Invitation to submit comments pursuant to Article 1(2) in Part I of Protocol 3 to the Surveillance and Court Agreement on a Norwegian aid scheme for the grant of financial support to the wood sector, the Wood Scheme .
Date: 2006-11-09
Institutions: EFTA Surveillance Authority
Subjects: EFTA, Norway, State aid, control of State aid, exchange of information, forestry policy, support policy, wood industry

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Official Journal of the European Union

C 272/19

EUROPEAN ECONOMIC AREA

EFTA SURVEILLANCE AUTHORITY

Invitation to submit comments pursuant to Article 1(2) in Part I of Protocol 3 to the Surveillance
and Court Agreement on a Norwegian aid scheme for the grant of financial support to the wood
sector, the ‘Wood Scheme’.

(2006/C 272/06)

By means of Decision No 147/06/COL of 17 May 2006, reproduced in the authentic language on the
pages following this summary, the EFTA Surveillance Authority initiated proceedings pursuant to Article
1(2) in Part I of Protocol 3 to the Agreement between the EFTA States on the establishment of a Surveil-
lance Authority and a Court of Justice (Surveillance and Court Agreement). The Norwegian authorities
have been informed by means of a copy of the decision.

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

EFTA Surveillance Authority
35, Rue Belliard
B-1040 Brussels

The comments will be communicated to the Norwegian authorities. Confidential treatment of the identity
of the interested party submitting the comments may be requested in writing, stating the reasons for the
request.

SUMMARY

The Authority has decided to open the formal investigation procedure in respect of a Norwegian aid
scheme for the purpose of providing grants to undertakings in the wood sector (the ‘Wood Scheme’) with
the underlying objective of improving the processing of woodwork, increasing the use of woodwork and
improving relations on different levels of trade between the forest and the market.

The Wood Scheme was introduced by the Norwegian authorities in the year of 2000 for a period of five
years onwards and provides for grants to undertakings, institutions etc. who can contribute to the overall
objective under the Wood Scheme. The Authority has taken the preliminary view that the Wood Scheme
involves the grant of State aid. As the Wood Scheme was not notified to the Authority any aid within the
meaning of Article 61(1) of the EEA Agreement granted under the scheme is unlawful.

The Authority has assessed the Wood Scheme on the basis of the Authority's State Aid Guidelines on aid
for research and development and regional aid. The Authority has also assessed compliance of the Wood
Scheme with the block exemption Regulations on small and medium-sized enterprises and training aid.
Moreover, compatibility of the Wood Scheme under Article 61(3)(c) has been examined on the basis of the
principles established in the aforementioned block exemption Regulations.

However, as the Wood Scheme does not contain sufficiently specific definitions of the type of projects for
which support may be granted, descriptions of eligible costs or ceilings on the maximum amount of aid
which may be granted, aid under the Wood Scheme could potentially be granted to different types of activ-
ities, regardless of the aid intensities involved, and irrespective of whether the costs qualify as eligible.
However, the Norwegian authorities have stated that in practice, the Wood Scheme has been implemented
on the basis of the aid intensities which are referred to in the State Aid Guidelines and the block exemption
Regulations. The Authority has therefore requested the Norwegian authorities whether an administrative
practice for implementing the Wood Scheme in accordance with the State Aid Guidelines and the material
principles in the block exemption Regulations can be substantiated by further evidence. Nonetheless the
Authority has reserved its right to take a final position on such an administrative practice in view of the
existence of a parallel practice under the Wood Scheme to finance projects 100 % when in the view of the
Norwegian authorities no State aid is involved.

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In such circumstances the Authority has not been able to reassure itself that grants under the Wood
Scheme have been awarded in accordance with the State Aid Guidelines or the material principles of the
block exemption Regulations. It therefore doubts whether the Wood Scheme is compatible with the func-
tioning of the EEA Agreement.

The Norwegian authorities have stated that the Wood Scheme contains provisions which are in compliance
with the rules for granting de minimis aid under the de minimis Regulation or the previous Chapter 12 of
the State Aid Guidelines on the de minimis rule for State aid. However, it appears that the rules on de
minimis under the Wood Scheme do not include provisions that entail a verification of whether recipients
of de minimis aid have been in receipt of other de minimis aid during the three previous years of the grant.
This means that total aid received may exceed the de minimis threshold.

As a result of these circumstances the Authority has been unable to conclude on whether aid allegedly
granted as de minimis do, in fact, qualify as such.

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EFTA SURVEILLANCE AUTHORITY DECISION

No 147/06/COL

of 17 May 2006

on the wood scheme

(‘Verdiskapningsprogrammet for tre’)

(Norway)

THE EFTA SURVEILLANCE AUTHORITY,

Having regard to the Agreement on the European Economic Area (1), in particular to Articles 61 to 63 and
Protocol 26 thereof,

Having regard to the Agreement between the EFTA States on the establishment of a Surveillance Authority
and a Court of Justice (2), in particular to Article 24 thereof and Article 1(2) in Part I of Protocol 3 thereof,

Having regard to the Authority's Guidelines (3) on the application and interpretation of Articles 61 and 62
of the EEA Agreement, and in particular Chapters 14 and 25 thereof as well as to the block exemption
Regulations on aid for training and aid to small and medium-sized enterprises, respectively, as well as to
the Regulation on de minimis aid, (4)

Whereas:

I. FACTS

1. Procedure

By letter dated 1 February 2005 (Event no: 307555) the EFTA Surveillance Authority (the ‘Authority’)
received a complaint (the ‘Complaint’) from a trade association for the Norwegian masonry and concrete
industry, ‘byggutengrenser.no’ (the ‘Complainant’). In the Complaint, which was both received and registered
by the Authority on 3 February 2005, the Complainant alleges that the Norwegian state is granting State
aid to the wood construction industry on the basis of ‘Verdiskapningsprogrammet for tre’, also referred to as
‘Treprogrammet’ (hereinafter referred to as the ‘Wood Scheme’).

By letter dated 27 April 2005 (Event No: 313418), the Authority requested information from the Norwe-
gian authorities. The Norwegian authorities responded by letter dated 27 May 2005, enclosed in a letter
from the Norwegian Mission to the European Union dated 1 June 2005, received and registered by the
Authority on 1 June 2005 (Event no: 323464).

The Authority requested further information by letter dated 31 August 2005 (Event no: 323451) to which
the Norwegian authorities responded by letter dated 29 September 2005, enclosed in a letter dated 3
October 2005 from the Norwegian Mission to the European Union, received and registered by the
Authority on 5 October 2005 (Event no: 345465).

(1) Hereinafter referred to as the ‘EEA Agreement’ or ‘EEA’.
(2) Hereinafter referred to as the Surveillance and Court Agreement.
(3) Procedural and Substantive Rules in the Field of State Aid Guidelines on the application and interpretation of Articles
61 and 62 of the EEA Agreement and Article 1 of Protocol 3 to the Surveillance and Court Agreement, adopted and
issued by the EFTA Surveillance Authority on 19 January 1994, published in OJ L 231, 3.9.1994, p. 1, EEA Supple-
ment No 32, 3.9.1994, p. 1, last amended by the Authority's Decision No 69/06/COL of 22 March 2006 on refer-
ence and discount rates (hereinafter referred to as the ‘State Aid Guidelines’).

(4) 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 (OJ L 10, 13.1.2001, p. 20 as amended by OJ L 63, 28.2.2004, p. 20); 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 enterprises (OJ L 10, 13.1.2001, p. 33 as amended by OJ L 63, 28.2.2004, p. 22); and Commis-
sion Regulation (EC) No 69/2001 on the application of Articles 87 and 88 of the EC Treaty to de minimis aid (OJ L
10, 13.1.2001, p. 30). The latter Regulation replaces the previous Chapter 12 in the State Aid Guidelines (adopted
by the Authority's Decision No 54/96/COL of 15 May 1996, OJ L 245, 25.9.1996, p. 28). All Regulations have been
incorporated into Annex 15 (in Sections 1(d)-(f)) to the EEA Agreement by means of Joint Committee Decision No
88/2002 (OJ L 266, 3.10.2002, p. 56 and EEA Suppl. No 49, 3.10.2002, p. 42) and Joint Committee Decision No
131/2004 (OJ L 64, 10.3.2005, p. 67 and EEA Supplement No 12, 10.3.2005, p. 49).

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In addition hereto, during the months of November and December 2005 and January 2006 the Authority
and the Norwegian authorities have had informal contact both via telephone and electronic mail regarding
the Wood Scheme. Information received by the Authority in this context has been consolidated by the
Norwegian authorities in a letter dated 3 March 2006, enclosed in a letter dated 8 March 2006 from the
Norwegian Mission to the European Union, received and registered by the Authority on 9 March 2006
(Event no: 365992).

2. Description of the measures

2.1 Objective and administration of the Wood Scheme described in preparatory legislative works

T h e W h i t e P a p e r o f 1 9 9 8 - 9 9

The aim of the Wood Scheme is set out in a White Paper from the Government to the Parliament on the
creation of value and opportunities within the forest sector (St. meld. nr. 17 (1998-99 ‘Verdiskapning og
miljø — muligheter i skogssektoren’) — hereinafter referred to as the ‘White Paper’.

The aim of the White Paper was to establish a general policy for a rational and sustainable utilization of
forest resources and to increase the forest sectors' contribution to the national economy and the general
development of the Norwegian society. The White Paper proposed the introduction of various measures in
order to achieve this goal — one of which was the Wood Scheme. In this respect the White Paper
proposed the establishment of a five-year scheme for purposes of creating value within the sector of wood-
work and the (wood) processing business. More specifically, the White Paper foresaw that the aim of the
Wood Scheme should be to increase the creation of value in forestry and the (wood) processing business
as well as to increase the contribution of the forest sector to achieve a more sustainable production and
consumption. (5) Within these objectives, focus of the Wood Scheme should be on (i) improving the
processing of woodwork; (ii) increasing the use of woodwork; and (iii) improving relations on different
levels of trade between the forest sector and the market. (6) The White Paper also stated that focus of the
new scheme should be on identifying possibilities in the areas of product development, design and archi-
tecture and that the scheme should pave the way for enabling woodwork to be considered as an attractive
building material with a wide range of utilization purposes to a higher extent than up until presently. (7)
Finally, on a more general level the White Paper pointed out that the aim of increasing value in the proces-
sing business for woodwork should be achieved internally (i.e., within Norway). (8)

R e c o m m e n d a t i o n ( 1 9 9 8 - 1 9 9 9 ) a n d W o r k i n g G r o u p R e p o r t

The framework for the establishment of the Wood Scheme was laid down in further detail in a recommen-
dation from a Parliamentary standing committee addressed to the Parliament (Innst. S. nr. 208 (1998-
1999)), dated 3 June 1999 (hereinafter referred to as the ‘Recommendation’). The Recommendation
suggests, amongst others, that a working group should be established in order to lay down the strategies,
implementation and financing needs of the new scheme.

Shortly afterwards in July 1999 a ‘Working Group’ was established, composed of, amongst others, repre-
sentatives from the Ministry of Agriculture, trade associations for producers of timber and forest owners
(respectively), research and development institutions as well as companies in the sector. The Working
Group issued a report (the ‘Working Group Report’) on 14 April 2000 on the content, organisation and
financing of the Wood Scheme as well as on the issue of inviting for cooperation from sector relevant
organisations.

(5) Section 7.3.3 of the White Paper.
(6) Section 7.3.3 of the White Paper.
(7) Section 2.4.1 of the White Paper.
(8) Section 6.1.1 of the White Paper. Regarding the focus on Norwegian industry Section 6.1.1 of the White Paper also
states that (translated by the Authority): For purposes of increasing the creation of value it is important to consider both the
possibility of reducing costs on the levels of processing as well as sales and to increase and improve the use/exploitation of wood-
work produced in Norway.

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The Working Group Report recalls the objectives of the Wood Scheme referred to in the White Paper and
the aims at which the Wood Scheme should be focused (of improving the processing of woodwork;
increasing the use of woodwork; and improving relations on different levels of trade between the forest
sector and the market). (9) The Working Group Report further specifies that the scheme should be limited
to the processing chain between the forest sector and the mechanical wood processing industry but should
also include the supply of raw material to the wood processing industry (e.g. to improve quality, precision
and steady deliveries). (10) The Working Group Report also states that it is an objective that the Wood
Scheme is focused on Norwegian wood resources and that improvements are achieved within the Norwe-
gian (wood) processing business.

The Working Group Report places the responsibility for administration and implementation of the Wood
Scheme with (i) ‘Statens nærings- og distriktsutviklingsfond’, generally referred to as ‘SND’ (which was reorga-
nised and renamed ‘Innovasjon Norge’ as of 1 January 2004); and (ii) a management group (the ‘Management
Group’) composed of market operators, appointed by the Ministry of Agriculture. (11)

The tasks of the Management Group is to ensure engagement from the value chain; verify that the activities
within the scheme correspond to its aim and strategies; develop and turn the strategies into concrete
actions; decide on overall priorities (such as with regard to areas to be focused on or target groups); and to
contribute to the development of new strategic initiatives and active communication in order to obtain
initiatives and engagement. The Management Group shall also cater for the interests of the businesses parti-
cipating in the scheme. In the Working Group Report it is explained how the businesses — by means of
the Management Group — will enjoy a central role in the strategic development of the scheme thereby
ensuring active participation by business in the development and execution of the scheme. The Manage-
ment Group must prepare annual reports on the implementation of activities and development of the
scheme. The reports are forwarded to the Ministry of Agriculture and constitute the basis both for the
process of preparing the budget within the Ministry and the preparation of guidelines to SND. (12)

Finally, it appears from the Working Group Report that while during an initial phase initiatives are taken
on the basis of funding under the Wood Scheme, later on, initiatives should come from the operators who
must assume responsibility for the projects. (13) All actions are to be realised in the form of projects, and
proposals for projects are evaluated by reference to financing and the relevant objectives and criteria of the
Wood Scheme.

2.2 Legal basis and annual budgets

It appears from the state budgets that the Wood Scheme is financed by the Ministry of Agriculture
(renamed the ‘Ministry of Agriculture and Food’ as of 30 September 2004) via annual awards over the
state budget. Specific details on the financing of the Wood Scheme were laid down in the Government
proposal to the Parliament, containing the state budget for the year 2000 (St. prp. nr. 1 (1999-2000))
where funding for the Wood Scheme was included in Chapter 1142 as item 71. (14)

(9) Section 2.1 of the Working Group Report defines the forest based value chain (or the forest sector) as all operators
involved from the stump to the end-user. ‘Forest’ covers the supply side (forest owners and associations of such) and
the commercial level (forest entrepreneurs,
including terrain transport, timber measurement and turnover, forest
culture work, operational planning etc.). ‘Production’ covers all processing of timber into products suitable for end-
users but with a focus on the wood mechanical processing chain (covering traditional work in sawmills and carpentry
and further processing into doors, windows, staircases and other building elements as well as the production of
wood furniture, wooden houses and manually produced productions). The ‘market’ covers the end-users but includes
also different trading levels and other operators in the forest based production system, such as subcontractors of
goods and services to forestry and the forest based industry.

(10) Section 1.4 of the Working Group Report which also states that the Wood Scheme does not cover forest culture,
infrastructure, transport, fields, forest products for green decoration purposes and bio energy which are to be
addressed via other measures by the Government.

(11) Sections 1.5, 6.2 and 6.3 of the Working Group Report. The Ministry of Agriculture also defines the mandate of the

Management Group.

(12) Sections 1.5, 6.2 and 6.3 of the Working Group Report.
(13) Section 4.7 of the Working Group Report.
(14) See also revised budget (St. prp. nr. 61 (1999-2000)). The Wood Scheme has been referred to in different manners
including ‘Treprogrammet’ and ‘Verdiskapningsprogrammet for tre’ or by means of the original Recommendation from
the Standing Committee to the Parliament (Innst. S. nr. 208 (1998-1999)).

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The state budgets for the following years earmarked amounts for the years 2001, 2002, 2003, 2004 and
2005 for the Wood Scheme. (15) In the first four years (2000-2003, both inclusive) funding for the Wood
Scheme was earmarked under item 71 in Chapter 1142 of the state budget, whereas in the last two years
(2004 and 2005) funding for the Wood Scheme was earmarked under item 71 in Chapter 1149 of the
state budget.

In a letter dated 29 September 2005 the Norwegian authorities have informed the Authority that the
budgets for the Wood Scheme for the financial years from 2000 to 2005 have been as follows:

TABLE 1

Annual budget

Budget million NOK

Consents million NOK

17

25

20

36

35

33

8,8

25,7

18,0

39,4

28,3

(not available yet)

Year

2000

2001

2002

2003

2004

2005

Total

166

—

Grants have been paid out within three years after the year that a consent (‘tilsagn’) was given and upon
completion of the project by the recipient. If a budget of a certain year would not be fully spent the
remaining amount could be carried over to the subsequent year. Hence the total amount covering consents
given in any one year may be higher than the budget amount in the same year.

C o - f i n a n c i n g

Grants under the Wood Scheme to projects are conditional upon contributions by the recipients in the
form of financing and work force. (16) There is no general minimum requirement for co-financing; rather
the share of it differs depending on the objectives and character of the project. However, the Norwegian
authorities have stated that as aid under the Wood Scheme is granted in accordance with the aid intensities
set forth in the State Aid Guidelines — which according to a table prepared by the Norwegian authorities
— provide for a maximum rate of 75 % of eligible costs, the co-financing consists in the remaining percen-
tage. Nonetheless, projects may also be fully financed by the Wood Scheme, namely those which are
addressed to the wood sector in general and where (according to the Norwegian authorities) the measure
cannot be attributed to individual undertakings and results in a modest benefit only to an individual under-
taking. An example of this, which has been referred to by the authorities, is the grant of NOK 125.000 to
Norsk Treteknisk Institutt to a project for the product development of planed panels for internal use. The
Norwegian authorities stated that results are accessible for its member companies, but that, in any event,
much of Norsk Treteknisk Institutt's information is generally accessible via its library.

The Norwegian authorities have pointed out that although projects are co-financed, it is clear that the rele-
vant activities/projects would not have taken place had it not been for the grants awarded under the Wood
Scheme. The grants under the Wood Scheme are precisely aimed at triggering (or encouraging) contribu-
tions and resources from those operators who might pursue projects covered by the objectives of the
Wood scheme. (17)

(15) 2001: St. prp. nr. 1 (2000-2001) and revised budget (St. prp. nr. 84 (2000-2001)); 2002: St. prp. nr. 1 (2001-2002)
and revised budget (St. prp. nr. 1 Tillegg nr. 4 (2001-2002)); 2003: St. prp. nr. 1 (2002-2003) and revised budget
(St. prp. nr. 65 (2002-2003)); 2004: St. prp. nr. 1 (2003-2004) and revised budget (St. prp. nr. 63); 2005: St. prp.
nr. 1 (2004-2005) and revised budget (St. prp. nr. 65 (2004-2005)).

(16) Sections 1.4 and 7.1 of the Working Group Report.
(17) Section 7.1 of the Working Group Report. See also bullet point 3 in Section 7.2 of the Working Group Report and
the third paragraph of Section 4.7 where it is stated that the financing by the Wood Scheme must function as a
trigger for projects.

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2.3 Recipients of support under the Wood Scheme

The Working Group Report provides that the Wood Scheme should be directed towards companies and
other operators with concrete projects, falling within the strategies and work areas of the scheme and
which contribute to increased value creation. (18)

The Norwegian authorities have further specified that the Wood Scheme is open to all relevant industries
(referred to as ‘mechanical wood-based industries and a variety of companies’) and industries which can contri-
bute to goal achievement within the Wood Scheme, such as industries exploring the use of wood in combi-
nation with other materials. Within these parameters the scheme is open to private persons, companies,
authorities, unions, research and educational institutions, irrespectively of their country of establishment.

The Norwegian authorities have provided the Authority with two lists on the allocation of amounts
granted under the Wood Scheme. The first list contains an overview of the amounts granted to recipients
by consent over the period 2000-2004 (‘List 1 of Overview of Grants’). The second list also includes the
consents given during 2000-2004 but contains further details, such as the amounts that have been
‘annulled’ and the amounts actually paid out to recipients (‘List 2 of Overview of Grants’).

2.4 Eligible costs and aid intensity

G e n e r a l

In general the Norwegian authorities have stated that grants under the Wood Scheme have been awarded
in compliance with the State Aid Guidelines such as Chapter 14 on aid for research and development and
Chapter 25 on regional aid, or in accordance with the block exemptions for small and medium-sized enter-
prises (‘block exemption Regulation on SMEs’) or training aid (‘block exemption Regulation on training
aid’) unless the grant would qualify to be considered as de minimis under the previous Chapter 12 in the
State Aid Guidelines or the subsequent Regulation on de minimis aid (the ‘de minimis Regulation’). (19)

More specifically, the Norwegian authorities have stated that the Wood Scheme does not fund ‘…invest-
ments in fixed or intangible assets nor ordinary day-to-day operations.’ but that ‘The Wood Scheme may fund consul-
tancy services for competence building and network building; product- and process-development etc.’ In this regard it
appears from the Working Group Report that ‘The Wood Scheme shall finance “soft”investments, that is, develop-
ment of skills, networking, product- and process development (but not for machines) communication solutions,
including IT-infrastructure (but not machinery) market development and the like. The scheme should normally not
contribute support to physical investments.’ (20)

E l i g i b l e c o s t s

As regards eligible costs the Norwegian authorities have stated that grants under the Wood Scheme are
awarded to eligible projects that ‘… contribute to goal achievement within the strategies and work areas of the
program’ and which trigger innovation. As regards strategies it appears from the Working Group Report
that the following three strategies should be employed in order to achieve the objectives of the Wood
Scheme. Each of the strategies should be implemented by means of the activities specified below each
strategy. (21) The costs of such activities are therefore eligible for funding under the Wood Scheme.

(i) Profile making & communication strategy (that is, to create engagement and willingness to develop the value
chain, attract competence, people and capital, increase the visibility and active profiling of the forest and wood-
work, focus on the advantages of wood as a material and information dissemination).

Measures to be used to implement this strategy include campaigns which represent the forest/wood
business in a positive manner, information dissemination via design/architecture journals with wood

(18) Section 4.6 of the Working Group Report.
(19) Regulation Nos 68/2001 (on training aid), 70/2001 (on small and medium-sized enterprises); and 69/2001 (on de
minimis aid). The de minimis Regulation replaced the previous Chapter 12 of the State Aid Guidelines. See references
to all Regulations and Chapter 12 of the State Aid Guidelines in footnote 4.

(20) Translation (by the Authority) of the second bullet point in Section 7.2 of the Working Group Report. The Norwe-

gian authorities have added that‘These principles have been followed and communicated to the beneficiaries.’

(21) Sections 4.1- 4.4 and 5 of the Working Group Report.

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as a profile and the provision of information to professional users, universities and teaching institu-
tions and consumers. Other measures include the establishment of an Internet wood portal and a
network for purposes of channelling information throughout the value chain while also functioning as
a general information resource as well as the establishment of meeting points both nationally and
regionally to cater for research & development groups, architects, designers, IT oriented groups, trend
researchers, innovators and investors etc.

(ii) Product development & novelties strategy (covering the realisation of new possibilities, ideas and initiatives, contri-

buting to innovation and new creations).

Measures to be used include structural development programs, the establishment of business fora
directed at small companies, innovation projects connected to different teaching institutions, design/
architect competitions, development of new products within new market segments (such as the recrea-
tion market; facilities/infrastructure for ‘public areas’; wood products for health care etc.) and develop-
ment projects which focus on generating profits in the value chain (such as raw materials, side
products, wood trade and electronic trade). Other measures include the establishment of a forum and
structures for developing novelties & innovation, student projects for innovation and architect &
design competitions to increase the use of specific wood materials.

(iii) Cooperation and efficiency strategy (covering the improvement in the channelling of goods and processes in the
value chain and in cost efficiency, value creation and profitability as well as the optimal use of human resources
and infrastructure).

Measures include the development of an integrated system of logistics to improve the timing for distri-
bution of goods and the quality and price of products, information technology to save costs on the
sale/distribution level and the development of IT systems for communicating throughout the value
chain to improve quality. Other measures include competitions, preparatory studies on the develop-
ment of an integrated IT system and the digitalisation of information on goods throughout the value
chain, competence programmes on cost efficiency in value development as well as (measures for) the
generation of profits in the field of forest, wood industry and trade.

Specifically as regards research and development, the Norwegian authorities have stated that as the docu-
ments on which the Wood Scheme is based do not set forth any conditions which must be met in order
for a research and development project to be eligible for support, case handlers have assessed projects on a
case-by-case basis by reference to the project description given by applicants and Chapter 14 of the State
Aid Guidelines. In this context the Norwegian authorities have stated that eligible costs could include
personnel costs (researchers, technicians & assistance personnel, exclusively used for the research and devel-
opment activity), instruments, equipment, working space and buildings (permanently and exclusively used
for the research and development activity); consultancy assistance and corresponding services (exclusively
used in the context of the research and development activity) and administration directly related to the
research and development activity. Other eligible costs could be operating expenses such as materials,
supplies and similar products which are directly related to the research & development activity.

A i d i n t e n s i t y

The Norwegian authorities have stated that: ‘When aid to consultancy services is granted, the aid intensity lies
within 50 % of eligible costs, development projects (R&D) are funded within 35/25 % of eligible costs depending on
the size of the recipient.’. The authorities have subsequently added that it is assumed that the aid intensity
must be 50 % when financing projects are addressed to undertakings, and that to the extent that grants
have exceeded 50 % it has been for purposes of projects with a general and common purpose in which
case the Norwegian authorities have considered that the grant does not constitute illegal State aid under
Article 61 of the EEA Agreement, or that the amount qualifies as de minimis. However, the Norwegian
authorities have also (in the context of co-financing) referred to a maximum aid intensity of 75 % albeit
without linking this aid intensity to a specific set of guidelines. (22)

The Norwegian authorities have maintained that grants under the Wood Scheme have been implemented
on the basis of the ceilings referred to in the following table (translated by the Authority) which according
to the Norwegian authorities contains an overview of previously notified and approved schemes.

(22) See Section 2.2 above.

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ATTACHMENT NO 3

Overview — funding rates applicable to the Wood Scheme

Maximum funding rates for schemes administered by Innovation Norway — size of enterprises and aid areas.

— ( ) indicates that the scheme is only exceptionally relevant for the stated purposes and/or type of undertakings

— Up to 100 000 Euro may be granted under all schemes on the basis of the rules on de minimis aid

Measure — Scheme

Purpose

SMEs (< 250 employees and two other criteria)

Small enterprises
(< 50 employees and two
other criteria)

Medium-sized enterprises
(< 250 employees and two
other criteria)

Large undertakings

Country-wide innovation
scheme

Investments

15 %

7,5 %

Soft aid

50 %

0

0

Training aid (shall not be given from
LI for the moment)

(Specific/general — 35 %/70 %)

(specific/general —
25 %/50 %)

R & D:

— Development

activities

for

commercialisation

Technical preparatory studies

— (Individual Research,
preparatory studies)

Technical

35 %

75 %

25 %

50 %

(60 %/75 %)

(50 %/75 %)

OFU/IFU

R & D:

— Development

activities

for

35 % (regional area + 5 %)

commercialisation

Technical preparatory studies

— (Individual

research,

Technical

preparatory studies)

Contribution to county
municipalities
for
regional development

Investments:

— Zone A

B

C

Soft aid

25 % (regional area
+ 5 %)

50 %

(50 %/75 %)

25 %

20 %

Specific/general —
30 %/55 %

30 %

75 %

(60 %/75 %)

30 %

25 %

40 %

75 %

20 % (25 %) (*)

10 % (15 %)

50 %

0

Training aid

Specific/general — 40 %/75 %

R & D:

— Development

activities

for

commercialisation

Technical preparatory studies

— (Individual Research,
preparatory studies)

Technical

(65 %/75 %)

55 % (55 %/75 %)

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Measure — Scheme

Purpose

Rearrangements and new
creations

Investments:

SMEs (< 250 employees and two other criteria)

Small enterprises
(< 50 employees and two
other criteria)

Medium-sized enterprises
(< 250 employees and two
other criteria)

Large undertakings

0

— Outside reg. area

15 %

7,5 %

— Within reg. area

Zone A: 30 %, B: 25 % and C: 20 % (25 %) (**)

Zone A: 25 %, B: 20 %
and C: 10 % (15 %)

Soft aid:

— Outside reg. area

— Inside reg. area

Training aid:

50 %

50 %

— Outside reg. area

Specific/general — 35 %/70 %

— Inside reg. area

Specific/general — 40 %/75 %

Specific/general —
25 %/50 %

Specific/general —
30 %/55 %

R & D:

Outside reg. area:

— Development

activities

for

commercialisation

Technical preparatory studies

35 %

75 %

25 %

50 %

— (Individual

research,

Technical

(60 %/75 %)

(50 %/75 %)

preparatory studies)

Inside reg. area:

— Development

activities

for

commercialisation

Technical preparatory studies

40 %

75 %

30 %

55 %

— (Individual

research,

Technical

(65 %/75 %)

(55 %/75 %)

preparatory studies)

Establishment grant

De minimis aid

Max. NOK 400 000 (in spec. cases more but not over 100 000 Euro

(*) Up to 25 %/15 % may be used for measures which can be expected to have a strong effect from a district policy point of view. In the counties of Vest-Agder, Rogaland

and Hordaland the aid threshold may not be in excess of 20 %/10 %.

(**) Up to 25 %/15 % may be used for measures which can be expected to have a strong regional effect. In the counties of Vest-Agder, Rogaland and Hordaland the thresh-

olds may not be in excess of 20 %/10 %.

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The references to ‘zone’ refer to the areas eligible for regional aid according to the Authority's Decision on
the regional aid map for Norway. (23)

2.5 De minimis aid

As regards de minimis aid the Norwegian authorities have submitted a list of those who in their view have
received grants under the Wood Scheme that qualify as de minimis (the ‘de minimis List’). In this regard the
Norwegian authorities have specified that it is the date that the authorities gave the consent (‘tilsagn’) which
determines whether the previous Chapter 12 of the State Aid Guidelines on the de minimis rule, or the
subsequent de minimis Regulation, is applicable to the grant in question. Moreover, the authorities have
explained that when aid has been granted as de minimis aid the consent letter, sent to the aid recipient,
contains a reference to the de minimis threshold and time frame as well as to the obligation of the aid reci-
pient to inform of aid received from other sources within three years from the point in time at which the
consent to be granted aid was given. (24)

2.6 Commencement of scheme and duration

The Norwegian authorities have stated that the Wood Scheme was operational as of 1 July 2000 (i.e., the
date as of which applications for support could be made) and should remain in force for five years. (25)
This is also stated in the comments to the proposal for the State Budget in St. prp. nr. 1 (2000-2001) from
which it appears that the Wood Scheme entered into force in the second quarter of 2000.

2.7 Trade in wood products

It appears from the White Paper from the Government to the Parliament on the creation of value and
opportunities within the forest sector that Norway exports its wood products to the EU. In this regard it is
specifically stated in Section 4.3 of the White Paper that ‘Norway exports approximately 85-90 % of the whole-
sale production of wood and paper products and approximately 35 % of the timber production. Supplies to EU coun-
tries amount to 70 % and 90 % of total exports. Any strategies or political interventions within the EU which can
effect EUs import of forest industry products could have large consequences for the Norwegian forest sector.’ (26) More-
over, it appears from Eurostat statistics that wood products are extensively traded in the EU. (27) Finally, it
appears from statistics produced by ‘Statistics Norway’ (‘Statistisk sentralbyrå’) that Norway also imports
substantial amounts of timber, processed wood and wood products (‘Tømmer, trelast og kork…’) from the
EU into Norway. (28)

(23) The Authority's Decision 327/99/COL of 16 December 1999 on the map of assisted areas and levels of aid

(Norway).

(24) This information request is phrased in the following manner:

‘EØS-regelverket — opplysningsplikt: Tildelingen av tils-
kuddet skjer i henhold til reglene for bagatellmessig støtte. Ved eventuelle nye søknader om offentlig støtte (uansett støttekilde)
har støttemottaker plikt til å opplyse om dette tilskuddet. Opplysningsplikten gjelder i 3 år fra tilsagnstidspunktet. Støttemotta-
keren må ikke motta mer enn til sammen 100.000 Euro (ca. kr 815.000,-) i støtte etter reglene for bagatellmessig støtte over
et tidsrom på 3 år.’

(25) The Working group Report also states that the Wood Scheme should be operational from the second quarter in the

year of 2000 and remain in force for five years onwards.

(26) Translation by the Authority of the following quote: ‘Norge eksporterer ca 85-90 % av produksjonen av tremasse og papir-
produkter og ca 35 % av trelast-produksjonen. Leveransene til EU-land utgjør henholdsvis 70 % og 90 % av eksporten. Even-
tuelle strategier eller politiske vedtak innen EU som kan påvirke EUs import av skogindustriprodukter vil kunne få store konsek-
venser for den norske skogsektoren.’

(27) Statistics produced by EUROSTAT for the years between 1999 and 2004, covering both imports and exports of
various varieties of refined wood and timber within the EU (where value is expressed either in thousands of cubic
meters or tons), shows that there is extensive trade within the EU of wood products. The relevant statistics are (i)
intra EU-25 imports and exports of round wood; ‘table fores51’; (ii) intra EU-25 imports of wood pulp and paper
and paperboard; ‘table fores62’; (iii) intra-EU 25 exports of woodpulp ‘table fores62’; (iv) intra-EU 25 imports of
sawnwood and wood based panels; ‘table fores61’; and (v) intra-EU exports of sawnwood ‘table fores61’. All available
at
http://europa.eu.int/comm/eurostat
or via contacting EUROSTAT via their web-site.

(28) See the webpage:

http://www.ssb.no/muh/tab15-01.shtml
which shows table 15, entitled, ‘Trade with selected countries by two-digit SITC. Jan — mar 2006. Million kroner’.

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II. APPRECIATION

1. The presence of State aid

As a preliminary point, the Authority considers that the Wood Scheme falls within the scope of the EEA
Agreement. This view is based on the fact that it appears from Article 8(3) of the EEA Agreement that the
EEA Agreement applies to the products listed in Chapters 25 to 97 of the Harmonised Commodity
Description and Coding System, and the fact that wood and articles of wood are covered by Chapter 44
thereof. As support under the Wood Scheme is granted to the woodwork processing business and related
wood industries the Authority takes the position that the scheme is within the scope of the EEA Agree-
ment.

1.1 State aid within the meaning of Article 61(1) EEA

Article 61(1) of the EEA Agreement provides that:
‘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 favouring certain undertakings or the production of certain goods shall, in so far as
it affects trade between Contracting Parties, be incompatible with the functioning of this Agreement.’

To be termed State aid, within the meaning of Article 61(1) EEA a measure must meet the following four
cumulative criteria: The measure must (i) confer on recipients an economic advantage which is not received
in the normal course of business; (ii) the advantage must be granted by the State or through State resources
and must (iii) be selective by favouring certain undertakings or the production of certain goods; and (iv)
distort competition and affect trade between Contracting Parties. In the following it is examined whether
the four cumulative criteria are met in the present case.

1.2 Economic advantage

The measure must confer on recipients an economic advantage which is not received in the normal course
of business.

Under the Wood Scheme the Norwegian authorities award financial grants to companies, authorities,
unions, etc. which can contribute to the objectives under the scheme. The undertakings receiving such
grants receive an economic advantage, i.e., a grant, which they would not have received in their normal
course of business.

1.3 Presence of State resources

The advantage must be granted by the state or through state resources.

The grants awarded under the Wood Scheme are financed by the Ministry of Agriculture (renamed the
‘Ministry of Agriculture and Food’ as of 30 September 2004) and is therefore financed by the state.

1.4 Favouring certain undertakings or the production of certain goods

The measure must favour certain undertakings or the production of certain goods.

It appears from various legislative preparatory works (such as the White Paper, the Recommendation and
the Working Group Report), leading up to the state budgets and the establishment of the Wood Scheme,
that the scheme is aimed at improving value in (i) the wood processing business; and (ii) the relations on
different levels of trade between the forest sector and the market (which includes the supply of raw mate-
rial to the wood processing industry) along with a general aim of increasing the actual use of woodwork.

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Thus grants under the Wood Scheme are awarded only where it is considered that they may benefit the
wood processing sector and related wood industries as well as the supply of raw material to such indus-
tries. The Wood Scheme favours therefore undertakings within the wood industry sector and is hence
selective in nature. In this respect the European Court of Justice has held that a measure may be selective
even if it covers (undertakings in) an entire sector. (29)

It should be noted that although grants under the Wood Scheme may also be awarded to undertakings in
other industries (for example where industries explore the use of wood in combination with other mate-
rials), this option is open only for such industries which can contribute to the overall aim of the Wood
Scheme of generally improving value in the wood processing business. The Authority therefore considers
that even this option is ultimately aimed at favouring undertakings in the wood processing industries and
related wood industries.

1.5 Distortion of competition and effect on trade between Contracting Parties

The measures must distort competition and affect trade between the Contracting Parties.

Under the Wood Scheme the Norwegian authorities award grants to undertakings in the wood processing
(and related) industries. Moreover, the Norwegian industry exports a large share of its wholesale timber
and refined wood products (up to 90 %) to other EEA countries where wood products are extensively
traded. In addition, Norway also imports timber, processed wood and wood products from the EU. In such
circumstances, the grant of support to undertakings under the Wood Scheme will strengthen the position
of the recipients compared to other undertakings which are located in Norway or in other EEA countries
and competing in the wood processing (and related) businesses. Moreover, since wood is merely one of the
raw materials used in the construction business, grants received by construction companies under the
Wood Scheme will strengthen and reinforce their position compared to other undertakings competing in
the construction business. (30)

On this basis, the Authority considers that the grant of financial support to undertakings under the Wood
Scheme will distort competition and affect trade.

1.6 Conclusion

In the light of the above, the preliminary conclusion of the Authority is that the Wood Scheme satisfies
the test of Article 61(1) of the EEA Agreement and hence involves State aid. The Authority also takes the
view that as the Wood Scheme is an act on the basis of which, without further implementing measures
being required, individual aid awards may be made to undertakings defined within the act in a general and
abstract manner, it qualifies as an aid scheme within the meaning of Article 1(d) in part II of Protocol 3 to
the Surveillance and Court Agreement.

2 Compatibility of the aid

As the preliminary conclusion of the Authority is that the Wood Scheme satisfies the test of Article 61(1)
of the EEA Agreement and hence involves State aid, it has to be examined whether the Wood Scheme may
be considered compatible with the functioning of the EEA Agreement under Article 61(2) or (3) of the
EEA Agreement.

2.1 Compatibility with Article 61(2) EEA

It appears that none of the exceptions under Article 61(2) EEA apply in this case as the Wood Scheme is
not aimed at the objectives listed in those provisions.

(29) Case C-75/97 Belgium v Commission [1999] ECR I-3671, paragraph 33, Case C-66/02 Italy v Commission of 15
December 2005, not yet published, paragraph 95, Joined Cases E-5/04, E-6/04 and E-7/04 Fesil and Finnfjord, Pil and
others and The Kingdom of Norway v EFTA Surveillance Authority [2005] Report of the EFTA Court, page 121, para-
graphs 77-79.

(30) See in this respect Case 730/79 Philip Morris v Commission [1989] ECR 2671, at paragraph 11 where it is stated that
‘When State financial aid strengthens the position of an undertaking compared with other undertakings competing in intra-Com-
munity trade the latter must be regarded as affected by that aid.’

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2.2 Compatibility with Article 61(3) EEA

A State aid measure is considered compatible with the functioning of the EEA Agreement under Article
61(3)(a) EEA when it is designed to promote the economic development of areas where the standard of
living is abnormally low or where there is serious underemployment. However, as there are no such areas
defined by the Norwegian regional aid map, this provision is not relevant. (31)

Moreover, the exception in Article 61(3)(b) EEA does not apply since the State aid granted under the
Wood Scheme is not intended to promote the execution of an important project of common European
interest or to remedy a serious disturbance in the economy of Norway.

However, the exception laid down in Article 61(3)(c) EEA which provides that State aid may be considered
compatible with the common market where it facilitates the development of certain economic activities or
of certain economic areas and does not adversely affect trading conditions to an extent contrary to the
common interest, may be applicable.

R e g i o n a l a i d

Undertakings become eligible for aid under this provision when they are established in certain regions
defined by the Norwegian regional aid map, referred to above, and when the conditions set out in Chapter
25 of the State Aid Guidelines are met. However, the documents which establish the Wood Scheme (e.g.
the state budgets, White Paper, Working Group Report etc.) do not contain any provisions which refer to
the regional aid map for Norway or the conditions set out in Chapter 25 of the State Aid Guidelines.

The Norwegian authorities have, however, stated that the Wood Scheme has (in practice) been imple-
mented on the basis of the (regional aid) ceilings referred to in the table entitled ‘Attachment No 3 Over-
view — funding rates applicable to the Wood Scheme’ (included in Section 2.4 in Part I on ‘Facts’).
However, the Authority observes that this table does not contain any supplementing information on the
application of the ceilings, such as a description of eligible costs. The Authority can therefore not reassure
itself that grants awarded under the Wood Scheme are in accordance and compatible with Chapter 25 of
the State Aid Guidelines on regional aid.

A i d f o r r e s e a r c h a n d d e v e l o p m e n t i n C h a p t e r 1 4 o f t h e S t a t e A i d G u i d e l i n e s

In Chapter 14 of the State Aid Guidelines aid granted to firms for research and development may be
regarded as compatible with the functioning of the EEA Agreement on the basis of Article 61(3)(c) EEA.
Chapter 14 sets out the definition of different types of research and development, such as ‘fundamental
research’, ‘industrial research’ and ‘pre-competitive development activity’ and the aid intensities which apply.

However, the documents which establish and implement the Wood Scheme do not contain any definition
or requirements as regards the type of research and development for which support may be granted, nor
do they describe the costs which are considered as eligible or set out any ceilings on the maximum
amount of aid which may be granted.

The Norwegian authorities have stated that aid for research and development activities have (in practice)
been granted in accordance with the rules set forth in Chapter 14 of the State Aid Guidelines and that
research and development projects are funded within 35/25 % of eligible costs, depending on the size of
the recipient. However, the Norwegian authorities have also provided statements referring to other aid
intensities, such as 50 % when financing projects are addressed to undertakings; and 100 % where the
grant was assumed not to qualify as aid either because the activity could not be attributed to individual
undertakings or qualified as de minimis. (32) Moreover, in the context of co-financing the Norwegian autho-
rities have referred to a maximum aid intensity of 75 %.

(31) The Authority's Decision 327/99/COL of 16 December 1999 on the map of assisted areas and levels of aid

(Norway).

(32) See Sections 2.4 and 2.2 above.

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As regards the eligible costs the Norwegian authorities have stated that they could include personnel costs,
instruments, equipment, working space & buildings, etc. While these are costs referred to as eligible costs
in Chapter 14.6 of the State Aid Guidelines, the Authority recalls that grants under the Wood Scheme may
also be awarded to support the costs of a range of other elements such as campaigns, information dissemi-
nation, establishment of Internet portals & networks, meeting points for specific groups, development
projects with focus on value generation and systems of logistics and on digitalisation.

On the basis of the above the Authority cannot reassure itself that grants awarded under the Wood
Scheme are in accordance with Chapter 14 of the State Aid Guidelines for research and development.

C o m p l i a n c e w i t h t h e b l o c k e x e m p t i o n R e g u l a t i o n s o n S M E s a n d t r a i n i n g a i d

Aid granted in compliance with the block exemption Regulations on SMEs and/or on training aid is consid-
ered compatible with the functioning of the EEA Agreement and is exempt from the notification require-
ment provided that the scheme fulfills all the conditions of the relevant block exemption Regulation and
contains an express reference to it (by citing its title and publication reference in the Official Journal of the
European Communities; now the Official Journal of the European Union). (33)

However, neither the state budgets nor the Working Group Report or any of the other legislative prepara-
tory works regarding the Wood Scheme include a reference to the application of the block exemption
Regulation on SMEs nor to the block exemption Regulation on training aid. Moreover, the Authority has
not received any information from the Norwegian authorities on the application of any of the block
exemption Regulations for publication in the Official Journal of the European Union.

On this basis the Authority takes the preliminary view that the Norwegian authorities have not complied
with the formal requirements in the block exemption Regulations with respect to the Wood Scheme.

C o m p a t i b i l i t y d i r e c t l y u n d e r A r t i c l e 6 1 ( 3 ) ( c ) E E A o n t h e b a s i s o f t h e m a t e r i a l p r i n c i -
p l e s i n t h e b l o c k e x e m p t i o n R e g u l a t i o n s .

The Authority may assess the Wood Scheme directly under Article 61(3)(c) EEA in the light of the material
principles established in the block exemption Regulations on SMEs and training aid for purposes of deter-
mining whether the Wood Scheme may be considered compatible with the functioning of the EEA Agree-
ment.

However, neither the state budgets or any of the other legislative preparatory works regarding the Wood
Scheme provide that support must be granted to companies qualifying as SMEs, or contain a definition of
this term. Nor do they provide that support must be granted to training aid or contain a definition of the
latter.

The Norwegian authorities have, on the other hand, stated that the Wood Scheme has (in practice) been
implemented on the basis of the ceilings referred to in the table entitled ‘Attachment No 3 Overview —
funding rates applicable to the Wood Scheme’ (included in Section 2.4 in Part I on ‘Facts’). However, this
table does not contain any supplementing information on the application of the ceilings, such as a descrip-
tion of eligible costs. The Authority can therefore not reassure itself that grants awarded under the Wood
Scheme have been based on a practice which are in accordance with the material principles on the grant
of aid to SMEs.

On this basis the Authority takes the preliminary view that even taking into account the material principles
set out in the block exemption Regulations the Authority has doubts that the Wood Scheme is compatible
with the functioning of the EEA Agreement under Article 61(3)(c) EEA.

(33) See Article 3(3) in the block exemption Regulations on SMEs and on training aid, respectively.

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2.3 Conclusions

In view of the fact that the Authority cannot establish that the Wood Scheme qualifies for any of the
exemptions provided for in the EEA Agreement, the Authority therefore has doubts that the Wood Scheme
could be considered compatible with the functioning of the EEA Agreement.

The documents submitted to the Authority which establish and implement the Wood Scheme do not
contain sufficiently specific definitions of the type of projects for which support may be granted, descrip-
tions of eligible costs or ceilings on the maximum amount of aid which may be granted. However, the
Norwegian authorities may have an administrative practice to implement the Wood Scheme in accordance
with the State aid Guidelines and the material principles in the block exemption Regulations. In the light
of this the Norwegian authorities are invited to submit any information showing that internal instructions
or other authoritative orders have been issued for purposes of implementing the Wood Scheme in compli-
ance with the principles set out in the State Aid Guidelines or material principles in the block exemption
Regulations.

However, the Authority wishes to point out that even if such an administrative practice could be demon-
strated the Authority reserves its right to take a position on whether the Wood Scheme may be considered
compatible under Article 61(3)(c) in view of the existence of the practice under the Wood Scheme to grant
100 % support to projects where the grant was assumed by the administering authority not to qualify as
aid because the activity could not be attributed to individual undertakings and considered to result in a
modest benefit only to an individual undertaking. Indeed in the example given in Section 2.2 (in Part I on
‘Facts’ under ‘co-financing’) where the Wood Scheme financed 100 % of the costs of a development project,
the presence of State aid cannot be excluded merely because the results were made available to ‘member
companies’. The Norwegian authorities are invited to submit any further information it may have in
respect of this practice, including on the existence of any eventual internal instructions to implement the
Wood Scheme in this manner.

3. De minimis aid

The Norwegian authorities have submitted that grants awarded on the basis of specific provisions under
the Wood Scheme fulfil the conditions for qualifying as de minimis aid. In other words, according to the
Norwegian authorities the Wood Scheme contains provisions setting out conditions which, when they are
met, ensure that grants qualify as de minimis aid.

The grant of aid may qualify as de minimis under the previous Chapter 12 of the State Aid Guidelines or
the subsequent de minimis Regulation (which replaced Chapter 12 as of 1 February 2003) (34) with the
consequence that the measure does not contain State aid within the meaning of Article 61(1) of the EEA
Agreement and that there is no obligation to notify. (35) As the Wood Scheme was implemented between 1
July 2000 and the end of 2005 both sets of de minimis rules are relevant for the scheme. According to the
Norwegian authorities it is the date that the Norwegian authorities gave their consent (‘tilsagn’) which deter-
mines whether the previous Chapter 12 of the State Aid Guidelines or the subsequent de minimis Regu-
lation is applicable to the grant in question.

It appears from Article 3(1) of the de minimis Regulation that the national authorities can only grant de
minimis aid after first having verified that the total amount of de minimis aid received by the company is
not raised by virtue of other de minimis aid having been received during the previous three years. The
previous Chapter 12 of the State Aid Guidelines contained a provision to the same effect by providing that
it must be ensured that any additional aid granted to the same recipient does not raise the total amount of
aid granted beyond the de minimis threshold. Under the de minimis Regulation one manner of verifying the
de minimis threshold is by obtaining full information from the recipient on this matter. Under the previous
Chapter 12 of the State Aid Guidelines the de minimis rule should be verified by means of a control
modality (e.g. control ‘machinery’). In the view of the Authority this could likewise consist of obtaining
complete information from the recipient on the matter.

(34) The previous Chapter 12 of the State Aid Guidelines was deleted by the Authority's Decision No 198/03/COL of 5
November 2003, but as stated above Chapter 12 was superseded by the de minimis Regulation already as of 1
February 2003.

(35) The second paragraph of the previous Chapter 12 of the State Aid Guidelines on de minimis and Article 2(1) of the

de minimis Regulation.

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Under the Wood Scheme, Innovasjon Norge has made reference to the de minimis rules and informed reci-
pients of an obligation to inform the authorities of other de minimis aid received three years after the
consent to receive de minimis aid was given. However, this information obligation only concerns de minimis
aid received after aid has been received under the Wood Scheme, and recipients have therefore not been
required to submit information on whether any de minimis aid has been received prior to receiving de
minimis aid under the Wood Scheme. As a consequence it cannot be excluded that recipients have received
other de minimis aid prior to the grants received under the Wood Scheme with the result that total aid may
exceed the de minimis threshold. The Authority can therefore not be certain that aid which has been stated
by the Norwegian authorities to qualify as de minimis aid under the Wood Scheme does indeed qualify as
such. The Authority is therefore of the preliminary opinion that the provisions under the Wood Scheme,
potentially constituting a de minimis scheme, does not comply with the de minimis rules.

4. Procedural requirements

Pursuant to Article 1(3) in Part I of Protocol 3 to the Surveillance and Court Agreement, ‘the EFTA Surveil-
lance Authority shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or
alter aid (…). The State concerned shall not put its proposed measures into effect until the procedure has resulted in a
final decision’.

The Norwegian authorities have not notified the Wood Scheme to the Authority prior to implementing the
scheme. The Authority observes that it has not received information from the Norwegian authorities
showing that the Wood Scheme is a continuance of a previous scheme which is similar to that of the
Wood Scheme in terms of substance and structure. Moreover, the Wood Scheme is not covered by any
other aid scheme notified by the Norwegian authorities to the Authority. In view of the fact that the preli-
minary conclusion of the Authority is that the Wood Scheme involves State aid within the meaning of
Article 61(1) EEA it is the preliminary opinion of the Authority that the Norwegian authorities have not
respected its obligation to notify pursuant to Article 1(3) in Part I of Protocol 3 to the Surveillance and
Court Agreement. Any State aid within the meaning of Article 61(1) of the EEA Agreement which is not
notified will be treated as ‘unlawful aid’ within the meaning of Article 1(f) in Part II of Protocol 3 to the
Surveillance and Court Agreement.

The Norwegian authorities are invited to confirm that the Wood Scheme has been terminated by referring
to the specific date of its termination.

5. Conclusion

Based on the information submitted by the Norwegian authorities, the Authority is of the preliminary
opinion that the Wood Scheme constitutes aid within the meaning of Article 61(1) of the EEA Agreement.
Furthermore, the Authority has doubts that the Wood Scheme can be regarded as compatible with Article
61(3)(c) of the EEA Agreement in combination with the requirements laid down in Chapters 14 and 25 of
the Authority's State Aid Guidelines. Moreover, the Authority's preliminary view is that the Norwegian
authorities have not complied with the block exemption Regulations on aid to SMEs and training aid, and
that the Wood Scheme cannot be approved directly under Article 61(3)(c) EEA in the light of the material
principles of the block exemption Regulations. Consequently, the Authority has doubts that the Wood
Scheme is compatible with the functioning of the EEA Agreement.

In addition, the Authority has doubts that the provisions under which de minimis aid allegedly is granted is
in compliance with the previous Chapter 12 of the State aid Guidelines and the de minimis Regulation.

Consequently, and in accordance with Article 13(1) cf. Article 4(4) in Part II of Protocol 3 to the Surveil-
lance and Court Agreement, the Authority is obliged to open the procedure provided for in Article 1(2) in
Part I of Protocol 3 of the Surveillance and Court Agreement. The decision to open proceedings is without
prejudice to the final decision of the Authority, which may conclude that the Wood Scheme is compatible
with the functioning of the EEA Agreement.

As the Wood Scheme has not been notified to the Authority, any aid within the meaning of Article 61(1)
EEA granted under the Wood Scheme constitutes unlawful aid within the meaning of Article 1(f) in Part II
of Protocol 3 to the Surveillance and Court Agreement. It follows from Article 14 in Part II of Protocol 3
to the Surveillance and Court Agreement that the Authority shall decide that unlawful aid which is incom-
patible with the State aid rules under the EEA Agreement must be recovered from the beneficiaries.

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In the light of the foregoing considerations, the Authority, acting under the procedure laid down in Article
1(2) in Part I of Protocol 3 to the Surveillance and Court Agreement as well as Articles 6(1) in Part II
thereof, requests the Norwegian authorities to submit its comments and to provide all such information as
may help to assess the aid granted under the Wood Scheme within one month of the date of receipt of
this decision.

HAS ADOPTED THIS DECISION:

Article 1

The Authority has decided to open the formal investigation procedure provided for in Article 1(2) in Part I
of Protocol 3 to the Surveillance and Court Agreement against Norway with regard to the Wood Scheme.

Article 2

The Norwegian authorities are requested, pursuant to Article 6(1) in Part II of Protocol 3 to the Surveil-
lance and Court Agreement, to submit their comments on the opening of the formal investigation proce-
dure within one month from the notification of this decision and to provide all such information which
may help to assess the Wood Scheme.

Article 3

Other EFTA States, EC Member States, and interested parties shall be informed by means of publication of
this decision in its authentic language version, accompanied by a meaningful summary in languages other
than the authentic language version, in the EEA Section of the Official Journal of the European Union and the
EEA Supplement thereto, inviting them to submit comments within one month from the date of publica-
tion.

Article 4

This Decision is authentic in the English language.

This Decision is addressed to the Kingdom of Norway.

Article 5

Done at Brussels, 17 May 2006

For the EFTA Surveillance Authority

Bjørn T. GRYDELAND

President

Kurt JAEGER

College Member