Framework on State aid to shipbuilding
Date: 2003-12-30
Institutions: European Commission
Subjects: State aid, control of State aid, shipbuilding

30.12.2003

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Official Journal of the European Union

C 317/11

FRAMEWORK ON STATE AID TO SHIPBUILDING

(2003/C 317/06)

1. INTRODUCTION

regimes

applicable

1.
Since the early 1970s, State aid to shipbuilding has been
subject to a series of specific Community regimes. Compared
to industrial sectors that have not been subject to specific rules,
shipbuilding sector have
to the
the
contained a mixture of both stricter and more lenient
provisions. This Framework provides for new rules for the
assessment of State aid to shipbuilding following the expiry
of Council Regulation (EC) No 1540/98 of 29 June 1998
establishing new rules on aid to shipbuilding (1) on 31
December 2003.

force. This Framework is in no way intended to prejudice the
outcome of that work and may be reviewed in the light of an
agreement within the OECD.

In the light of these special characteristics, the objectives
in addition to simplifying the applicable

5.
of this Framework,
rules, are to:

(a) encourage

greater

and competitiveness of
Community yards, in particular through the promotion of
innovation;

efficiency

2.
The objectives of this Framework are, to the largest extent
possible, to remove the differences between the rules applicable
to the shipbuilding industry and to other industrial sectors and,
thereby,
the
Commission's policy in this area, by extending general hori-
zontal provisions to the shipbuilding sector.

and make more

to simplify

transparent

Nevertheless,

the Commission recognises

3.
that certain
specific factors affecting the shipbuilding sector should be
reflected in the Commission's policy of State aid control.
These factors include:

(a) over-capacity, depressed prices and trade distortions in the

world shipbuilding market;

(b) the nature of ships as very large, capital goods, which raises
the potential of State-supported credit facilities to distort
competition;

(c) the fact that World Trade Organisation (‘WTO’) unfair trade
disciplines are difficult to apply in the shipbuilding sector;

(d) the existence of agreements within the Organisation for
Economic Cooperation and Development (‘OECD’) in the
shipbuilding sector, namely the 1998 OECD Arrangement
on Guidelines for Officially Supported Export Credits with
its Sector Understanding on Export Credits for Ships, which
applies in the Community pursuant to Council Decision
the
2001/76/EC of 22 December 2000 replacing
Decision of 4 April 1978 on the application of certain
guidelines
in the field of officially supported export
credits (2).

The Commission acknowledges

4.
that work is being
undertaken within the OECD framework to replace the 1994
Agreement on respecting normal competitive conditions in the
shipbuilding and repair industry (3), which has not entered into

(1) OJ L 202, 18.7.1998, p. 1.
(2) OJ L 32, 2.2.2001, p. 1. Decision as amended by Decision

2002/634/EC (OJ L 206, 3.8.2002, p. 16).

(b) facilitate the reduction of economically non-viable capacity

where necessary;

(c) respect applicable international obligations in the field of

export credits and development aid.

In order to achieve these objectives,

6.
this Framework
provides for specific measures in relation to aid for innovation,
closure aid, export credits and development aid and regional
aid.

7.
Certain features make shipbuilding unique and distinguish
it from other industries such as short production series, the
size, value and complexity of the units produced as well as the
fact that prototypes are generally used commercially. As a
consequence, shipbuilding is the only sector eligible for inno-
vation aid. Investment aid for innovation was introduced by
Regulation (EC) No 1540/98 and was intended to be authorised
only in duly justified cases, as an incentive to technological
this provision
risk-taking. However,
was not satisfactory. It is considered that the unique charac-
teristics of
the shipbuilding industry justify maintaining a
sector-specific innovation aid. Therefore, this Framework aims
at improving support to innovation, by taking into account
notably the difficulties of application of the previous provision.

the implementation of

8.
The Commission may only consider aid to shipbuilding,
ship repair and ship conversion to be compatible with the
it complies with the provisions of this
common market if
Framework.

This Framework is without prejudice to the temporary
(EC) No
temporary

9.
by Council Regulation
measures
1177/2002 of 27 June 2002 concerning a
defensive mechanism to shipbuilding (4).

established

2. DEFINITIONS

For the purposes of this Framework, the following defi-

10.
nitions shall apply:

(a)

‘shipbuilding’ means the building,
self-propelled seagoing commercial vessels;

in the Community, of

(3) OJ C 375, 30.12.1994, p. 1.

(4) OJ L 172, 2.7.2002, p. 1.

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Official Journal of the European Union

30.12.2003

(b) ‘ship repair’ means the repair or reconditioning in the
Community of self-propelled seagoing commercial vessels;

(c)

‘ship conversion’ means the conversion, in the Community,
of self-propelled seagoing commercial vessels of not less
than 1 000 gt, on condition that conversion operations
entail radical alterations to the cargo plan, the shell, the
propulsion system or the passenger accommodation;

Control shall be presumed to arise once a person or under-
taking engaged in shipbuilding,
ship
conversion owns or controls an interest of more than
25 % in the other or vice versa.

ship repair or

(f)

‘aid’ means aid within the meaning of Article 87(1) of the
Treaty establishing the European Community,
including
measures
facilities, guarantees and tax
concessions.

such as credit

(d) ‘self-propelled seagoing commercial vessels’ means:

(i) vessels of not less than 100 gt used for the transpor-

tation of passengers and/or goods,

(ii) vessels of not less than 100 gt for the performance of a
specialised service (for example, dredgers and ice
breakers),

(iii) tugs of not less than 365 kW,

(iv) fishing vessels of not less than 100 gt, with regards to
export credits and development aid if in compliance
with the 1998 OECD Arrangement on Guidelines for
Officially Supported Export Credits and with its Sector
Understanding on Export Credits for Ships, or with any
agreement amending or replacing either of them, as
well as with the Community rules governing State
aid in the fishery and aquaculture sector,

(v) unfinished shells of the vessels referred to in points (i)

to (iv) that are afloat and mobile.

the above,

that, by means of

shall mean a vessel

‘self-propelled seagoing
For the purposes of
its
vessel’
the charac-
permanent propulsion and steering, has all
teristics of
self-navigability on the high seas. Military
vessels (i.e. vessels which according to their basic structural
characteristics and capability are specifically intended to be
used exclusively for military purposes, such as warships
and other vessels for offensive or defensive action) and
modifications made or features added to other vessels
exclusively
excluded,
provided that any measures or practices
applied in
respect of such vessels, modifications or features are not
disguised actions taken in favour of commercial ship-
building inconsistent with State aid rules;

for military purposes

shall be

3. APPLICABLE PROVISIONS

3.1. Scope

11.
Aid to shipbuilding shall include aid to any shipyard,
related entity, shipowner and third party which is granted,
whether directly or indirectly, for building, repair or conversion
of ships.

3.2. Application of Horizontal Provisions

The general principle is that aid to shipbuilding may be
12.
granted in accordance with Articles 87 and 88 of the Treaty
and all
legislation and measures adopted on those bases,
including the following provisions:

(a) Council Regulation (EC) No 659/1999 of 22 March 1999
laying down detailed rules for the application of Article 93
of the EC Treaty (1);

(b) Commission Regulation (EC) No 68/2001 of 12 January
2001 on the application of Articles 87 and 88 of the EC
Treaty to training aid (2);

(c) Commission Regulation (EC) No 69/2001 of 12 January
2001 on the application of Articles 87 and 88 of the EC
Treaty to de minimis aid (3);

(d) Commission Regulation (EC) No 70/2001 of 12 January
2001 on the application of Articles 87 and 88 of the EC
Treaty to State aid to small and medium-sized enter-
prises (4);

(e) Regulation (EC) No 1177/2002;

(f) Community guidelines on State aid for

rescuing and

restructuring firms in difficulties (5);

(g) Community guidelines on State aid for environmental

protection (6); and

(e)

‘related entity’ means any natural or legal person who:

(h) Community framework for State aid for research and devel-

opment (7).

(i) owns or controls an undertaking engaged in ship-

building, ship repair or ship conversion, or

(ii) is owned or controlled, directly or indirectly, whether
through stock ownership or otherwise, by an under-
taking engaged in shipbuilding, ship repair or ship
conversion.

(1) OJ L 83, 27.3.1999, p. 1.
(2) OJ L 10, 13.1.2001, p. 20.
(3) OJ L 10, 13.1.2001, p. 30.
(4) OJ L 10, 13.1.2001, p. 33.
(5) OJ C 288, 9.10.1999, p. 2.
(6) OJ C 37, 3.2.2001, p. 3.
(7) OJ C 45, 17.2.1996, p. 5.

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3.3. Specific Provisions

13.
The general principle outlined in Section 3.2 is subject
to the following exceptions, which are justified by the specific
factors presented in Section 1.

(d) expenditure incurred for the redevelopment of the yard(s),
its buildings, installations and infrastructure for use other
than shipbuilding.

3.3.1. Aid to research, development and innovation

Aid granted to defray expenditure by shipbuilding, ship
14.
repair or ship conversion undertakings on research and devel-
opment projects may be considered compatible with the
is in compliance with the rules laid
common market if
aid for
down in the Community framework for State
research and development, or any successor arrangement.

it

15.
Aid granted for innovation in existing shipbuilding, ship
repair or ship conversion yards may be deemed compatible
with the common market up to a maximum aid intensity of
20 % gross, provided that:

(a)

industrial application of

to the
and processes,

innovative
relates
it
products
technologically new or
i.e.
substantially improved products and processes compared
to the state of the art existing in this industry in the
Community, which carry a risk of
technological or
industrial failure;

(b) the aid is limited to supporting expenditure on investments,
design, engineering and testing activities directly and
exclusively related to the innovative part of the project.
Exceptionally, additional production costs that are strictly
necessary to validate the technological innovation can be
eligible to the extent they are limited to the minimum
necessary amount.

3.3.2. Closure aid

closure of

Aid to defray the normal costs resulting from the total
16.
or partial
ship
shipbuilding,
conversion yards may be considered compatible with the
common market provided
capacity
reduction is of a genuine and irreversible nature.

ship repair or

resulting

that

the

In addition, in the case of undertakings which totally
18.
cease shipbuilding,
the
following measures may also be deemed compatible with the
common market:

ship repair and ship conversion,

(a) aid of an amount not exceeding the higher of the following
two values, as determined by an independent consultant's
report: the residual book value of the installations, or the
discounted operational profits obtainable over a projected
three-year period,
less any advantages the aided under-
taking derives from the closure of the installations;

(b) aid such as loans or loan guarantees for working capital
needed to enable the undertaking to complete unfinished
works provided that this is kept to the minimum necessary
and a significant proportion of the work has already been
done.

19.
Undertakings receiving partial closure aid must not have
benefited from rescue or restructuring aid in the past 10 years.
Where less than 10 years have elapsed since the rescue or
the Commission will allow
restructuring aid was granted,
partial closure aid only in exceptional and unforeseeable
circumstances for which the company is not responsible.

20.
The amount and intensity of aid must be justified by the
extent of the closures involved, account being taken of the
structural problems of the region concerned and, in the case
of conversion to other industrial activities, of the Community
legislation and rules applicable to those new activities.

21.
In order to establish the irreversible nature of aided
closures, the Member State concerned shall ensure that the
closed shipbuilding facilities remain closed for a period of
not less than 10 years.

The costs eligible for the aid referred to in paragraph 16

17.
are:

(a) payments to workers made redundant or retired before

3.3.3. Employment aid

legal retirement age;

(b) the costs of counselling services to workers made or to be
made redundant or retired before legal retirement age,
including payments made by shipyards to facilitate the
creation of small enterprises which are independent of
the shipyards in question and whose activities are not
principally shipbuilding;

22.
Aid granted for the creation of employment as well as
for the recruitment of disadvantaged and disabled workers or
to cover the additional costs of employing disadvantaged and
disabled workers in shipbuilding, ship repair or ship conversion
undertakings may be considered compatible with the common
market if it is in compliance with the substantive rules laid
down in Commission Regulation (EC) No 2204/2002 of 12
December 2002 on the application of Articles 87 and 88 of
the EC Treaty to State aid for employment (1).

(c) payments to workers for vocational retraining;

(1) OJ L 337, 13.12.2002, p. 3.

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3.3.4. Export credits

to

and

granted

facilities

national

Aid to shipbuilding in the form of State-supported
23.
credit
non-national
shipowners or third parties for the building or conversion of
vessels may be deemed compatible with the common market if
it complies with the terms of the 1998 OECD Arrangement on
Guidelines for Officially Supported Export Credits and with its
Sector Understanding on Export Credits for Ships or any
laid down in such an arrangement or
successive terms
replacing the Arrangement.

3.3.5. Development aid

24.
Aid related to shipbuilding and ship conversion granted
as development assistance to a developing country may be
deemed compatible with the common market if it complies
with the terms laid down for that purpose by the 1998
OECD Arrangement on Guidelines for Officially Supported
Export Credits and its Sector Understanding on Export
Credits or any successive terms
laid down in such an
arrangement or replacing the Arrangement.

The Commission will verify the particular development
25.
content of the proposed aid, that the aid is necessary and that
it falls within the scope of the 1998 OECD Arrangement on
Guidelines for Officially Supported Export Credits and its
Sector Understanding on Export Credits for Ships or any
successive terms
laid down in such an arrangement or
replacing
the Arrangement. The offer of development
assistance must be open to bids from different yards. To the
extent
are
that Community public procurement
applicable, bidding procedures have to comply with them.

rules

3.3.6. Regional aid

Regional aid to shipbuilding,

ship
26.
conversion may be deemed compatible with the common
market only if it fulfils the following conditions:

ship repair or

(a) the aid must be granted for investment in upgrading or
linked to a financial
modernising existing yards, not
restructuring of the yard(s) concerned, with the objective
of improving the productivity of existing installations;

(c)

in regions referred to in Article 87(3)(c) of the Treaty and
complying with the map approved by the Commission for
the
each Member State for the grant of regional aid,
intensity of
the
the aid must not exceed 12,5 % or
applicable regional aid ceiling, whichever is the lower;

(d) the aid must be limited to support eligible expenditure as
defined in the applicable Community guidelines on regional
aid.

4. NOTIFICATION OBLIGATION

27.
All plans to grant new aid to shipbuilding, ship repair
or ship conversion, either in the form of a scheme or as
individual aid not covered by a scheme, shall be notified to
the Commission except if they fulfil the conditions set forth in
one of the Regulations exempting certain categories of State aid
from the requirement of prior notification.

5. MONITORING

28. Member States shall submit to the Commission annual
reports on all existing aid schemes pursuant to the rules set
forth in Regulation (EC) No 659/1999 and in its implementing
provisions.

6. OVERLAPPING AID FROM DIFFERENT SOURCES

The aid ceilings

stipulated in this Framework are
29.
the aid in question is
applicable irrespective of whether
financed wholly or in part
from State resources or from
Community resources. Aid authorised under this Framework
may not be combined with other forms of State aid within
the Treaty or with other
the meaning of Article 87(1) of
forms of Community financing,
the cumulation of which
produces an aid intensity higher than that laid down in these
guidelines.

In the case of aid serving different purposes and
favourable aid

30.
involving the same eligible costs,
ceiling will apply.

the most

7. APPLICATION OF THIS FRAMEWORK

(b) in regions referred to in Article 87(3)(a) of the Treaty and
complying with the map approved by the Commission for
each Member State for the grant of regional aid,
the
intensity of the aid must not exceed 22,5 %;

This Framework will be applicable from 1 January 2004
31.
until 31 December 2006 at the latest. It may be reviewed by
the Commission during this period, in particular in the light of
the Community's international obligations.