98/639/EC: Commission Decision of 14 July 1998 concerning aid schemes in Germany under which aid could be awarded which is subject to the notification requirement of the multisectoral framework on regional aid for large investment projects [notified under document number C(1998) 2271] (Only the German text is authentic) (Text with EEA relevance)
Date: 1998-07-14
Institutions: European Commission
Subjects: Germany, State aid, control of State aid, economic development, investment aid, regional aid

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Official Journal of the European Communities

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 14 July 1998

concerning aid schemes in Germany under which aid could be awarded which is
subject to the notification requirement of the multisectoral framework on
regional aid for large investment projects

(notified under document number C(1998) 2271)

(Only the German text is authentic)

(Text with EEA relevance)

(98/639/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of
Article 93(2) thereof,

Having given the parties concerned notice, in accordance
with the
their
comments,

abovementioned Article,

to submit

Whereas:

(1)

(2)

I. PROCEDURE

By letter No SG(98) D/1975 of 5 March 1998, the
Commission proposed to Germany, pursuant
to
Article 93(1) of
the EC Treaty, an appropriate
measure concerning a notification requirement
contained in a new Community framework for
State aid called the new multisectoral framework
on regional aid to large investment projects (1)
(hereinafter referred to as ‘the multisectoral frame-
work').

By the same letter,
the Commission informed
Germany and the other Member States that the
multisectoral framework would come into force on
l September 1998, with an initial period of validity
of three years and that all aided projects covered by
the notification requirement which had still not

(1) OJ C 107, 7. 4. 1998, p. 7.

(3)

(4)

(5)

received final approval by the Member States’
competent authorities by l August 1998, must be
notified in accordance therewith.

The Commission also requested Germany and the
other Member States to state, within 20 working
days from the date of the said letter, whether or not
they agreed to the introduction of the multisectoral
framework in so far as it related to the notification
procedure laid down in Article 93(3) of the EC
Treaty.

In reply to the Commission letter of 5 March 1998,
Germany, by letter of 31 March 1998, stated that
for various reasons it did not agree to the introduc-
tion of the multisectoral framework.

By letter dated 28 May 1998 (No SG(98) D/4197),
the Commission informed Germany of its decision
of 20 May 1998 to initiate the procedure provided
for in Article 93(2) of the EC Treaty in respect of
all the aid schemes in Germany under which aid
could be awarded which was covered by the notifi-
cation requirement of the multisectoral framework,
notably the Programme for the improvement of
(Rahmenplan der
regional economic structures
Gemeinschaftsaufgabe
regio-
nalen Wirtschaftstruktur') and the Investment aid
law (Investitionszulagengesetz).

‘Verbesserung der

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(6)

(7)

(8)

(9)

(10)

In opening the procedure, the Commission exam-
ined the arguments submitted by Germany to
justify its refusal to agree to the new notification
requirement laid down in the multisectoral frame-
work. The Commission concluded that there were
no grounds for accepting Germany’s refusal.

the Commission
By the abovementioned letter,
gave Germany the opportunity to submit
its
comments within two weeks. In accordance with
Article 93(2) of the EC Treaty, the other Member
States and other parties concerned were informed
by publication of the letter in the Official Journal
and were
the European Communities (1)
of
requested to submit their comments.

Germany communicated its comments
Commission by letter dated 12 June 1998.

to the

No comments were received from the other
Member States or from other parties.

II. OBSERVATIONS FROM GERMANY

In their letter of 12 June 1998, the German author-
ities stated that they had already explained their
attitude towards the multisectoral on various occa-
sions in the context of opinions (‘Stellungnah-
men'), exchanges of correspondence and bilateral
conversations with the Commission and summar-
ised their position in their communication of 31
March 1998.

(11)

The German authorities set out the following four
specific points which in their view the Commission
had not sufficiently assessed and taken into consid-
eration in its letter of 28 May 1988:

(a) Contrary to the Commission’s view that the
sufficient degree of
framework offered a
predictability through the application of three
clearly defined criteria, even a potential aid
recipient who had knowledge of all relevant
facts could not determine how the Commission
would assess those facts and decide in indi-
vidual
the Commission itself
mentioned in its letter of 28 May 1998, it has a
margin of appreciation in the application of
Article 93(3) of the EC Treaty.

cases. As

(b) With particular

regard to the competition
factor, it would not be clear to the potential aid
recipient how the Commission would assess the
real market situation. The Commission had
in the assessment
stated that
it would take
account of
the relevant sector or sub-sector.
That very formal approach ignored the fact that
within the
sub-
segments can exhibit different dynamics so that
— according to the specific attributes of the

sector, different

relevant

(1) OJ C 171, 5. 6. 1998, p. 4.

product — an assessment diverging from that
for the sector as a whole could be justified.

(c) While the Commission stated that by means of
the capital-labour assessment factor the creation
of jobs would be favoured, the durability and
competitiveness of those jobs were not put in
the foreground to the required extent. That
applied especially for wage-cost intensive loca-
tions like Germany.

the impact of

(d) The statements of the Commission made clear
that, also with regard to the regional impact
factor, legal certainty and predictability would
not be sufficiently afforded to the potential aid
recipient. As the Commission itself conceded, it
might well not be possible at the moment of
the award of aid to establish how the individual
project would have an impact on direct and
indirect job creation. While the Commission
had pointed out that this factor would not result
in an aid reduction but provide a certain
compensation for
the other
factors and in this regard special precautions
concerning ex post monitoring were foreseen, it
had to be noted that an ex post increase in the
aid intensity in the light of the results of the
monitoring could no longer
influence an
investment decision, but would only result in
firms benefiting from aid which would have
invested anyway. An ex post reduction of previ-
ously authorised aid would call in question the
basis of the investor’s economic calculations;
this was all the more questionable given that —
at least with regard to indirect job creation —
the factual requirements did not lie exclusively
within the area of influence of the aid recipient.

(12) Germany concluded that the Commission had not
been able to remove its concerns regarding the
multisectoral framework and that it was therefore
still not in a position to agree to its introduction.

III. ASSESSMENT OF GERMANY’S OBSERVA-

TIONS

General

(13) Article 93(1) of the EC Treaty provides that the
Commission, in cooperation with Member States, is
to keep under constant review all systems of aid
existing in those States. It is to propose to the latter
any appropriate measures required by the progres-
sive development or by the functioning of
the
common market.

(14) Over a period of several years, the Commission
worked on the formulation of new rules to apply to
the control of regional aid to large investment
projects. The Commission’s intention to consider

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the adoption of a horizontal approach to State aid
control to such projects was first signalled in its
Communication to the Council, the Parliament,
the Economic and Social Committee and the
the Regions on an industrial
Committee of
competitiveness policy for the European Union (1).
the Council Resolution of 21
Subsequently,
November 1994 on the strengthening of
the
competitiveness of Community industry (2) expli-
citly referred to the need for consideration of a
horizontal approach.

(18)

which the Commission would carry out a thorough
review of the utility and scope of the framework,
which would, inter alia, consider the question of
whether it should be renewed, revised or abolished.

to

each Member

By letter dated 5 March 1998, the Commission
including
proposed
Germany, pursuant
the EC
Treaty, appropriate measures for State aid by way of
a prior notification requirement which is laid down
in the multisectoral framework.

to Article 93(1) of

State

(15)

Periodic discussions on the provisions of a new
framework took place between the Commission
and Member States. As a result of those discussions,
the Commission tabled revised draft rules on the
multisectoral framework on the control of regional
aid to large investment projects on the occasion of
the multilateral meeting of State aid experts of the
Member States held in Brussels on 15 January
1997. Following that meeting, at which a large
majority of Member States responded positively to
the Commission’s revised proposal, the Commis-
sion consulted Member States on the technical
details of the proposal by letter dated 25 February
1997 and had a number of bilateral discussions
with Member States,
including Germany. The
introduction of the multisectoral framework also
constituted a specific priority under the Commis-
sion’s action plan for the single market which the
European Council approved at
its meeting in
Amsterdam on 16 and 17 June 1997.

(19) At no stage during the procedure did Germany
contest the right of the Commission to make such
a proposal. Indeed, it indicated to the Commission
that it supports the objective of avoiding sector-
specific rules by a horizontal approach. However, it
considers that in a number of respects the provi-
sions of the multisectoral framework are unsatisfac-
tory and that its previously expressed concerns have
been insufficiently taken account of by the
Commission. It is the refusal of Germany to agree
to the notification requirement contained in the
multisectoral framework which is the subject of the
present procedure.

Examination of the objections put forward by
Germany

(20)

(16) As the Commission noted at the time of opening
the procedure, it made considerable efforts during
the course of 1997 to take account of Germany’s
reservations on the draft text of the framework,
despite the fact that Germany failed to reply in
writing to the Commission’s
letter dated 25
February 1997 in which all Member States were
invited to comment on specific elements of the
text.
discussions
between the Commission and the German author-
ities took place as a result of which the Commis-
sion made certain modifications to the draft text.
Those bilateral exchanges included a meeting held
on 15 July 1997,
following which there were
exchanges of correspondence (Commission letters
dated 28 July 1997 and 15 December 1997 and a
from the German authorities dated 24
letter
November 1997).

subsequent

bilateral

Several

(17) During these bilateral and multilateral discussions,
and in recognition of the compromises that most if
not all Member States had to make in order to
arrive at a consensus, the Commission made clear
that the multisectoral framework would be intro-
duced on a trial basis for three years only after

(1) COM(94) 319 final.
(2) OJ C 343, 6. 12. 1994, p. 1.

that

the multisectoral

First, Germany asserts, without raising any new
framework affords
points,
insufficient predictability for the potential aid re-
cipient. The Commission cannot accept this argu-
ment. The Commission considers on the contrary
that the multisectoral framework should offer a
sufficient degree of predictability and transparency
by the application of the three assessment criteria.
Since the prospective aid beneficiaries know their
sectors and sub-sectors intimately and their relative
position within them, the Commission is confident
that they should generally be able to predict with
reasonable accuracy the likely results of
the
Commission’s
competition
application of
assessment factor. The same is true of the capital-
labour assessment
require a
the amount of proposed capital
calculation of
divided by the expected number of direct
jobs
created/safeguarded. As regards the application of
the regional impact factor, the Commission will be
required to form its assessment on the basis of the
data provided by the Member State itself as
required by the standard notification form annexed
to the multisectoral framework. Since these data
will inevitably be based on the input provided by
the
the potential aid recipient,
Commission’s analysis of this factor should also
generally be foreseeable. The question of ex post
monitoring is dealt with later.

factor, which will

the outcome of

the

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(21)

(22)

(23)

Furthermore, the Commission takes the view that
the multisectoral framework should not impact, as
Germany seems to wish, on the margin of appre-
ciation available to the Commission for
the
the EC Treaty
application of Article 93(3) of
according to the settled case-law of the Court of
Justice of the European Communities, for example
in Case C-255/91 (Matra v. Commission) (1). No
potential aid recipient has legal certainty at the
time of notification of proposed aid to the
Commission that the aid will be authorised. This
principle applies, inter alia, to proposed regional
to their own
investment aid to sectors subject
Community
example motor
steel). Furthermore,
fibres,
vehicles,
Member States have on occasions had to agree to a
reduction in the proposed level of aid as a condi-
tion for Commission approval. By establishing, in
the multisectoral framework, transparent and quan-
tifiable criteria, the Commission believes however
that it is adopting an approach which should result
in an enhanced level of predictability.

frameworks

synthetic

(for

Secondly, Germany argues that the circumstances
of individual cases may require a more flexible
approach by the Commission than is permitted by
framework with regard to the
the multisectoral
level of disaggregation of
the sector/sub-sector
which is used to apply the competition assessment
factor.

argument. The

the sub-segment

approach proposed

The Commission does not accept the validity of
this
by
Germany would inevitably run the risk of disagree-
selected by the
ments about
Commission for its assessment. It could lead to
precisely the sort of uncertainty and unpredict-
ability that Germany claims it wishes to avoid. It
the multisectoral
should not be forgotten that
framework already states that the sector/sub-sector
will be assessed at the most disaggregated level for
which objective Community-wide data are avail-
able. With regard to examining whether structural
overcapacity exists, it is explicitly stated in footnote
13 that the sector or sub-sector will be established
at the lowest available segmentation of the NACE
classification.

(24)

In addition, paragraph 3.4 of
the multisectoral
framework states that, in the absence of sufficient
data on capacity utilisation, the Commission will
first consider whether the investment takes place in
a declining market and that, for this purpose, the
Commission will
evolution of
compare
apparent consumption of the product(s) in question
with the growth rate of manufacturing industry as a
whole in the European Economic Area. Such an

the

(25)

(26)

(27)

analysis would in any event take account of the
recent developments in the market for the specific
product concerned. Finally, with regard to the
Commission’s assessment of whether a reduction in
the permissible aid level should be made as a result
of the existence of a high market share (more than
40 %) for the product concerned, paragraph 3.6
states that there could be exceptions to the general
rule,
for example where the company creates,
through genuine innovation, a new product market.

the capital-labour
Thirdly, Germany argues that
the
assessment
durability and competitiveness of the created jobs,
nor of high wage-cost economies such as Germany.

take account of

factor does not

The Commission cannot accept those arguments.
The Commission does not consider that it should
have a duty under the multisectoral framework to
form a view on whether the created jobs are likely
to be sustainable in the longer term, which more
properly falls within the competence of the author-
ities of the Member State concerned. In any event,
the new regional aid guidelines adopted by the
Commission on 16 December 1997 (2) state that
regional investment aid linked to the creation of
jobs depends on the maintenance of those jobs for
a minimum of five years. As regards the compet-
itiveness of the jobs, the Commission also takes the
view that this is essentially a matter for the Member
States to determine in the context of their regional
policy.

In the Commission’s view, there are no grounds for
supposing that Member States will somehow be
given an incentive by the multisectoral framework
to award aid to projects which generate more jobs
but less competitive jobs than would otherwise be
the case. It is not the Commission’s intention to
penalise the creation of high-tech jobs, but instead
to reduce the potential for serious distortion of
competition engendered by the award of excessive
levels of aid to very large investment projects and
the putting at
jobs elsewhere in the
Community. Firms with a relatively high share of
capital in total costs realise a significant reduction
of their unit cost through the receipt of aid and
could obtain thereby a considerable competitive
advantage over non-aided competitors. The higher
the capital intensity of the supported investment
project, the more distortive the effects of capital
grants on competition are likely to be.

risk of

(28) At the same time the Commission wishes to main-
tain the attraction of the more disadvantaged parts
including the new German
of
L(cid:132)nder, by ensuring that projects which create

the Community,

(1)

[1993] ECR I-3203.

(2) OJ C 74, 10. 3. 1998, p. 9.

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(29)

(30)

(31)

significant levels of both direct and indirect jobs in
the regions concerned receive favourable treatment.
This is consistent with the conclusions of
the
Luxembourg Summit on Jobs held in November
1997.

of

levels

regional

the relevant aid scheme,

It should also be underlined that the new rules will
not result in a ban on aid in individual cases, but
rather in a possible adjustment to the maximum
aid normally
permissible
permitted under
in
accordance with the specified three assessment
criteria. In practice, it is already the case that very
large projects carried out in the Community as a
the
whole frequently do not
maximum level
aid
the notification
schemes. Moreover,
thresholds,
framework is
applicable only to a relatively small number of
projects and will
impinge on the freedom of
Member States to apply regional policy in very few
cases.

receive aid at
allowed by the regional

the new multisectoral

in view of

assisted regions

The Commission also recalls that
the regional
impact factor is based on the ratio of indirect jobs
to direct jobs created as a result of an investment in
concerned. Consequently,
the
jobs are created by a highly
where few direct
capital-intensive
the project may
investment,
nevertheless be entitled to a ‘bonus' provided that
at least a modest number of additional indirect jobs
are also created.

that some of

Fourthly, Germany argues that the multisectoral
framework does not afford proper legal certainty
to the regional
and predictability with respect
the factors are not
factor,
impact
within the control of
the aid recipient and it
objects to the ex post monitoring provisions. The
Commission accepts that it will not necessarily be
possible to forecast the precise effects of a project
in terms of direct and indirect job creation; never-
theless, it assumes that for the type of large-scale
regional investment projects covered by the multi-
sectoral framework the aid recipient will be capable
of providing realistic estimates both for
jobs
directly created by the project and jobs indirectly
created (that is jobs created with first-tier suppliers
and customers in the assisted region where the
company is located or in any adjacent assisted
regions (that is, Article 92(3)(a) or (c) regions). It is
important in the Commission’s view to place more
importance on ex post monitoring arrangements
than has generally been the case in the past in
order to ensure respect for Commission decisions.
It should also be noted that, since the factors
linked to the numbers of jobs created are based on
a range of values, there will in practice exist bands
within which the actual number of jobs created can

vary from that notified and still not require a
reduction in the allowable aid level at the ex post
monitoring stage. Finally, the Commission notes
that, contrary to the apparent view of Germany,
there is no provision in the multisectoral frame-
work for
the authorised amount of aid to be
increased in the light of the ex post monitoring.
On the contrary, the fact that an aided project has
been more successful in terms of jobs created than
to there
initially projected would merely point
being no need for more aid.

IV. CONCLUSION

(32)

the

reasons,

foregoing

For
the Commission
considers that there is no justification for it to
modify the appropriate measure concerning the
multisectoral framework.

(33) All the other Member States have unconditionally
agreed to the introduction of
the notification
requirement in the multisectoral framework for a
period of three years from l September 1998, in
conformity with the Commission’s proposal. The
principle of equality of
treatment between the
Member States means that the Commission cannot
accept the non-applicability of the framework in
one Member State.

(34) Accordingly, the Commission concludes that the
German aid schemes are incompatible with the
common market within the meaning of Article
92(1) of the EC Treaty, since they do not take
account of the appropriate measures for State aid
which were communicated to Germany by letter
SG(98) D/1975 of 5 March 1998.

(35)

In view of Germany’s refusal to take the appro-
priate measures, the Commission, having carried
out the procedure laid down in Article 93(2) of the
EC Treaty, may, pursuant to that provision and on
the basis of the considerations set out in Section
III, require existing aid schemes to be altered by
placing Germany under the obligation to comply
with the prior notification requirement laid down
in the multisectoral framework,

HAS ADOPTED THIS DECISION:

Article 1

Germany is required to notify to the Commission, in
conformity with Article 93(3) of the EC Treaty, for the
period from l September 1998 to 31 August 2001 any
proposed aid measure which meets the criteria defined in
paragraph 2 ‘Notification requirement' of the Community
multisectoral framework on regional aid for large invest-
ment projects.

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Germany shall
Decision within two weeks of the notification thereof.

inform the Commission of the measures taken to comply with this

Article 2

This Decision is addressed to the Federal Republic of Germany.

Article 3

Done at Brussels, 14 July 1998.

For the Commission

Franz FISCHLER

Member of the Commission