2002/143/EC: Commission Decision of 18 July 2001 on the State aid which Germany is planning to implement for Automobilmanufaktur Dresden GmbH (Text with EEA relevance) (notified under document number C(2001) 2348)
Date: 2001-07-18
Institutions: European Commission
Subjects: Germany, State aid, application of EU law, control of State aid, investment aid, motor vehicle industry

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Official Journal of the European Communities

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COMMISSION DECISION

of 18 July 2001

on the State aid which Germany is planning to implement for Automobilmanufaktur Dresden
GmbH

(notified under document number C(2001) 2348)

(Only the German text is authentic)

(Text with EEA relevance)

(2002/143/EC)

(4)

(5)

(6)

(7)

(8)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

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

Having called on interested parties to submit their comments
pursuant to those provisions (1),

Whereas:

(1)

(2)

(3)

I. PROCEDURE

After a meeting on 8 July 1999, Germany gave noti-
registered as
fication by letter dated 5 July 1999,
received on 9 July, of planned aid in respect of an
investment project by Automobilmanufaktur Dresden
GmbH (AMD), a wholly owned subsidiary of Volks-
wagen AG (VW).

The Commission addressed additional questions
to
Germany by letter dated 3 August 1999. After a request
from Germany for an extension of the deadline for a
reply, Germany partly answered the questions by letter
dated 5 October 1999 (registered as received on 6
October) 1999. By letter dated 21 October 1999, the
Commission gave its comments. By letter dated 17
November 1999 (registered as received on 18 November
1999), Germany provided additional

information.

By letter dated 3 February 2000,
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 the aid. Its objections relate to the claim by
Germany that the exemption in Article 87(2)(c) of the
EC Treaty applies, the mobility of the investment, a
number of assumptions in the cost-benefit analysis
submitted by Germany that do not appear to comply
with Commission practice, and the notified amount of
aid and aid intensity.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (2). The Commission called on interested parties to
submit their comments.

The Commission received no comments from interested
parties.

By letter dated 3 April 2000 (registered as received on 4
April 2000), Germany submitted comments on the
opening of the investigation procedure. After a letter
requesting clarifications was sent to Germany on 13
September 2000, an on-site visit on 28 and 29
November 2000, a reminder from the Commission
dated 22 December 2000 and a request from Germany
for an extension of the deadline for a reply dated 17
January 2001, to which the Commission agreed on 23
January 2001, Germany sent additional information by
letter dated 2 February 2001 (registered as received on 7
February 2001).

II. DETAILED DESCRIPTION OF THE AID

The Volkswagen group is active in the motor vehicle
sector and sells passenger cars through its four main
brands: Volkswagen, Audi, Seat and Skoda. In the Euro-
pean Union and the central and eastern European coun-
tries (CEECs), Volkswagen operates plants in Germany,
Belgium, Spain, Portugal, Slovakia, Hungary and the
Czech Republic. The company decided to produce under
the brand Volkswagen a completely new model that
would compete with the Audi A8, the Mercedes S Class,
the BMW 7 Series and Jaguar (limousine).

The beneficiary of the aid is AMD. VW developed a
(transparent
concept known as ‘gläserne Manufaktur’
factory) which allows the customer to observe the final
assembly of his vehicle on site by highly skilled
personnel. The assembly plant is to be built in a town
which is characterised by a combination of engineering,
that,
tradition and
following a comparative assessment of different sites,
VW had decided to locate the transparent factory in
Dresden.

culture. Germany

announced

(1) OJ C 78, 18.3.2000, p. 8.

(2) See footnote 1.

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(9)

The investment will take place in several places: the
bodyshop and paintshop will be located in Mosel on a
previously used and now abandoned site next to VW's
existing plant. An intermediate storage centre will be
established in Dresden-Friedrichstadt and the transparent
factory in which the assembly takes place is to be built
close to the historical centre of Dresden, on the Straß-
burger Platz. Germany notified all of the investments as
‘greenfield’
the
Community framework for State aid to the motor
vehicle industry (1) (hereinafter the ‘motor vehicle frame-
work’) and stated that the project does not entail the
creation of an overall project within the meaning of
point 2.1(e) of the motor vehicle framework.

investments within the meaning of

(13) Mosel is situated in an assisted region for the purposes
of Article 87(3)(a) of the EC Treaty that has a regional
aid ceiling of 35 % gross grant equivalent (gge). Both
locations in Dresden are also located in an Article
87(3)(a) region but have a lower regional aid ceiling of
28 % gge for large enterprises. Germany has asserted
that the aid is also compatible with the common market
under Article 87(2)(c), whereby aid granted to the
economy of certain areas of the Federal Republic of
Germany affected by the division of Germany is deemed
compatible in so far as it is required in order to compen-
sate for the economic disadvantages caused by that divi-
sion.

(10) According to Germany, the investment could be carried
out at alternative sites, namely in Prague and the VW
group's existing Kvasiny plant in the Czech Republic. On
completion of the project, installed capacity in Dresden
will be 37 500 units per year. According to Germany, a
total of approximately 2 000 new jobs will be created in
AMD.

III. COMMENTS FROM GERMANY

(14)

By letter dated 3 April 2001, Germany submitted
comments on the opening of the investigation proce-
dure which it considered sufficient for the Commission
to be able to conclude the evaluation of the case.

(11) According to the initial notification of 5 July 1999, the
planned aid amounts to DEM 194 million (net present
value: DEM 174 million), resulting in an aid intensity of
13,42 %. The cost-benefit analysis in the notification
puts at 37,1 % the intensity of the locational handicap,
comparing both Mosel and Dresden with a comparable
investment made at the alternative sites identified in the
Czech Republic. According to the additional information
submitted by Germany on 5 October 1999, Mosel
would face a 180,4 % handicap in relation to Kvasiny,
while Dresden would face one of 19,7 % in relation to
Prague.

(15) Germany explained in more detail the conditions under
which the site on which the plant in Dresden is being
constructed, was sold by the city of Dresden to AMD
and submitted additional documents,
the
purchase contract (extracts) and its implementing agree-
ment (Durchführungsvertrag).

such as

(16) With regard to the exemption provided for in Article
87(2)(c) of the EC Treaty, Germany restated its view that
this provision applies in the present case.

(12)

Following the opening of the investigation procedure,
Germany provided updated figures on the planned aid
and revised the data in the cost-benefit analysis. On the
basis of these figures, Mosel faces a 35,2 % locational
handicap in relation to Kvasiny, while Dresden faces one
of 21,8 % in relation to Prague. Regional aid amounting
to around DEM 190,5 million (net present value:
DEM 171 million) is to be granted to AMD under the
approved ‘Gemeinschaftsaufgabe Verbesserung der regio-
nalen Wirtschaftsstruktur’
(GA) — 27. Rahmenplan
(27th outline plan for the joint Federal Government/
Länder scheme for improving regional economic struc-
tures) and under the approved ‘Investitionszulagengesetz
1999’ (1999 Investment Allowance Law). The aid will be
paid over time in the light of progress with the invest-
ment project.

(1) OJ C 279, 15.9.1997, p. 1.

information and stated that

(17) With regard to the mobility of the project, Germany
provided additional
the
production of the model in the Czech Republic was a
viable and sound alternative. Given that the marketing
concept provides for observation of the assembly of the
car by the customer as well as a tour of the city, Prague
was considered as attractive in cultural and tourism
terms as Dresden. In addition, VW basically assumes that
the location of the production site would not affect
sales. Moreover, Germany stated that
the locational
choice had become less crucial as the company has
managed to replace a locational image by a brand image
(‘Made by Volkswagen’). However, should an image-
induced risk to sales arise, then, according to Germany,
it would be compensated for by additional marketing
expenditure. With regard to the quality of production, it
is emphasised that the ‘objective’ quality of production is
the same in all VW production locations. The ‘subjective’

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perception of the quality of cars produced by VW in the
Czech Republic, such as Skoda, reaches the level of other
brands in the VW group. Mention is also made of the
existing production of the Audi TT model in Hungary
and the assembly of the Porsche Boxster in Finland.

(18) As regards the nature of the investment, Germany states
that it considers all investments in Dresden and Mosel as
new investments. A number of elements used in the
cost-benefit analysis for the purpose of calculating the
locational handicap were modified and quantified, such
as tangible and intangible risks/factors.

(19)

(20)

Finally, Germany states that the additional production
capacity for the D1 model, which is at the higher end of
the range is 37 500 vehicles a year. In practice, it could
not be assumed that all VW vehicles were perfectly
substitutable.
there are four
In this market segment
other major players (BMW 7 Series, Mercedes S Class,
Audi A8, Jaguar) and a few smaller producers (such as
Toyota Lexus). Production of the D1 model would thus
have positive effects as it increases competition in this
segment. The effects of the project on capacity within
the meaning of the motor vehicle framework are consid-
ered small by Germany.

Following an on-site visit on 28 and 29 November
2000, Germany submitted additional
information by
letter dated 2 February 2001. This comprised separate,
revised cost-benefit analyses for Dresden and Mosel;
several points raised by the Commission when the
procedure was initiated were enlarged upon. Additional
documents relating to the intention to evaluate different
sites were provided, together with updated figures on the
investment costs, operating costs and amounts of aid.
The revised cost-benefit analysis gives a locational
handicap for Dresden of 21,8 % and for Mosel of
35,2 %.

IV. ASSESSMENT OF THE AID

(21)

The aid measure notified by Germany for AMD consti-
tutes state aid within the meaning of Article 87(1) of the
EC Treaty. It would be financed by the State or through
state resources. Furthermore, as it constitutes a signifi-
cant proportion of the funding of the project, it is liable
to distort competition in the Community by giving
AMD an edge over competitors. Lastly, there is extensive

(22)

(23)

(24)

trade between Member States in the motor vehicle
market.

The aid is intended for a firm which manufactures and
assembles cars. The firm is therefore part of the motor
vehicle industry within the meaning of the motor vehicle
framework.

The aid is to be granted under the ‘Investitionszulagen-
gesetz 1999’ (1999 Investment Allowance Law) and the
regionalen
‘Gemeinschaftsaufgabe Verbesserung
Wirtschaftsstruktur
(27th
outline plan for the joint Federal Government/Länder
scheme for improving regional economic structures),
which were both approved by the Commission.

(GA) — 27. Rahmenplan’

der

The motor vehicle framework stipulates that aid which
the public authorities plan to grant to an individual
project under an authorised aid scheme for a firm oper-
ating in the motor vehicle industry must, in accordance
with Article 88(3) of the Treaty, be notified before being
granted if at least one of the following thresholds is
reached: (i) total cost of the project equalling EUR 50
million or (ii) total gross aid for the project, whether
State aid or aid from Community instruments, equalling
EUR 5 million.

(25)

Both the total cost of the project and the amount of aid
exceed the notification threshold. Thus, in notifying the
proposed aid for AMD, Germany has complied with the
requirement arising out of Article 88(3) of
the EC
Treaty.

(26) Article 87(2) of the EC Treaty specifies certain types of
aid that are compatible with the common market.
Germany relies on Article 87(2)(c), whereby aid granted
to the economy of certain areas of the Federal Republic
of Germany affected by the division of Germany is
compatible with the common market in so far as such
aid is required in order to compensate for the economic
disadvantages caused by that division. According to
settled case-law (1),
the phrase ‘division of Germany’
refers historically to the establishment of the dividing
line between the two occupied zones in 1948. There-
fore, the ‘economic disadvantages caused by that divi-
sion’ can mean only the economic disadvantages caused
by the isolation which the establishment of that physical
frontier entailed, such as the breaking of communication
links or the loss of markets as a result of the breaking
off of commercial relations between the two parts of
German territory. Germany has not shown that the aid
is necessary to compensate for such an economic disad-
vantage caused by the division of Germany. The
Commission therefore considers that Article 87(2)(c) is
not applicable to the planned regional aid for AMD.
Article 87(2)(a) and (b) is not applicable either, in view
of the nature and purpose of the aid and the location.

(1) Judgment of the Court of Justice of the European Communities of
19 September 2000 (Case C-156/98 Germany v. Commission
[2000] ECR I-6857).

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(27) Under Article 87(3) of the EC Treaty, certain other forms
of aid 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 from that
of an individual Member State. In order to safeguard the
the common market and to
proper functioning of
respect the principle in Article 3(1)(g) of the Treaty, the
exceptions in Article 87(3) must be construed narrowly.
With regard to Article 87(3)(b) and (d), it is clear that
the aid in question is not intended to promote the
execution of an important project of common European
interest, to remedy a serious disturbance in the economy
of a Member State or to promote culture and heritage
conservation. As regards Article 87(3)(a) and (c), the
Commission notes that the different investment projects
are carried out in areas of Saxony which qualify for
assistance under point
(a). According to the new
regional-aid map in Germany, approved by the Commis-
sion on 29 July 1999 for the Article 87(3)(a) regions,
the projects are located in areas with a regional-aid
ceiling for large companies of 35 % gge (Mosel) and
28 % gge (Dresden).

(28) As regards the land transaction between the city of
Dresden and AMD, Germany provided additional docu-
ments and explained in its comments, on the opening of
the procedure, the conditions on which the land was
sold. An assessment of the value of the land was carried
out by an independent evaluation committee commis-
sioned by the city of Dresden under the applicable
German law (§192 Baugesetzbuch). The value of the
land (‘erschließungsbeitragsfreies baureifes Land’) was
estimated at DEM [...] (*) per m2 minus the costs neces-
sary to render the area usable for investment (such as
redevelopment, anti-pollution measures and clearance of
ammunition and the like remaining from the war) and
minus the loss in value due to restrictions on future use.
According to the purchase contract and its imple-
menting agreement, the site was sold at a price of DEM
[...] per m2 and AMD undertook to pay the necessary
costs for cleaning up and preparing the site for redevel-
opment (amounting to DEM [...] per m2), which would
otherwise have had to be borne by the city. As the total
costs incurred by AMD amount to DEM [...] per m2, the
Commission considers that AMD has not received any
aid related to the purchase of the land.

(*) Confidential

information.

(29)

In order to decide whether regional aid under the excep-
tion in Article 87(3)(a) of the EC Treaty is compatible
with the common market, the Commission must check
whether the conditions specified in the motor vehicle
framework have been met.

(30)

(31)

(32)

(33)

In order to authorise aid under the motor vehicle frame-
work, the Commission, after checking that the area in
question is eligible for aid under Community legislation,
the investor has considered an
establishes whether
alternative site for its project, the aim being to ascertain
the need for the aid, with particular reference to the
mobility of the project.

The Commission has studied the mobility of the project.
In this respect, the automotive group which is to receive
the aid must prove, in a clear and convincing way, that
there is an economically viable alternative to the planned
location. The Commission has taken into account in its
assessment that the project in question involves entirely
new investment (greenfield project) in Dresden as well as
the expansion, without replacement, of existing oper-
ating installations in Mosel, where a new bodyshop and
paintshop are being built on a previously used and now
abandoned site next to VW's existing plant. This has
been confirmed by the Commission's external automo-
tive expert following an on-site visit.

In addition, the Commission received several documents,
such as copies of minutes of VW's decision-making
body which show the company's intention to assess
alternative sites for the production of the new model, a
document comparing the two sites (Machbarkeitsstudie
und Standortuntersuchung — Volkswagen D1), a site
plan of the available area in Prague as well as detailed
information on cost elements based on VWs actual costs
at its existing plants in the Czech Republic.

Since VW already operates several car plants in central
and eastern Europe, it would be technically possible to
carry out the investment for the production of the new
D1 model in VWs Kvasiny plant and to start assembly
work at a greenfield site in Prague. As to whether Prague
can be considered as a credible commercial alternative,
the Commission notes that, according to the sales
promotion concept of VW,
should
combine a visit of a city possessing a rich cultural
heritage with a viewing of the car assembly and delivery

customer

the

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at the plant. Both Saxony and the Czech Republic have a
long tradition of car manufacturing. In addition, it can
be assumed that both Dresden and Prague are equally
attractive in cultural terms and would therefore fit into
the planned marketing concept. Audi already assembles
a top-of-the-range model (Audi TT) in Hungary.

significantly higher level of wage costs in Germany
compared with the Czech Republic. Taking into account
the additional
information received from Germany
following the opening of the procedure, the cost-benefit
analysis, based on the exchange rate applicable at the
time of notification, was modified in the manner
described below.

(34) However, where producing the D1 model in the Czech
Republic is concerned,
there still remains a possible
the
image risk as the sales concept envisages that
customer will become acquainted with the location in
central/eastern Europe. Germany acknowledged that, as
a location, Prague might have an influence on potential
buyers of the car and that there could be a risk that the
sales volume and price could be lower compared with
Dresden as a result of customers' subjective expectations.
This risk, according to Germany, could however be
compensated for by increased marketing expenditure.
The Commission, having consulted its external automo-
tive expert, considers it plausible that such an image risk
could be mitigated by additional marketing measures.
Taking into account
in the cost-benefit analysis the
increased marketing expenditure needed, the Prague or
Kvasiny option can be considered as a credible commer-
cial alternative. The Commission concludes therefore
that the project is mobile and so can be considered
eligible for regional aid since the aid is necessary to
attract investment to the assisted region.

(35)

(36)

external automotive

Regional aid intended for modernisation and rationalisa-
tion measures, which are generally not mobile, is not
authorised in the motor vehicle sector. However, it could
be granted for a transformation involving a radical
change in production structures at the existing plant.
The
consulted by the
Commission has confirmed that the investment in the
new paintshop and bodyshop in Mosel, in an abandoned
building next to VW's main operating plant in Mosel, in
which the existing bodyshop and paintshop could not
have been used for the completely new D1 model, quali-
fies as a transformation. The investments in Dresden
concern greenfield projects.

expert

expert,

cost-benefit

evaluated the

The Commission has, with the help of its external auto-
motive
analysis
presented with a view to ascertaining to what extent the
proposed regional aid is suited to resolving the regional
problems it seeks to alleviate. The in-depth evaluation
has made it possible to clarify the points which were
raised when the procedure was launched. The principal
reason for the locational handicap of Dresden is the

(37)

to examine in the assessment of

In opening the procedure, the Commission expressed
doubts as to whether it would be appropriate, as notified
by Germany,
the
proportionality of the aid, Saxony's locational handicap
relative to the Czech Republic only on the basis of an
aggregated analysis. In view of the different types of
investment
(greenfield in Dresden and expansion in
Mosel) and in particular the different regional-aid ceil-
ings for Dresden (28 % gge and Mosel (35 % gge), it has
based its assessment of the proportionality of the aid on
two separate cost-benefit analyses, one for the Dresden
and Prague and one for Mosel and Kvasiny.

(38) Germany has considered all investments in Dresden and
Mosel as greenfield investments. A new plant within the
meaning of the motor vehicle framework would mean a
plant on a new site which has not yet been developed.
In such cases, compared with plant expansion, compa-
nies are faced with the problems resulting from a lack of
adequate infrastructure, organised logistics, an appro-
priately skilled workforce and subcontracting structures.
If, however, such facilities can be provided by a unit of
the same group located in close proximity to the site,
the Commission regards the project as an expansion
even if it is actually built on a greenfield site. Following
the on-site visit, the Commission noted that the invest-
ment in the new bodyshop and paintshop is taking place
in existing buildings previously used by VW Sachsen
GmbH, near to its main plant in Mosel. As AMD can
profit from the existing infrastructure and logistics, the
Commission considers that the project is to be regarded
as an expansion. Consequently, the operational handi-
caps in Mosel were assessed in the cost-benefit analyses
over a period of three years.

(39) On the other hand, the investments in Dresden involve
greenfield projects. The Commission has noted that
these investments are carried out on completely new
sites, creating new jobs, and that jobs are not being
transferred from VWs existing plant in Mosel. The oper-
ating handicaps in Dresden were accordingly assessed
over a period of five years.

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(40)

The Commission opened the procedure under Article
88(2) of the EC Treaty also in order to verify to what
extent additional marketing expenditure would be
needed to compensate for image risks were the vehicle
to be produced in the Czech Republic. Germany
acknowledged, in principle, that, if the new luxury D1
car were produced in Prague, VW might have to accept
lower prices at the outset and/or the start-up curve
might be lower as a result of customers' subjective
expectations with regard to quality differences. Germany
to
estimated the additional marketing expenditure
compensate for this risk at DEM [...] million in the
average scenario and at DEM [...] in the worst-case
scenario. As a precaution, the Commission has based its
analysis on the worst-case scenario and assumed that the
expenditure, which will have a significant impact on the
locational handicap, would occur in particular at the
start of production. Germany has allocated these addi-
tional costs to the Prague and Kvasiny sites according to
the value added. Given the underlying marketing
concept of the ‘transparent factory’, where the customer
combines a visit to a city possessing a rich cultural
heritage with a viewing of the final assembly of his car,
the Commission considers however that these marketing
costs are closely linked to the sale of the car at the
assembly plant and should therefore be fully allocated as
necessary additional marketing costs to the two compar-
ator sites where the vehicles are to be assembled and
delivered,

i.e. Dresden and Prague.

(41)

Volkswagen acknowledged that transfer of the car from
the Czech Republic could give rise to additional costs
which it put at DEM [...] million. These costs were
included in the calculations, it being taken into account
that they might arise in particular in the years before
accession. As regards quality management, Volkswagen
acknowledged that, in a worst-case scenario, additional
personnel costs of DEM [...] million might arise for the
Prague site during a transitional period. A further DEM
[...] million was included for possible start-up difficulties
in Prague. All these costs were included in the cost-
benefit analysis.

the information provided by Germany, additional
of
costs of some DEM [...] million have been taken into
account
for the siting of production in the Czech
Republic. Even though productivity risks in the Czech
Republic are considered to be relatively low by Volks-
wagen, the company has included in the cost-benefit
analysis risk-induced costs of an estimated DEM [...]
million for the worst-case scenario.

(43) With regard to investment costs, Germany acknowl-
edged that the [...] reduction in costs initially assumed
for the Prague scenario as a result of the procurement of
material from suppliers in the Czech Republic does not
hold as such differences would be eliminated within the
overall procurement activities of the VW group. Such
cost reductions were not therefore taken into account in
the assessment of the comparative handicaps of Dresden
with respect to the Czech Republic.

(44)

to building investments

The comparative handicaps were calculated on the basis
of the eligible investment costs under the aid schemes
approved by the Commission. Cost disadvantages asso-
ciated with the purchase of the site in Dresden were
excluded from the cost-benefit analysis. The same
in Mosel, which
applies
Germany included in the cost-benefit analysis as non-
eligible costs. As regards machinery/equipment costs in
Mosel, which Germany considered to be only partly
eligible, the handicap was thus reduced proportionally.
As regards supplier tooling costs, the Commission has
considered as eligible only those pertaining to the
assisted areas in the new Länder. Following the opening
of
the procedure, Germany provided an estimate of
supplier-tooling investments to be carried out in those
areas until 2004 and the Commission has taken only
these amounts into account in its assessment. This has
lead to a reduction in eligible costs in both locations,
increasing both the ‘regional handicap ratio’ and the aid
intensity of the project. As Germany failed to provide
sufficient proof,
taken any
locational handicaps
into account with regard to
supplier tooling.

the Commission has not

(42) As regard wage costs,

it has been the Commission's
standard practice in cases where the comparator plant is
located in central or eastern Europe to apply a conver-
gence factor. The Commission indicated when opening
the procedure that it had been its previous practice in
similar cases to incorporate an annual convergence
factor of 5 % in the cost-benefit analysis. Although
Germany does not agree with this,
the Commission
considers that wages and salaries in the Czech Republic
and Germany are expected to converge as the labour
market in the Czech Republic expands in view of the
forthcoming EU enlargement. Consequently, on the basis

(45)

The above modifications in the cost-benefit analysis
produce results that differ from those of the analysis
initially submitted by Germany. The net present value of
the locational handicap thus amounts to DEM 86,7
million in Dresden and DEM 200,46 million in Mosel.
The net present value of the eligible costs in Mosel
amounts to DEM 334,59 million, giving a handicap of
59,91 % as compared with Kvasiny. The net present
value of
the eligible costs in Dresden amounts to
DEM 652,81 million, while the handicap compared
with Prague is 13,28 %.

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(46)

(47)

(48)

the

approved

the procedure, Germany
Following the opening of
provided updated figures on the aid to be granted to
AMD under
‘Gemeinschaftsaufgabe
Verbesserung der regionalen Wirtschaftsstruktur (GA) —
27. Rahmenplan’ (27th outline plan for the joint Federal
improving regional
scheme for
Government/Länder
economic structures) and under the approved ‘Investi-
tionszulagengesetz 1999’ (1999 Investment Allowance
Law). The net present value of the aid to be granted for
the project in Dresden amounts to DEM 105,87 million,
resulting in an aid intensity of around 16,22 % gge, and
the net present value of the aid to be granted in Mosel
amounts to DEM 64,85 million, resulting in an aid
intensity of some 19,38 % gge.

In view of the sensitive character of the motor vehicle
industry,
the Commission also examines whether an
adjustment of between – 2 and + 4 percentage points
can be made to the allowable aid intensity in the light of
the effects on the industry and competition (in partic-
ular, variations in production capacity on the relevant
market in the group concerned) and in the light of
assisted-area status of the relevant location. The impact
on the industry is ‘high’ where the ratio between the
capacity of the group after the investment (C(f)) and the
capacity of the group before the investment (C(i)) is 1,01
or over. According to the information provided by
Germany, the production capacity of the VW group
amounts to [...] (**) before the investment and to [...]
after the investment. Taking into account the location's
assisted-area status under Article 87(3)(a) area of the EC
Treaty and the high impact on the industry of the varia-
tion in the production capacity of
the
Commission has reduced the allowable aid intensity for
the projects by one percentage point, to 58,91 % for the
investment in Mosel and to 12,28 % for the investment
in Dresden.

the group,

V. CONCLUSION

The Commission considers that the investment project is
mobile and that the aid is necessary for the realisation of
the project. With regard to proportionality, it has based
its assessment on two separate cost-benefit analyses for
both sites, given in particular the different regional-aid
ceilings in Dresden and Mosel. As regards the investment
in Mosel, the expected aid intensity is lower than both
the regional handicap and the regional-aid ceiling. In
such a case, the motor vehicle framework stipulates that
the automotive company must not receive an unjustified
amount of aid; the aid should serve to compensate to a

the
for the financial disadvantage of
certain extent
choice of
location. The Commission can therefore
authorise the aid up to the amount of DEM 64,85
million (net present value) as it is compatible with the
common market under Article 87(3)(a) of the EC Treaty.

(49) As regards the investment in Dresden, the aid intensity
planned by Germany is 16,22 % gge. Even though this is
lower than the regional aid ceiling of 35 % gge,
it is
higher than the locational handicap costs, as calculated
in the cost-benefit analysis and modified by the down-
ward adjustment of one percentage point to 12,28 % of
the
the
Commission can authorise aid equivalent
to only
12,28 % of the eligible investment costs of DEM 652,81
million, which corresponds to a net present value of
DEM 80,17 million. The planned aid of DEM 25,7
million is incompatible with the common market and
may not be implemented,

costs. Consequently,

investments

eligible

HAS ADOPTED THIS DECISION:

Article 1

The aid amounting to DEM 64,85 million (net present
1.
value) which Germany is planning to implement for Automo-
bilmanufaktur Dresden GmbH (AMD) for its investment project
in Mosel is compatible with the common market within the
meaning of Article 87(3)(a) of the Treaty.

2.
Up to the amount of DEM 80,17 million (net present
value), the aid which Germany is planning to implement for
AMD for its investment project in Dresden is compatible with
the common market within the meaning of Article 87(3)(a) of
the Treaty.

Of this aid, an amount of DEM 25,7 million (net present
value)
It may
is incompatible with the common market.
accordingly not be implemented.

This Decision is addressed to the Federal Republic of Germany.

Article 2

Done at Brussels, 18 July 2001.

For the Commission

Mario MONTI

Member of the Commission

(**) Confidential

information;

increase of some 4 %.