State aid (SAM 030.95010 — Norway)
Date: 2003-07-16
Institutions: EFTA Surveillance Authority
Subjects: Norway, State aid, control of State aid, social security, social-security contribution, transport policy

11.9.2003

EN

Official Journal of the European Union

C 216/3

EUROPEAN ECONOMIC AREA

EFTA SURVEILLANCE AUTHORITY

STATE AID

(SAM 030.95010 — Norway)

(2003/C 216/03)

EFTA Surveillance Authority notice pursuant to Article 1(2) of Protocol 3 of the Surveillance and Court
Agreement, to other EFTA States, EU Member States and interested parties regarding proposed state aid in
the form of regionally differentiated social security contributions and direct transport (State aid SAM
030.95010)

By means of Decision No 141/03/COL of 16 July 2003, the EFTA Surveillance Authority initiated
proceedings pursuant
the Surveillance and Court Agreement. The
to Article 1(2) of Protocol 3 of
Norwegian Government has been informed by means of a copy of the decision.

I. FACTS

1. Notification

for

the

By letter from the Mission of Norway to the European Union
forwarding a
dated 26 March 2003 (Doc. No 03-1846 A),
letter
from the Ministry of Trade and Industry dated 25
March 2003, a letter from the Ministry of Finance dated 25
March 2003, and a letter
from the Ministry of Local
Government and Regional Development dated 25 March
2003, all received and registered by the Authority on 26
March 2003, the Norwegian authorities notified a transitional
period
security
contributions in certain geographical areas (zones 3 and 4)
and a new national direct
aid scheme. The
Norwegian authorities also informed the Authority that they
would notify later, in a separate letter, a continuation of the
scheme in zone 5 (Nord-Troms and Finnmark).
present
Furthermore,
the
Authority that they have approached the other EFTA States
in order to reach a common accord, pursuant to Article 1(2)
subparagraph 3 of Protocol 3 to the Surveillance and Court
Agreement, in order to retain the current scheme in this zone.

the Norwegian

differentiated

authorities

regionally

transport

informed

social

By letter from the Mission of Norway to the European Union
dated 15 April 2003 (Doc. No 03-2467 A), forwarding a letter
from the Ministry of Trade and Industry dated 10 April 2003
and a letter from the Ministry of Finance dated 10 April 2003,
all received and registered by the Authority on 16 April 2003,
the Norwegian authorities notified a continuation of regionally
differentiated social security contributions in Nord-Troms and
Finnmark (zone 5) without any specified time limits.

By letter from the Mission of Norway to the European Union
dated 10 June 2003 (Doc. No 03-3707 A), forwarding a letter
from the Ministry of Finance dated 5 June 2003, both received
and registered by the Authority on 11 June 2003,
the
Norwegian authorities
submitted additional comments and
information.

By letter from the Mission of Norway to the European Union
dated 19 June 2003 (Doc. No 03-3976 A), forwarding a letter
from the Ministry of Trade and Industry dated 10 June 2003,
both received and registered by the Authority on 20 June
2003, the Norwegian authorities submitted a survey of extra
transport costs in the proposed area for transport aid (1).

By letter from the Norwegian Ambassador to the European
the
Union dated 4 July 2003 (Doc. No 03-4403 A),
Norwegian authorities withdrew the notification of
the
continuation of the differentiated social security contributions
the Standing
in zone 5, as a result of
Committee of the EFTA States of 1 July 2003 (No 2/2003/SC).
The Standing Committee decided that the present scheme in
zone 5 is compatible with the functioning of
the EEA
Agreement due to the exceptional circumstances in this zone.

the decision of

2. Background

On 22 September 1999 the Authority approved a proposal
from the Norwegian authorities concerning new regulations
in the regionally differentiated social security contributions
scheme (2). The approval was limited in time, not going
beyond 31 December 2003.

By letter dated 16 May 2003 (Doc. No 03-2951 D),
the
Authority acknowledged the receipt of the above letters and
requested additional
information. The Competition and State
Aid Directorate also expressed doubts about the compatibility
of the notified aid measures.

(1) ‘Interju av industribedrifter i aktuelle transportstøttesoner og i refer-
ansesoner. Transportøkonomisk institutt. Arbeidsdokument
av
4.6.2003’.

(2) Dec. No 228/99/COL. OJ C 3, 6.1.2000, p. 3, and EEA Supplement

No 1, 6.1.2000.

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Official Journal of the European Union

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On 21 December 2000 the European Commission took a
negative decision concerning a reduced social contributions
aid scheme notified by Sweden (3). In the decision it is stated
that:
‘The amount of aid granted under the scheme to an
eligible undertaking does not bear any relation to the additional
transport costs actually incurred by that particular undertaking.
The aid granted depends on the size of its wage bill, which
depends in turn on the number of persons employed and their
average salaries. It can therefore scarcely be argued that the aid
is “objectively quantifiable in advance on the basis of an
aid-per-kilometre ratio or on the basis of an aid-per-kilometre
and an aid-per-unit-weight ratio”. The implication is also that it
cannot be excluded that
the
additional transport costs in at least some cases’.

there is overcompensation of

In the decision of 21 December 2000 it is also pointed out that
Norway, by letter dated 27 July 2000, submitted comments to
the decision to initiate the formal investigation procedure and
that the Norwegian authorities confirmed that Norway operates
a scheme that is similar to the Swedish scheme.

Sweden was informed about the decision to initiate the formal
investigation procedure by letter dated 4 April 2000. The
decision to initiate the formal
investigation procedure was
published on 1 July 2000 (4). The negative final decision was
published on 14 September 2001 (see footnote 3).

In the light of the Swedish decision, the Norwegian system was
thereafter discussed at several meetings between the Norwegian
authorities and the Authority, as well as between the Authority
and the European Commission.

By letter from the Authority dated 29 November 2001 (Doc.
No 01-9557 D), the Norwegian authorities were i.a. informed
that the Authority would start an assessment of the Norwegian
system aimed at
for appropriate
formulating a proposal
measures so that equal conditions of competition within the
territory covered by the EEA Agreement are re-established.

The Authority initiated a formal review of
the Norwegian
system by letter to the Norwegian authorities dated 4 June
2002 (Doc. No 02-4189 D).
the Authority
expressed its preliminary view that the Norwegian system of
regionally differentiated social security contributions might no
longer be compatible with the EEA Agreement.

In this letter

In the Authority's decision of 25 September 2002 (5)
to
propose appropriate measures,
the
it was concluded that
present regionally differentiated social security contributions
scheme does not qualify for the derogation provided for
under Article 61(3)(c) EEA. The amount of aid granted under
the present scheme does not bear any relation to the additional
transport costs actually incurred by a particular undertaking
and is not calculated in line with the provisions of Annex XI

(3) OJ L 244, 14.9.2001, p. 32.
(4) OJ C 184, 1.7.2000, p. 10.
(5) Dec. No 172/02/COL.

the State Aid Guidelines.

of
Decision it is i.a. stated:

In the operative part of

the

‘1. The EFTA Surveillance Authority proposes to Norway, on
the basis of Article 1(1) of Protocol 3 to the Surveillance
and Court Agreement, the following appropriate measures
with regard to the State aid involved in the system of
regionally differentiated social security tax (“Geografisk
differensiert arbeidsgiveravgift”):

and other measures necessary

(a) The Norwegian authorities shall take any legislative,
administrative
to
eliminate any State aid within the meaning of Article
61(1) EEA resulting from the system of regionally
differentiated social security tax, or to render such aid
compatible with Article 61 of the EEA Agreement,

(b) The Norwegian authorities shall eliminate any such aid
from 1.1.2004
or render it compatible with effect
unless the Authority agrees to a later date should that
be considered objectively necessary and justified by the
Authority in order to allow an appropriate transition
for
in question to the adjusted
situation; and

the undertakings

(c) The Norwegian authorities shall communicate to the
Authority the relevant measures adjusting the aid
scheme as soon as possible and in any event no later
than 25 March 2003.

2. The Norwegian authorities are requested to inform the
Authority in writing within one month from receipt of
this proposal that they accept, pursuant to Article 1(1) of
Protocol 3 to the Surveillance and Court Agreement, in its
entirety this proposal for appropriate measures.’

By letter dated 29 October 2002 from the Mission of Norway
received and registered by the
to the European Union,
Authority on 31 October 2002 (Doc. No 02-7855 A),
the
Norwegian authorities accepted the appropriate measures.

3. Description of the proposed measures

3.1. Notification of a transitional period in zones 3 and 4

For the purpose of the social security contributions Norway is
divided into five geographical zones. The highest tax rate is
14.1 per cent in zone 1 that covers some 75 per cent of the
population. In zone 5 (Nord-Troms and Finnmark) that covers
the very northernmost part of the country, the rate is zero. An
overview of the geographical zones and tax rates is given in
Annex 1 to the decision of 25 September 2002 (Dec. No
172/02/COL).

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By letter dated 25 March 2003 from the Ministry of Finance,
the Norwegian authorities notified a transitional arrangement
for zones 3 and 4, and presented the following table
concerning the escalation of the social security contributions
rates:

Table 1 (6)

Current
rates

14,1

10,6

6,4

5,1

Rates
2004

14,1

14,1

8,3

7,3

Rates
2005

14,1

14,1

10,2

9,5

Rates
2006

14,1

14,1

12,1

11,7

Rates
2007

14,1

14,1

14,1

14,1

Zone 1

Zone 2

Zone 3

Zone 4

The increased rates in zones II-IV from 2004 onwards will
apply only to aid exceeding the de minimis amount.

The proposal
implies a transitional period over 3 years for
zone 3 and 4 until the full rate of 14,1 per cent is reached
in 2007.

The arguments put forward for such a transitional arrangement
are firstly that, in light of the chronological development of the
case, the Norwegian authorities are of the opinion that they
received ‘no clear signals’ until
late autumn 2002 that the
system as such had to be abolished. The Norwegian authorities
state that
find it professionally or politically
advisable to request the undertakings to adapt to a situation
with no differentiation (beyond de minimis), before they saw the
contours of a new system. In this respect the Norwegian auth-
orities refer to informal discussions that took place in the wake
of the European Commission's decision on the Swedish system
of reduced social security contributions.

they did not

Secondly, it is argued that the economic effect of abolishing the
system as from 2004 will raise significant and very serious
firms
difficulties, not only for individual
(exceeding the de minimis
the
employment situation in the whole area. It is estimated that,
if the system had been prolonged as from 2004, the total gross
tax relief to the private sector in the zones II, III and IV, would
be NOK 4 270 million (some EUR 520 million).

threshold) and thus,

firms, but

for all

for

estimates

indicate an employment

from an independent committee,

A report
‘Effektutvalget’,
presents various calculations of possible macro effects of abol-
ishing the regional differentiation of the tax. Provided that
there are no incidence effects on wages and product prices,
the
reduction in the
private sector of 15 400 persons in zone IV and 2 900
persons in zone III as a direct effect of the increase in total
wage costs. This would represent an isolated reduction of
employment in the private sector in these regions of 15,5
per cent (13,8 per cent in zone III, 15,8 per cent in zone
IV). The corresponding reduction in total employment
in
these regions would be 7,5 per cent in zone III and 8,5 per
cent in zone IV.

(6) The notification concerning zone 5, where the current rate is zero,

is described in point 3.3 below.

the
The Norwegian authorities also present calculations of
estimated effects of a de minimis scheme. The Norwegian auth-
orities have estimated the total number of employees in the
private sector for which a de minimis scheme would not apply.
(Reduced social security contributions could be applied to
wages for a limited number of employees in each firm,
ensuring that the tax benefits do not exceed the de minimis
threshold of EUR 100 000 over a three-year period.) They
conclude that the share of normal man-labour years above de
minimis in zone III and IV are 43 per cent and 55 per cent
respectively, and that the reduction in employment (given the
introduction of a de minimis scheme) would be 3,2 per cent in
zone III and 4,7 per cent in zone IV.

In their notification the Norwegian authorities point out that in
the long run increased taxes may be shifted to a various degree
It is stressed that such a
to wage earners and consumers.
process takes a long time and it
is therefore necessary to
have a rather long transitional period as the immediate effect
of a rise in taxes would represent a corresponding increase in
employers' wage costs.

The Norwegian authorities refer as well to the low profitability
for enterprises in zones 3 and 4. It is stated that a (full) tax
increase, taking the de minimis possibility into account, would
for the year 2001 correspond to about 24 per cent of total
operating profit for companies in zone 3 and, correspondingly,
almost 40 per cent in zone 4.

introducing a direct

the
The Norwegian authorities also present calculations of
transport aid scheme. As
effect of
for
transport aid will be granted only for extra costs
transport of goods, it is maintained that such a measure will
be limited only to a small part of the affected enterprises. The
conclusion is that given a total budget for the new scheme of
NOK 150 million after the transition period, the new scheme
will compensate for 10 per cent of the enterprises' losses.

By letter dated 16 May 2003, the Authority noted that the
notified transition period is three years for both zone 3 and
4, and therefore that the relative increases per year are higher
in zone 4 than in zone 3. The Authority therefore stated that it
would appreciate receiving arguments for why enterprises in
zone 3 need the same transition period as those in zone 4, in
spite of
facing a smaller increase in the tax burden. The
it would appreciate receiving
Authority also indicated that
additional comments or calculations demonstrating the effects
of transition periods of one and two years, respectively, for
each of the zones, and compared to the notified three year
period.

the

social

in the

By letter dated 5 June 2003, the Ministry of Finance submits
additional comments. The Ministry states that without a tran-
sitional period,
security tax
increase
labour
corresponds to an immediate increase in the firms'
costs of 8,6 and 7,2 per cent in zones 3 and 4, respectively
(as soon as the de minimis threshold is reached). Assuming
general wage increases as forecast by the authorities, no tran-
sition period would imply an increase in labour costs for enter-
prises in zones 3 and 4 in 2004 almost three times higher than
the normally expected increase in such costs (de minimis effect
not taken into consideration). A transitional period of three
years would, according to the Ministry, allow for a higher
degree of wage adjustment to take place before the full rate

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is applied, postpone the rise in costs to firms and reduce the
number of closures and jobs lost as a consequence of the
increase in the tax rate. As to why enterprises in zone 3
need the same transitional period as enterprises in zone 4,
the Ministry states that three years is a very short period in
both zones,
in the increases
the relative differences
between the zones are very small and that it would be unfor-
tunate with a differentiation in the transitional period.

that

23,55 per cent for the existing indirect transport aid scheme
(the regionally differentiated social security contributions).

According to the notification, aid may only be given in respect
of the extra costs of transporting goods inside the national
territory, calculated on the basis of the most direct and econ-
omical mode of transport between the place of production and
processing and the nearest commercial outlet.

3.2. Notification of a new direct transport aid scheme

By letter dated 25 March 2003 from the Ministry of Finance
and a letter dated 25 March 2003 from the Ministry of Local
Government and Regional Development, the Norwegian auth-
orities notified the Authority of a new national direct transport
aid scheme.

The highest aid intensity priority is given to Troms, Nordland
and Nord-Trøndelag (zone 1) while Sør-Trøndelag, Møre og
Romsdal and Sogn og Fjordane (zone 2) is subject to lower
aid intensity. The aid intensity will be differentiated according
to transport distance (minimum 350 km) and according to
geographical zone. The table below shows the differentiation
in aid intensities.

The following counties/municipalities are proposed as eligible
for national transport aid:

Table 2: Aid intensity

— Troms: Harstad, Tromsø, Kvæfjord, Skånland, Bjarkøy,
Ibestad, Gratangen, Lavangen, Bardu, Salangen, Målselv,
Sørreisa, Dyrøy, Tranøy, Torsken, Berg, Lenvik and
Balsfjord,

Transport distances
in kilometres

Zone 1

Zone 2

350-700

> 701

30 per cent

20 per cent

40 per cent

30 per cent

— Nordland: all municipalities,

— Nord-Trøndelag: Leka, Nærøy, Vikna, Flatanger, Fosnes,
Overhalla, Høylandet, Grong, Namsos, Namsskogan,
Inderøy, Namdalseid, Verran,
Røyrvik, Lierne, Snåsa,
Mosvik, Verdal, Leksvik, Meråker and Steinkjer.

— Sør-Trøndelag: Hemne, Snillfjord, Hitra, Frøya, Ørland,
Agdenes, Rissa, Bjugn, Åfjord, Roan, Osen, Oppdal,
Rennebu, Meldal, Røros, Holtålen, Midtre Gauldal, Selbu
and Tydal.

— Møre og Romsdal: Kristiansund, Vanylven, Sande, Herøy,
Ulstein, Hareid, Norddal, Stranda, Stordal, Rauma, Nesset,
Midsund, Sandøy, Aukra, Eide, Averøy, Frei, Gjemnes,
Tingvoll, Sunndal, Surnadal, Rindal, Aure, Halsa, Tustna
and Smøla.

— Sogn og Fjordane: Gulen, Solund, Hyllestad, Høyanger, Vik,
Balestrand, Leikanger, Sogndal, Aurland, Lærdal, Årdal,
Luster, Askvoll, Fjaler, Gaular, Jølster, Bremanger, Vågsøy,
Selje, Eid, Hornindal, Gloppen and Stryn.

The Norwegian authorities state that the designation of the area
for regional transport aid is based on Annex XI of the State Aid
Guidelines, which establishes criteria for granting aid to offset
additional transport costs in low population density areas, i.e.
regions with less than 12,5 inhabitants per square kilometre.
The notification includes parts of Sør-Trøndelag and Møre og
Romsdal. While these included parts have low population
low population
density,
density counties. The Norwegian authorities argue, however,
that this inclusion is justified according to Annex XI of the
State Aid Guidelines as the population coverage of the new
proposed area is 16,01 per cent of the total population in
Norway compared to the current population coverage of

the two counties are as such not

The Norwegian authorities state that they will ensure that firms
are not being overcompensated. If undertakings benefit from a
reduced social security tax in the same period, the advantages
of this tax reduction will be deducted from the transport aid
grant calculated according to table 2. Furthermore, the under-
takings will not receive more in transport aid from the new
transport aid scheme and reduced social security contributions,
altogether, than the amount equivalent to what they would
have received through the existing differentiation of social
security contributions.

By letter dated 16 May 2003,
the Authority requested
additional information. The Authority noted that four of the
municipalities proposed covered by the new direct transport
aid scheme are outside the regional aid map (Herøy, Ulstein,
Hareid and Aukra). The Authority expressed doubts about the
Norwegian authorities'
State Aid
Guidelines.
low population areas in Sør-Trøndelag and
If
Møre og Romsdal shall be included in the area eligible for
transport aid,
in the Authority's view,
replace areas/municipalities from the eight other low popu-
lation density counties
(Troms, Nordland, Nord-Trøndelag,
Sogn og Fjordane, Aust-Agder, Telemark Hedmark and
Oppland). The Authority also requested a copy of a report
documenting additional transport costs.

these areas must,

interpretation of

the

By letter dated 5 June 2003, the Ministry of Finance submitted
additional information. The Ministry argues that the regional
state aid map is notified for investment aid and not
for
handicaps due to extra transport costs and that companies in
those four municipalities face permanent disadvantages, as they
are islands without any road connection with the mainland.
The Norwegian Government is of the opinion that Annex XI
of the State Aid Guidelines allows for a certain flexibility in the
selection of areas that are eligible for transport aid. In the light
of the arguments above, the Government therefore maintains
the notification of the transport aid map as proposed in the

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letter dated 25 March 2003, including the four municipalities
Herøy, Hareid, Ulstein and Aukra.

2. The existence of State aid

— Article 61(1) EEA

Article 61(1) of the EEA Agreement reads as follows:

for

As regards the areas that qualify for regional transport aid, the
Norwegian authorities point out
in their view the
that
conditions
replacement of areas/municipalities are in
accordance with the provisions of Annex XI. The Norwegian
authorities argue that the total population of the municipalities
within the regional state aid map in the counties of the low
population density counties of Hedmark, Oppland, Telemark
and Aust-Agder is 209 593 inhabitants. These areas are not
included in the notification while the population of the munici-
palities in Sør-Trøndelag and Møre og Romsdal, included in the
proposed transport aid scheme, is 179 792 inhabitants.

(TØI) (7) on the extra transport costs

By letter dated 10 June 2003,
the Ministry of Trade and
Industry submitted a survey from the Institute of Transport
Economics
in the
proposed area for transport aid. The survey is based on
interviews with 33 enterprises divided into 6 samples
(geographic areas). The conclusion from TØI is that sample 1
(the three northernmost counties) and sample 2 (counties in
Western-Norway) have on average
costs per
man-year — in total and for transport distances above 350
kilometre — that are significantly above comparable cost
figures for the reference area (Oslo and surrounding areas).

transport

In the meeting on 26 June 2003 in Oslo, the representatives
from the Authority expressed the view that the survey from
to a sufficient degree prove that additional
TØI does not
in the geographical areas in southern
transport costs exist
Norway proposed as being eligible for direct transport aid.

II. APPRECIATION

1. Notification requirement and standstill clause

in sufficient

Article 1(3) of Protocol 3 to the Surveillance and Court
‘The EFTA Surveillance Authority shall be
Agreement states:
informed,
its
comments, of any plans to grant or alter aid.’ Aid provided
without notification or aid that is notified late, i.e. notified after
being ‘put into effect’ is considered unlawful aid, see Chapter
3.2.2.(1) of the State Aid Guidelines.

time to enable it

to submit

By letters from the Mission of Norway to the European Union
dated 26 March 2003 (Doc. No 03-1846 A), 15 April 2003
(Doc. No 03-2467 A), 10 June 2003 (Doc. No 03-3707 A) and
19 June 2003 (Doc. No 03-3976 A), the Norwegian authorities
have fulfilled their obligation according to Article 1(3) of
Protocol 3 to the Surveillance and Court Agreement.

‘Save as otherwise provided in this Agreement, any aid granted
by EC Member States, EFTA States or through State resources
in any form whatsoever which distorts or threatens to distort
competition by
the
production of certain goods shall, in so far as it affects trade
between Contracting Parties, be incompatible with the func-
tioning of this Agreement.’

certain undertakings or

favouring

The EFTA Court stated in Case E-6/98 (8), paragraph 43, that:
‘the Norwegian social security contribution scheme constitutes
State aid within the meaning of Article 61 EEA.’ For the
purpose of assessing whether the notification of a transitional
arrangement in zones 3 and 4 involves State aid, it is noted
that
the scheme have not changed
compared to the scheme assessed by the EFTA Court. As the
present scheme satisfies all the conditions for the application of
Article 61(1) EEA, the Authority takes the view that the tran-
sitional arrangement in zones 3 and 4 constitutes State aid.

the main principles of

Under the proposed new direct transport aid scheme, aid is
provided by the Norwegian State to certain undertakings
located in the regions of Norway eligible for transport aid. In
view of the fact that the scheme is not limited to sectors or
undertakings, which are not involved in trade between the EEA
States, there is a risk that the aid distorts competition and
affects trade between the Contracting Parties. Consequently,
the proposed aid measure constitutes aid within the meaning
of Article 61(1) of the EEA Agreement.

— Existing aid or new aid?

the State aid Guidelines states i.a.

Chapter 7.2(1) of
that:
‘Existing aid within the meaning of Article 1(1) of Protocol 3
to the Surveillance and Court Agreement includes: authorized
aid,
i.e. aid schemes or ongoing provisions of aid that have
been authorized (see 4.2.(2) and 5.4.(2) or are deemed to have
been authorized by the EFTA Surveillance Authority.’

On 22 September 1999 the Authority decided not to raise
objections to a notification from the Norwegian authorities
concerning the measures that
the Norwegian Government
intended to take in order to comply with the EFTA Surveillance
Authority's decision of 2 July 1998 (9). The Authority found
the aid could be exempted as regional aid (indirect
that
transport aid) on the basis of Article 61(3)(c) of
the EEA
Agreement. The approval was limited in time, not going
beyond 31 December 2003. Consequently,
current
regionally differentiated social security contributions scheme
is an existing aid scheme until the end of 2003.

the

(7) Interju av industribedrifter i aktuelle transportstøttesoner og i refer-

ansesoner. Arbeidsdokument av 4.6.2003.

(8) EFTA Court Case E-6/98, The Government of Norway v EFTA
Surveillance Authority [1999] Report of the EFTA Court, p. 74.

(9) See footnote 2.

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The Authority considers that any State aid resulting from the
system of regionally differentiated social security contributions
after 1 January 2004 would be new aid.

The proposed direct transport aid scheme is a new aid scheme.

3. Compatibility of the aid

In the Decision to propose appropriate measures to Norway
(Dec. No 172/02/COL see also point I.2 above) the Authority
regionally differentiated social
concluded that
the present
contribution scheme did not qualify for
the derogation
provided for under Article 61(3)(c) EEA. The amount of aid
granted under the present scheme does not bear any relation to
the additional transport costs actually incurred by a particular
undertaking and is not calculated in line with the provisions of
Annex XI of the State Aid Guidelines.

3.1. Transitional period in zones 3 and 4

In point 1b) of the operative part of the Decision to propose
appropriate measures to Norway (Dec. No 172/02/COL, see
also point I. 2 above), it is stated that:
‘the Norwegian auth-
orities shall eliminate any such aid or render it compatible with
effect from 1.1.2004 unless the Authority agrees to a later date
should that be considered objectively necessary and justified by
the Authority in order to allow an appropriate transition for
the undertakings in question to the adjusted situation.’

In the notification (see point I 3.1 above), the Norwegian auth-
orities have put forward two sets of arguments for why a
transition period is necessary. Firstly,
in light of the chro-
nological development of the case, the Norwegian authorities
are of the opinion that they received ‘no clear signals’ until late
autumn 2002 that the system as such had to be abolished.
Secondly, it is argued that the economic effect of abolishing
the system as from 2004 will raise significant and very serious
firms
difficulties, not only for individual
(exceeding the de minimis
the
employment situation in the whole area.

threshold) and thus

firms, but

for all

for

to the
Norwegian authorities
decision to initiate the formal investigation procedure. In this
letter
confirmed that Norway
operates a scheme that is similar to the Swedish scheme.

the Norwegian authorities

also submitted comments

In the negative decision with regard to Sweden, the European
Commission furthermore stated:
‘The existence of a similar
scheme in Norway (namely the regionally differentiated social
security taxation scheme) is not a sufficient reason to approve
the Swedish reduced social contributions scheme.
In this
context, the Court of Justice has ruled that “any breach by a
Member State of an obligation under the Treaty in connection
with the prohibition laid down in Article 92 cannot be justified
by the fact that other Member States are also failing to fulfill
this obligation. The effects of more than one distortion of
competition on trade between Member States do not cancel
one another out but accumulate and the damaging conse-
quences to the common market are increased.” ’ (10)

The Norwegian scheme was discussed in several meetings
between the Norwegian authorities and the Authority in the
course of 2001 before the Authority, by letter dated 29
November,
the
informed the Norwegian authorities
that
the Norwegian
Authority would start an assessment of
system with the aim of formulating a proposal for appropriate
measures so that equal conditions of competition within the
territory covered by the EEA Agreement are re-established.

The Authority initiated a formal review of
the Norwegian
system by letter to the Norwegian authorities dated 4 June
2002 (Doc. No 02-4189 D).
In this letter the Authority
stated that the Norwegian system of regionally differentiated
social security contributions might no longer be compatible
In the Authority's decision to
with the EEA Agreement.
propose appropriate measures of 25 September 2002 (11),
it
was concluded that the present regionally differentiated social
security contributions scheme does not qualify for the dero-
gation provided for under Article 61(3)(c) EEA.

The aim of the discussions prior to 25 March 2003 was to see
whether certain exceptions to a complete abolishment of differ-
entiated social security contributions could be maintained. In
the Authority it was however clear, after the
the view of
the current system by and
decision against Sweden,
large could not continue.

that

— Developments until late autumn 2002

summarised in point

Referring to the facts
I 2 above
concerning the Commission's negative decision with regard
to Sweden, there is no question that the Norwegian authorities
have known about the Commission's doubts concerning the
compatibility of the Swedish scheme at the latest since the
opening decision was published on 1 July 2000, and the
Norwegian authorities have known that a negative decision
was taken on 21 December 2000 at
the latest since 14
letter dated 27 July 2000 the
September 2001. By

Against this background, the Authority cannot agree with the
Norwegian authorities that they received ‘no clear signals’ until
late autumn 2002 that the system as such had to be abolished.
In light of the comments above the Authority is of the view
that it would have been possible to take measures that would
have alleviated transitional problems industry is now facing.

(10) Case 78/76 Steinike & Weinlig v Germany [1977] ECR 595.
(11) Dec. No 172/02/COL.

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the Norwegian Government

the Authority disputes the relevance of

this
In any case,
argument. Whether
received
more or less clear signals is not decisive since a government
cannot claim a misunderstanding of EEA rules as an excuse for
not fulfilling its obligations under the Agreement. Thus, during
discussions with the Norwegian authorities prior to 25 March
2003, the Authority took the view that a Member State cannot
invoke legitimate expectations in order to continue an incom-
patible scheme. This is even more the case in the present
situation where the authorisation of the present scheme will
cease to exist by the end of 2003 and a new authorisation will
be required in order to approve a new aid scheme.

— The economic effect of an abolishment of the system

The Norwegian authorities argue that no transitional period, or
a very short one, would i.a. create uncertainty and crises in a
large number of regional businesses and may severely hurt
economic development in these regions. This is substantiated
by arguments and calculations as described in point
I 3.1
above.

In spite of this, the Authority still has doubts as to whether a
transitional period can be justified on these grounds, and, if so,
how long it objectively should be.

respectively,

for each of

Firstly, the Norwegian authorities have not submitted calcu-
lations demonstrating the effects of transition periods of one
and two years,
the zones, and
compared to the notified three year period (as requested in
the Authority's letter dated 16 May 2003). In the letter dated
5 June 2003 from the Ministry of Finance, the Norwegian
authorities only make comparisons between a transition
period of three years and no transition period at all while
stating that:
less than three years
would be too short’.

‘a transition period of

Secondly,
in the letter dated 16 May 2003, the Authority
requested arguments for why enterprises in zone 3 need the
same transition period as those in zone 4, in spite of facing a
smaller increase in the tax burden. In the letter dated 5 June
2003 from the Ministry of Finance, the Norwegian authorities
state that: ‘The relative differences between the two zones are
very small compared with the need for wage adjustments in
both zones. A differentiation of the transitional period between
the two zones would in our view be unfortunate in the present
situation.’

quite some time that the system as such could not continue
and that the Authority has doubts about the economic justifi-
cation for a transition period of three years in both zone 3 and
4, the Authority has doubts about the compatibility of the
notified transitional period in zones 3 and 4.

3.2. A new direct transport aid scheme

The proposed areas eligible for direct transport aid cover muni-
cipalities in six counties. Of these six counties, four have a
population density of less than 12,5 inhabitants per square
the municipalities proposed eligible for
kilometre. Four of
direct transport aid are outside the regional aid map (Herøy,
Ulstein, Hareid and Aukra).

— Municipalities outside the regional aid map

The Authority's authorization of the map of assisted areas for
Norway in 1999 (327/99/COL) implied an endorsement of the
granting of aid under approved regional aid schemes. It follows
that regional aid (for example direct transport aid) cannot be
granted outside the approved map of assisted areas.

In Chapter 25.5(5) of the State Aid Guidelines it is stated that:
‘During the period of validity of the map, EFTA States may
request adjustments to it, if it is shown that socio-economic
conditions have changed significantly. Such changes may relate
to the rates of intensity and the eligible regions, provided that
the possible inclusion of new regions is offset by the exclusion
of regions having the same population. The validity of the
adjusted map expires on the date already set for the original
map’.

the State Aid Guidelines,

As the Norwegian authorities have not notified an adjustment
the map of assisted areas in accordance with Chapter
of
25.5(5) of
regional aid (direct
transport aid) to the four municipalities outside the regional
aid map (Herøy, Ulstein, Hareid and Aukra) would, in the view
of the Authority, be incompatible with the State aid provisions
of the EEA Agreement.

— Documentation of additional transport costs

As documentation of additional transport costs, the Norwegian
authorities have submitted the survey from TØI (see point I 3.2
above).

— Conclusion concerning the notified transitional period in

zones 3 and 4

Taking into consideration that any State aid resulting from the
system of regionally differentiated social security contributions
after 1 January 2004 would be new aid, that the Norwegian
authorities, in the view of the Authority, have been aware for

In Chapter 25.4(27) of the State Aid Guidelines it is stated that:
‘In the regions of low population density qualifying either for
exemption under Article 61(3)(a) or under 61(3)(c) on the basis
of the population density test referred to in Chapter 25.3,
additional
paragraph (17)

aid intended partly to offset

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2. The Norwegian Government is invited, pursuant to point
5.3.1.(1) of Chapter 5 of
the Authority's State Aid
Guidelines, to submit its comments on the opening of the
formal investigation procedure within two months from the
notification of this decision.

3. The Norwegian Government

is requested to submit all
information enabling the Authority to examine the compati-
bility of the measures in question with the EEA Agreement
within two months from the notification of this decision.

4. Other EFTA States, EC Member States and interested parties
shall be informed by the publishing of this decision in the
EEA Section of the Official Journal of the European Union and
inviting them to submit
the EEA Supplement
comments within one month from the date of publication.

thereto,

5. This decision is authentic in the English language.

Done at Brussels, 16 July 2003,

For the EFTA Surveillance Authority

Einar M. BULL

Hannes HAFSTEIN

President

College Member

The EFTA Surveillance Authority hereby gives the EFTA States,
EU Member States and interested parties notice to submit their
comments on the measures in question within one month from
the publication of this notice to:

EFTA Surveillance Authority
74, rue de Trèves
B-1040 Bruxelles.

The Comments will be communicated to the Norwegian
Government. Confidential
the
interested party submitting the comments may be requested
in writing, stating the reasons for the request.

the identity of

treatment of

costs (12) may

special
be
transport
conditions (13). It is up to the EFTA State to prove that such
additional costs exist and to determine their amount.’

authorised

under

The Authority considers that the survey from TØI does not to
a sufficient degree prove that additional transport costs exist in
the geographical areas in southern Norway proposed eligible
for direct transport aid. Therefore the Authority has doubts
about the compatibility of direct transport aid in these areas
(Sogn og Fjordane, Møre og Romsdal and Sør-Trøndelag) with
the State aid provisions of the EEA Agreement.

3.3. A continued differentiated social security contribution in

Nord-Troms and Finnmark (zone 5)

The Authority refers to Decision of the Standing Committee of
the EFTA States No 2/2003/SC of 1 July 2003. Consequently,
the formal investigation will be limited to the notified transi-
tional arrangement in zones 3 and 4 and the direct transport
aid scheme.

4. Conclusion

In view of the above facts and considerations, the Authority
has doubts about the compatibility of the notified aid measures
with the functioning of the EEA Agreement. Consequently, and
in accordance with Chapter 5.2 of the State Aid Guidelines
(cited in point II 1 above), the Authority is obliged to open
the procedure provided for in Article 1(2) of Protocol 3 to the
Surveillance and Court Agreement. The decision to open
proceedings is without prejudice to the final decision, which
may still be to find that the aid is compatible with the func-
tioning of the EEA Agreement.

HAS ADOPTED THIS DECISION:

1. The Procedure provided for in Article 1 (2) of Protocol 3 to
the Surveillance and Court Agreement is opened with regard
to the notified transitional period for the regionally differ-
entiated social security contributions in zones 3 and 4 and
the notified new direct transport aid scheme.

(12) Additional transport costs mean the extra costs occasioned by
movements of goods within the borders of the country concerned.
In no circumstances may such aid constitute export aid, nor must
it constitute measures having an equivalent effect to quantitative
restrictions on imports, within the meaning of Article 11 of the
EEA Agreement.

(13) With regard to the special conditions for regions qualifying for the
Article 61(3)(c) derogation under the population density criterion,
see Annex XI of the State Aid Guidelines. As for the other regions
eligible for aid to offset in part additional transport costs, the
conditions applicable are similar to those in Annex XI of the
State Aid Guidelines.