2000/514/EC: Commission Decision of 22 December 1999 on State aid which Italy plans to grant to Fiat Auto SpA for its Mirafiori Meccanica plant (Turin) (notified under document number C(1999) 5211) (Text with EEA relevance) (Only the Italian text is authentic)
Date: 1999-12-22
Institutions: European Commission
Subjects: European Commission, Italy, State aid, control of State aid, exchange of information, motor vehicle industry

17.8.2000

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Official Journal of the European Communities

L 207/17

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 22 December 1999

on State aid which Italy plans to grant to Fiat Auto SpA for its Mirafiori Meccanica plant (Turin)

(notified under document number C(1999) 5211)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2000/514/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

partial replies to the questions raised by the Commis-
sion.

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

(2)

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

Having invited the parties concerned to submit their comments
in accordance with the abovementioned provisions (1),

Whereas:

I. Procedure

(1)

Between October and December 1997 the Italian
to
Government notified the Commission, pursuant
Article 88(3) of the EC Treaty, of six planned measures
under which it proposed to grant State aid to Fiat Auto
SpA (‘Fiat’), one of which (registered under N 838/97)
concerned the Mirafiori Meccanica plant in Turin, Pied-
mont (‘Fiat Mirafiori’), for investments at the Mirafiori
engine works. Requests for further information and a
number of reminders were sent to the Italian authorities
to elicit the data required for a Commission decision. On
23 April 1998 a meeting was held with representatives
of
the Italian authorities to discuss the methods by
which the cases would be examined. Finally, in a letter
of 20 November 1998, the Italian authorities supplied

(3)

(4)

(5)

By letter of 2 March 1999 the Commission informed
Italy that it had decided on 3 February 1999 to initiate
the procedure laid down in Article 88(2) of the EC
Treaty in respect of the proposed aid measures, and
formally required the Italian Government
to supply,
within one month, all the documents, information and
data required to assess the compatibility of the aid with
the common market. If Italy failed to supply those items,
the Commission would reach a decision on the basis of
the information in its possession.

The decision to initiate the procedure was published in
the Official Journal of the European Communities (2), and
interested parties were invited by the Commission to
submit comments. The Commission has not received
any comments from interested parties.

Representatives of the Commission went to Mirafiori on
24 February 1999 to discuss the case among other
matters.

After having requested, on 9 April 1999, an extension
of the deadline for reply, the Italian authorities sent the
Commission, by letter dated 16 April 1999, the infor-
mation they considered necessary for it to complete its
examination of the case.

(1) OJ C 120, 1.5.1999, p. 6 and OJ C 288, 9.10.1999, p. 37.

(2) See footnote 1.

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(6)

(7)

(8)

(9)

(10)

(11)

Further examination strengthened the Commission's
initial doubts, particularly as regards the need for the
planned aid. By letter of 14 June 1999 it therefore
informed Italy that it had decided on 26 May 1999 to
extend the procedure initiated on 3 February 1999 and
to supply,
formally required the Italian Government
within one month, all the documents, information and
data required to assess the compatibility of the aid with
the common market. If Italy failed to supply those items,
the Commission would reach a decision on the basis of
the information in its possession.

The decision to extend the procedure was published in
the Official Journal of the European Communities (3), and
interested parties were invited by the Commission to
submit comments. The Commission has not received
any comments from interested parties.

II. Detailed description of the aid

The planned aid would be granted to Fiat, which is
controlled by Fiat SpA. The Fiat group operates in the
motor vehicle industry, through Fiat Auto for motor
vehicles,
Iveco for commercial vehicles and Magneti
Marelli for components.

Fiat has plants in Italy, Poland, Turkey and South
America. In 1998 it produced 2,9 million vehicles (4) of
the Alfa Romeo, Ferrari, Fiat, Lancia and Maserati makes,
1,6 million of which in Europe. Roughly one half of
sales were recorded on the domestic market, one third in
other Member States and the remainder outside the
Community.

The investment proposed by Fiat is located at Mirafiori,
which is currently in an assisted area under Article
87(3)(c) of the EC Treaty qualifying for a maximum
regional aid intensity for large firms of 10 % net grant
equivalent (nge).

The project relates to the production of ‘Torque’ engines
used to power segment ‘B’ and ‘C’ Fiat vehicles produced
in Italy and outside the Community. The investments,
totalling ITL 468,4 billion (approximately EUR 242
million), were carried out according to the following
schedule:

(ITL billion)

1994

1995

1996

1997

1998

84,7

65,9

43,3

97,2

177,3

chosen because of the opportunity to use part of the
existing production lines following appropriate modifi-
cations, something which helped to limit the invest-
ments needed for the project.

(13)

Regional aid worth a nominal ITL 30,3 billion (EUR 16
million) is planned under the approved scheme provided
for by Law No 488/92. The discounted aid intensity
appears to be 4,6 %.

(14) No other aid is planned for the project.

(15) When the Commission decided on 3 February 1999 to
initiate the procedure, it expressed many doubts as to
the compatibility of the planned aid, with special refer-
ence to the mobility of the project and the need for the
aid. Nor could it find, at that stage, any justification for
the granting of aid for innovative investment or aid for
environmental protection. The Commission conse-
quently concluded that, on the basis of the information
in its possession, there were no reasons why the aid in
question would qualify for any of the exemptions under
Article 87(3) of the EC Treaty.

(16) After 3 February 1999, when the procedure was
initiated,
it emerged that Fiat Mirafiori had not been
located in an assisted area until March 1995. The project
began in 1994 and was preceded by feasibility, location,
etc. studies, which were presumably carried out around
1993. Thus the investment decision must certainly have
been taken by 1993 or 1994 at the latest, before the
area in which Fiat Mirafiori is located was considered to
be an assisted area. In its decision extending the invest-
the Commission therefore expressed serious
igation,
doubts as to whether the investor, when considering the
financing of the project, could have assumed that it
would obtain regional aid. Consequently, the aid was not
the
in its view necessary to the implementation of
investment concerned at Fiat Mirafiori.

(17)

Both in the decision initiating the procedure and in the
decision extending the investigation, the Commission
formally required Italy to supply within one month all
the information required to assess the compatibility of
the aid measure in question. If Italy failed to do so, it
would reach a decision on the basis of the information
in its possession.

III. Comments by Italy

(12)

The Torque engines have been the focus of a number of
innovations, as regards both the product and the manu-
facturing processes. Fiat Mirafiori appears to have been

(3) See footnote 1.
(4) Source: Automotive News Europe.

(18) On 9 April 1999 the Italian authorities requested an
extension of the deadline for their reply to the decision
of 3 February 1999 initiating the procedure, and on 16
April they sent a letter to the Commission containing
the information deemed necessary to conclude the
examination of the case.

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(19)

(20)

(21)

(22)

The Italian Government first supplied all the necessary
clarifications concerning the location studies carried out
by Fiat in 1993 and 1994 prior to the choice of Fiat
Mirafiori. It stated that the competing sites were Bielsko-
Biala in Poland, a plant operated by the company Tofas
in Turkey and a site belonging to the Cormec group in
Argentina. The competing sites offered the advantage of
lower labour costs than in Italy while meeting satisfac-
tory standards of productivity and quality. As Tofas and
Cormec were not wholly owned by Fiat, a fact which
carried a significant risk for a strategic project such as
the Torque engine, the location decision was narrowed
down to a choice between Fiat Mirafiori and Bielsko-
Biala.

The expected regional aid would not be sufficient to
offset the additional costs deriving from the decision to
locate the investment at Fiat Mirafiori, but
it was
undoubtedly a factor in the final decision.

Italy pointed out

Secondly,
the specific conditions
governing the application of Law No 488/92, with
special reference to its retroactive application to eligible
investments.

Thirdly, the Italian Government stated that the invest-
ments began in May/June 1994. The earlier activities,
including the dismantling of the old plant in January
1993 and the investment expenditure incurred in May
1993, consisted in clearing the area occupied by the old
production line, which was subsequently replaced by the
Torque engine production line. According to the Italian
authorities, these costs are not linked to the project
under examination since the old plant would have been
removed in any case, wherever it was decided to locate
the investments for producing the Torque engine.

(23)

Fourthly, Italy supplied further data for the cost-benefit
analysis (CBA) and the market survey.

(24)

In reply to the Commission's decision of 26 May 1999
to extend the investigation, on 20 July 1999 Italy trans-
mitted a letter giving detailed information on two main
aspects: the events leading up to adoption of the new aid
scheme and the link with implementation of the aid in
question, and compliance with the formal criteria in the
applications for aid.

(26)

(27)

competition within the Community, giving an advantage
to Fiat over other companies not receiving aid. Finally,
the market for motor vehicle engines,
like the motor
vehicle market itself, is characterised by extensive trade
between Member States.

The aid in question is intended for a firm which manu-
factures and assembles motor vehicles and their engines.
The firm is therefore part of the motor vehicle industry
within the meaning of the Community framework on
State aid to the motor vehicle industry (5) (the ‘relevant
Community framework’).

The aid in question, notified on 1 December 1997, is to
be granted under the approved scheme provided for by
Law No 488/92. The relevant Community framework
specifies that aid which the public authorities plan to
to an individual project under authorised aid
grant
schemes for a firm operating in the motor vehicle
industry must, in accordance with Article 88(3) of the
EC Treaty, be notified before being granted if either of
the following thresholds is reached:

— total cost of the project: EUR 50 million, or

— total gross aid for the project, whether State aid or
aid from Community instruments: EUR 5 million.

(28)

Both the total cost of the project and the amount of aid
exceed their notification thresholds. Thus, in notifying
the proposed aid for Fiat Mirafiori, the Italian authorities
have complied with the requirements of Article 88(3) of
the EC Treaty.

(29) Article 87(2) of the EC Treaty specifies certain types of
aid that are compatible with the Treaty. In view of the
nature and purpose of the aid and the geographic loca-
tion of the investment, Article 87(2)(a), and (c) are not
applicable. Article 87(3) specifies other forms of aid
which may be regarded as compatible with the common
market. Compatibility must be assessed from the stand-
point of the Community as a whole and not in a purely
domestic context. In order to maintain the proper func-
tioning of the common market and having regard to the
principle laid down in Article 3(g) of the EC Treaty, the
exceptions in Article 87(3) must be construed narrowly.
With regard to the exceptions in Article 87(3)(b) and (d),
it is clear that the aid in question is not intended for a
project of common European interest or to remedy a
to
serious disturbance in the Italian economy or
promote culture and heritage conservation. As regards
the exceptions in Article 87(3)(a) and (c), only subpara-
graph (c) could be relevant as Mirafiori is now located in
an assisted area under Article 87(3)(c) and no longer in
an assisted area under Article 87(3)(a).

IV. Assessment of the aid

(30)

(25)

The measure notified by Fiat constitutes State aid within
the meaning of Article 87(1) of the EC Treaty. It would
be financed by the State or through State resources;
moreover, given that it represents a significant propor-
is likely to distort
funding,
tion of

the project

it

(5) OJ C 279, 15.9.1997.

To determine whether the proposed regional aid meas-
ures are compatible with the common market, under the
exemption provided for in Article 87(3)(c) of the Treaty,
the Commission must therefore check compliance with
the conditions specified in the relevant Community
framework.

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(31)

to the seriousness of

the Commission
In accordance with the framework,
checks in every instance that the aid granted is propor-
tional
is
intended to solve and is necessary for the implementa-
tion of the project. Both tests, proportionality and neces-
sity, must be satisfied if the Commission is to authorise
State aid in the motor vehicle industry (6).

the problems that

it

(32) While the proportionality of aid is usually assessed by
means of a cost-benefit analysis, in the case in point the
Commission can limit its assessment to the necessity test
alone.

(33) When initiating the procedure, the Commission took
note of the particular events which led to the author-
isation of the Italian scheme under Law No 488/92. In
keeping with the decisions it had already taken on 18
November 1997 (7), 30 September 1998 (8) and 7 April
1998 (9), the Commission acknowledged that particular
circumstances surrounding the adoption of Law No
488/92 could explain the long delays between the
launch of the project, the start of mass production of
Torque engines in 1995, the application for aid in May
1996 and the notification in December 1997. However,
examination of the need for the aid in order to locate
the project at Fiat Mirafiori cannot be restricted to
consideration of such factors; the Commission must also
check the following:

— whether the regional aid was indeed taken into
account in the financial analysis of the project, the
location study and the choice of the Mirafiori site,
and

— whether the project was genuinely mobile.

(34)

(35)

for each aspect,
The Community also has to check,
whether the evidence supplied by Italy in support of its
claims is sufficient in the context of a narrow inter-
pretation of
the exemptions provided for by Article
87(3) of the Treaty and having due regard to the formal
to supply information issued by the
requirements
Commission on 3 February and 26 May 1999.

The Italian authorities' letter of 16 April 1999 states that
the project was launched in May/June 1994, that orders
for tooling were placed in March/April 1994 and that
the first deliveries of
tooling took place during the
second half of 1994. The Commission logically
concludes that any location study that prompted Fiat to
choose the Mirafiori site must have been carried out
between January 1993 and April 1994. That assessment
was confirmed by the Italian authorities in their letter of
20 July 1999.

(6) See the judgement of the Court of Justice of 17 September 1980 in

Case 730/79 Philip Morris [1980] ECR 2671, paragraph 17.

(7) OJ C 70, 6.3.1998, p. 7.
(8) OJ C 409, 30.12.1998, p. 7 and OJ C 384, 12.12.1998, p. 20.
(9) OJ C 240, 31.7.1998, p. 3.

(36)

(37)

(38)

(39)

(40)

Fiat Mirafiori was not located in an assisted area until
March 1995, when certain areas of Turin,
including
Mirafiori, were classed as assisted areas for the purposes
of Article 87(3)(c) of the Treaty; as confirmed in the
letter of 20 July 1999, Italy submitted an initial proposal
for the areas to be classed as assisted areas under that
provision only in September 1994.

The decision on the investment in question was there-
fore taken at a time when Fiat Mirafiori was not located
in an assisted area.

This assessment is not affected by Fiat Mirafiori's loca-
tion in an Objective 2 area, or by the alleged possibility
of transferring the machinery from one site to another
during the initial phases of the project. Pre-production
furthermore manufactured in January/
units were
February 1995, before the decision classing the area as
an assisted area was taken. It is also stated in Annex 3(b)
to the Italian authorities' letter of 20 November 1998
that work on the Torque engine was carried out at the
for example to
Mirafiori site from 1993 onwards,
modify the production lines for the engine block, the
crankshaft, the connecting rods, the flywheel and the oil
pump spindle.

The Commission therefore takes the view that Fiat did
not in fact consider the financing of its project at Mira-
fiori on the assumption that it would obtain regional
aid; neither have the Italian authorities ever produced
evidence refuting that view.

Even if
the company did include the possibility of
implicitly
receiving regional aid in its reasoning,
accepted the risk of the aid being withheld, since the
Commission's prior
required in
accordance with the relevant Community framework.

authorisation was

it

(41) Moreover, at the time Fiat decided to carry out the
investment, which was also when it took into account
the possibility of obtaining State aid to help finance the
Fiat Mirafiori project, the Commission's practice required
a cost-benefit analysis (CBA) based on a comparison
between the plant in question and an alternative site in a
non-assisted region of the Community where Fiat could
very probably have located the investment. The Italian
authorities and Fiat were familiar with this methodology
at the time since they had, for example, already handled
the Fiat Mezzogiorno case (10). The Commission does
not have any information on the choice of comparator
plant, but the most likely alternative would have been a
plant located in central or northern Italy. The Commis-
sion's experience shows that a CBA drawn up on the
basis of such an assumption would have made it diffi-
if not impossible, to identify handicaps for Fiat
cult,
justifying the authorisation of regional aid.
Mirafiori
Again, the Italian authorities have not supplied proof
that Fiat indeed took regional aid into account in its
decision to carry out the investment at Fiat Mirafiori.

(10) OJ C 37, 11.2.1993, p. 15.

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(42)

(43)

(44)

(45)

(46)

(47)

The Commission points out, incidentally, that reference
to an alternative plant in Poland (Bielsko-Biala), as called
for by Italy in the case in point, became possible only
after the entry into force of the relevant Community
framework in January 1998, some four years after the
investment decision was taken.

Lastly, the Commission considers that a Member State
and, all the more so, an undertaking cannot legitimately
rely on a given region being classed as eligible for assis-
the Commission has
tance under Article 87(3) until
taken a decision to that end.

For these reasons the Commission concludes that the
Italian Government has not sufficiently demonstrated
that Fiat actually considered the grant of regional aid to
be a necessary condition for selecting Fiat Mirafiori. The
notified regional aid is therefore not necessary for
achieving the objectives referred to in Article 87(3) of
the EC Treaty.

Secondly, pursuant to the abovementioned Community
framework, in order to prove the need for regional aid
the recipient company must clearly demonstrate that it
has an economically viable alternative location for part
or parts of its project. If there were no other new or
existing industrial site within the group capable of
receiving the proposed investment, the firm would be
compelled to carry out its project in the sole plant
available, even in the absence of aid. This mobility study
is now, under the framework currently in force, even
more important than in the past. It is no longer suffi-
cient
the Commission to recognise theoretical
mobility; it has to establish that the investor had both
the possibility and the intention of locating the project
at the alternative site if the regional aid could not be
granted.

for

The information supplied by Italy in this connection
continues to be scarce. The Commission has received
only a brief statement explaining that, of
the three
possible choices (Cormec in Argentina, Tofas in Turkey
and Fiat Auto Poland), two (Cormec and Tofas) were
rejected as being too risky (11), while the Polish option
offered considerable advantages in comparison with Fiat
Mirafiori, particularly in terms of labour costs.

The Commission takes the view that at the time the
investment decision was taken, in 1993/1994, the real
advantages of locating the project in Poland were not as
obvious as the Italian authorities currently maintain. For
example, the industrial risk was not negligible, at a time
when Fiat Auto Poland was undergoing intensive reorga-
nisation. This factor, which Italy mentions briefly but
dismisses as unimportant, should not be underestimated
in the context of a strategic project such as the Torque
engine. Production would have been difficult to orga-
involving the transport of sensitive components
nise,
between Italy and Poland (12); and networks of
local
component suppliers were not as highly developed as
they are today. Production of Fiat engines in Poland is

(11) Since Fiat was not the sole shareholder in those companies.
(12) Owing to the existence of components common to the Torque and

the 138 engine, which remained in production at Mirafiori.

(48)

(49)

furthermore currently limited to two relatively old
models: the 652 cc and the 900 cc engines.

The Italian Government has provided the Commission
with only patchy indications concerning the technical
feasibility of producing the Torque engine at Bielsko-
Biala under optimum conditions and hardly any infor-
mation regarding Fiat's real
intention to relocate the
investment concerned to Poland.

The Commission accordingly concludes that Italy has
not demonstrated the mobility of the project. In the
absence of a credible alternative site,
the notified
regional aid is therefore not necessary in order to
achieve the objectives referred to in Article 87(3) of the
EC Treaty.

(50) Other aid objectives mentioned at one point by the
Italian Government, such as environmental protection
and innovation, have never been explained in detail,
despite the formal requirements to provide information
issued by the Commission. The Commission has conse-
quently not been able to examine the presence of aid for
any innovative or environmental protection measures.

V. Conclusion

(51)

to Fiat Mirafiori

The regional aid which the Italian authorities plan to
grant
is not necessary in order to
achieve the objectives referred to in Article 87(3)(c) of
the EC Treaty, namely to facilitate the development of
certain economic activities or of certain economic areas.
The aid in question is therefore incompatible with the
common market,

HAS ADOPTED THIS DECISION:

Article 1

The State aid that Italy plans to grant to Fiat Auto SpA for its
Mirafiori Meccanica plant
is incompatible with the
(Turin)
common market.

The aid shall consequently not be put into effect.

Article 2

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.

This Decision is addressed to the Italian Republic.

Article 3

Done at Brussels, 22 December 1999.

For the Commission

Mario MONTI

Member of the Commission