2002/64/EC: Commission Decision of 25 July 2001 on alleged State aid for the American group Reebok in connection with its establishment in Rotterdam, the Netherlands (Text with EEA relevance) (notified under document number C(2001) 2383)
Date: 2001-07-25
Institutions: European Commission
Subjects: Netherlands, State aid, United States, distributive trades, foreign enterprise, sports equipment

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Official Journal of the European Communities

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 25 July 2001

on alleged State aid for the American group Reebok in connection with its establishment in
Rotterdam, the Netherlands

(notified under document number C(2001) 2383)

(Only the Dutch text is authentic)

(Text with EEA relevance)

(2002/64/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

authorities submitted their comments and further infor-
mation.

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 the provisions cited above (1), and having regard to
their comments,

Whereas:

I. PROCEDURE

(1)

By letter dated 31 July 1998, the Commission received a
complaint according to which the American group
Reebok had been induced to establish its new plant in
the port of Rotterdam through illegal State aid. Pursuant
to this complaint, the Commission requested informa-
tion from the Dutch authorities on 23 September 1998.
By letters dated 2 October 1998 and 7 January 1999,
the Dutch authorities requested more time for their reply
and finally provided the requested information by letter
dated 2 February 1999.

(2)

By letter dated 9 June 1999, the Commission informed
the Netherlands of its decision to initiate the procedure
laid down in Article 88(2) of the EC Treaty in respect of
the aid. By letter dated 8 September 1999, the Dutch

(3)

(4)

(5)

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties on 14 August 1999 (2). The Commission called on
interested parties to submit their comments. It received
comments from an interested party on 14 September
in order to give the Dutch authorities the
1999 and,
opportunity to react, forwarded them to the Nether-
lands, which replied within one month.

Upon request the Dutch authorities submitted further
information on the alleged aid by letters dated 7 July
2000, 17 July 2000, 6 December 2000, 15 December
2000, 8 February 2001, 9 April 2001, 22 May 2001, 27
June 2001 and 6 July 2001. Meetings with the Dutch
authorities took place on 4 July 2000 and 25 October
2000.

II. DETAILED DESCRIPTION OF THE ALLEGED AID

MEASURES

The American group Reebok (‘Reebok’)
is a leading
worldwide producer of sports footwear in particular and
operates in approximately 170 countries with net sales
of approximately USD 2,9 billion (EUR 2,72 billion) in
1999. Reebok's products are manufactured in Asia and
have to be shipped to Europe.

(1) OJ C 233, 14.8.1999, p. 39.

(2) OJ C 233, 14.8.1999, p.39.

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(6)

that

In the period 1993/94 Reebok reviewed its distribution
network in Europe where it had at
time eight
warehousing facilities. The idea was to restructure the
logistics and to have one ‘bulk’
facility (distribution
centre) for Europe, probably situated in the Benelux area,
and two ‘pick and pack centres’. For the location of the
distribution centre Reebok received various offers. The
company finally decided for a 11,4 ha site in the ‘Distri-
park Maasvlakte’ at the port of Rotterdam. According to
the Dutch authorities, Reebok's decision was based on
strategic considerations such as a reduction of transpor-
tation time and costs.

(10) As regards the alleged subsidisation of labour costs, the
Dutch Government explained the funding through meas-
ures such as the Law on the reduction of income tax and
national insurance contributions, the youth employment
guarantee Law and the national
framework arrange-
ments on the training of persons seeking employment,
which in their view are general measures and not aid
within the meaning of Article 87 of the EC Treaty. It
was furthermore underlined that Reebok would not
receive any financial customs advantages.

(7)

The complainant alleged that Reebok received illegal
State aid as an incentive to establish its new distribution
centre in the port of Rotterdam, a non-assisted area.
According to the complainant, the aid consisted of four
measures:

— preferential rental conditions for a site in the Distri-
park Maasvlakte at the price of NLG 8,50 per m2
per year,

— preferential conditions of access to a whole series of

infrastructure facilities in the park,

— subsidisation of labour costs,

— customs advantages, i.e. facilitating of the installation
activities by the

and functioning of Reebok's
Rotterdam district customs authorities.

(8)

(9)

(Gemeentelijk

The Dutch authorities explained that the developer and
operator of the relevant port site, the Rotterdam Port
Authority
Rotterdam
(‘GHR’)), is a public undertaking which, however, oper-
ates in accordance with the ‘private investor principle’
and required for its investment a return on capital of at
least 7,5 % with an average depreciation period of 25
years.

Havenbedrijf

it was

stated that Reebok's

Furthermore,
rent of
NLG 8,50/m2 (EUR 3,9/m2) for a plot of 11,4 ha was a
normal market price in the light of the profitability of
the whole Distripark Maasvlakte project and that the
rent was fully comparable with rents for competing sites
at other European ports. With respect to the conditions
the Dutch Government
of access
considered that the laying down of such basic facilities
was included in the total investment in the park and
passed on in the rent. Moreover, every user has to
finance the connection to the public services present,
such as electricity, gas, water and telecommunications.

to infrastructure,

(11)

The Dutch Government stated, however, that the GHR
was granting, on an ad hoc basis, an amount of
NLG 4,25 million (EUR 1,9 million) as an incentive, to
be paid in instalments depending on the number of
additional

jobs to be created (‘cash incentive’).

Grounds for initiating the procedure

(12)

The Commission came to the conclusion that the subsi-
dies for labour costs and the alleged customs advantages
did not prima facie constitute State aid within the
meaning of Article 87(1) of the EC Treaty.

(13) However, the Commission could not rule out that the
cash incentive and the rental terms, including access to
infrastructure facilities (1), granted by GHR to Reebok,
constituted aid within the meaning of Article 87(1) of
the EC Treaty and initiated the procedure with respect to
these two measures.

(14)

The cash incentive of NLG 4,25 million (EUR 1,9
million) seemed to constitute aid because it was granted
through State resources, the public GHR, and favoured
one specific group, Reebok.
It seemed to have been
granted on an ad hoc basis with the sole aim of
attracting Reebok to establish its new plant in the Distri-
park Maasvlakte. This view was supported by the fact
that the Dutch authorities called it an ‘incentive to be
paid in instalments depending on the rate of investment
and the number of additional jobs to be created’. No
other justifications or commercial reasoning as used by
private investors were given. Finally, by strengthening
Reebok's financial position, the cash incentive threatened
to distort competition and to affect trade in the single
market for footwear in the EEA.

(1) The Commission accepted the reasoning of the Dutch Government
that Reebok's alleged preferential rental conditions and its alleged
preferential conditions of access to infrastructure facilities in the
park should be seen as one measure because the cost of the basic
infrastructure is included in the total
investment in the park and
passed on in the rent.

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(15)

(EUR 3,9/m2) Reebok is
The rent of NLG 8,50/m2
paying for the 11,4 ha plot was assessed to be approxi-
mately 30 % lower than the average expected rent. The
Commission stated that, in principle, a private or public
undertaking could charge different prices, but that such
differences must be non-discriminatory and justified on
commercial grounds, namely, taking competitive meas-
ures to attract a customer, whilst covering the cost and
generating a reasonable return on invested capital.

(16) However,

the Commission found it unlikely that a
private investor would have given such favourable
conditions, in particular as the discount did not seem to
reflect any savings in the form of economies of scale.
This seemed to involve an issue of price discrimination
and, moreover, not
to be in line with the private
investor principle. In that context it also had to be taken
into account that a total of over 60 % of the whole
Distripark Maasvlakte was not yet let at that time, and
the Commission found it questionable whether
the
higher expected future rents could be achieved. It calcu-
lated that the GHR would suffer a loss on its invested
capital if for the remaining plots only the Reebok rent of
NLG 8,50/m2 (EUR 3,9/m2) could be achieved. Lacking
detailed information, the Commission could also not
examine whether Reebok's rent was fully comparable
with the rental prices of other European ports, as the
Dutch Government claimed.

(17)

Consequently, the Commission could not at that stage
exclude the possibility that the preferential rental terms,
including access to infrastructure facilities, also consti-
tuted aid under Article 87(1) of the EC Treaty. The rental
terms were granted by the GHR, a public undertaking.
They appeared to favour Reebok in comparison with
other sports footwear producers in the European Union
and threatened to distort competition as well as affecting
trade, not only in the EU sports footwear market, but
also in the market for industrial parks. The Commission
asked the Dutch Government to provide further infor-
mation with respect to the economic and legal status of
the GHR, the precise criteria governing the granting of
the cash incentive, the rental contracts of other tenants
and evidence of rental terms for equivalent pieces of
land in other European ports.

III. COMMENTS FROM THE NETHERLANDS

(18)

The Dutch authorities submitted information regarding
the economic and legal status of the GHR. According to
that information, the GHR forms part of the statutory
body of the municipal corporation of Rotterdam and
has no separate corporate personality. It was confirmed
that
the GHR is a public undertaking within the
meaning of Article 86 of the Treaty. The GHR was

created to develop, manage and operate the docks and
industrial dock lands including the Distripark Maasv-
lakte. From a financial viewpoint, it is a separate entity
from the rest of the municipality of Rotterdam, which
finds formal expression in the fact
that an annual
balance sheet and profit-and-loss account is drawn up
for the GHR. It also has to recoup all its investment in
and expenditure on personnel, goods and services from
the operation of the port facilities. The Dutch authorities
stated that in performing its tasks the GHR acts in
accordance with the market investor principle.

(19) As to the cash incentive, the Dutch authorities declared
in their submission of 8 September 1999 that the GHR
wanted Reebok to share in the savings made as a result
of the size of the rented plot. Moreover, it was stated:
‘Payment of the incentive to Reebok is dependent on
progress with job creation. As soon as a previously
agreed level is reached, part of the incentive is to be paid
out. Reebok has now announced that it has reached the
level at which the full amount is payable.’ In a subse-
quent submission, the Dutch Government explained that
the GHR stopped payment of the outstanding incentive
amounts following the initiation of the proceedings by
the Commission and that the GHR until then had paid
out NLG 1,625 million (EUR 0,7 million). Following
discussions in the course of which the Commission
questioned the justification of the cash incentive, the
Dutch authorities announced the withdrawal of the cash
incentive and the recovery of the amount already paid
out plus interest. By letter of 27 June 2001, the Dutch
Government sent the Commission proof of the recovery
i. e. the present value of the
of NLG 1,872 million,
the
NLG 1,625 million,
account statement and the GHR's decision to waive the
cash incentive and the undertaking that no further
payments would be made in relation to the cash incen-
tive.

in the form of a copy of

(20) As

to the rental conditions,

the Dutch authorities
explained that
the rental charges in the Distripark
Maasvlakte in the port of Rotterdam, are high compared
to similar sites in other European ports. They submitted
a comparative study carried out by consultants in this
respect. Furthermore, the Dutch authorities explained
that
the rental charge of NLG 8,50/m2 agreed with
Reebok was within the range of rates for the customer
category ‘European distribution centres’ which is not
bound to a seaport and could move further inland where
the rents are generally cheaper. However, there was no
evidence of rental charges of such sites further inland.
Therefore, upon request,
in
December 2000 submitted a second study carried out by
independent consultants on the current average rental
charges for comparable sites further inland. The Dutch
authorities also submitted copies of two other offers
Reebok received in the course of its search for a loca-
tion.

the Dutch authorities

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(21)

(22)

(23)

imply

discriminatory

Furthermore, the Dutch authorities explained that the
level of the rent charged by the GHR is dependent on
criteria such as the time of the agreement, the size of the
plot or the attractiveness of the customer for the GHR,
for instance, with respect to the flow of goods and the
resulting yield for the GHR. In the view of the Dutch
authorities these are objectively justified criteria and do
not
Furthermore,
Reebok's rent did not entail losses on the GHR invest-
ment in the Distripark Maasvlakte and was therefore in
line with the market investor principle. As evidence of
this, the Dutch authorities submitted detailed calcula-
tions of the individual cost and income components,
including discounting methods. They also submitted the
spreadsheets used by the GHR containing the raw data
of expenditures, income and savings in order to allow
the Commission to make its own assessment.

treatment.

Furthermore, they submitted the rental contracts of all
current tenants showing that the rents already agreed
vary between […] (*) and […] (*). According to the
information submitted, only 33,7 ha of the total area of
86,6 ha of the Distripark Maasvlakte (1) is rented out; a
further […] (*) is under negotiation, and […] (*) is still
without candidates.

(25)

The Dutch authorities also submitted detailed calcula-
tions of the cost savings achieved due to the larger size
of the plot Reebok rented (2). Due to the three to four
times larger size Reebok occupies, an originally planned
interconnecting road between the areas normally occu-
pied by four tenants did not have to be built. Further-
more, costs for drainage and fire networks connecting
the different tenant buildings as well as for entrances
were saved. Upon request by the Commission, the Dutch
authorities submitted a calculation of
these savings
carried out by a construction company which confirmed
the above.

important implications for the British footwear industry,
and aid to such a large company would have a negative
impact on other sports footwear companies that did not
enjoy such subsidies. Since footwear, particularly, sports
footwear, is very price sensitive, aid of this size to one
player would have an extremely distortive effect on
competition in this sector. One particular sports foot-
wear company situated in the United Kingdom would
suffer serious adverse effects if this aid were granted to
Reebok. It was considered that if the aid given to Reebok
were not recovered, it would have a distorting effect on
competition in the European footwear industry, with
particular implications for the United Kingdom.

V. REACTION OF THE NETHERLANDS TO THE

COMMENTS FROM INTERESTED PARTIES

The Dutch authorities denied that
the agreements
between the port authority and Reebok constituted State
aid; nor would these arrangements affect in particular
the company to which the United
the position of
Kingdom referred. This company would focus predomi-
nantly on the American market, and only to a small
extent on the British market. Moreover, any producer of
sports shoes and other sports gear needs a distribution
centre. The same arrangements could be agreed if such
companies were to settle in Rotterdam. Furthermore, the
Rotterdam distribution centre has so far resulted in
financial losses for Reebok. The arrangements between
the port authority and Reebok concern a very limited
amount when calculated per pair of sports shoes. There-
fore, one cannot expect
the
company the United Kingdom referred to.

substantial effects

for

IV. COMMENTS FROM INTERESTED PARTIES

VI. ASSESSMENT OF THE AID MEASURE

(24)

Following the publication of the Commission decision to
initiate proceedings, the United Kingdom Government (3)
submitted comments which are summarised as follows:
the Government welcomes the Commission's invest-
igation into the granting of this aid to Reebok. There are

(26) Due to the withdrawal and recovery of the paid amount
of the cash incentive (see recital 19), the proceedings
under Article 88(2) of the EC Treaty can be closed in
this respect.

(*) Confidential
(1) The original

information.
figure of 85,2 ha has been slightly adjusted by the
Dutch authorities due to the additional terrain originally planned for
part of an interconnecting road within the Distripark.

(2) A map shows that the standard size of a plot is 3,4 ha but can
vary depending on the location within the rectangular or triangular
clusters connected by roads.

(3) The United Kingdom Government is not the original complainant

mentioned previously.

(27)

Regarding the rental terms, it is not contested that they
were granted by the GHR, which forms part of the
municipality of Rotterdam and therefore is a public
investor. However, the legal status of the investor alone
does not answer the question of whether the rental
conditions for Reebok contain an element of State aid
within the meaning of Article 87(1) of the Treaty. The

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key factor is whether or not the conduct of the public
investor is comparable with the conduct of a private
investor (market investor principle), as the Court held in
Tubacex (1).

The average annual rents for inland sites in this study
vary between NLG 0,6/m2 and NLG 8,3/m2 and are in
general, apart from the peaks, significantly cheaper than
harbour sites.

(28)

(29)

(30)

(draining of

Private investors are, however, not active in the business
in which the GHR operates, i.e. investing in the prepara-
tion or indeed creation of land for private customers in a
port
land formerly covered by water,
providing infrastructure such as roads, pipelines and
other networks). This is normally carried out by port
operating companies either belonging to the State/muni-
cipality or by the municipalities directly. Private
investors are also not active in the preparation of
ground and infrastructure for business further inland.

Lacking the possibility of comparing the GHR's conduct
with the conduct of private investors, the Commission,
as a first step, identified the level of rents for similar sites
at other European ports or further inland in order to
compare these ‘market rents’ with the rent Reebok pays
at the Distripark Maasvlakte. Secondly, the Commission
analysed whether Reebok's rent brings a net profit for
the GHR and can thus be regarded as a market rent.
Thirdly, the Commission has to establish whether the
relatively low rent Reebok pays is objectively justified,
for instance, by cost savings.

The studies submitted by the Dutch authorities and
carried out by two independent consultants show that
the rent prices for ‘dry land’ in other northern European
ports, are considerably lower than in Rotterdam. The
study submitted earlier (including the ports Le Havre,
Dunkirk, Zeebrugge, Antwerp, Hamburg, Bremerhaven,
Moerdijk, Vlissingen, Amsterdam and Rotterdam) shows
average rents for 1993/98 ranging from NLG 4,75/m2
to NLG 9,75/m2, with the latter, highest average rent
being for Rotterdam. The second study, actually focusing
on another issue (see recital 31), gives an overview of
maximum rents for the six largest ports (Rotterdam,
Antwerp, Hamburg, Bremen/Bremerhaven, Dunkirk and
Le Havre) varying between roughly NLG 14/m2 and 4/
m2. Rotterdam in that study also shows the highest
maximum rent.

(31) Due to the fact that the Dutch authorities stated that
Reebok was not dependent on a harbour site and could
have established its distribution centre further inland
where land is generally cheaper, another study was
submitted. This study compares rents for ‘inland’ (non-
(Pas-de-Calais),
in northern France
harbour)
Belgium and the Netherlands so as to take account of
the theoretical alternatives available to Reebok having
regard to its requirement for low transportation costs.

sites

(1) ECR [1999] I-2459.

(32)

(33)

(34)

The data show that Reebok's rent in Rotterdam is not
only in line with but in the top range of rents charged in
the ‘market’, i.e. for plots at northern European ports or
inland sites. The decision to opt for a site with a rela-
tively high rent also indicates that Reebok did not base
its decision mainly on land costs, but on more general
strategic criteria such as the impact of the location on
transportation. This is further supported by the fact that
Reebok did not take up an offer of land completely free
of charge for 99 years. However, this also indicates that
locations at other ports or further inland were not fully
comparable in Reebok's view. Moreover, the sites at
other ports or
inland are also offered and
managed by municipalities or public companies and not
by private investors. For these reasons, the Commission
requires, as an additional criterion to be fulfilled for
accepting it as a ‘market rent’, that Reebok's rent should
result in a net profit for the GHR.

further

The Commission therefore, as a second step, assessed
whether the GHR's investment in the Reebok project
was profitable. Lacking private investors in that type of
business, a market rate of return on such investments is
not available for comparison. The minimum require-
ment therefore is that the deduction of the project's
costs (present value as at 1 January 1998) from the
income (present value as at 1 January 1998) should
result in a positive net present value for the GHR.

The Dutch authorities submitted the GHR's calculations
of the income and cost components over 25 years.
According to these calculations, the present value of the
rental income from Reebok as at 1 January 1998 was
[…] (*), the present value of Reebok's share of the total
costs (2) minus the cost savings generated by Reebok was
[…] (*) million resulting in a positive net present value
of […] (*) (3).

(2) Reebok's share of the total costs was calculated on the basis of the
proportion of square metres Reebok occupies in Distripark Maas-
vlakte: 13,2 % of 86,6 ha.

(3) It appears that

the Dutch authorities in their calculations of

the
present values of costs and income used discounting rates varying
between 5 % and 6 %. The Commission when discounting the
figures by a reference rate of 5,95 % (applicable for the Netherlands
in the beginning of 1998) arrives at a rather similar result,
i.e. a
positive net present value of […] *. Considering that the payment of
the rent in general only starts one year after signing the contract,
i.e. in Reebok's case in 1999, one could also argue for a reference
rate of 4,76 %. However, the Commission takes the view that for
the calculation of present values of income and costs, the contract
time is decisive. Moreover,
if profitability is given with a reference
rate of 5,95 %,

it is even higher with a lower reference rate.

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(35)

(36)

(37)

Finally, the Commission addressed the issue of price
differentiation,
i.e. the fact that other tenants at the
Distripark Maasvlakte pay higher rents. In this context
the question arose of whether the GHR was granting
particularly favourable treatment to Reebok. Private or
in principle, charge differen-
public undertakings can,
tiated prices provided that the pricing policy does not
generate losses on the invested capital and that there is
no discrimination against the other customers. The first
criterion has been analysed above and is fulfilled (see
recital 34). For the second criterion to be met, price
reductions must correspond to the savings achieved on
the costs, for instance savings caused by larger volumes
bought or other economies of scale (1).

The weighed average of the annual rents (2) already
agreed in the Distripark Maasvlakte and proven by the
submitted contracts is […] (*). This results in a discount
for Reebok of
[…] (*) or approximately 15 %. The
present value of the total amount of this discount over
25 years as at 1 January 1998 is according to the
Commission's calculation […] (*), which is less than the
present value of the cost savings of […] (*) (3) achieved
due to the larger plot Reebok rented (see also recital 23).
Consequently, it can be said that the rent discount for
Reebok is justified by the cost savings.

of the EC Treaty and Article 61(1) of the EEA Agree-
ment,

HAS ADOPTED THIS DECISION:

Article 1

The formal investigation procedure was closed with regard to
the amount of NLG 4,25 million (EUR 1,9 million) granted as
the Netherlands having provided convincing
an incentive,
evidence that the incentive had been withdrawn and that the
amount already disbursed, inclusive of interest up to the date
of repayment, calculated on the basis of the reference rate, had
been repaid.

Article 2

The rent Reebok is paying for its plot at the Distripark Maas-
vlakte,
in the Port of Rotterdam, according to the contract
the Gemeentelijk Havenbedrijf
signed by Reebok
Rotterdam on 25 June 1998, does not constitute aid or contain
aid elements within the meaning of Article 87(1) of the EC
Treaty and Article 61(1) of the EEA Agreement.

and

This Decision is addressed to the Kingdom of the Netherlands.

Article 3

VII. CONCLUSION

Done at Brussels, 25 July 2001.

The Commission finds
conditions
that
described above are in line with the market investor
principle and therefore do not constitute State aid or
contain aid elements within the meaning of Article 87(1)

rental

the

For the Commission

Mario MONTI

Member of the Commission

(1) See ECR [1990] I-3083.
(2) Weighed by total size per price/m2.
(3) For

the calculation of

5,95 % was applied.

the present values the reference rate of