State aid — United Kingdom — State aid No C 38/2006 (ex NN 93/2005) — Fish factory improvement scheme — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty   (Text with EEA relevance)
Date: 2006-11-28
Institutions: European Commission
Subjects: State aid, United Kingdom, control of State aid, exchange of information, fish, processing industry, production improvement

C 289/10

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Official Journal of the European Union

28.11.2006

STATE AID — UNITED KINGDOM

State aid No C 38/2006 (ex NN 93/2005)

Fish factory improvement scheme

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(2006/C 289/03)

(Text with EEA relevance)

By means of the letter dated 13 September 2006 reproduced in the authentic language on the pages
following this summary, the Commission notified the United Kingdom of Great Britain and Northern
Ireland of its decision to initiate the procedure laid down in Article 88(2) of the EC Treaty concerning the
abovementioned aid.

Interested parties may submit their comments within one month of the date of publication of this
summary and the following letter, to:

European Commission
Directorate General for Fisheries
DG FISH/D/3 ‘Legal Issues’
B-1049 Brussels
Fax: (32-2) 295 19 42

These comments will be communicated to the United Kingdom of Great Britain and Northern Ireland.
Confidential treatment of the identity of the interested party submitting the comments may be requested in
writing, stating the reasons for the request.

SUMMARY

In June 2004 the Commission was informed of aid granted by
the Shetland Islands Council, the public authority in the Shet-
land Islands of the United Kingdom, to the fisheries sector
which possibly concerned illegal State aid.

extension of

Under the fish factory improvement scheme, which was in
force from begin 1980's until 14 January 2005, aid with a
maximum of 20 % was granted for the purchase of new proces-
the construction,
sing machinery and equipment and for
improvement or
fish factories. Repairs of
machinery or buildings were not eligible. The maximum
amount of aid per beneficiary was GBP 20 000 for factories
with a turnover of less than GBP 1 000 000; GBP 25 000 for
factories with a
turnover of between 1 000 000 and
GBP 3 000 000 and GBP 30 000 for factories with a turnover
of more than GBP 3 000 000. From 1994 to 14 January 2005
approximately 1,6 million GBP appears to have been granted
under
the scheme, of which GBP 93 600 to a company
involved in fish meal and fish oil production.

that Regulation stipulates that

Council Regulation (EC) No 659/1999 (1) does not lay down
any limitation period for the examination of unlawful aid.
However, Article 15 of
the
powers of the Commission to recover aid is subject to a limita-
tion period of ten years, that the limitation period begins on
the day on which the aid is awarded to the beneficiary and that
that limitation period is interrupted by any action taken by the
Commission. Consequently, the Commission considers that it is
not necessary in this case to examine the aid granted more
than ten years before any measure taken by the Commission
concerning it. The Commission considers that the limitation
period was interrupted by its request for information sent to
the United Kingdom on 24 August 2004. Accordingly, the
limitation period applies to aid granted to beneficiaries before
24 August 1994 and the Commission assesses below, only aid
granted by decisions taken between 24 August 1994 and 14
January 2005. In the area of fisheries it is necessary to examine
the measure in the light of the Guidelines for the examination
of State aid to fisheries and aquaculture. According to point
5.3 of the Guidelines an ‘unlawful aid’ within the meaning of
Article 1 (f) of Regulation (EC) No 659/1999 will be appraised
in accordance with the guidelines applicable at the time when
the administrative act setting up the aid has entered into force.

least

According to Article 88 (3) of the EC Treaty Member State
have to inform the Commission of any plans to grant or alter
aid. According to the United Kingdom the scheme has been
the 1980's until 14 January 2005.
applied from at
However, the United Kingdom was until now not able, due to
the absence of past records, to provide evidence that the aid
measures existed already before the United Kingdom joined the
union and thus would have to be regarded as existing aids.
Moreover, the United Kingdom has confirmed to have altered
the aids over the years without notification to the Commission,
as a result of which the aid measure has to be considered as
new aid.

The aids appear to be State aid in the sense of Article 87 of the
EC Treaty. State aid to the fisheries sector need to be assessed
under the conditions of Guidelines for the examination of State
aid to fisheries and aquaculture in force at the time the aid was
granted (2).

(1) Council Regulation (EC) No 659/1999 of 22 March 1999 laying
down detailed rules for the application of Article 93 of the EC
Treaty, OJ L 83, 27.3.1999, p. 1. Regulation as amended by the Act
of Accession of 2003.

(2) OJ C 260, 17.9.1994, p. 3; OJ C 100, 27.3.1997, p. 12 and OJ C

19, 20.1.2001, p. 7; OJ C 229, 14.9.2004, p.5.

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According to point 2.3 of the 1994, 1997 and 2001 Guidelines
and point 3.10 of the 2004 Guidelines aid for investments in
the processing and marketing of
fishery products may be
regarded compatible provided that they comply with the rele-
vant conditions laid down in Regulation (EC) No 3699/93
respectively Regulation (EC) No 2792/1999. Aid may be
granted up to 60 % of the eligible costs.

The conditions of the scheme are compatible with those condi-
tions. However, under
the scheme GBP 93 600 has been
granted to a company involved in fish meal and fish oil
production and thus this part of the aid can not be regarded to
comply with the conditions of the respective Guidelines. There-
fore, the Commission has, at this stage, serious doubts on the
compatibility of that aid with the common market.

In accordance with Article 14 of Council Regulation (EC) No
659/1999, all unlawful aid can be subject to recovery from the
recipient.

TEXT OF LETTER

‘(1) The Commission wishes to inform the United Kingdom of
Great Britain and Northern Ireland that, having examined
the information supplied by your authorities on the aid/
measure referred to above, it has decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty.

(5) Aid of maximum 20 % is granted either as direct grant or
as interest relief grant on a Shetland Development Trust
Loan or proportion of both. The interest relief grant is
used to reduce the interest rate on a loan from 8 % to 5 %.

(6) The maximum amount of

aid per beneficiary

is
GBP 20 000 for factories with a turnover of less than
GBP 1 000 000; GBP 25 000 for factories with a turnover
of
between 1 000 000 and GBP 3 000 000 and
GBP 30 000 for factories with a turnover of more than
GBP 3 000 000. In case of new fish processing operations
the
with no track record regarding
the
turnover
shall be fixed at
in the first year
maximum grant
GBP 30 000.

(7) All applicants must ensure that all fish factory improve-
ments comply with the Community health and hygiene
regulations and that their factories and work practices
meet
the required standards specified by the Shetland
Seafood Quality Control Ltd. Finally applicants must
operate their businesses for at least five years, must be
member of the Shetland Fish Processors Association and
must retain membership for at least five years from the
date of receipt of the aid.

(8) Beneficiaries of the aid must submit to the Council their
annual accounts within 9 months of the end of the finan-
cial year for each of the 5 years following the receipt of
the aid. Breach of the conditions may lead to (partial)
recovery of the aid from the beneficiary.

1. PROCEDURE

3. COMMENTS FROM THE UNITED KINGDOM

(2) By letter of 15 June 2004 the Commission was informed
the United Kingdom of unlawful aid
by a citizen of
granted by the authorities of the Shetland Islands of the
United Kingdom. By letters of 24 August 2004, 4
February, 11 May and 16 December 2005 the Commis-
sion has requested the United Kingdom authorities to
provide information about these measures, to which the
United Kingdom authorities responded by letters of 10
December 2004, 6 April, 8 September 2005 and 31
January 2006.

2. DESCRIPTION

(3) The Shetland Islands Council (SIC), the public authority in
Shetland, has made payments to the fisheries sector under
the scope of two general aid measures named “Aid to the
Fish Catching and Processing Industry” and “Aid to the
Fish Farming Industry”, which actually consisted of several
different types of aid schemes, one of which is the so-
called “Fish Factory Improvement Scheme”.

(4) Under the fish factory improvement scheme, which was
in force from at least the 1980's until 14 January 2005,
aid could be granted for the purchase of new processing
machinery and equipment and for
the construction,
improvement or extension of fish factories. Repairs of
machinery or buildings are however not eligible. Aid for
second hand equipment is only considered for assistance
in special circumstances and must be inspected or certified
as fully serviceable by an independent engineer.

that

(9) The United Kingdom states

the aid measures
concerned have already been applied already before the
accession of
the United Kingdom to the European
Economic Community. The United Kingdom is however
not able to provide any evidence of the existence of these
measures at the time of accession.

(10) The United Kingdom confirms that the aid measures have
been changed over the years and that these changes have
not been notified to the Commission in accordance with
Article 88(3) of the EC Treaty [former Article 93(3)]. The
United Kingdom states however that the expenditure and
application of the measures have been reported yearly to
the Commission by way of the annual State aid inventory
and that the officials responsible for the aids believed that
by transmitting the annual reports no notification of the
aid would be necessary.

(11) Finally the United Kingdom states

that where

the
measures and the amendments to the schemes might have
been applied without prior notification to the Commis-
sion, they were applied in accordance with the conditions
laid down in the Guidelines for the examination of State
aid to fisheries and aquaculture applicable at the time aid
was granted under the measures.

(12) In addition, with regard to the aid granted under the Fish
Factory Improvement Scheme the United Kingdom states
that during the years 1997 — 2005 aid has been granted
under the scheme to a company involved in the produc-
tion of fish meal and fish oil, not intended for human
consumption, amounting to a total of GBP 93 600.

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(13) The United Kingdom admits that this aid is incompatible
with the rules for State aid to fisheries, but points out that
the aids have been granted under the assumption that the
aids were coming from private funds and thus would not
fall under the State aid rules. In this respect the United
Kingdom refers to the decisions of the Commission on
cases 2003/612/EC (3) and C(2005)4649final (4), in which
the Commission decided that the principle of legitimate
expectation on the side of the national authorities applied
and for that reason recovery of the aid was not required.
The United Kingdom states that
the Shetland Islands
Council was acting under the legitimate expectation that
the funding was not covered by the State aid rules and
during the course of 2004, when it became fully clear
that the funds needed to be regarded as public funds, the
Council acted decisively and responsibly to suspend all
affected measures, including this scheme.

4. ASSESSMENT

(14) It must be determined first if the scheme can be regarded
as State aid and if this is the case, if this aid is compatible
with the common market.

the public authority of Shetland,

(15) Aid has been granted to a limited number of companies
within the fisheries sector and is thus of a selective nature.
The aids have been granted by the Shetland Islands
Council,
from State
resources and are in the benefit of these companies which
are in direct competition with other companies in the
fisheries sector of both within the United Kingdom as well
as in other Member States. Therefore, the measures distort
or threaten to distort competition and appear to be State
aid in the sense of Article 87 of the EC Treaty.

4.1. Legality

least

(16) According to the UK authorities, the scheme has been
applied at
January 2004.
from the 1980's until
However, due to the absence of past records, the United
Kingdom acknowledged that it
is not able to provide
evidence that the aid measures existed already before the
United Kingdom joined the union and thus would have to
be regarded as existing aids.
In any event, the United
Kingdom confirmed that
the aid schemes have been
changed over the years and that these changes have not
been notified to the Commission in accordance with
Article 88(3) of the EC Treaty [former Article 93(3)]. As a
result, the aid measures have to be considered as new aid.

(17) The Commission regrets that the United Kingdom did not
respect Article 88(3) of
the EC Treaty, under which
Member State are obliged to inform the Commission of
any plans to grant or alter aid. In this respect the United
Kingdom has stated that its authorities were mistakenly
convinced that the inclusion of the measures into the
annual State aid inventory, yearly submitted to the
Commission, would be sufficient to inform the Commis-
sion of the aid in question. It must be noted however

(3) OJ C 211, 21.8.2003, p. 63.
(4) Commission decision of 7 December 2005, notified to the authori-
ties of the United Kingdom on 8 December 2005, to be published
in the Official Journal, C series.

that such reporting to the Commission can not be consid-
ered as notification of the aid as required under Article
88(3) of the EC Treaty.

4.2. Basis for the assessment

(18) Council Regulation (EC) No 659/1999 (5) does not lay
the examination of
down any limitation period for
unlawful aid within the meaning of Article 1(f) thereof,
i.e. aid implemented before the Commission is able to
reach a conclusion about
its compatibility with the
common market. However, Article 15 of that Regulation
stipulates that the powers of the Commission to recover
aid is subject to a limitation period of ten years, that the
limitation period begins on the day on which the aid is
awarded to the beneficiary and that that limitation period
is interrupted by any action taken by the Commission.
Consequently, the Commission considers that it is not
necessary in this case to examine the aid covered by the
limitation period,
i.e. aid granted more than ten years
before any measure taken by the Commission concerning
it.

(19) The Commission considers that in this case the limitation
period was interrupted by its request for information sent
to the United Kingdom on 24 August 2004. Accordingly,
the limitation period applies to aid granted to beneficiaries
before 24 August 1994. Consequently, the Commission
will asses below only the aid granted by decisions taken
between 24 August 1994 and January 2005. During that
time approximately GBP 1 600 000 appear to have been
granted under the scheme.

(20) State aid can be declared compatible with the common
market if it complies with one of the exceptions foreseen
in the EC Treaty. As regards the State aid to the fisheries
sector, State aid measures are deemed to be compatible
with the common market if they comply with the condi-
tions of Guidelines for the examination of State aid to
fisheries and aquaculture. According to point 5.3 of the
current Guidelines (6)) an “unlawful aid” within the
meaning of Article 1 (f) of Regulation (EC) No 659/1999
will be appraised in accordance with the guidelines applic-
able at the time when the administrative act setting up the
aid has entered into force. The aid thus needs to be
assessed on the compatibility with the Guidelines of
1994, 1997, 2001 and 2004 (7).

4.2.1. Guidelines of 1994, 1997 and 2001

(21) According to point 2.3 of the 1994, 1997 and 2001
Guidelines, aid for investments in the processing and
marketing of fishery products may be regarded compatible
with the common market provided that the conditions are
comparable to the conditions laid down in the respective
regulations for the structural fund for fisheries and the
sum of the State aid does not exceed, in subsidy equiva-
lent, the total rate of national and Community subsidies
fixed in annex IV of those Regulations.

(5) Council Regulation (EC) No 659/1999 of 22 March 1999 laying
down detailed rules for the application of Article 93 of the EC
Treaty, OJ L 83, 27.3.1999, p. 1. Regulation as amended by the Act
of Accession of 2003.
(6) OJ C 229, 14.9.2004, p. 5
(7) OJ C 260, 17.9.1994, p. 3; OJ C 100, 27.3.1997, p. 12 and OJ C

19, 20.1.2001, p. 7; OJ C 229, 14.9.2004, p. 5.

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Regulation (EC) No 3699/93 and Regulation (EC) No
2792/1999

(22) According to both Article 11 and point 2.4 Annex III of
Regulation (EC) No 3699/93 (8) and Article 13 and point
2.4. of Annex III of Regulation (EC) No 2792/1999 (9)
eligible investments
to the
construction and acquisition of buildings and installation,
the acquisition of new equipment and installations needed
for the time of landing and the marketing of fishery and
aquaculture products between the time of landing and the
end-product stage and the application of new technologies
intended in particular to improve competitiveness.

relate in particular

shall

(23) Investments shall not be eligible for assistance when they
concern fishery and aquaculture products intended to be
used and processed for purposes other
than human
consumption, with the exemption of investments exclu-
sively for the handling, processing and marketing of
fishery and aquaculture wastes.

(24) As Shetland is an objective I region, aid may be granted

up to 60 % of the eligible costs.

4.2.2. Guidelines of 2004

(25) According to point 3.10 of the 2004 Guidelines, aid for
the categories of measures covered by Regulation (EC) No
1595/2004 (10), but which are designed to benefit enter-
prises other than SME's, or exceed the threshold laid
down in Article 1(3) of that Regulation, will be assessed
on the basis of the Guidelines and of the criteria laid
down for each category of measures in the Articles 4 to
13 of that Regulation. As the Guidelines do not contain
any specific provisions for this type of aid, the scheme is
to be assessed by reference to the provisions laid down in
that Regulation.

(26) As regards the types of measures concerned, in Article 8
of Regulation (EC) No 1595/2004 it is established that aid
for investments in the processing and marketing of fishery
products shall be regarded compatible with the common
market provided that the aid complies with the conditions
of Article 13 of, and points 2 and 2(4) of Annex III to
Regulation (EC) No 2792/1999, and that the amount of
the aid does not exceed, in subsidy equivalent, the total
rate of national and Community subsidies fixed by Annex
IV to that Regulation.

4.3. Compatibility

(27) Under the scheme aid has been granted to improve fish
factories for the purchase of new processing machinery

(8) Council Regulation (EC) No 3699/93 of 21 December 1993 laying
down the criteria and arrangements regarding Community structural
assistance in the fisheries and aquaculture sector and the processing
and the marketing of its products, OJ L 346, 31.12.1993, p. 1.
(9) Council Regulation (EC) No 2792/1999 of 17 December 1999
laying down the detailed rules and arrangements regarding Com-
munity structural assistance in the fisheries sector OJ L 337,
30.12.1999, p. 10, as
last amended by Regulation (EC) No
485/2005, OJ L 81, 30.3.2005, p. 1.

(10) Commission Regulation (EC) No 1595/2004 of 8 September 2004
on the application of Articles 87 and 88 of the EC Treaty to State
aid to small and mediums-sized enterprises active in the produc-
tion, processing and marketing of fisheries products, OJ L 291,
14.9.2004, p. 3.

and equipment and for the construction, improvement or
extension of fish factories. As, according to the provisions
provided under the Regulation (EC) No 3699/93 and
Regulation (EC) No 2792/1999, investment should relate
to the constructions and acquisition of building and instal-
lation, the acquisition of new equipment, the investment
should be considered compatible with those provisions.

(28) Aid has been granted to a maximum of 20 % as direct
grant or as interest. According to the rules applicable may
be granted up to 60 % of eligible cost, thus also the rate
of aid is compatible with the conditions established in the
respective Guidelines applicable at the time the aid was
granted.

(29) However,

investments for processing and marketing of
fishery and aquaculture products intended to be used and
processed for purposes other than human consumption
are not eligible. As pointed out in point 13 of this deci-
sion,
the United Kingdom have
confirmed that under the scheme such aid has been
granted in one occasion, with a total of GBP 93 600. This
aid thus seems to be incompatible with the conditions.

the authorities of

(30) Therefore, at this stage, the Commission considers that, as
far as it concerns the aid referred to on point 13 and 25,
the conditions of the respective Guidelines for the exami-
nation of State aid to fisheries and aquaculture seem not
to have not been complied with.

(31) The comments made by the United Kingdom that the
principle of legitimate expectation would apply to this
situation, just as was done in cases 2003/612/EC (11) and
C(2005)4649final, are for the issue of compatibility of the
aid of no relevance. This would however be of relevance
with regard to the question whether or not the aid would
have to be recovered from the final recipient and thus
would will only need to be further assessed in a final
negative decision would proceed.

(32) All other aid granted under the scheme is considered to
be compatible with the conditions of the Guidelines in
force at the time the aid was granted and thus regarded
compatible with the common market.

5. DECISION

(33) In view of the foregoing analysis the Commission has
decided not to raise any objections to this aid scheme,
with the exception of the aid granted for investments for
processing and marketing of
fishery and aquaculture
products intended to be used and processed for purposes
other than human consumption.

(34) The Commission observes that, as far as it concerns this
aid for investments for processing and marketing of
fishery and aquaculture products intended to be used and
processed for purposes other than human consumption,
there exist, at this stage of the preliminary examination,
as provided for by Article 6 of Council Regulation (EC)
No 659/1999 of 22 March 1999 laying down detailed
rules for the application of Article 88 of the EC Treaty,
serious doubts on the compatibility of this aid with the
Guidelines for the examination of State aid to Fisheries
and aquaculture and, therefore, with the EC Treaty.

(11) OJ C 211, 21.8.2003, p. 63.

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(35) In the light of the foregoing conditions, the Commission,
acting under the procedure laid down in Article 88 (2) of
the EC Treaty and Article 6 of Regulation (EC) No
659/1999, requests the United Kingdom of Great Britain
and Northern Ireland to submit its comments and to
provide all such information as may help to assess the aid,
within one month of the date of receipt of this letter. It
requests your authorities to forward a copy of this letter
to the recipients of the aid immediately.

(36) The Commission wishes to remind the United Kingdom
of Great Britain and Northern Ireland that Article 88 (3)
of the EC Treaty has suspensory effect and would draw
your attention to Article 14 of Council Regulation (EC)

No 659/1999, which provides that all unlawful aid may
be recovered from the recipient.

(37) The Commission warns the United Kingdom of Great
Britain and Northern Ireland that it will inform interested
parties by publishing this
letter and a meaningful
summary of it in the Official Journal of the European Union.
It will also inform interested parties in the EFTA countries
EEA Agreement,
to
which
by publication of a notice in the EEA Supplement to the
Official Journal of the European Union and will inform the
EFTA Surveillance Authority by sending a copy of this
letter. All such interested parties will be invited to submit
their comments within one month of the date of such
publication.’

signatories

the

are