1999/379/EC: Commission Decision of 11 November 1998 on aid for the INMA SpA shipyard under Italian Law No 564/93, converted by Law No 132/94 (notified under document number C(1998) 3584) (Text with EEA relevance) (Only the Italian text is authentic)
Date: 1998-11-11
Institutions: European Commission
Subjects: Italy, State aid, aid to industry, industrial conversion, shipbuilding, vessel

10. 6. 1999

EN

Official Journal of the European Communities

L 145/27

COMMISSION DECISION

of 11 November 1998

on aid for the INMA SpA shipyard under Italian Law No 564/93, converted by
Law No 132/94

(notified under document number C(1998) 3584)

(Only the Italian text is authentic)

(Text with EEA relevance)

(1999/379/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 interested parties notice to submit their
comments, and having regard to those comments,

Whereas:

I

By letter dated 27 May 1997 from the Italian Permanent
Representative’s Office, registered by the Commission on
3 June 1997,
the Italian Government notified the
Commission of a plan to grant additional aid to the
INMA shipyard for two liner conversion contracts. The
notification was followed by a meeting between Commis-
sion staff and officials from the Ministry of Transport and
Shipping and the sending of a letter by the Italian author-
ities on 8 July 1997.

The Italian shipyard INMA, situated at La Spezia, nego-
tiated two liner conversion contracts in 1994. The first,
concluded on 19 August, was for the Regal Voyager,
owned by St Thomas Cruises Limited (Bahamas),
involving a total of some ITL 20 billion, and the second,
concluded on 4 October, was for the Sally Albatros,
owned by the Finnish shipping company Sally AB,
involving a total of some ITL 93 billion. The two
contracts have already received 4,5 % aid each, in line
with the ceiling set by the Commission in 1994 for ship
conversions. The aid was also notified to the Commission
as part of the monitoring of shipbuilding aid provided for
in Article 11 of Council Directive 90/684/EEC (1), as last

(1) OJ L 380, 31.12.1990, p. 27.

amended by Directive 94/73/EC (2), application of which
was extended by Regulation (EC) No 3094/95 (3), as last
amended by Regulation (EC) No 2600/97 (4).

The two shipping companies used the same broker,
Simonship AB, to negotiate the contracts, and Simonship
AB tendered widely among European shipyards, both
within the Community and outside. The Community
shipyards approached were:

 Germany: HDW and Lloyd Bremerhaven,
 Denmark: Reparationsvaerftet,
 Spain: Astilleros Españoles,
 Italy: INMA, Fincantieri and T. Mariotti,
 Netherlands: Wiltonfijenoord Drydock,
 Portugal: Lisnave and Estaleiros Navais de Viana do

Castelo.

Two Finnish and two Polish shipyards were also
approached.

Since, during the negotiations,
the shipyard managers
received letters from the broker Simonship informing
them that the shipowners had lower tenders from the
Finnish and Polish shipyards, an application was made to
the competent Italian authorities for aid to be granted at a
rate of 9 %.

The application for a higher rate of aid for the two
contracts is based on Article 4(5) of Decree Law No
564/93, which was converted by Law No 132/94 (herein-
after ‘Law No 132/94'). This states that if, in trying to
in
obtain a ship conversion contract, a shipyard is
competition with one or more shipyards from countries
not belonging to the European Community, the Minister
may, with the prior agreement of the Commission of the
European Communities, increase the rate of aid provided
for in paragraph 1 (namely 4,5 %), without exceeding the
rate provided for in Article 3(1) (namely 9 %), provided
that the shipyard demonstrates that this increase in the
level of aid is necessary to challenge the non-Community
competition and to win the order.

(2) OJ L 351, 31.12.1994, p. 10.
(3) OJ L 332, 31.12.1995, p. 1.
(4) OJ L 351, 23.12.1997, p. 18.

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10. 6. 1999

When this provision was introduced into the Law, refer-
ence was made to a Commission statement entered in the
minutes of the 1 450th meeting of the Council on 26
November 1990 when it adopted Directive 90/684/EEC,
reading: ‘where a Member State proves that its yards are in
competition with non-European countries
the
construction of specialised small vessels costing less than
ECU 10 million or for ship conversion of any contract
value, then, following appropriate prior notification by the
the Commission could
Member
authorise the granting of contract-related production aid
up to the ceiling referred to in Article 4(1)'.

concerned,

State

for

II

Having carried out a detailed examination of the informa-
tion provided by the Italian authorities, the Commission
would make the following points.

interpretation of the
It queries the Italian authorities’
phrase ‘appropriate prior notification' which is included
in the Commission statement entered in the minutes of
the Council meeting in 1990. Any aid measure which
does not comply with the criteria set out in Article 92(3)
of the Treaty can be authorised by the Commission only
if it does not distort or threaten to distort competition by
favouring certain undertakings or
the production of
certain goods. Assessment of this aspect must be carried
out before the aid takes effect. However, in the two cases
in point, as is evident
from the facts and from the
following analysis, it is apparent that the shipyard acted
on the assumption that the aid had already been agreed
and the Italian authorities seem to have taken the view, in
submitting their notification three years after the signa-
ture of the contracts, that the Commission’s authorisation
in the case related only to the release of the funds.

A chronological examination of the facts, as set out in the
notification, shows that the INMA shipyard submitted its
applications for a derogation under Article 4(5) of Italian
Law No 132/94 on l September 1994 in the case of the
Regal Voyager contract (signed on 19 August) and on 11
October 1994 in the case of the Sally Albatros contract
(signed on 4 October). The two applications were there-
fore subsequent to the signing of the contracts, whose
prices, as is apparent from an examination of the figures,
were determined on the basis of an increase in the level of
aid.

The shipyard thus failed to comply with the Law, which
stipulates quite clearly that the Minister may grant an
increase only after the Commission has given its prior

agreement. By anticipating such agreement, solely on the
basis of letters from the broker in charge of negotiating
the contracts and putting it under pressure, the shipyard
failed to take account of the detailed examination of the
situation on the relevant market which the Commission
has to carry out before authorising any such derogations,
which in any event may not be regarded as automatic
merely because all the conditions appear to have been
met, since, in its statement entered in the minutes of the
Council meeting, the Commission stated that it ‘could'
authorise an increase in the rate. The use of the condi-
tional tense demonstrates clearly that a derogation could
be granted only in really exceptional circumstances and
provided that the Commission was certain that no other
Community shipyard would be damaged.

The shipyard’s attitude seems all the more doubtful as it
was in possession of the list of Community shipyards
invited to tender as from 20 June 1994, that is, two
months before the first contract was signed. The reputa-
tion of
those shipyards, which were entirely able to
respond to the invitation to tender, shows that there was a
genuinely competitive situation between Community
shipyards and that, on the basis of the information avail-
able to the shipyard, an examination of the situation by
the Commission, using the procedure provided for in
Article 4(5) of Directive 90/684/EEC, could have taken
place. In the absence of such examination, it may even be
concluded that, by anticipating the granting of the aid,
the shipyard was distorting competition from the very
outset, since the other shipyards had not had the oppor-
tunity of tendering with a 9 % rate of aid.

Consequently, by letter of 18 August 1997, the Commis-
sion informed the Italian Government that it had decided
to initiate proceedings under Article 93(2) of the EC
Treaty in respect of the request for an increase in the rate
of aid for conversion of the ships Regal Voyager and
Sally Albatros at the INMA shipyard.

III

As part of those proceedings, the Commission gave the
Italian Government notice to submit its comments; the
other Member States and interested parties were informed
via publication of the decision to initiate proceedings in
the Official Journal of the European Communities (1).

The Italian authorities submitted their comments by
letter of 17 October 1997.

the decision,

Following publication of
the shipyard
concerned and Denmark submitted their comments to
the Commission, respectively via a law firm (letter of 12
January 1998) and the Danish Permanent Representat-
ive’s Office (letter of 2 January 1998).

In its comments, Denmark agreed with the Commission’s
decision to initiate proceedings.

By letter of 4 February 1998 the Commission forwarded
these comments to the Italian authorities.

(1) OJ C 377, 12.12.1997, p. 4.

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Official Journal of the European Communities

L 145/29

IV

In their comments both the Italian authorities and the
shipyard concerned stress that the additional aid has not
yet been granted and that the rules of notification, upheld
by the Court of Justice, have been complied with, in that
there was no breach of the obligation to give prior noti-
fication.

Since the aid has not yet been released, there has been no
infringement of the rules. On the contrary, the shipyard
has taken itself the risk of having the increase in aid
refused. In this case, therefore, there is no adverse effect
on competition. Furthermore, Directive 90/684/EEC does
not expressly stipulate that an aid project must be notified
before the contract is drawn up.

In their view, the fact that the application for an increase
in aid was notified three years after the contract was
concluded is irrelevant; on the contrary, it demonstrates
that the Italian authorities carried out a thorough invest-
igation of all the legal and factual conditions which could
justify the granting of the aid. The technical department
of the Ministry of Transport and Shipping assessed the
contract prices submitted by INMA and found them
appropriate and also noted that non-Community ship-
yards were interested in the order. Once they had
completed their investigation and found that the justi-
fying conditions did indeed exist,
authorities
informed the Commission, at the same time requesting
authorisation to grant the aid. During the course of the
investigation no aid was granted, which meant that, if
Community authorisation was not given, the shipyard
would be forced to complete the order without the addi-
tional State aid.

the

Both parties also criticise the Commission for failing to
analyse the merits of the case as a whole and concen-
trating simply on detecting an alleged distortion of
competition. The Italian authorities maintain that distor-
tion of competition can occur only when the aid is
actually granted, and that in the case in question the
Commission does not demonstrate in concrete terms how
releasing the aid three years after the contract was signed
can distort competition on the market at the time of
signature.

Finally, the Italian authorities challenge the use of Article
4(5) of Directive 90/684/EEC which the Commission
could have invoked if the notification had been made
before the contract was signed, since no text or statement
provides for its use where the derogation in question is
applied.

V

With regard to the comments of the Italian authorities
and the shipyard concerned, on the basis of the judgment
of the Court of Justice of 18 May 1993 in Joined Cases
C-356/90 and C-180/91 Belgium v. Commission (1), the
Commission doubts the value, as a legal basis, of the

Commission statement entered in the minutes of the
1 450th meeting of the Council on 26 November 1990.
The Court in fact confirms that, ‘as regards production aid
for shipbuilding and ship conversion, the criterion chosen
is that the aid does not exceed the common maximum
ceiling provided for in Article 4(1) of the Directive. This
ceiling constitutes what
the Council regarded as the
balance between the conflicting requirements of respect
for the rules of the common market and the maintenance
of a sufficient level of activity in European shipyards and
also the survival of an efficient and competitive European
shipbuilding industry (sixth recital in the preamble to the
Directive).

Clearly, therefore, compliance with the ceiling at issue is
the essential condition for aid to shipbuilding to be
regarded as compatible with the common market and,
where that ceiling is exceeded, the aid in question is
automatically incompatible.

the Commission’s
role is
In this context,
therefore,
limited to checking that
that condition has been
observed. If, as the Belgian Government contends, the
Commission was further required to reassess the compati-
bility of the aids, case by case, in relation to the criteria
set out in Article 92(1), that would not only deprive the
Directive of any effectiveness: it would also be illogical,
since any system of derogations necessarily presupposes
that the aids referred to are at the outset incompatible
with the common market' (2).

In view of this, even if the Commission statement in the
minutes of the 1 450th Council meeting or the author-
isation of the Italian aid scheme confirming it could be
regarded as a legal basis, the Commission cannot consider
the aid to be compatible with the common market.

Where aid which is an exception to the general rule is
notified, the Commission must be in a position to verify
that the additional aid, even if eligibility is based on a
tangible factor,
in this case competition from non-
Community shipyards, does not cause distortion of
is
competition between Community shipyards
incompatible with the common market. Of course, such
verification is made even more difficult by the fact that
notification was made three years after the contract was
signed. Given the number of Community shipyards
approached by the agent, the Commission has reason to
suppose that, if those shipyards had been able to submit
bids on the basis of aid above the level normally author-
ised, or at any increased rate up to the 9 % requested by
the shipyard, the possibility cannot be excluded that they
might also have been in competition for the orders
concerned.

that

(1)

[1993] ECR I-2323.

(2) Ibidem, paragraphs 31, 32 and 33 of the judgment.

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The parties concerned also say that the Commission has
failed to analyse the facts of the case, but they do not offer
any new evidence which would allow it to examine the
case in more detail. On the contrary, the Italian authori-
ties believe that the Commission does not in any way
dispute that the conditions necessary for application of
the derogation are met, since it does not mention the
absence of clarification or information on that score. This
would tend to suggest that the Commission could be
content, as sole proof of the possible need to grant a
derogation, with two brief letters in which the agent asks
the shipyard to reduce its tenders in order to avoid losing
the orders to non-Community yards.

No figures have been given to back up the case, and the
only figures available to the Commission are the contract
prices which, as the shipyard recognises, were set at a loss.
When, in initiating proceedings, the Commission said
that it was unable to analyse the market conditions, in
particular under the procedure in Article 4(5) of Directive
90/684/EEC, it indicated very clearly that it had doubts
whether the request was even valid. Furthermore, since in
their comments neither the Italian authorities nor INMA
provide any new figures to show that it was absolutely
necessary to double the level of aid to avoid losing the
orders to non-Community shipyards, the Commission is
all the more convinced that, in reducing its prices, the
shipyard was simply giving in to blackmail by the ship-
owners.

It is clear that aid has its effect at the time the contract is
signed since, even for aid authorised under Article 4(1) of
Directive 90/684/EEC, the Directive stipulates that, irres-
pective of when the Member State pays the aid to the
shipyards, the aid ceiling applicable shall be that in force
at the date of signature of the contract. Furthermore in
the past, with the Directives on aid to shipbuilding in
force, there have been several cases of Italian shipyards
being unable to receive aid without a legal basis, either
because of parliamentary delays or because the schemes
had not yet been authorised by the Commission. This has
never prevented Italian shipyards from winning orders
while counting on the effect of the aid, since, when the
laws entered into force, they were satisfied with receiving
the aid without its affecting the price originally set.

calculated on the basis of aid of 9 % would not have
allowed them to win the orders.

Since it could not verify this at the appropriate time,
either when the contracts were signed or at present, on
the basis of more specific information provided by the
Italian authorities, namely figures for the tenders from
Community
the
Commission takes the view that the Italian authorities
have not proved that the increase in the level of aid up to
9 % was necessary for the shipyard to keep the contracts
in question within the Community.

and non-Community

competitors,

VI

the above,

the Commission cannot
In the light of
conclude that the doubling of the aid intensity to 9 % is
compatible with the common market, in so far as the
Italian Government has not demonstrated that the other
Community shipyards that were in competition with the
INMA shipyard would not have been able to win the
orders with aid at an intensity of less than 9 %. It cannot
therefore be ruled out that INMA won the contracts only
because allowance had been made for aid at 9 %, thus
putting it de facto in a more favourable position than its
Community competitors. The Commission cannot there-
fore authorise the additional 4,5 % aid for the conversion
of the Regal Voyager and Sally Albatros at the INMA
shipyard,

HAS ADOPTED THIS DECISION:

Article 1

The increase in the rate of aid by 4,5 % of the contract
price for contracts to convert the Regal Voyager and
Sally Albatros at the INMA SpA shipyard, provided for
by Law No 132/94 and notified by Italy by letter of 27
May 1997, is incompatible with the common market.

Article 2

Italy is not authorised to grant the aid referred to in
Article 1.

It is therefore clear that the shipyard anticipated the aid
and although, as its lawyers state, it took a risk by offering
a price below cost without being certain of obtaining the
aid,
the Commission
cannot be sure that, at the time the contacts were signed,
tenders by competing Community shipyards with prices

thus not distorting competition,

Article 3

Italy shall inform the Commission within two months of
the date of notification of this Decision of the measures it
has taken to comply with it.

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L 145/31

This Decision is addressed to the Republic of Italy.

Article 4

Done at Brussels, 11 November 1998.

For the Commission

Karel VAN MIERT

Member of the Commission