1999/673/EC: Commission Decision of 20 July 1999 which Germany is planning to implement for Saxonylon Textil GmbH (notified under document number C(1999) 2535) (Text with EEA relevance) (Only the German version is authentic)
Date: 1999-07-20
Institutions: European Commission
Subjects: Germany, State aid, aid to industry, man-made fibre, textile industry

16. 10. 1999

EN

Official Journal of the European Communities

L 268/25

COMMISSION DECISION

of 20 July 1999

which Germany is planning to implement for Saxonylon Textil GmbH

(notified under document number C(1999) 2535)

(Only the German version is authentic)

(Text with EEA relevance)

(1999/673/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular Article 88(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having regard to Council Regulation (EC) No 659/1999 of 22
March 1999 laying down detailed rules for the application of
Article 93 of
the EC Treaty, and in particular Article 7
thereof (1),

Having called on interested parties to submit their comments
pursuant to the provision cited above (2) and having regard to
their comments,

Whereas:

(6)

(7)

I. PROCEDURE

By letter dated 19 June 1998, Germany notified the
Commission of a proposal to grant aid to Saxonylon
Textil GmbH in connection with an investment in a
plant to produce polyamide yarn in Meerane, Saxony. By
it provided further
letter dated 10 September 1998,
information.

By letter dated 17 November 1998, the Commission
informed Germany that it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty in
respect of this aid. Germany responded to the opening
of the procedure in its letter dated 7 January 1999.

and household commodities. The plan is to build a
state-of-the-art production plant at Meerane for polya-
mide 6.6 industrial and textile filament yarn, including
fully drawn yarn (FDY), partly drawn yarn (PDY),
textured yarn, and plied and dyed yarn. The plant is to
manufacture micro, fine and medium-weight multifila-
ment yarns with filaments of 0,5 to 1 denier.

The planned capacity of the plant is 12 140 tonnes per
year and production is scheduled to begin in the third
quarter of 1999. Output from this plant would replace
between 3 000 and 4 000 tonnes a year of nylon prod-
ucts which are currently imported by the Tolaram
Group from outside the Community. The project would
create at least 150 jobs.

The eligible project costs total DEM 120,990 million.
The proposed financial support comprises DEM 35,208
million under the Commission-approved 26th frame-
for
work for
improving regional economic structures (3) and an
investment allowance of DEM 7,138 million, with an
overall aid intensity of 35 %.

joint Federal/Länder programme

the

(8) When

the

opening

procedure,

the Commission
expressed doubts as to the compatibility of the aid with
the common market since the project clearly did not
comply with the relevant provisions of the Code on aid
to the synthetic fibres industry (4) (hereinafter referred to
as the ‘Code’).

The Commission decision to initiate the procedure was
published in the Official Journal of the European Commu-
nities (2). The Commission invited interested parties to
submit their comments on the aid.

(9)

The Commission received comments from six interested
parties. It forwarded them to Germany, which was given
the opportunity to react; its comments were received by
letter dated 15 June 1999.

II. DETAILED DESCRIPTION OF THE AID

The proposed aid relates to an investment project by
Saxonylon Textil GmbH, a subsidiary of the Tolaram
Group, Singapore. The Tolaram group operates in more
than twenty countries and manufactures and sells
textiles, fibres, yarn, floor coverings, paper, chemicals,
telecommunications equipment, food, electronic goods

III. COMMENTS FROM INTERESTED PARTIES

The International Rayon and Synthetic Fibres Committee
(CIRFS) stated that it was clear that a situation of struc-
tural overcapacity existed for both polyamide textile fila-
ment yarn and polyamide industrial filament yarn and
that, consequently, the provisions of the Code relating to
structural shortage of supply were not applicable in this
case. Since the project
involved an increase in the
company's capacity in circumstances where no structural
shortage of supply could be established, the aid was
incompatible with the Code. CIRFS added that many
companies active in this sector had modernised and in
some cases had added new capacity without infringing
the provisions of the Code. There were currently further
projects in the pipeline, not involving the use of State
aid, which could be put at risk if subsidies were to be
permitted for a competing project. CIRFS anticipated

(1)

(2)

(3)

(4)

(5)

(1) OJ L 83, 27.3.1999, p. 1.
(2) OJ C 39, 13.2.1999, p. 2.

(3) Commission letter (SG) D/7104, of 18 September 1997.
(4) OJ C 94, 30.3.1996, p. 11.

L 268/26

EN

Official Journal of the European Communities

16. 10. 1999

that between 1998 and 2003 demand for polyamide
textile filament yarn in the Community would decline by
an average of 1,6 % a year, while demand for polyamide
industrial filament yarn would remain relatively static. It
rejected the German authorities' argument that the aid
was intended to help restructure the industry in the new
Länder. This argument had no foundation in terms of the
Code. Moreover, restructuring of the polyamide filament
production sites in the former GDR had already been
completed in a relatively successful manner.

(14) As regards the question of a reduction in capacity,
Germany stressed that the project concerned investment
in a new plant. Since the enterprise had no existing
capacity in the European Economic Area (EEA), it was
not dismantling capacity elsewhere in the EEA. As
regards the project's impact on the capacity utilisation
rate for fibres and yarns, particularly in respect of
planned exports and import
substitution given the
anticipated increase in demand, Germany referred to the
comments it had made prior to the opening of the
procedure.

(10)

(11)

(12)

The Industrievereinigung Chemiefaser e.V. also argued
that the proposed aid was incompatible with the Code.
It stated that there was no structural shortage of supply
for the relevant products in Germany and that the non-
subsidised producers in East Germany would be particu-
larly hard hit by the aid.

Profibra,
the Spanish Association of Chemical Fibres
Producers, stated that the proposed aid would harm
Spanish competitors, which were already facing difficult
market conditions and requested the strict application of
the Code.

Comments were also received from Poliseda SL, a textile
company producing polyamide textile and industrial fila-
ment yarn; referring to the low capacity utilisation rates
in this sector, Poliseda opposed the granting of the aid,
which it considered incompatible with the Code. Nurel
SA, a producer of polyester fibre and filament textile
yarns and polyamide textile yarns, also referred to the
difficult
existing producers. The
proposed aid would endanger investment financed from
internal resources, thus giving subsidised operations an
unfair competitive advantage. Nylstar GmbH claimed
that, if the aid were granted, it would be obliged, given
the adverse market trends, to halt production in the
German plants at Freiburg im Breisgau (Baden-Württem-
berg) and Neumünster
(Schleswig-Holstein) with a
consequent loss of 525 jobs.

situation facing

(15) Germany further argued that, following the restructuring
of the former GDR's synthetic fibres industry, a substan-
tial proportion of production facilities in the new Länder
had been closed, with a consequent
reduction in
capacity. Of the 28 000 people previously employed by
the industry, only 3 205 were still working in 1996. It
had been hoped that it would be possible for the new
to partially retain their
Länder
least
to create or at
synthetic fibre capacity but
restructuring had taken
longer than originally foreseen. Even investors not previ-
ously involved in manufacturing within the EEA could
help to restructure local
industry by means of their
investment. The construction of a new plant in Saxony
would help to convert the chemical industry in the new
Länder into a competitive, state-of the-art branch of the
economy. It would be regrettable if a potential investor
who sought to achieve a substantial expansion in the
region's industrial base and thereby to help increase
income in this Objective 1 area were obliged to abandon
its plans because the Commission decided not to allow
aid which it had included in its plans as a major loca-
tional factor.

(16)

By letter of 15 June 1999 responding to the comments
from third parties, Germany indicated that the informa-
tion provided by potential competitors and their rep-
resentatives in some respects contradicted the informa-
tion it had submitted. The letter also pointed out that all
the information necessary for a decision had already
been sent to the Commission.

IV. COMMENTS FROM GERMANY

V. ASSESSMENT OF THE AID

(13)

By letter dated 7 January 1999, Germany responded to
the opening of the procedure, stating that the proposed
aid would assist the economic development of Meerane,
an Objective 1 area. In Germany's view, an assessment
of the project should attach just as much importance to
the effects of the planned investment on the regional
economy as to its effects on competition and trade
between the Member States.

(17) Article 87(1) of the EC Treaty states that, save as other-
wise provided, aid which distorts or threatens to distort
competition by favouring certain undertakings or the
in so far as it affects
production of certain goods is,
trade among Member States,
incompatible with the
common market. Similarly, Article 61(1) of the EEA
Agreement states that, save as otherwise provided, such
aid is incompatible with the functioning of that Agree-
ment.

16. 10. 1999

EN

Official Journal of the European Communities

L 268/27

(18)

(19)

(20)

(21)

The proposal to award aid to Saxonylon Textil GmbH
undoubtedly constitutes aid within the meaning of
Article 87(1) of the EC Treaty and Article 61(1) of the
EEA Agreement, as it would allow the company to carry
out the investment in question without having to bear
the full cost. There is significant infra-EEA trade in poly-
amide industrial and filament yarn, which in 1997
amounted to some 1 million tonnes. It can therefore be
the proposed aid threatens to distort
assumed that
competition and affect
trade within the meaning of
Article 87(1) EC and Article 61(1) EEA.

The derogations under Article 87(3)(a) EC and Article
61(3)(a) EEA relate to aid to promote the economic
development of areas where the standard of living is
abnormally low or where there is serious underemploy-
ment. If the company is allowed to carry out the invest-
ment in question, the proposed aid would assist the
economic development of Meerane, an Objective 1 area
in Saxony. However,
is necessary to monitor the
effects of the aid on the synthetic fibres industry, even in
the most structurally weak areas of the Community.

it

Since 1997 the conditions under which measures may
be taken to assist synthetic fibre producers have been
prescribed by an aid Code, the terms and scope of which
have been regularly revised; its period of validity was last
extended in 1999 (1).

The current Code requires Member States to notify the
Commission of any proposal to award aid in whatever
form, irrespective of whether or not the Commission has
authorised the scheme concerned, where the aid would
not satisfy the de minimis criterion in direct support of:

(23)

(24)

The Commission notes that the proposed aid is to be
granted under Commission-approved schemes. However,
the implementation of the schemes in question, i.e. the
26th framework for the joint Federal/Länder programme
for improving regional economic structures and the
Investment Allowance Law (2), must comply with the
provisions of Community law applicable to the cumula-
tion of aid with different objectives and to specific
industries, transport, agriculture and fisheries.

the proposed aid,

The Code sets out in detail the criteria to be applied
when the Commission scrutinises proposals coming
within the scope of control. It states, inter alia, that, in
assessing the compatibility of
the
fundamental consideration is the effect of that aid on the
markets for the relevant products, namely the fibre/yarn
whose production would be supported by the aid.
Investment aid will only be authorised for larger firms,
i.e.
firms that are not SMEs, at up to 50 % of the
applicable aid ceiling if the aid would either result in a
significant-reduction in the relevant capacity or if the
market for the relevant products was characterised by a
structural shortage of supply and the aid would not
result in a significant increase in the relevant capacity.

(25)

Capacity utilisation in this sector is rather unsatisfactory
throughout the EEA. For polyamide filament yarn it was
approximately 75 % in 1995 and 1996 and 79 % in
1997. Clearly, there is no structural shortage of supply
on the relevant market since, if such a shortage did exist,
then according to the Code the capacity utilisation rate
for production of the fibre or yarn concerned, averaged
on an annual basis over the previous two years, would
be expected to be at least 90 %.

(a) extrusion/texturisation of all generic types of fibre
and yarn based on polyester, polyamide, acrylic or
polypropylene,

irrespective of their end-uses, or

(26)

(b) polymerisation (including polycondensation) where
it is integrated with extrusion in terms of the ma-
chinery used, or

(c) any ancillary process linked to the contemporaneous
installation of extrusion/texturisation capacity by the
prospective beneficiary or by another company in
the group to which it belongs and which,
in the
specific business activity concerned, is normally in-
tegrated with such capacity in terms of the ma-
chinery used.

(22)

In the present case the aid is to be awarded for the
installation of new capacity for the extrusion of BCF
polyamide yarn and hence falls within the scope of the
Code. It ought therefore to have been notified.

(1) OJ C 24, 29.1.1999, p. 18.

Since the market is not characterised by a structural
shortage of supply, the Commission must be satisfied
that the aid results in a significant reduction in the
relevant capacity, i.e. the capacity to extrude polyamide
filament yarn. Since the parent company of the prospec-
tive aid beneficiary does not currently produce synthetic
fibres in the EEA,
it is self evident that no capacity
reduction, significant or otherwise, will occur as a result
the project. On the contrary, capacity will be
of
increased by some 12 140 tonnes per year.

(27)

The Commission notes
the total amount of
that
proposed aid is DEM 42,346 million, equivalent to an
aid intensity of 35 % (gross), which is the applicable
regional aid ceiling for the Land of Saxony. Even if the
other criteria of the Code were satisfied, the proposed
aid is therefore twice the maximum allowed under the
Code for larger firms.

(2) Commission letter SG(95) D/17154, of 27 December 1995, and

corrigendum SG(96) D/3794, of 11 April 1996.

L 268/28

EN

Official Journal of the European Communities

16. 10. 1999

(28)

The Commission cannot accept the German argument
that the aid should be permitted because the investment
will contribute to the restructuring of the synthetic fibres
industry in the new Länder. Since the investor is not
currently a producer in the EEA, it is not apparent that
the investment will contribute directly to the restruc-
turing of the domestic industry. Nor have the German
authorities supplied any data on the effects of
this
investment on production capacities in Saxony or the
other Länder. Moreover, the Code clearly states that the
relevant capacity is that of the prospective aid benefi-
ciary.

VI. CONCLUSIONS

(29)

The Commission therefore finds that the proposed aid
for Saxonylon Textil GmbH is incompatible with the
common market and with the functioning of the EEA
Agreement since it does not satisfy the requirements of
the Code on aid to the synthetic fibres industry,

HAS ADOPTED THIS DECISION:

Article 1

The aid which Germany is proposing to implement for Saxo-
nylon Textil GmbH, a subsidiary of the Tolaram Group, and
which comprises a grant of DEM 35,208 million and an

investment allowance of DEM 7,138 million is incompatible
with the common market.

The aid may accordingly not be implemented.

Article 2

Germany shall inform the Commission, within two months of
notification of this Decision, of the measures taken to comply
with it.

Article 3

This Decision is addressed to Germany.

Done at Brussels, 20 July 1999.

For the Commission

Karel VAN MIERT

Member of the Commission