EFTA Surveillance Authority Decision

No 276/99/COL

of 17 November 1999

including new guidelines on State aid to shipbuilding granted as development assistance to a developing country and amending for the twenty-first time the Procedural and Substantive Rules in the Field of State aid

THE EFTA SURVEILLANCE AUTHORITY,

Having regard to the Agreement on the European Economic Area(1), in particular to Articles 61 to 63,

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

Whereas under Article 24 of the Surveillance and Court Agreement the EFTA Surveillance Authority shall give effect to the provisions concerning State aid;

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

Recalling the Procedural and Substantive Rules in the Field of State Aid(3) adopted on 19 January 1994 by the EFTA Surveillance Authority(4);

Whereas on 10 June 1997, the European Commission communicated to the Member States, an updated list of eligible countries (Letter to Member States SG(97) D/4345 dated 10 June 1997);

Whereas the uniform application of the EEA State aid rules is to be ensured throughout the European Economic Area;

Whereas according to point II under the heading "GENERAL" at the end of Annex XV to the EEA Agreement, the EFTA Surveillance Authority is to adopt, after consultation with the European Commission, acts corresponding to those adopted by the Commission, in order to maintain equal conditions of competition;

Whereas the Council Regulation (EC) No 1540/98 of 29 June 1998 establishing new rules on aid to shipbuilding, replacing the Council Directive 90/684/EEC of 21 December 1990 on aid to shipbuilding, as last amended by Council Directive 94/73/EC of 19 December 1994, was included into point 1(b) of Annex XV to the EEA Agreement by Decision of the EEA Joint Committee No 12/99 of 29 January 1999,

HAS ADOPTED THIS DECISION:

1. Chapter 31 of the State Aid Guidelines shall be replaced by the text in Annex I to this Decision.

2. The EFTA States shall be informed of this Decision by means of a letter, together with a copy of the Decision, including Annex I.

3. The EC Commission shall be informed, in accordance with Protocol 27(d) to the EEA Agreement by means of a copy of the Decision, including Annex I.

4. The Decision, including Annex I, shall be published in the EEA Section of and the EEA Supplement to the Official Journal of the European Communities.

5. This Decision shall be authentic in the English language.

Done at Brussels, 17 November 1999.

For the EFTA Surveillance Authority

Knut Almestad

The President

(1) Hereinafter referred to as the EEA Agreement.

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

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

(4) Initially published in OJ L 240, 15.9.1994 and in the EEA Supplement thereto No 34 on the same date, last amendment (20th) adopted by Decision No 275/99/COL of 17 November 1999 (OJ L 137, 8.6.2000).

ANNEX I

"31. AID TO SHIPBUILDING GRANTED AS DEVELOPMENT ASSISTANCE TO A DEVELOPING COUNTRY(1)

1. Article 3(5) of the Act referred to in point 1(b) of Annex XV to the EEA Agreement on aid to shipbuilding(2) establishes that aid to shipbuilding and ship conversion granted as development assistance to a developing country shall not be subject to the prevailing maximum production aid ceiling, as fixed under Article 3(1) of the Shipbuilding Regulation.

2. Such aid may be deemed compatible with the functioning of the EEA Agreement provided that it complies with the terms laid down for that purpose by OECD Working Party No 6 in its agreement concerning the interpretation of Articles 6 to 8 of the OECD Council Resolution of 3 August 1981 (Understanding on Export Credits for Ships).

3. Any such individual proposal is subject to prior notification to the EFTA Surveillance Authority. On the basis of the notification, the Authority shall verify the particular development content of the proposed aid and satisfy itself that it falls within the scope of the Understanding on Export Credits for Ships.

4. As regards the latter point, the EFTA Surveillance Authority ensures that the proposed aid complies with the criteria laid down in OECD document C/WP6(84)3 of 18 January 1984 concerning the interpretation of Article 6 of the Understanding on Export Credits for Ships(3).

5. Accordingly, the following criteria must be adhered to by the EFTA States granting development aid:

1. the aid may not be granted for construction of ships which will be operated under a flag of convenience;

2. in the event that the aid cannot be classified as public development aid in the framework of OECD the donor must confirm that the aid is part of an inter-governmental agreement;

3. the donor must give appropriate assurances that the real owner is resident in the beneficiary country and that the beneficiary company is not a non-operational subsidiary of a foreign company;

4. the beneficiary must give undertakings not to sell the ship without prior government approval.

Furthermore the aid granted must contain a grant element of at least 25 % in accordance with the OECD method of calculation, see OECD document C/WP6(85)62 of 21 October 1985.

6. The Understanding on Export Credits for Ships does not, on the other hand, provide for any criteria applicable to the classification of countries eligible for development aid. The EFTA Surveillance Authority has decided, taking into account the practice of the Europen Commission, to consider compatible with the functioning of the EEA Agreement the granting of development aid to the following countries under the terms of Article 3(5) of the Shipbuilding Regulation:

(a) ACP States(4)

(b) overseas countries and territories of EC Member States(5)

(c) all countries not included in (a) or (b) above which are classified on the OECD DAC-list as least-developed countries (LLDC), lowincome countries (LIC) or lower middle-income countries (LMIC). These countries are the following:

- Afghanistan (LLDC),

- Albania (LIC),

- Algeria (LMIC),

- Armenia (LIC),

- Azerbaijan (LIC),

- Bangladesh (LLDC),

- Bhutan (LLDC),

- Bolivia (LMIC),

- Bosnia and Herzegovina (LIC),

- Cambodia (LLDC),

- China (LIC),

- Colombia (LMIC),

- Costa Rica (LMIC),

- Cuba (LMIC),

- East Timor (LMIC),

- Ecuador (LMIC),

- Egypt (LMIC),

- El Salvador (LMIC),

- Former Yugoslav Republic of Macedonia (LMIC),

- Georgia (LIC),

- Guatemala (LMIC),

- Honduras (LIC),

- India (LIC),

- Indonesia (LMIC),

- Iran (LMIC),

- Iraq (LMIC),

- Jordan (LMIC),

- Kazakhstan (LMIC),

- Kyrgyztan (LIC),

- Laos (LLDC),

- Lebanon (LMIC),

- Maldives (LLDC),

- Marshall Islands (LMIC),

- Federated States of Micronesia (LMIC),

- Moldova (LMIC),

- Mongolia (LIC),

- Morocco (LMIC),

- Myanmar (LLDC),

- Nepal (LLDC),

- Nicaragua (LIC),

- Niue (LMIC),

- North Korea (LMIC),

- Pakistan (LIC),

- Palau Islands (LMIC),

- Palestinian Administered Areas (LMIC),

- Panama (LMIC),

- Paraguay (LMIC),

- Peru (LMIC),

- Philippines (LMIC),

- Sri Lanka (LIC),

- Syria (LMIC),

- Tajikistan (LIC),

- Thailand (LMIC),

- Tokelau (LMIC),

- Tunisia (LMIC),

- Turkey (LMIC),

- Turkmenistan (LMIC),

- Uzbekistan (LMIC),

- Venezuela (LMIC),

- Vietnam (LIC),

- Yemen (LLDC),

- Federal Republic of Yugoslavia (LMIC).

7. Countries appearing in the upper middle-income countries (UMIC) classification will not be considered eligible.

8. In order to safeguard the EFTA States' shipbuilding interests the EFTA Surveillance Authority would, however, allow the EFTA States to grant development aid to countries not falling under the above categories provided it can be substantiated by the EFTA States that a third country participant to the OECD Understanding is planning to grant development aid for a particular contract. In this event the EFTA Surveillance Authority may deem compatible with the functioning of the EEA Agreement development aid to be granted for this contract up to the same level as that planned by a third country participant to the OECD Understanding in terms of OECD grant element.

9. In order to tighten up the application of Article 3(5) of the Shipbuilding Regulation and ensure compliance with the criteria referred to in paragraph 5) the EFTA States are required to formally engage in each individual notification of development projects under Article 3(5) of the Shipbuilding Regulation that these criteria are adhered to. They will also be expected to give the relevant details of the contract in order to determine how the contract price relates to market prices of comparable vessels.

10. The EFTA States are advised that as regards the criterion of flag of convenience (point 1, paragraph 5) the EFTA Surveillance Authority will consider the following countries as having a flag of convenience:

- Antigua and Barbuda,

- Bahamas,

- Bermuda,

- Cayman Islands,

- Cyprus,

- Honduras,

- Lebanon,

- Liberia,

- Malta,

- Marshall Islands,

- Panama,

- St Vincent,

- Vanuatu,

- Mauritius,

11. The provisions of this chapter will be valid until the expiry of the Act referred to in point 1(b) of Annex XV to the EEA Agreement."

(1) This chapter corresponds to the Commission letter to Member States SG(89) D/311 dated 3 January 1989, as last updated by the Commission letter to Member States SG(97) D/4345 dated 10 June 1997. The up-dated lists of eligible countries and flags of convience are published in the Commission notice as regards the list of countries eligible for development aid pursuant to Article 4(7) of the seventh Council Directive 90/684/EEC as last amended by Council Regulation (EC) No 1904/96 on aid to shipbuilding, OJ C 218, 18.7.1997, p. 8.

(2) Council Regulation (EC) No 1540/98 of 29 June 1998 establishing new rules on aid to shipbuilding. This Council Regulation, as adapted for the purpose of the EEA Agreement by the EEA Joint Committee Decision No 12/99 of 29 January 1999, will hereinafter be referred to as the Shipbuilding Regulation.

(3) Working Party No 6 of the Council: Revision of the definitions and administrative procedures concerning the Understanding on Export Credits for Ships.

(4) See Decision 91/400/ECSC, EEC of the Council and the Commission of 25 February 1991 on the conclusion of the fourth ACP-EEC Convention (OJ L 229, 17.8.1991, p. 1). List of ACP countries in Commission notice as regards the list of eligible countries (OJ 218, 18.7.1997, p. 9).

(5) See Annex I to Council Decision 91/482/EEC of 25 July 1991 on the association of the overseas countries and territories with the European Economic Community (OJ L 263, 19.9.1991, p. 1). List of OCT countries in Commission notice as regards the list of eligible countries (OJ C 218, 18.7.1997, p. 10 and 11).