTA State concerned an acknowledgement which states the date on which the notification was received.

(4) In order to simplify and to speed up the handling of cases, the EFTA Surveillance Authority recommends the EFTA States to provide in a notification all the items of the information listed in Annex I, Section I, to these guidelines. Section II provides a list of additional information concerning aid to R& D. Any additional information considered necessary by an EFTA State for the assessment of the case, especially in cases of individual aid awards, should also be provided in the notification. A standardized notification form as reproduced in Annex II is to be used for aid qualifying for the accelerated clearance procedure.

3.2.4. Requests for additional information

(1) Should the EFTA Surveillance Authority find the notification to be incomplete, it will endeavour to ask for any further information it may need within 15 working days. A request for further information cancels the start of the period allowed for assessing the notification. The whole period only begins to run again from the date on which the requested further information is received. An acknowledgement is sent by the EFTA Surveillance Authority stating the new effective date of notification.

(2) The period which will normally be allowed for providing the further information is 20 working days. If there is no answer or the answer is incomplete, the EFTA Surveillance Authority sends a reminder or a request for the missing information, normally allowing 15 working days.

3.3. Prohibition against implementing the proposed aid measure during the EFTA Surveillance Authority's investigation

(1) The last sentence of Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement provides that the EFTA State shall not put its proposed measure into effect until the Article 1 (2) procedure has resulted in a final decision. This provision implies a general prohibition to implement the aid before the EFTA Surveillance Authority has taken a decision, also in cases where formal proceedings are not opened (7).

(2) By 'putting into effect' is meant not only the action of granting aid to the recipient. It is sufficient that the conferment of powers enabling the aid to be granted without further formality has taken place.

(3) If the EFTA State puts the aid measure into effect before the EFTA Surveillance Authority takes a decision, the procedure set out in section 6.2 is applied (see however footnote 1 to 4.1 (1)).

4. DECISIONS NOT TO RAISE OBJECTIONS

4.1. Time limits

(1) The EFTA Surveillance Authority considers as its obligation to take a decision on a notification within a time limit of two months (8). Under exceptional circumstances an extension of this period may be agreed between the EFTA Surveillance Authority and the EFTA State concerned.

(2) The EFTA Surveillance Authority endeavours to take a decision, in general, within 30 working days.

(3) In addition, the EFTA Surveillance Authority has set itself a shorter time limit of 20 working days:

- for new aid schemes for small and medium-sized enterprises which qualify for the accelerated clearance procedure,

- for amendments of authorized aid schemes qualifying for the accelerated clearance procedure.

If the EFTA Surveillance Authority considers that a case does not fulfil the conditions for accelerated clearance, it informs the EFTA State that the case will be dealt with under the ordinary procedure.

4.2. Requirements of decisions

(1) Before taking a decision on a case without opening proceedings pursuant to Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement, the EFTA Surveillance Authority is under no obligation to inform the other EFTA States and interested parties (9).

(2) The decision may be on the ground that the proposed measure does not fall within Article 61 (1) of the EEA Agreement at all or that it is eligible for exemption pursuant to Article 61 (2) and (3).

(3) The decision is communicated to the EFTA State concerned by letter.

(4) Under Protocol 27 (d) to the EEA Agreement, the decision is communicated to the EC Commission.

(5) To inform the other EFTA States and interested third parties, a notice will be published in the EEA Section of the Official Journal of the European Communities and the EEA Supplement thereto.

(6) The published notice usually takes the form of a list of standard items of information.

(7) If the EFTA State withdraws the aid proposal, the EFTA Surveillance Authority informs it by letter that the file is being closed. The other EFTA States and the EC Commission are not informed, nor is a notice published in the EEA Section of the Official Journal of the European Communities and the EEA Supplement thereto.

5. FORMAL INVESTIGATION PROCEDURE

5.1. Legal provisions

(1) Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement states: 'If, after giving notice to the parties concerned to submit their comments, the EFTA Surveillance Authority finds that aid granted by an EFTA State or through EFTA State resources is not compatible with the functioning of the EEA Agreement having regard to Article 61 of the EEA Agreement, or that such aid is being misused, it shall decide that the EFTA State concerned shall abolish or alter such aid within a period of time to be determined by the Authority.'

5.2. Cases in which the EFTA Surveillance Authority must open an investigation

(1) The EFTA Surveillance Authority is obliged to open the procedure provided for in Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement whenever it is in any doubt about the compatibility of the aid with the functioning of the EEA Agreement (10). The procedure is applicable in all types of cases, whether of notified, unnotified or existing aid, although in the latter case it must be preceded by the proposal of 'appropriate measures' (11).

(2) The decision to open proceedings is without prejudice to the final decision, which may still be to find that the aid is compatible with the functioning of the EEA Agreement. The purpose of proceedings pursuant to Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement is to ensure a comprehensive examination of the case by giving all parties concerned the right to be heard (12).

5.3. Conduct of proceedings

(1) When the EFTA Surveillance Authority opens proceedings in a case, the EFTA State concerned and, under Protocol 27 (c) to the EEA Agreement, the EC Commission, are informed of the commencement of proceedings by letter and the other EFTA States and interested parties are informed by notice in the EEA Section of the Official Journal of the European Communities and the EEA Supplement thereto.

(2) The proceedings are concluded by a formal decision.

5.3.1. 'Due process' rights of the EFTA State concerned

(1) The letter informing the EFTA State concerned of the opening of proceedings states the reasons for the EFTA Surveillance Authority's doubts about the aid and invites the EFTA State to submit its comments within a stated period, usually one month.

(2) If the EFTA State considers it necessary to make oral observations to the EFTA Surveillance Authority, such meetings should be held within three months after the procedure has been initiated.

(3) The EFTA State's due process rights include the right to reply to comments and allegations made by the parties concerned (see 5.3.2).

(4) A letter enclosing all the submissions filed within the time limits is sent to the EFTA State concerned. The EFTA State is given 15 working days to comment on the submissions.

5.3.2. 'Due process' rights of other EFTA States, the EC Member States, the EC Commission and interested parties

(1) After the opening of proceedings a notice to the other EFTA States, the EC Member States, the EC Commission and interested parties is published in the EEA Section of the Official Journal of the European Communities and the EEA Supplement thereto inviting them to comment on the case within one month from the date of publication. The notice reproduces the letter that the EFTA Surveillance Authority has sent to the EFTA State concerned informing it of the opening of proceedings, with any confidential passages deleted.

(2) The rights of third parties in the procedure pursuant to Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement flow from the requirement to give 'notice to the parties concerned to submit their comments'. The 'parties concerned' referred to in Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement are not only the enterprise or enterprises receiving aid but also the persons, enterprises or associations whose interests might be affected by the grant of the aid, in particular competing enterprises and trade associations (13).

(3) The publication of a notice in the EEA Section of the Official Journal of the European Communities and the EEA Supplement thereto is an appropriate means of informing all the parties concerned that a procedure has been initiated (14). Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement does not require individual notice to be given to particular persons.

(4) In the notice, the EFTA Surveillance Authority states its doubts about the compatibility of the aid with the functioning of the EEA Agreement (15).

5.4. Final decision

(1) The EFTA Surveillance Authority may take a positive or negative decision or it may take a decision to close the case owing to withdrawal of the proposed aid measure or in applicability of Article 61 (1) of the EEA Agreement.

(2) A positive decision is a decision to grant authorization for the aid and a negative decision prohibits the aid. A decision can be partially positive and partially negative. Positive decisions may impose conditions.

(3) If the EFTA State does not reply to the opening of proceedings or does not give all information the EFTA Surveillance Authority requires, the EFTA Surveillance Authority is empowered to take a decision on the basis of the information available to it without having heard any argument from the EFTA State (16).

(4) The decision states the reasons on which it is based (17). It specifies any obligations imposed on the EFTA State concerned (18). The EFTA Surveillance Authority sets a time limit by which the EFTA States must carry out the obligations (19).

(5) The EFTA Surveillance Authority will submit to the EFTA State the full text of negative and partially negative decisions and of decisions laying down conditions. As to all other types of decisions, the EFTA State is informed by letter. Under Protocol 27 (d) to the EEA Agreement, the same information is given to the EC Commission.

(6) The full text of negative decisions, partially negative decisions and decisions laying down conditions, or, in the case of all other types of decisions, a notice reproducing the letter to the EFTA State concerned, is published in the EEA Section of the Official Journal of the European Communities and the EEA Supplement thereto.

5.5. Failure of EFTA State to comply

(1) If the EFTA State concerned fails to conform to the decision within the period laid down, the EFTA Surveillance Authority may refer the matter directly to the EFTA Court in accordance with the second subparagraph of Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement and apply, if appropriate, for an injunction.

6. SPECIFICITIES REGARDING AID UNLAWFUL ON PROCEDURAL GROUNDS

(1) Apart from special features which are indicated below, the procedure with regard to aid unlawful on procedural grounds follows the same pattern as with notifications.

6.1. Notion of aid unlawful on procedural grounds

(1) As the term 'unnotified aid' would be too narrow to cover all aid put into effect in a way which infringes the last sentence of Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement, the EFTA Surveillance Authority decided to use the notion of 'aid unlawful on procedural grounds' (referred to below as 'unlawful aid').

The term covers:

(a) aid provided without notification;

(b) aid granted by incorrect application of an approved aid scheme (aid 'being misused' in the meaning of Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement);

(c) aid that is notified late, i.e. notified after being 'put into effect'; and

(d) aid notified beforehand but 'put into effect' before the EFTA Surveillance Authority has taken a decision (20).

6.2. Request for information

(1) When the EFTA Surveillance Authority becomes aware of a possibly unlawful aid case, it requests the EFTA State concerned to supply full details on the matter normally within 20 working days. This is the same as the usual period allowed for supplying additional information on notified aid cases (see 3.2.4 (2)). A reminder will be sent if necessary.

(2) It is recalled that the EFTA Surveillance Authority is empowered to proceed and to take a decision on the basis of the information available (see 5.4 (3)), even in the absence of any submission to it from the EFTA State concerned.

6.2.1. Injunction ('interim measures')

(1) The EFTA Surveillance Authority may request by an interim decision the EFTA State to suspend payment of the aid pending the outcome of the investigation (21). The procedure is as follows:

(2) Once it has concluded that aid has been granted unlawfully, the EFTA Surveillance Authority must give the EFTA State concerned an opportunity to submit its comments before taking a decision requiring it to suspend immediately the payment of the aid pending the outcome of the investigation (22).

(3) If the EFTA State fails to suspend payment of the aid, the EFTA Surveillance Authority is entitled, while carrying out the examination on the substance of the matter, to bring the matter directly before the EFTA Court and apply for a declaration that such payment amounts to an infringement of the Agreement (23).

6.2.2. Conduct of proceedings

(1) In cases of unlawful aid, the EFTA Surveillance Authority endeavours to take a decision within two months after receiving complete information.

(2) If, in unlawful aid cases, the EFTA Surveillance Authority finds that the aid is compatible with the functioning of the EEA Agreement, it must take a positive decision on the merits of the case.

6.2.3. Recovery orders

(1) In negative decisions on cases of unlawful aid the EFTA Surveillance Authority orders, as a rule, the EFTA State to reclaim the aid from the recipient (24).

(2) The recovery is to be effected in accordance with national law including the provisions concerning interest due for late payment of amounts owing to the government, interest which should normally run from the date of the award of the unlawful aid in question. The relevant provisions of national law must be applied in such a way that recovery is not rendered practically impossible (25).

7. PROCEDURE IN EXISTING AID CASES

7.1. Legal provisions

(1) Article 1 (1) of Protocol 3 to the Surveillance and Court Agreement states: 'The EFTA Surveillance Authority shall, in cooperation with the EFTA States, keep under constant review all systems of aid existing in those states. It shall propose to the latter any appropriate measures required by the progressive development or by the functioning of the EEA Agreement.'

(2) This provision essentially places three procedural obligations on the EFTA Surveillance Authority and one obligation on the EFTA State concerned. The former are:

- to keep under constant review all systems of aid existing in the EFTA States (first sentence),

- to do so in cooperation with the EFTA States concerned (first sentence),

and

- to propose to the latter any appropriate measures required by the progressive development or by the functioning of the EEA Agreement.

The latter is:

- the EFTA State's duty to cooperate with the EFTA Surveillance Authority.

7.2. Notion of existing aid

(1) Existing aid within the meaning of Article 1 (1) of Protocol 3 to the Surveillance and Court Agreement includes:

- old or 'pre-EEA' aid, i.e. aid schemes in operation at the time of the entry into force of the EEA Agreement and individual awards of aid outside any scheme, which have been decided upon before and foresee payments after the entry into force of the EEA Agreement,

and

- authorized aid, i.e. aid schemes or ongoing provisions of aid that have been authorized (see 4.2 (2) and 5.4 (2)) or are deemed to have been authorized (see footnote 1 to 4.1 (1)) by the EFTA Surveillance Authority.

7.3. Purpose of the existing aid procedure

(1) The purpose of the existing aid procedure is to provide a means of dealing with both categories of existing aid. Article 1 (1) of Protocol 3 to the Surveillance and Court Agreement is designed to enable the EFTA Surveillance Authority to secure the abolition or adaptation of pre-EEA aid that is incompatible with the functioning of the EEA Agreement (26) and to review aid schemes or provisions which it authorized in the past but which may no longer be compatible with the functioning of the EEA Agreement under the conditions then prevailing.

7.4. Procedure

7.4.1. Initiation of review

(1) Whenever the EFTA Surveillance Authority believes that existing aid may not be compatible with the progressive development or the functioning of the EEA Agreement, it begins a review by writing for information to the EFTA State concerned. The initiation of a review does not require operation of the aid scheme to be suspended.

(2) So far the EFTA Surveillance Authority has not laid down detailed internal procedural rules for the application of Article 1 (1) of Protocol 3 to the Surveillance and Court Agreement. The only clear requirement that emerges from the paragraph is the obligation to cooperate with the EFTA State. The EFTA Surveillance Authority considers to fulfil this obligation by writing for information to the State concerned before it proposes 'appropriate measures'.

(3) The EFTA State is under an obligation to provide the information required by the EFTA Surveillance Authority. To enable the review to be carried out with the necessary dispatch, the EFTA Surveillance Authority may set time limits for supplying information similar to those in notified aid cases.

7.4.2. Proposal of 'appropriate measures'

(1) Having considered the existing aid scheme in the light of the information supplied by the EFTA State, the EFTA Surveillance Authority may conclude that no change in the scheme is necessary and to close the file on the case, or it may propose whatever changes are deemed necessary to bring the scheme into line with the Agreement. The proposal may be to:

- amend the scheme in substance,

- introduce procedural requirements, e.g. advance notification of individual cases under the scheme in question, and/or reporting requirements,

or

- abolish the scheme.

(2) The EFTA Surveillance Authority must give reasons for the measures it proposes and ask the EFTA State to agree to the measures.

7.4.3. Legal consequences of a proposal of 'appropriate measures'

(1) If the EFTA State agrees to the proposd measures, the EFTA Surveillance Authority closes the case.

(2) If the EFTA State declines to carry out the 'appropriate measures' proposed and the EFTA Surveillance Authority, having heard the arguments of the EFTA State concerned, still considers that they are necessary, it may require the EFTA State to comply through the procedure under Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement (see Chapter 5).

8. COUNTING OF TIME LIMITS

(1) Periods expressed in months end the same day of the nth month counted from the date correspondence is received. For example, the deadline for deciding on a notification received on 5 May is 5 July. If, in such a period, the day on which it should expire does not occur in the last month, the period shall end with the expiry of the last day of that month. For example, the deadline for deciding on a notification received on 31 July is 30 September.

(2) Periods expressed in working days end on the nth working day counted from the working day following that on which correspondence is received. 'Working days' means all days other than Saturdays, Sundays and public holidays. Public holidays observed in an EFTA State are taken into account when calculating a time limit for action by the EFTA State concerned. Public holidays observed by the EFTA Surveillance Authority are taken into account when calculating a time limit for it to act.

(3) For correspondence from an EFTA State to the EFTA Surveillance Authority setting in motion a time limit to be observed by the latter, the date of receipt is stated in the acknowledgment sent to the EFTA State concerned. In the reverse situation, the EFTA Surveillance Authority presumes the date of receipt to be the third working day after the day of mailing, unless a later day of receipt is shown by the State concerned. These arrangements will enable the EFTA Surveillance Authority to calculate in advance all deadlines related to case-handling and help to avoid undue delays in the decision-making process.

9. PUBLICATION OF DECISIONS

(1) Paragraph (d) of Protocol 27 to the EEA Agreement provides that final decisions and decisions to open the formal investigation procedure shall be published. Therefore, EFTA States and interested third parties are informed by a publictaion in the EEA Section of the Official Journal of the European Communities and the EEA Supplement thereto on the three following occasions:

(a) when the aid case is cleared within the two-month period without opening the formal investigation procedure pursuant to Article 1 (2) of Protocol 3 to the Surveillance and Court Agreement (see 4.2 (5));

(b) when opening the formal investigation procedure (see 5.3 (1));

(c) when terminating the formal investigation procedure (see 5.4 (6)).

(2) In addition to the publication in the EEA Section of the Official Journal of the European Communities and the EEA Supplement thereto, in most cases the EFTA Surveillance Authority issues a press release to inform the public, usually on the date when the decision is taken. Press releases are published in English only.

(3) All published information on State aid cases omits material regarded as commercially sensitive. This does not include the identity of the aid recipients.

PART III RULES ON HORIZONTAL AID

10. AID TO SMALL AND MEDIUM-SIZED ENTERPRISES (SMEs) (27)

(1) The principles set out in this chapter apply to aid for SMEs in all sectors except those subject to specific sectoral rules which are currently synthetic fibres, motor vehicle, steel and transport.

10.1. Introduction

(1) Small and medium-sized enterprises (SMEs) play an important role in the economy. First, they play a disproportionate role in employment creation, especially at times when large firms are shedding labour. Secondly, being more exposed to competition but at the same time more flexible and adaptable than large firms, SMEs tend to be in the forefront of innovation. Thirdly, SMEs are a major source of competition in markets and act as the main motor of structural change and regeneration in the economy as a whole: they facilitate the shifts of economic resources from declining to expanding sectors.

(2) In some parts of the economy, the SME sector is of particular importance. This is true, for instance, of manufacturing industry, in which subcontracting is playing an increasing role. SMEs are also of fundamental importance for regional development.

(3) SMEs can face certain handicaps when compared to established large firms. For example, they have greater difficulty in raising finance. SMEs also suffer to a greater extent from burdens imposed by government. The compliance costs of small businesses with respect to government regulations on health and safety, financial accounting, etc., may be higher and the tax burden on them may be heavier, both in terms of the rates of tax they pay and the compliance costs of the tax system (e.g., collection of social security contributions and VAT).

10.2. Definition of SMEs

(1) The definition of SMEs, given below for purposes of State aid control, must delimit the SME sector so that the bulk of firms with the beneficial external effects and the handicaps described above are included. It mut not be, however, so wide as to include many larger firms that do not necessarily have the beneficial external effects or the handicaps that are characteristic of the SME sector. Aid granted to larger firms on the basis of considerations mainly applicable to smaller enterprises would be more likely to distort competition and affect trade.

(2) For most purposes there is no need to distinguish between small and medium-sized enterprises. However, such a distinction is necessary in the case of aid for near-market activities, such as investment. Aid to small companies can normally be expected to have a limited impact on trade within the territory covered by the EEA Agreement, whereas aid to medium-sized companies may well have a significant trade-distorting effect.

(3) 'SME' is defined as an enterprise which:

- has no more than 250 employees, and

- either,

- an annual turnover not exceeding ECU 20 million,

or

- a balance sheet total not exceeding ECU 10 million, and

- is not more than 25 % owned by one or more companies not falling within this definition, except public investment corporations, venture capital companies or, provided no control is exercised, institutional investors.

(4) Where it is necessary to distinguish between small and medium-sized companies, 'small' is defined as an enterprise which

- has no more than 50 employees, and

- either,

- an annual turnover not exceeding ECU 5 million,

or

- a balance sheet total not exceeding ECU 2 million, and

- is not more than 25 % owned by one or more companies not falling within this definition, except public investment corporations, venture capital companies or, provided no control is exercised, institutional investors.

(5) The three criteria are cumulative, i.e., a firm is only considered to be an 'SME' or a 'small' enterprise if it fulfils the independence condition, does not exceed the workforce limit and does not exceed at least one of the other limits for either turnover or balance sheet total.

10.3. SME aid falling within Article 61 (1)

(1) In cases where State aid for SMEs falls pursuant to Article 61 (1) of the EEA Agreement because it can have a perceptible impact on interstate trade and competition, it may be eligible for exemption. The broadest exemption clause is Article 61 (3) (c), under which the EFTA Surveillance Authority has discretion to allow aid that facilitates the development of certain economic activities or of certain economic areas in so far as trading conditions are not adversely affected to an extent contrary to the common interest.

(2) In view of the positive externalities associated with SMEs, their importance for particular sectors of industry and for regional development, and the specific problems they face, there can be no doubt that State aid for SMEs 'facilitates the development of certain economic activities or of certain economic areas'.

(3) The question remains whether State aid for SMEs affects trading conditions to an extent contrary to the functioning of the EEA Agreement. This depends on the type and intensity of the aid. Aid for activities that are relatively distant from the market-place, such as assistance for obtaining consultancy help to improve general management, affects trade only indirectly and to a comparatively small degree. Aid for near-market activities such as investment arguably affects trade less when it is granted to SMEs than when the beneficiaries are large firms. This is because the sales of individual SMEs are less than those of large firms, a factor accentuated by the often lower turnover per employee in the case of SMEs, and because SMEs are particularly numerous in industries in which there is relatively little intra-EEA trade (e.g., construction, certain food manufacturing, retailing, many services). Even so, the effect of investment aid on trade may rise significantly in the case of medium-sized firms. Provided, however, that certain acceptable intensities of aid are not exceeded, the effect of SME aid on trading conditions is generally not so great as to be against the functioning of the EEA especially if the positive externalities of SME activity are taken into account.

10.4. Generally acceptable intensities of aid for SMEs

(1) The EFTA Surveillance Authority regards State aid for the following purposes and at the following intensities as eligible for exemption pursuant to Article 61 (3) (c) where SMEs, as defined above, are concerned. The EFTA Surveillance Authority expresses a general presumption in favour of the compatibility of such aid with the functioning of the EEA Agreement.

10.4.1. Aid for general investment

(1) General aid schemes as defined in Chapter 29 are incompatible with the functioning of the EEA Agreement and cannot be authorized. However, general aid schemes which are exclusively restricted to SMEs are eligible for exemption provided that the conditions as laid down under paragraph (2) and (3) are met.

(2) Investment aid is allowed outside assisted areas (28) only up to the levels of 15 % gross (29) for small companies and 7,5 % gross for medium-sized companies.

(3) In assisted areas the EFTA Surveillance Authority allows SMEs to receive, on top of the prevailing rate of regional aid authorized by the EFTA Surveillance Authority, an extra 10 percentage points gross of investment aid in Article 61 (3) (c) areas and an extra 15 percentage points gross in Article 61 (3) (a) areas. However, in Article 61 (3) (c) areas the combination of regional and SME aid is subject to an overall ceiling of 30 % net and in Article 61 (3) (a) areas 75 % net. The resulting matrix of rates (see appended table in Annex V to these guidelines) is designed to allow the highest aid levels in the areas of greatest need and to preserve a differential between aided and unaided regions for all but the smallest companies.

(4) The permissible maximum intensities apply to aid in all forms.

10.4.2. Aid for environmental protection investment

(1) Investment for environmental protection purposes (see Chapter 15) such as pollution control, CO2 reduction, protection of the ozone layer, etc., is accorded more favourable treatment than general investment. This applies regardless of the location and size of company, but SMEs in assisted areas can of course claim the rate of aid available (regional and SME supplement) for general investment, which in most cases is higher than the 15 % gross currently allowed under the rules on aid for environmental protection and is not subject to the same strict conditions.

10.4.3. Aid for consultancy help, training and dissemination of knowledge

(1) For help and advice by outside consultants or for training provided to new or established small or medium-sized business and their staff, in management, financial matters, new technology (especially information technology), pollution control, protection of intellectual property rights or similar fields, or in assessing the feasibility of new ventures, aid of up to 50 % gross is generally accepted. However, each scheme is judged on its merits, with particular reference to the distance of the activity from the market-place, any cash limits on the aid per firm, possibilities of cumulation, and other relevant factors. In certain exceptional circumstances the EFTA Surveillance Authority may allow aid of more than 50 %. Aid for general information campaigns in particular can be assisted up to a higher intensity as the financial benefit to the individual firm its relatively small.

10.4.4. Aid for R& D

(1) For R& D, aid of up to 10 percentage points higher than that allowed for large firms may be authorized for SMEs (see Chapter 14).

10.4.5. Aid for other purposes

(1) The EFTA Surveillance Authority may be prepared to authorize aid for other justified means of SME promotion, such as encouraging cooperation.

11. CRITERIA FOR APPLYING THE ACCELERATED CLEARANCE PROCEDURE (30)

(1) A special rapid clearance procedure is applied under certain conditions for new aid schemes for SMEs and for modifications of existing schemes. In principle, the EFTA Surveillance Authority does not object to new or modified existing aid schemes notified pursuant to Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement meeting the criteria set out below.

11.1. New aid schemes for SMEs

(1) New aid schemes must be limited to small and medium-sized enterprises, as defined for purposes of State aid control above, and satisfy one of the following criteria:

- where the scheme has specific investment objectives, the aid intensity must not exceed 7,5 % of the investment cost for medium-sized enterprises and 15 % for small enterprises, or

- where the scheme is designed to lead to job creation, the aid must not amount to more than ECU 3 000 per job created, or

- in the absence of specific investment or job creation objectives, the total volume of aid a beneficiary may receive must not be more than ECU 200 000.

(2) All the above figures are before any calculation for tax effects, i.e. gross.

(3) EFTA States must ensure that the beneficiary does not receive more aid than allowed by the above criteria for the same project through repeated notification of aid schemes meeting these criteria or such schemes being added to any other aid under general, regional or sectoral aid schemes.

(4) Such aid may be paid on a national, regional or local basis.

(5) All aid to exports in intra-EEA trade, operating aid, and schemes subject to specific sectoral rules, which currently are synthetic fibres, motor vehicle, steel and transport, are excluded from the procedure.

11.2. Modifications of existing schemes

(1) The procedure also applies to modifications of existing aid schemes, regardless of the size of the firm receiving aid, which the EFTA Surveillance Authority has previously approved, except in specific cases where the EFTA Surveillance Authority strictly limited its authorization to the period, budget and conditions then notified.

(2) The amendment may involve any of the following:

- prolongation over time without increase in budgetary resources,

- budget increases up to 20 % of original sum, with prolongation over time,

- tightening the criteria of application of the scheme.

(3) A simplified form for notification to be used for both new and existing schemes is set out in Annex II of these guidelines.

12. APPLICATION AND IMPLEMENTATION OF THE DE MINIMIS RULE (31)

(1) The EFTA Surveillance Authority is of the view that aid below a certain amount is considered not to have a perceptible impact on competition and not to affect trade between the contracting Parties. Therefore Article 61 (1) of the EEA Agreement can be said not to apply and notification is not required for payments of aid as defined below.

(2) Payments of aid of up to ECU 50 000 in respect of one category of expenditure and schemes under which the amount of aid a given firm may receive in respect of one category of expenditure over a three-year period is limited to that figure, need not be notified pursuant to Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement provided that the conditions laid down below are observed.

(3) It should be noted that the de minimis rule does not apply to export aid and to the sectors subject to specific sectoral rules which currently are synthetic fibres, motor vehicle, steel and transport.

12.1. Definition of the categories of expenditure

(1) When applying the de minimis rule the following categories of expenditure are distinguished:

- investment of any kind and for whatever purpose except R& D, and

- other expenditure.

(2) Hence, a given firm may receive a maximum of ECU 100 000 of aid under the two categories over a three-year period without notification.

(3) The three-year period to which the limit is to be applied should be regarded as beginning on the date the individual firm first receives aid under the de minimis rule.

(4) On the question of cumulation between aid under the de minimis rule and aid under an authorized scheme, the following rule should be applied. If a firm that has received aid under the de minimis rule in the past three years for one of the abovementioned two categories of expenditure wishes to accept aid under an authorized scheme for expenditure falling within the same category, the de minimis and authorized aid combined must not exceed the maximum award authorized by the EFTA Surveillance Authority for the notified scheme if this is above ECU 50 000. This means that the latter award may have to be reduced so that the total remains within the maximum.

12.2. Principles for calculating the cash grant equivalent of de minimis aid

(1) The limit in the de minimis rule is expressed as a cash grant of ECU 50 000. In cases where assistance is provided in a form other than as a grant, it must be converted into its cash grant equivalent value for the purposes of applying the de minimis limit. The most common other forms in which aid with a low cash value is provided are soft loans, tax allowances and loan guarantees. The conversion of aid in these forms into its cash grant equivalent should be done as follows.

(2) The cash grant equivalent should be calculated gross, i.e. before tax if the subsidy is taxable. If the subsidy is not taxable, as in the case of some tax allowances, the nominal amount of the subsidy, which is both gross and net, should be taken.

(3) All aid receivable in the future should be discounted to its present value. Grants, however, should be counted as a single lump sum even if they are paid in instalments. The discount rate used should be the reference interest rate communicated to the EFTA Surveillance Authority each year by the EFTA State concerned.

(4) The cash grant equivalent of a soft loan in any year is the difference between the interest due at the reference interest rate and that actually paid. All the interest that is saved until the loan has been fully repaid should be discounted to its value at the time the loan is granted and added together. An example of how to calculate the cash grant equivalent of a soft loan is given in section 12.4. Two variants, with and without a grace period on principal repayments, are illustrated.

(5) The cash grant equivalent of a tax allowance is the saving in tax payments in the year concerned. Again, tax savings to be obtained in the future should be discounted at the reference interest rate to their present value.

(6) For loan guarantees, the cash grant equivalent in any year can be calculated as the difference between (a) the outstanding sum guaranteed multiplied by the risk factor (probability of default) and (b) any premium paid, i.e. (guaranteed sum X risk)-premium.

(7) As the risk factor, the experience of default on loans extended in similar circumstances (industry, size of firm, level of general economic activity) should be taken. Discounting to present value should be carried out as before.

12.3. Monitoring of the de minimis rule by the EFTA States

(1) Arrangements need to be made in each EFTA State to monitor use of the de minimis rule so that the above rules are complied with. This need not involve an elaborate and staff-intensive system, but certain minimum safeguards are required. The SME aid rules (see Chapter 10) state that it has to be an express condition of an aid award or scheme that is not notified that any further aid the same firm may receive from other sources or under other schemes does not take the total aid the firm receives above the ECU 50 000 limit for each type of expenditure as defined in section 12.1. Authorities granting aid under the de minimis rule should draw this condition to the attention of applicants and require them to declare any previous awards of aid to ensure that they do not exceed the limit. Similar checks should be made by authorities granting aid under authorized schemes.

(2) Pursuant to Article 3 of the EEA Agreement, the EFTA States are required to assist the EFTA Surveillance Authority in performing its tasks. Only the EFTA States are in a position to monitor the use of the de minimis rule to ensure that they are restricted to aid not exceeding the amounts that the EFTA Surveillance Authority considers not to have a significant effect on trade and competition. Pursuant to Article 3 of the EEA Agreement, therefore, EFTA States are requested to communicate to the EFTA Surveillance Authority their arrangements for monitoring compliance with the rules set out above.

12.4. Calculation of the cash grant equivalent of a soft loan

(1) The following gives an example of how the grant equivalent of a soft loan can be calculated.

(2) A public authority commits itself to paying an interest subsidy on a ECU 500 000 10-year loan to maintain the interest rate to the borrower at 6 %. The official reference interest rate accepted by the EFTA Surveillance Authority for the country concerned in that year is 8 %. In calculating the cash grant equivalent of the subsidy throughout the term of the loan, it may be assumed that the reference interest rate remains constant over the period. The cash equivalent of the subsidy depends on whether or not a grace period on principal repayments is granted.

12.4.1. No-grace period

(1) The loan is paid off in linear instalments starting in year one. The cash grant equivalent of the interest subsidy in the first year is the principal sum multiplied by the interest subsidy in percent, divided by the reference interest rate, thus:

1. ECU 500 000 × 0,02/1,08 = ECU 9 259

The subsidy in years two to 10 is calculated similarly, but at a compound discount rate, i.e.:

2. ECU 450 000 × 0,02/(1,08)2 = ECU 7 716

3. ECU 400 000 × 0,02/(1,08)3 = ECU 6 351

4. ECU 350 000 × 0,02/(1,08)4 = ECU 5 145

5. ECU 300 000 × 0,02/(1,08)5 = ECU 4 083

6. ECU 250 000 × 0,02/(1,08)6 = ECU 3 151

7. ECU 200 000 × 0,02/(1,08)7 = ECU 2 334

8. ECU 150 000 × 0,02/(1,08)8 = ECU 1 621

9. ECU 100 000 × 0,02/(1,08)9 = ECU 1 000

10. ECU 50 000 × 0,02/(1,08)10 = ECU 463.

(2) The total cash grant equivalent is the sum of the discounted subsidies in each year, i.e. ECU 41 123.

12.4.2. With-grace period

(1) No principial repayments have to be made in the first two years.

(2) The loan is repaid in linear instalments of ECU 62 500 from the third year onwards. The discounted cash grant equivalent of the interest subsidy in each year is:

1. ECU 500 000 × 0,02/(1,08) = ECU 9 259

2. ECU 500 000 × 0,02/(1,08)2 = ECU 8 573

3. ECU 500 000 × 0,02/(1,08)3 = ECU 7 938

4. ECU 437 500 × 0,02/(1,08)4 = ECU 6 432

5. ECU 375 000 × 0,02/(1,08)5 = ECU 5 104

6. ECU 312 500 × 0,02/(1,08)6 = ECU 3 939

7. ECU 250 000 × 0,02/(1,08)7 = ECU 2 917

8. ECU 187 500 × 0,02/(1,08)8 = ECU 2 026

9. ECU 125 000 × 0,02/(1,08)9 = ECU 1 251

10. ECU 62 500 × 0,02/(1,08)10 = ECU 579.

(3) In this case the total cash grant equivalent is ECU 48 018.

13. RULES APPLICABLE TO CASES OF CUMULATION OF AID FOR DIFFERENT PURPOSES (32)

13.1. Notification of significant cases of cumulation of aid

(1) Cumulation of aid is defined as the application of more than one aid scheme to a given investment project, i.e. all investments in fixed assets (whether or not in the same place) necessary to carry out the project.

(2) In order to enable the EFTA Surveillance Authority to control the cumulative intensity of aid granted under different schemes to a given investment project and to assess its effect on competition and trade between the Contracting Parties, the EFTA States shall notify in advance to the EFTA Surveillance Authority all significant cases of cumulation. These are defined as those projects where the investment exceeds ECU 12 million or where the cumulative intensity of the aid exceeds 25 % net grant equivalent.

13.2. Derogations

(1) The following cases will be exempt from this additional notification requirement:

- cases where the investment does not exceed ECU 3 million, whatever the cumulative intensity of the aid,

- cases where the cumulative intensity of the aid does not exceed 10 % net grant equivalent, whatever the scale of the investment,

- cases where the intensity of all the aid to be granted for the investment project remains below the ceiling for any one of the aid schemes under which aid is being awarded to the project, which ceiling has been laid down or approved by the EFTA Surveillance Authority either in these guidelines or by individual decision.

(2) This exemption is without prejudice to the obligation of EFTA States to remain within the ceiling for each individual scheme.

(3) The EFTA Surveillance Authority may withdraw these exemptions in cases where it finds evidence of distortions of competition.

13.3. Aid concerned

(1) The aid to be taken into account for the purposes of the notification thresholds laid down above is all aid towards expenditure on fixed assets, whatever form (for example, capital grants, interest subsidies, tax concessions, relief of social security contributions) the aid may take.

(2) The main types of aid schemes concerned are:

- regional aid,

- sectoral aid,

- aid for small and medium-sized firms,

- aid for research, development and innovation,

- aid for energy conservation and environmental protection.

(3) Where investment aid is supplemented by aid for staff training and the latter is prompted by and thus directly linked to the investment, the two types of aid cannot be divorced in considering the intensity of the aid. Such training aid is therefore also taken into account for the purposes of the notification thresholds laid down above.

(4) In order for the EFTA Surveillance Authority to be aware of the full circumstances surrounding notified cases of cumulation of aid, it is also informed of any aid granted to rescue a firm in difficulties or for creating jobs or for marketing - although these aids do not count towards the notification thresholds - and of any other financial intervention by State or other public authorities where the intervention can be regarded as aid or there is a presumption that it is aid.

(5) The EFTA Surveillance Authority is also informed of aid granted of the types listed above where they are not directly linked to the notified investment project.

13.4. Special rules

(1) The cumulation rules are without prejudice to the rules on regional aid contained in 26.4 (4) and to the EFTA States' obligations under existing or future provisions laid down by the EFTA Surveillance Authority in decisions on particular regional or sectoral aid schemes to notify individual cases.

14. AID FOR RESEARCH AND DEVELOPMENT (33)

(1) State aid rules in the EEA Agreement must be applied constructively to encourage cooperation which helps new technology to be disseminated. In the control of State aid, the need for resources to be channelled to the industries contributing to improved competitiveness should be observed.

14.1. Definition of research and development and applicability of Article 61 of the EEA Agreement to aid for R& D

(1) The principles set out below cover aid to R& D directly planned and linked to the ultimate production and marketing of new products, processes or services in as far as they fulfil the conditions of Article 61 (1) of the EEA Agreement.

(2) The EFTA Surveillance Authority considers it possible to make the distinctions between the types of R& D activities outlined below. These definitions are designed to help EFTA States to formulate their notifications. They are intended to be indicative, not normative.

- By fundamental research the EFTA Surveillance Authority understands an enlargement of general scientific and technical knowledge not linked to industrial or commercial objectives.

- Basic industrial research: is defined as original theoretical or experimental work whose objective is to achieve new or better understanding of the laws of science and engineering as they might apply to an industrial sector or the activities of a particular enterprise.

- Applied research and development: the EFTA Surveillance Authority considers that the former covers investigation or experimental work based on the results of basic industrial research to acquire new knowledge to facilitate the attainment of specific practical objectives such as the creation of new products, production processes or services. It could normally be said to end with the creation of a first prototype. Development is considered to cover work based on applied research aimed at establishing new or substantially improved products, production processes or services up to but not including industrial application and commercial exploitation. This stage would normally include pilot and demonstration projects and such further development work as necessary, culminating in the production information package or equivalent.

(3) The EFTA Surveillance Authority uses these working definitions as indicators reflecting the proximity of the activity to the market-place and therefore relates them to the aid intensities being proposed when it examines notifications from EFTA States. However, given the complexities involved in defining R& D activities, it uses the definitions and objectives specified by the EFTA States in their proposals in order to place their action at the correct point of market proximity. It does not demand or seek strict adherence to predetermined categories or definitions of R& D activities.

(4) State aid for fundamental research, which is normally not carried out in the market sector of the economy, does not constitute aid in the meaning of Article 61 (1) of the EEA Agreement.

(5) However, in exceptional cases where such research is carried out in or for particular firms, the EFTA Surveillance Authority cannot rule out the possibility that the aid does fall within Article 61 (1) of the EEA Agreement.

(6) Aid for R& D activities by higher education or research establishments is not covered by Article 61 of the EEA Agreement unless these are conducted on a contract basis or in collaboration with the private sector.

(7) The EFTA Surveillance Authority takes a favourable view of aid for research and development when it scrutinises individual schemes pursuant to Article 61 of the EEA Agreement. This favourable attitude is justified by several factors: the aims of such aid, the often considerable financing requirements for R& D, the risks attached and, given the distance from the market-place of such projects, the reduced likelihood of distortions of competition or affects on trade between the Contracting Parties to the EEA Agreement.

14.2. Assessment of aid for R& D under Article 61 of the EEA Agreement

(1) Where aid to enterprises for R& D activities falls pursuant to Article 61 (1) of the EEA Agreement and is therefore subject to examination by the EFTA Surveillance Authority, it may be considered compatible with the functioning of the EEA Agreement under one of the exceptions provided for in Article 61 (3).

(2) Any aid which after examination by the EFTA Surveillance Authority is shown to be designed to promote the execution of an important project of common European interest may qualify for the exception provided for in Article 61 (3) (b). The EFTA Surveillance Authority may consider such aid to be compatible with the functioning of the EEA Agreement solely on that basis.

(3) All other aid for R& D that falls within Article 61 (1) but does not qualify for the exception provided for in Article 61 (3) (b) may qualify for the exception provided for in Article 61 (3) (c) of the EEA Agreement. In such cases, as well as examining whether the aid facilitates the development of certain economic activities or certain regions, the EFTA Surveillance Authority must also evaluate whether it is likely to adversely affect trading conditions within the territory covered by the EEA Agreement and whether this effect would be contrary to the functioning of the EEA Agreement.

14.3. Additional notification requirements

(1) The EFTA Surveillance Authority aims to obtain the highest possible degree of transparency in the application of aid schemes. This means that there must be a clear statement of the objectives to be achieved, the beneficiaries, etc. All the different categories of costs the aid is designed to reduce must be specified and they must be given in such a form that their intensity in relation to these costs can be calculated.

(2) In view of their intrinsic importance and the role played by larger companies in competition within the territory covered by the EEA Agreement and in trade between the Contracting Parties, the EFTA States shall notify in advance to the EFTA Surveillance Authority pursuant to Article 1 (3) Protocol 3 to the Surveillance and Court Agreement all individual aid awards under existing aid schemes where aid is given to an enterprise cooperating with an academic or other public institute in an R& D project or programme involving total expenditure on the project or programme in excess of ECU 20 million. If an R& D project or programme being aided is carried out exclusively by one or more enterprises in the market sector, a lower threshold may be laid down in a decision to authorize such schemes.

(3) In the case of Eureka, this individual notification will be required only for aid granted to an enterprise participating in a project of more than ECU 30 million, where the contribution of the EFTA State to the project is at least ECU 4 million. The ECU 30 million threshold for significant awards to be notified individually relates to the total cost of the project, including the contribution of all the participants other than the recipients of the aid. This applies only to specific awards of aid granted under existing R& D aid schemes. Any other award of aid must be notified pursuant to Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement, whatever its amount.

(4) Annex I to these guidelines reproduces the checklist for information to be supplied in State aid notifications. Section II of Annex I lists additional information to be provided concerning aid for R& D.

14.4. Intensity

(1) In assessing whether Article 61 (3) (c) of the EEA Agreement is applicable, the EFTA Surveillance Authority is guided by the following principles with regard to the intensity of the proposed aid.

(2) The intensity of aid that may be accepted is assessed by the EFTA Surveillance Authority on a case-by-case basis. The assessment takes into consideration the nature of the project or programme, the technical and financial risk involved, overall policy considerations related to the competitiveness of European industry, as well as the risk of distortion of competition and effect on trade between the Contracting parties to the EEA Agreement.

(3) A general evaluation of such risks leads the EFTA Surveillance Authority to consider that basic industrial research may qualify for higher levels of aid than those for applied research and development activities which are more closely related to the market introduction of R& D results and, therefore, if aided, could more easily lead to distortions of competition and trade.

(4) Taking account of these factors, and considering that it is necessary to ensure that there is a substantial volume of own funds from the recipient firm involved in the project, the EFTA Surveillance Authority considers that, as a general rule, the level of aid for basic industrial research should not be more than 50 % of the gross costs of the project or programme. As the activity being aided gets nearer to the market-place, i.e. covers the areas of applied research and development, the EFTA Surveillance Authority in its examination and evaluation of national proposals looks in principle for progressively lower levels of aid. It relies on the EFTA State concerned to indicate clearly the type of R& D activity involved and utilizes fully its own expert services in examining these proposals.

(5) The EFTA Surveillance Authority considers higher aid levels in cases where particular projects are recognised to be of special economic importance, linked to relevant Community programmes in which EFTA States participate, located in the least-favoured areas of the territory covered by the EEA Agreement, related to specific welfare services or which imply a very high specific risk. Availability of the results of the R& D involved on the widest possible basis is also taken into account. Special allowance can also be made for aid directed genuinely at smaller and medium-sized enterprises; in this case for example, aid may be acceptable at levels 10 percentage points higher than in other cases. However, in no case should the total value of aid be so high that the contribution of the recipient firm from its own resources is so reduced as to diminish that firm's commitment to the project in question.

14.5. Eligible R& D costs for the purpose of calculating the aid intensity

(1) The following is considered to be eligible costs for the purpose of calculating the intensity of aid for R& D activities:

- personnel costs (researchers, technicians, other supporting staff) calculated as a sum of the total amount needed to carry out the project,

- other running costs calculated in the same way (costs of materials, supplies, etc.),

- instruments and equipment, land and buildings. These costs may be taken into consideration only in so far as the assets are used exclusively for R& D. Where necessary, the costs must be assessed pro rata between these and other projects or activities for which the assets may be used,

- consultancy and equivalent services including bought-in research, technical knowledge, patents, etc.,

- additional overhead costs incurred directly as a result of the R& D project or programme being promoted.

14.6. Implementation

(1) As part of its programme for implementing these rules, the EFTA Surveillance Authority makes a complete inventory of R& D aid available in each EFTA State. It holds the bilateral discussions necessary to obtain the information required, and examines the aid schemes in cooperation with the EFTA State concerned. As necessary it proposes appropriate measures to solve problems to which existing aid may give rise in view of the implementation of the rules. The complete inventory may, if required, be the subject of a multilateral meeting between the EFTA Surveillance Authority and the EFTA States.

(2) Aid proposals for R& D must contribute to the objective as set out in Article 61 (3) of the EEA Agreement and have as their effect the encouragement of additional effort in this field over and above the normal operations which firms carry out in any case in their day-to-day operations or to respond to exceptional conditions for which their own resources are too limited. The objective of the aid should be to serve as an incentive and to compensate for special risks and costs. In cases where this incentive effect is not evident, or the research and development activity is too close to the actual production and marketing stage, the general positive attitude held by the EFTA Surveillance Authority towards aid to R& D may not necessarily be applicable. Special attention is given to such aid to ensure that it does not become the equivalent of operating aid.

(3) The EFTA Surveillance Authority applies the above principles also to companies in the public sector, making full use of the policy instruments it has available.

15. AID FOR ENVIRONMENTAL PROTECTION (34)

15.1. Introduction

(1) Articles 73 to 75 of the EEA Agreement give the Contracting Parties express powers in the environmental field. These provisions confirm the 'polluter pays' principle but go further calling for the requirements of environmental protection to be included in implementation of other policies of the Contracting Parties and stressing the need for prevention. The theme of integrating the environment into other policies is taken up, along with the concept of 'sustainable development', in the EC's Fifth Programme on the Environment (35). This acknowledges that the integration of environmental policy with other policies has not been wholly satisfactory when relied on the traditional approach, based almost exclusively on regulation and particularly standards. This programme therefore argues for a broadening of the range of policy instruments. Different instruments (regulation, voluntary action and economic measures) or various combinations of these may be the best way of achieving desired environmental objectives in a given situation, depending on the legal, technical, economic and social context. Both positive financial incentives, i.e. subsidies, and discentives, namely taxes and levies, have their place.

(2) The application of the EEA provisions on state aid must reflect the role economic instruments can play in environmental policy. This means taking account of a broader range of financial measures in this area. Aid control and environmental policy must also support one another in ensuring stricter application of the 'polluter pays' principle.

(3) Subsidies may be a second-best solution in situations where the 'polluter pays' principle - which requires all environmental costs to be 'internalized', i.e. absorbed in firms' productions costs - is not yet fully applied. However, such aid, particularly in the most polluting sectors of industry, may distort competition, create trade barriers and jeopardise the functioning of the EEA Agreement. The fact is that firms in all EEA States have to invest to make their plant, equipment and manufacturing processes meet environmental requirements, so gradually internalizing external environmental costs. State aid is liable to give certain firms an advantage over their competitors in other EEA States not receiving such aid, even though subject to the same environmental constraints.

15.2. Main types of state aid given for environmental protection

(1) A description is given below of the main types of State support for environmental protection that have been notified to the EC Commission in recent years. The various types of aid are divided into the three broad categories: investment aid, horizontal support measures and operating aid.

15.2.1. Investment incentives, possibly associated with regulation or voluntary agreements

(1) In many areas of environmental policy, firms are required to meet certain standards by law. Such mandatory standards may transpose international agreements or EEA legislation into national law, or they may be set solely on the basis of national, regional or local objectives. The common feature in such situations is that there is a legal requirement.

(2) However, to achieve or restore a satisfactory quality of the environment in heavily industrialized areas in particular, it is necessary gradually to raise levels of protection and to encourage firms to go beyond legal requirements.

(3) The ultimate objective of investment incentives in this sphere is to facilitate a gradual raising of the quality of the environment. Support for investment typically has fallen within the EC into one of the following categories:

- aid under programmes designed to help existing firms adapt their plant to new standards or encourage them to reach such standards more rapidly (aid available for a limited period to speed up the process of implementing new standards),

- aid to encourage efforts to improve significantly on mandatory standards through investment that reduces emissions to levels well below those required by current or new standards,

- aid granted in the absence of mandatory standards on the basis of agreements whereby firms take major steps to combat pollution without being legally required to do so or before they are legally required to do so,

- aid for investment in fields in which environmental action is a matter of priority, but benefits the community at large more than the individual investor and is therefore undertaken collectively. This may be the case, for example, with waste disposal and recycling,

- aid to repair past environmental damage which the firms are not under any legal obligation to remedy.

15.2.2. Aid for horizontal support measures

(1) Horizontal support measures are designed to help find solutions to environmental problems and to disseminate knowledge about such solutions so that they are applied more widely. The wide range of activities in this field includes:

- research and development of technologies that cause less pollution,

- provisions of technical information, consultancy services and training about new environmental technologies and practices,

- environmental audits in firms,

- spreading information and increasing awareness of environmental problems among the general public, general promotion of ecological quality labels and of the advantages of environmentally friendly products, etc.

15.2.3. Operating aid in the form of grants, relief from environmental taxes or charges and aid for the purchase of environmentally friendly products

(1) Despite the progress achieved in reducing pollution and in introducing cleaner technologies, there are many activities which damage the environment but whose environmental costs are not passed on in production costs and product prices. Conversely, the environmental benefits of products and equipment that cause less pollution are normally not fully reflected in lower prices to consumers. A clear trend is nevertheless apparent towards measures to internalize some of these external costs and benefits through taxes or through charges for environmental services, on the one hand, and through subsidies, on the other.

(2) The introduction of environmental taxes and charges can involve State aid because some firms may not be able to stand the extra financial burden immediately and require temporary relief. Such relief is operating aid. It may take the form of:

- relief from environmental taxes introduced in some countries, where it is necessary to prevent their firms being placed at a disadvantage compared with their competitors in countries that do not have such measures,

- grants to cover all or part of the operating cost of waste disposal or recycling facilities, water treatment plant, or similar installations, which may be run by semi-public bodies with users being charged for the service. Cost-related charges for environmental services are in line with the 'polluter pays' principle. However, it may be necessary to delay the introduction of full charging or to cross-subsidize some users at the expense of others, especially during the transition from traditional waste disposal practices to new recycling of treatment techniques. The state may also cover part of the investment costs of such facilities.

(3) Among the subsidies designed to reflect the positive environmental benefits of certain technologies are:

- grants or cross-subsidies to cover the extra production costs of renewable energies, and

- aid that encourages consumers and firms to purchase environmentally friendly products (36) rather than cheaper conventional ones.

15.3. The aim and scope of the rules to be applied with regard to aid for environmental protection

(1) The rules set out in this chapter aim to strike a balance between the requirements of competition and environment policy, given the widespread use of state aid in the latter policy. Such aid is normally only justified when adverse effects on competition are outweighed by the benefit for the environment. The rules are intended to ensure transparency and consistency in the manner in which the EEA provisions on state aid are applied by the EFTA Surveillance Authority to the wide range of instruments described above (regulation, taxes and subsidies, training and information measures) that may be used by EFTA States for environmental protection purposes. Therefore, the criteria the EFTA Surveillance Authority will apply in assessing whether state aid of various types for environmental protection purposes is compatible with Article 61 of the EEA Agreement are stated below. The intention is not to encourage EFTA States to grant aid, but when they wish to do so to guide them as to what types and levels of aid may be acceptable.

(2) These rules apply to aid in all the sectors governed by the EEA Agreement, including those subject to specific sectoral rules which currently are synthetic fibres, motor vehicle, steel and transport, in so far as such rules do not provide otherwise.

(3) This chapter sets out the approach followed by the EFTA Surveillance Authority in the assessment pursuant to Article 61 of State aid for the following purposes in the environmental field:

- investment,

- information activities, training and advisory services,

- temporary subsidies towards operating costs in certain cases, and

- purchase or use of environmentally friendly products.

They apply to aid in all forms (37).

(4) Aid for energy conservation will be treated like aid for environmental purposes according to the rules in so far as it aims at and achieves significant benefits for the environment and the aid is necessary, having regard to the cost savings obtained by the investor. Aid for renewable energy is also subject to these rules, in so far as aid for investment is concerned. However, higher levels of aid than provided for in section 15.4.1 below may be authorized in appropriate cases. Operating aid for production of renewable energies will be judged on its merits.

(5) State aid for research and development in the environmental field is subject to the rules set out in Chapter 14 of these guidelines.

15.4. Assesment of aid for environmental protection under Article 61 of the EEA Agreement

(1) State aid for environmental protection often fulfils the criteria laid down in Article 61 (1). It confers an advantage on particular enterprises, unlike general measures which benefit firms throughout the economy, and it can affect intra-EEA trade.

(2) However, where aid meets the conditions set out below, the EFTA Surveillance Authority may consider that it is eligible for one of the exemptions provided for in Article 61 of the EEA Agreement. Exemption is conditional on compliance with other provisions of the EEA Agreement as well.

15.4.1. Aid for investment

(1) Aid for investment in land (when strictly necessary to meet environmental objectives), buildings, plant and equipment intended to reduce or eliminate pollution and nuisances or to adapt production methods in order to protect the environment may be authorized within the limits laid down in this chapter. The eligible costs must be strictly confined to the extra investment costs necessary to meet environmental objectives. General investment costs not attributable to environmental protection must be excluded. Thus, in the case of new or replacement plant, the cost of the basic investment involved merely to create or replace production capacity without improving environmental performance is not eligible. Similarly, when investment in existing plant increases its capacity as well as improving its environmental performance, the eligible costs must be proportionate to the plant's initial capacity. In any case aid ostensibly intended for environmental protection measures but which is in fact for general investment is not covered by rules on aid for environmental protection. This is true, for example, of aid for relocating plants to new sites in the same area. Such aid is not covered by these rules because recent cases within the EC have shown that it may conflict with competition and cohesion policy. It will therefore be considered on a case-by-case basis until sufficient experience has been built up for more general rules to be issued.

(2) The rules for investment aid in general also apply to aid for investment to repair past damage to the environment, for example by making polluted industrial sites again fit for use. In cases where the person responsible for the pollution cannot be identified or called to account, aid for rehabilitating such areas may not fall pursuant to Article 61 (1) of the EEA Agreement in that it does not confer a gratuitous financial benefit on particular firms or industries. Such cases will be examined on their merits.

(3) As a general rule, aid for environmental investment can be authorized up to the levels set out below (38). These provisions apply both to investment by individual firms and investment in collective facilities.

15.4.1.1. Aid to help firms adapt to new mandatory standards

(1) Aid for investment to comply with new mandatory standards or other new legal obligations and involving adaptation of plant and equipment to meet the new requirements can be authorized up to the level of 15 % gross (39) of the eligible costs. Aid may be granted only for a limited period and only in respect of plant which has been in operation for at least two years when the new standards or obligations enter into force.

(2) For small and medium-sized enterprises, as defined for the purposes of State aid control in Chapter 10 of these guidelines, carrying out such investment an extra 10 percentage points gross of aid may be allowed. If the investment is carried out in assisted areas, aid can be granted up to the prevailing rate of regional aid authorized by the EFTA Surveillance Authority for the area, plus, for SMEs, 10 percentage points gross in Article 92 (3) (c) areas and 15 percentage points gross in Article 92 (3) (a) areas (40).

(3) In keeping with the 'polluter pays' principle, no aid should normally be given towards the cost of complying with mandatory standards in new plant. However, firms that instead of simply adapting existing plant more than two years old opt to replace it by new plant meeting the new standards may receive aid in respect of that part of the investment costs that does not exceed the cost of adapting the old plant.

(4) If both EEA and national mandatory standards exist for one and the same type of nuisance or pollution, the relevant standard for the purposes of this provision shall be the stricter one.

15.4.1.2. Aid to encourage firms to improve on mandatory environmental standards

(1) Aid for investment that allows significantly higher levels of environmental protection to be attained than those required by mandatory standards may be authorized up to a maximum of 30 % gross of the eligible costs. The level of aid actually granted for exceeding standards must be in proportion to the improvement of the environment that is achieved and to the investment necessary, for achieving the improvement.

(2) If the investment is carried out by SMEs, an extra 10 percentage points gross of aid may be allowed. In assisted areas, aid can be granted up to the prevailing rate of regional aid authorized by the EFTA Surveillance Authority for the area, plus, where appropriate, the supplements for SMEs referred to above (41).

(3) If both EEA and national mandatory standards exist for one and the same type of nuisance or pollution, the relevant standard for the purposes of applying this provision shall be the stricter one.

(4) Where a project partly involves adaptation to standards and partly improvement on standards, the eligible costs belonging to each category are to be separated and the relevant limit applied.

15.4.1.3. Aid in the absence of mandatory standards

(1) In fields in which there are no mandatory standards or other legal obligations on firms to protect the environment, firms undertaking investment that will significantly improve on their environmental performance or match that of firms in other EEA States in which mandatory standards apply may be granted aid at the same levels and subject to the same condition of proportionality as for going beyond existing standards (see above).

(2) Where a project partly involves adaptation to standards and partly measures for which there are no standards, the eligible costs belonging to each category are to be separated and the relevant limit applied.

15.4.2. Aid for information activities, training and advisory services

(1) Aid for publicity campaigns to increase general environmental awareness and provide specific information about, for example, selective waste collection, conservation of natural resources or environmentally friendly products may not fall within Article 61 (1) of the EEA Agreement at all where they are so general in scope and distant from the market-place as not to confer an identifiable financial benefit on specific firms. Even when aid for such activities does fall within Article 61 (1), it will normally be exemptible.

(2) Aid may also be authorized for the provision of training and consultancy help to firms on environmental matters. For SMEs such aid may be granted at rates of up to 50 % of the eligible costs (see Chapter 10). In assisted areas aid of at least the authorized rate of investment aid may be authorized for training and consultancy services for both SMEs and larger firms.

15.4.3. Operating aid

(1) The EFTA Surveillance Authority will not normally approve operating aid which relieves firms of costs resulting from the pollution or nuisance they cause. However, the EFTA Surveillance Authority may make an exception to this principle in certain well-defined circumstances. The EC Commission has done so so far in the fields of waste management and relief from environmental taxes. Such cases will be assessed on their merits and in the light of the strict criteria to be applied in the two fields just mentioned. These are that the aid must only compensate for extra production costs by comparison with traditional costs, and should be temporary and in principle degressive, so as to provide an incentive for reducing pollution or introducing more efficient uses of resources more quickly. Furthermore, the aid must not conflict with other provisions of the EEA Agreement and in particular those relating to the free movement of goods and services.

(2) In the field of waste management, the public financing of the additional costs of selective collection, recovery and treatment of municipal waste for the benefit of businesses as well as consumers may involve State aid but can in that case be authorized provided that businesses are charged in proportion to their use of the system or to the amount of waste they produce in their enterprise. Aid for the collection, recovery and treatment of industrial and agricultural waste will be considered on a case-by-case basis.

(3) Temporary relief from new environmental taxes may be authorized where it is necessary to offset losses in competitiveness, particularly at international level. A further factor to be taken into account is what the firms concerned have to do in return to reduce their pollution.

15.4.4. Aid for the purchase of environmentally friendly products

(1) Measures to encourage final co