EFTA Surveillance Authority Decision

No 113/99/COL

of 4 June 1999

introducing guidelines on State aid for training and amending for the 18th 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 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 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 Procedural and Substantive Rules in the field of State aid(3) adopted on 19 January 1994 by the EFTA Surveillance Authority(4);

Whereas on 22 July 1998, the European Commission adopted a framework on training aid (OJ C 343, 11.11.1998), including at point 36 of that document a proposal for appropriate measures under Article 93(1) of the EC Treaty;

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;

Having consulted the European Commission;

Whereas the EFTA Surveillance Authority has, in a multicultural meeting on State aid held on 19 November 1997, consulted the EFTA States on the introduction of the new guidelines;

Whereas paragraph 18A.5(2) of the new guidelines includes a proposal for appropriate measures under Article 1(1) of Protocol 3 to the Surveillance and Court Agreement and requires the agreement of the EFTA States concerned,

HAS ADOPTED THIS DECISION:

1. The State Aid Guidelines are amended by introducing as a new Chapter 18A, the guidelines on training aid set out 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, requesting them to signify their agreement within two months to the proposed appropriate measures set out in paragraph 18A.5(2) of the guidelines.

3. 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.

4. The Decision shall be authentic in the English language.

Done at Brussels, 4 June 1999.

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.

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

(4) Initially published in OJ L 240, 15.9.1994 and the EEA supplement No 34 of the same date, last amendment (17th) adopted by Decision No 112/99/COL of 4 June 1999 (OJ L 112, 11.5.2000, p. 75).

ANNEX I

18A. TRAINING AID(1)

18A.1. Introduction

(1) Although at present unemployment rates in the EFTA States are relatively moderate, finding ways of improving the employment situation is a major challenge continually facing all Contracting Parties to the EEA Agreement. It is clear from the preamble of the EEA Agreement and subsequent political declarations(2) that the Contracting Parties regard it as being among their most important common objectives to foster harmonious economic development, promote conditions of high employment and avoid economic and social disparities.

(2) The important part played by training, both in enhancing the competitiveness of EEA industry and in creating and maintaining jobs, has been stressed on many occasions. The Contracting Parties to the EEA Agreement have been in agreement on the importance of promoting investment in training as a significant competitiveness factor and as a catalyst of renewed growth and the re-establishment of a socially acceptable level of employment(3). Within the framework of cooperation under the EEA Agreement, albeit a framework somewhat less comprehensive in scope than is currently the case within the European Union, the EFTA States have associated themselves with similar common objectives as pursued within the European Union concerning promotion of a skilled, trained and adaptable workforce and labour markets responsive to economic change. These common objectives, with the ultimate goal of a high level of employment, must also be taken into account in the application of competition rules in the context of the EEA Agreement.

(3) Numerous studies have shown that the existence of a skilled workforce is a major factor in firms' location decisions. Training is therefore important, not only to the worker, who becomes more employable and less likely to be made redundant, and to the firm, for which it is a performance-enhancing factor, but also to the economy of the region, a highly skilled workforce being an undeniable asset when it comes to attracting new investment.

(4) The work to be done to improve the functioning of the labour market and to reduce the skills gap would appear to call for a proactive approach by all concerned: the States concerned, firms, individuals and the two sides of industry. A number of initiatives are currently in action in the training field, both at national level and at the level of the European Union, in many instances with active participation from EFTA States on the basis of the modalities established in Part VI of the EEA Agreement. The Authority will endeavour to ensure that the control of State aid does not become an unjustified obstacle to EFTA States' labour market policy measures compatible with the EEA Agreement.

(5) There appears to be a general agreement that the measures taken by EEA States cannot be confined to improving initial training, vocational training and the training of the unemployed. Businesses cannot adapt to structural and technological change simply by making people redundant and recruiting more skilled labour from elsewhere. Preventive policies are also needed to encourage workers to improve their skills and adaptability and induce firms to invest in training their workforce. Such policies seek to prevent the least skilled from sliding into unemployment by ensuring, on the contrary, that they are retrained and acquire transferable skills. The financial resources needed are considerable and government support may constitute a necessary incentive in the common interest of the Contracting Parties.

(6) Most public financing in the training sphere does not fall within the scope of the competition rules. However, where EFTA States introduce financial and tax incentives to encourage firms to invest in training their workforce, steps must be taken to make sure that those incentives do not run counter to the objectives of competition policy, seeking as it does to ensure the competitiveness of businesses. It is for the Authority, in pursuance of the State aid rules in Articles 61 and 62 of the Agreement, to examine training measures which are liable to constitute aid within the meaning of Article 61(1) of the Agreement and to ensure that they are compatible with the functioning of the Agreement.

(7) Training costs are increasingly forming part of the costs that have to be borne by firms if they are to remain competitive. Technical progress, the introduction of new technologies and the pace of change in the research and technological development field mean that firms have to train their staff continuously. A training aid measure which is intended to reduce, for certain firms, the costs they normally have to bear, in their own interest, in order to improve their employees' skills, confers on them an advantage over their competitors and is therefore liable to distort competition.

(8) Where a measure constitutes State aid within the meaning of Article 61(1), it must be notified in good time to, and be approved by, the Authority before being implemented. The sole purpose of this system is to ensure that aid is vetted by the Authority so that measures which cause distortions of competition contrary to the common interest are not implemented. When assessing a measure's compatibility with the functioning of the Agreement, the Authority will take account of any beneficial effects of the aid which may justify a distortion of competition.

(9) Training usually has positive external effects for society as a whole. One firm's expenditure on training is not only of benefit to the workers who are trained but increases the pool of skilled workers from which other firms may draw. Overall, investment in training increases the competitiveness of EEA industry and the attractiveness of the EEA as a place in which to set up in business. A firm will not take these secondary effects into account when deciding whether to invest in training, and it is possible that the local outlay of firms on training is lower than the socially optimum level, especially since, from the firm's point of view, investment in training involves the risk that, once trained, its workers might leave for another firm. The smaller the firm, the greater this risk tends to be, and this is one of the reasons why such firms are unwilling to invest in training. The risk is also proportionate to the transferability of the skills acquired. It may be concluded from this that most training aid measures are not simply operating aid, and the Authority is favourably disposed towards them to the extent that the distortions of competition to which they may give rise are justified or counterbalanced by their contribution to common objectives which market forces alone would not make it possible to attain. Thus, in its State aid policy, the Authority generally gives sympathetic consideration to training aid.

(10) In order to render the control of training aid more transparent and ensure equality of treatment, these guidelines have been drawn up indicating how the Authority will assess the compatibility of such aid with the functioning of the EEA Agreement. The criteria set out herein seek to ensure that only training aid which contributes to the achievement of common objectives is approved, that such aid does not exceed the necessary incentive level, and that it does not amount to disguised operating aid.

(11) These guidelines therefore pursue a number of objectives:

- to clarify the interpretation of Article 61 of the EEA Agreement and Article 1 of Protocol 3 to the Surveillance and Court Agreement with regard to the notion of training aid in order to ensure greater legal certainty and transparency in the light of the prior notification requirement in Article 1(3) of Protocol 3 to the Surveillance and Court Agreement,

- to ensure consistency between the rules on training aid and those laid down for other types of aid (notably in other guidelines or frameworks),

- to increase the transparency of the approach which the Authority will follow in assessing the compatibility of training aid.

(12) Section 18A(2) describes the types of measures which may constitute aid as covered by the competition rules of the EEA Agreement. Section 18A(3) defines the scope of the guidelines. Section 18A(4) sets out the principles on which the Authority will base its assessment of the compatibility of measures constituting aid. In the light of these principles, which make it possible to reconcile the objectives of an active employment policy with a level playing field for all businesses, the Authority lays down a series of thresholds of intensity below which aid may be considered to be compatible with the functioning of the Agreement. The differences between the thresholds proposed reflect the different degrees of externality and necessity of the aid according to the transferability of the training, the size of the firm and the area in which it is situated.

18A.2. Scope of Article 61(1) of the EEA Agreement

(1) These guidelines concern only measures falling within the scope of Article 61(1) of the EEA Agreement, which provides that "any aid granted by EC Member States, EFTA States or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Contracting Parties, be incompatible with the functioning of this Agreement". The aid covered by these guidelines is that which favours one or more firms or sectors of industry by reducing the costs they would normally have to bear when they want their employees to acquire new skills or when they afford their employees the opportunity to acquire such skills.

(2) Being general measures, many training measures are not caught by Article 61(1) of the EEA Agreement. Most training forms part of the tasks traditionally carried out by the State and by and large benefits people and workers everywhere. The financing by the State of this sort of training does not favour certain undertakings or the production of certain goods within the meaning of Article 61(1). The decision-making practice of the competent surveillance authorities and the case-law of the competent courts of justice illustrate in what circumstances a measure is in the nature of a "general measure" and is accordingly excluded from the scope of Article 61(1) of the EEA Agreement. Examples are:

- schooling and initial training (such as apprenticeships and day release schemes),

- the training or retraining of unemployed people, including traineeships in enterprises,

- measures directly targeted at workers or even at certain categories of workers, affording them the opportunity of receiving training unconnected with the firm or industry in which they work (e.g. the "learning account" system),

- general tax incentive schemes (e.g. tax credits) which are open to all firms investing in employee training and apply automatically.

(3) In this connection it must be pointed out, however, that a measure which, while being theoretically general in scope, in practice favours one or more firms or sectors, is in fact specific. This is the case, for example, where the authorities enjoy, when applying a general measure, a discretionary power which allows them to vary the amount of financial assistance according to the circumstances(4). Such measures are liable to constitute aid within the meaning of Article 61(1) and must be notified pursuant to Article 1(3) of Protocol 3 to the Surveillance and Court Agreement.

(4) Aid falls within the scope of Article 61(1) only in so far as it affects trade between Contracting Parties. Training aid granted to firms or sectors whose activities do not or are not likely to form the subject matter of trade between Contracting Parties (for example, certain local services) thus does not come under Article 61(1). Aid which satisfies the requirements of the de minimis rule as laid down in Chapter 12 of the present State aid guidelines is also deemed not to affect intra-EEA trade. Consequently, it does not come under Article 61(1) and does not need to be notified pursuant to Article 1(3) of Protocol 3 to the Surveillance and Court Agreement.

18A.3. Scope of these guidelines

A. Principles

(1) These guidelines apply to all training aid measures, notified or put into effect during its period of application, with the exception of those taken, for example to reskill workers, as part of the rescuing and restructuring of firms in difficulty, which will be assessed in accordance with the relevant guidelines in Chapter 16. As regards small and medium-sized enterprises, these guidelines shall accordingly prevail over the provisions on training aid contained in the guidelines in Chapter 10 on State aid for small and medium-sized enterprises.

(2) In principle, these guidelines cover all sectors of industry. However, for sectors considered sensitive for which there are special rules on aid(5), these guidelines apply only in so far as there is no conflict between the two. They nonetheless apply fully to the air transport sector.

(3) These guidelines apply to training aid whether the training be provided by firms themselves or by public or private training centres.

B. Connection with employment aid

(4) Training aid as referred to in these guidelines must be distinguished from employment aid, the compatibility of which with the functioning of the Agreement must be assessed in the light of the pertinent guidelines(6). Some employment aid measures may be justified to some extent by the fact that, when it takes on certain workers, the assisted firm has to bear additional training costs. This is the case, for example, with aid designed to encourage the hiring of certain categories of unemployed people who experience particular difficulty in entering the labour market. Where the purpose and direct effect of such aid is to stimulate employment by giving the employer a financial incentive to recruit people he would not otherwise have recruited, the aid is to be considered purely as employment aid. Training is a secondary consideration here, just one aspect of the recruitment process that is being assisted. In such a case, moreover, it is often impossible to say which part of the total aid package has been earmarked for training and separate it from the rest. Even if it includes a training component, employment aid will therefore be examined as such.

(5) Only aid which is not linked to investment falls within the scope of the employment aid guidelines. Consequently, where investment-linked employment aid contains a training component, that component will be examined separately on the basis of the present guidelines.

18A.4. Assessment criteria for training aid

A. General principles

(1) In certain circumstances, training aid prohibited under Article 61(1) may qualify for one of the exemptions provided for in Article 61(3).

(2) The main ground for exemption is that provided for in Article 61(3)(c), by virtue of which the Authority may authorise aid to facilitate the development of certain activities where it does not adversely affect trading conditions to an extent contrary to the common interest. Measures to improve the skills of a firm's workforce help to increase that firm's competitiveness and in so doing facilitate the development of certain activities. Training plays an essential part in introducing new technologies and stimulating innovation and investment. It may also help to create and maintain jobs. Training aid may thus fall within the exemption provided for in Article 61(3)(c).

(3) The main argument in favour of training aid is that it helps to correct certain imperfections in the market. This is particularly the case with vocational training as it has numerous external effects. The importance of the externalities of training is linked primarily to the transferability of the skills and qualifications training imparts. The Authority accordingly considers that a more favourable attitude is justified vis-à-vis continuing vocational training schemes which to a substantial extent actually benefit workers more than is strictly necessary for the purpose of their jobs and do not simply meet the specific needs of the firm.

(4) In this connection, the Authority will draw a distinction between specific training and general training actions:

- specific training involves theoretical and practical tuition directly and principally applicable to the employee's present or future position in the assisted firm. It is linked to a specific activity of the firm. Part of the training is normally given at the employee's work place. Its transferability to other firms or other fields of work is very limited,

- general training includes tuition which is not applicable only or principally to the employee's present or future position in the assisted firm. It is linked to the overall activities of the firm and provides qualifications which are largely transferable to other firms or other fields of work.

The latter equips the workers concerned with additional skills directly transferable to other firms. It therefore effectively improves such workers' skills level, employability and adaptability and thus makes a bigger contribution to promoting employment and human resource development.

(5) Among the criteria to determine the transferability of the skills acquired through the training, the following can be mentioned as examples:

- recognition, certification or validation of qualifications and skills by public authorities or bodies or by other bodies or institutions on which an EFTA State has conferred the necessary powers. Training leading to a diploma, certificate, etc., recognised by an EFTA State or within the framework of systems for the certification and validation of work experience is presumed to be of a general nature,

- the fact that employees of different firms may avail themselves of the training or that it is organised jointly by a number of independent firms.

In this regard, it should be noted that in-company training, even if it directly responds to the contemporary needs of the company, can have a transferable character, if the skills it provides are largely transferable.

(6) To approve an aid under Article 61(3)(c) of the Agreement, the Authority must ensure that the aid does not adversely affect trading conditions to an extent contrary to the common interest. To qualify for exemption under this provision, a State aid must therefore have an incentive character and be proportionate to the objectives of common interest it aims to achieve. The latter condition is considered to be fulfilled if the intensity of the aid does not exceed the thresholds defined in paragraph 18A(4)(11).

(7) To determine the incentive effect, the Authority will consider whether training aid has the effect of encouraging firms to do more in the way of training than they would normally do or to spend more than they would normally spend on training. An aid measure which relates to a firm's normal operating costs (standard induction courses for new recruits and so forth), being intended solely to reduce either continuously or periodically the costs which the firm normally has to bear, is not an incentive and cannot as a rule be approved. The incentive effect will have to be demonstrated if aid for specific training is awarded to big enterprises outside areas assisted under Article 61(3)(a) or (c). In all other cases, the incentive effect will be presumed for the reasons set out in the following paragraph.

(8) Statistics show that there is a direct link between a firm's size and the probability that its employees receive training(7). In general, the percentage of workers attending a training course increases with the size of the firm. In view of the substantial underinvestment in training in small and medium-sized enterprises(8), the Authority considers that in this case training aid always has an incentive effect and that higher intensities are authorisable. In those areas where the standard of living is abnormally low or where there is serious underemployment (Article 61(3)(a)), the incentive effect will also be presumed, even for large enterprises, owing to the relatively greater external impact training may have there. It is in such areas that expenditure on training and the level of skills are the lowest(9) and that the common interest in raising that level with a view to improving the employment situation and attracting new investment is the strongest. An increase in allowable intensities is therefore also justified. Inasmuch as the training and retraining of workers also plays an important part in industrial adjustment, the same approach is justified for the areas falling within Article 61(3)(c). Finally, as far as general training is concerned, the incentive effect can always be presumed, given the important externalities of this type of training. On the other hand, where the worker being trained is required by contract to compensate his employer if he leaves the firm before a certain period has elapsed, the positive externalities will be reduced and the Authority will consider that a training aid measure is in principle unjustified.

B. Eligible costs

(9) Eligible costs in the context of a training aid project are:

1. trainers' personnel costs;

2. trainers' and trainees' travel expenses;

3. other current expenses (materials, supplies, etc.);

4. depreciation of tools and equipment, to the extent that they are used exclusively for the training scheme in question;

5. cost of guidance and counselling services with regard to the training project;

6. trainees' personnel costs up to the amount of the total of the other eligible costs referred to in points 1 to 5.

The eligible costs must be supported by documentary evidence, transparent and itemised. Under trainees' personnel costs referred to in point 6 only the hours during which the trainees effectively participated in the training, after deduction of any productive hours or of their equivalent, may be taken into account.

C. Authorised intensities

(10) Training aid is authorisable under Article 61(3) of the Agreement if it complies with the following permissible intensities in relation to eligible costs as defined in the preceding paragraph.

(11)

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(12) The intensities mentioned above can be increased by 10 points when the beneficiaries of the training are categories of disadvantaged workers (low skilled workers, handicapped persons, older workers, women returning to the labour market and so forth).

(13) Training aid measures may be cumulated only within the limits of the intensities indicated in paragraphs 18A.4.(11) to (12).

18A.5. Notification and existing schemes

(1) Measures identified in this document as not constituting State aid caught by Article 61(1) of the Agreement do not need to be notified to the Authority. However, all training aid schemes and all ad hoc training aid cases which fall outside authorised schemes and do not fulfil the conditions of the de minimis rule must be notified to the Authority, pursuant to Article 1(3) of Protocol 3 to the Surveillance and Court Agreement, in sufficient time to enable it to submit its comments on their compatibility with the functioning of the Agreement.

(2) These guidelines are without prejudice to schemes already authorised by the Authority when the guidelines are published. The Authority will, however, review such schemes pursuant to Article 1(1) of Protocol 3 to the Surveillance and Court Agreement. In this connection the Authority proposes to the EFTA States as an appropriate measure within the meaning of Article 1(1) of Protocol 3 to the Surveillance and Court Agreement:

- that they should notify to it as from 1 July 1999 any plan to grant aid under an approved scheme where the amount of aid to any one firm exceeds EUR 2,5 millions gross grant equivalent over a period of three years, and

- that they should notify to it all existing schemes on aid for training which do not expire before 31 December 1999.

(3) If an EFTA State does not accept the appropriate measures proposed, the Authority will be obliged to initiate proceedings under Article 1(2) of Protocol 3 to the Surveillance and Court Agreement.

18A.6. Duration and review

(1) The Authority will use these guidelines as a basis for assessing training aid for a period of up to five years from the date of their publication. Before that period expires, the provisions of these guidelines will be evaluated and, if necessary, revised.

(1) This chapter corresponds to the framework on training aid (OJ C 343, 11.11.1998).

(2) Reference can be made here in particular to joint meetings of EU and EFTA Ministers of Finance and Economy, which have been held annually since 1993, and the joint statements from those meetings. In these meetings, broad issues of economic policy have been addressed, including growth, competitiveness, employment, training and labour market flexibility. See e.g. the joint communiqué and the joint EU/EFTA Paper from the meeting of the Ministers on 12 October 1998.

(3) See the guidelines and recommendations relating to the White Paper on growth, competitiveness and employment adopted at the European Council meeting in Essen in 1994 as well as the joint communiqué of the meeting of EU and EFTA Ministers of Finance and Economy on 18 September 1995 and statements from subsequent meetings of the same kind.

(4) See the judgment of the Court of Justice of the European Communities in Case C-241/94 France v Commission ("Kimberly Clark") [1996] ECR I-4551.

(5) This is currently the case with shipbuilding, synthetic fibres, the motor industry, the steel industry and transport.

(6) See Chapter 18 "Aid to employment".

(7) Eurostat, Statistics in focus, population and social conditions, 1996, No 7, Table 2.

(8) See Chapter 10.2 of the present State aid guidelines, concerning the definition of SMEs.

(9) Eurostat, Statistics in focus, population and social conditions, 1996, No 7, Table 1.