State aid — United Kingdom — State aid No C 37/06 (ex NN 91/05) — Fishing Vessel Modernisation Scheme — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty   (Text with EEA relevance)
Date: 2006-12-02
Institutions: European Commission
Subjects: State aid, United Kingdom, control of State aid, exchange of information, fishing vessel, modernisation aid

2.12.2006

EN

Official Journal of the European Union

C 293/9

STATE AID — UNITED KINGDOM

State aid No C 37/06 (ex NN 91/05)

Fishing Vessel Modernisation Scheme

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

(Text with EEA relevance)

(2006/C 293/05)

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.

Under
the Fishing vessel Modernisation Scheme aid was
granted for the modernisation of fishing vessels, related to a
major improvement like for example better storage of catches,
replacement of the engine,
improvements in working condi-
tions or to crew safety, up to 10 % of the total cost of the
improvement project, with a maximum of GBP 40 000 per
vessel. Improvement projects which exceeded 50 % of the costs
of a new vessel of the same type were not eligible, as well as
works to vessels of less than five years old.

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 not been able, due to the
absence of past records,
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 result of which the aid measure has to be considered as new
aid.

to provide evidence that

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. According to the information available to the
Commission. From 1994 to 14 January 2005 approximately
GBP 11 673 514 appears to have been granted under the
scheme.

The measures appear to be State aid in the sense of Article 87
of the EC Treaty. State aid can be declared compatible with the
common market if it complies with one of the exceptions fore-
seen in the EC Treaty. State aid to the fisheries sector may be
deemed to be compatible with the common market if they
comply with the conditions of Guidelines for the examination
of State aid to fisheries and aquaculture applicable at the time
of granting of the aid (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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Official Journal of the European Union

2.12.2006

(EC) No

respectively Regulation

The Guidelines refer to the conditions of Regulation (EC) No
3699/93
2792/1999.
According to Regulation (EC) No 3699/93 eligible investments
shall relate in particular to the improvement of the quality of
products caught and preserved on board, the use of better
fishing and preserving techniques and the implementation of
legal and regulatory provisions regarding health or improve-
ment of working conditions and safety, and/or equipment on
board vessels to monitor fishing activities. The operations may
cover only vessels less than 30 years old, unless it concerns
investments related to the improvement of working conditions
and safety or equipment on board vessels to monitor fishing
activities.

Under Regulation (EC) No 2792/1999, applicable to existing
aid schemes as from 1 July 2001, any entry of new capacity
should be compensated by the withdrawal of a capacity
without public aid which is at least equal to the new capacity
introduced in the segments concerned. Moreover, until 31
December 2001, if the objectives for the size of the fleet were
not yet respected, the withdrawal of capacity should at least be
30 % more than the new capacity introduced. Aid may only be
granted where the Member State has complied with its obliga-
tions under the Multi-annual Guidance Programme (MAGP) as
required under Article 5 of that Regulation. Finally, Article 9 of
the respective Regulation provides that the aid for the moderni-
sation of fishing vessels can be granted only if the aid does not
concern capacity in terms of tonnage or power.

At this stage of the examination the part of the aid granted for
modernisation of fishing vessels seems not to comply with the
conditions of Article 9 of Regulation (EC) No 2792/1999.
Therefore, the Commission has, at this stage, serious doubts on
the compatibility of the scheme with the conditions as applic-
able from 1 July 2001.

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
measure referred to above, it has decided to initiate the
procedure laid down in Article 88 (2) of the EC Treaty.

1. PROCEDURE

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 these schemes is
the “Aid for modernisation of fishing vessels”.

(4) Under this scheme, which applied from at least the 1980's
until 14 January 2005, aid could be granted for the
modernisation of
related to a major
improvement like for example better storage of catches,
replacement of
improvements in working
the engine,
conditions or to crew safety.

fishing vessels,

(5) Aid was granted up to 10 % of the total cost of the
improvement project, with a maximum of GBP 40 000
per vessel. Only one application per year could be consid-
ered. Improvement projects which exceeded 50 % of the
costs of a new vessel of the same type were not eligible,
as well as works to vessels of less than five years old. The
works should meet all required standards specified by
Shetland Seafood Quality Control.

(6) All applicants must hold a pressure stock licence and
other relevant Certificates of Competency and applicants
should become member of Shetlands Fishermen's Associa-
tion.

(7) The beneficiary of the aid must undertake to operate the
vessel full-time, to retain ownership of the vessel and to
provide full-time employment of the vessels crew for a
period of at least five years from receipt of the aid.

(8) Finally, beneficiaries had a yearly reporting obligation in
order to prove that all conditions have been complied
with and the scheme contains a provision for reimburse-
ment of the aid in case of non-compliance with any of
the conditions.

3. COMMENTS FROM THE UNITED KINGDOM

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.

(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.

(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.

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(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, as regards aid granted under the Fishing
Modernisation Scheme the United Kingdom states that the
scheme was closed on 14 January 2005 pending a review
of all Council grants scheme for State aid compliance and
that the provision of the scheme were not altered to any
meaningful extent between 1994 and 2005. The United
Kingdom also states that the aid is considered to have
been compatible with guidelines for the examination of
State aid to fisheries and aquaculture applicable at the
times concerned.

4. ASSESSMENT

(13) 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,

(14) 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

State aid inventory, yearly submitted to the Commission,
would be sufficient to inform the Commission of the aid
in question. It must be noted however that such reporting
to the Commission can not be considered as notification
of the aid as required under Article 88(3) of the EC
Treaty.

4.2. Basis for the assessment

(17) Council Regulation (EC) No 659/1999 (3) does not lay
down any limitation period for
the examination of
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
i.e. aid granted more than ten years
limitation period,
before
the Commission
concerning it.

any measure

taken

by

(18) 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. According
to the information available to the Commission, from
1994 to 14 January 2005 at
least GBP 11 673 514
appear to have been granted under the scheme.

least

(15) According to the United Kingdom, the scheme has been
applied at
January 2004.
from the 1980's until
However, due to the absence of past records, the United
is not able to provide
Kingdom acknowledged that it
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.

(16) 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

(19) 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 (4)
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 (5).

an “unlawful

(3) 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.
(4) OJ C 229, 14.9.2004, p.5
(5) 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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4.2.1. Guidelines of 1994 and 1997

(20) With regard to the aid for the modernisation of fishing
vessels, according to point 2.2.3.2 of the 1994 and the
1997 Guidelines aid for the modernisation of
fishing
vessels may be deemed compatible provided that it meets
the relevant conditions laid down in Regulation (EC)
No 3699/93 (6).

Regulation (EC) No 3699/93

(21) According to Articles 7 and 10 and Annex III of Regu-
lation (EC) No 3699/93, the investments should relate to:

— the rationalization of fishing operations, in particular
by the use of more selective fishing gear and methods;

— improvement of the quality of products caught and
the use of better fishing and
preserved on board,
preserving techniques and the implementation of legal
and regulatory provisions regarding health;

— improvement of working conditions and safety, and/or
equipment on board vessels to monitor fishing activ-
ities.

The operations may cover only vessels less than 30 years
old, unless it concerns investments related to the improve-
ment of working conditions and safety or equipment on
board vessels to monitor fishing activities.

As Shetland is an objective I region, aid may be granted
up to 60 % of total cost of the improvement project.

4.2.2. Guidelines of 2001

(22) According to point 2.2.3.2 of 2001 Guidelines, applicable
to existing aid as from 1 July 2001, aid for the construc-
tion of new fishing vessels may be deemed compatible
with the common market provided that it meets the rele-
vant
(EC)
down
conditions
No 2792/1999 (7).

Regulation

laid

in

Regulation (EC) No 2792/1999

(23) Articles 6, 7, 9 and 10 and Annex III of Regulation (EC)
No 2792/1999 require that any entry of new capacity is
compensated by the withdrawal of a capacity without
public aid which is at least equal to the new capacity
introduced in the segments concerned. Until 31 December
2001, where the objectives for the size of the fleet were
not yet respected, the withdrawal of capacity should at
least be 30 % more than the new capacity introduced.

(24) The aid may only be granted where the Member State has
submitted the information concerning the application of
the Multi-annual Guidance Programme (MAGP), has
complied with its obligations under Regulation (EEC) No
2930/86 concerning the characteristics of fishing vessels,
has implemented the permanent arrangements for fleet
renewal and modernisation under Article 6 of Regulation

(6) Council Regulation (EC) 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.
(7) 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.

(EC) No 2792/1999, and has complied with the overall
MAGP-objectives.

(25) Furthermore,

the aid for the modernisation of

fishing
vessels can be granted only if the aid does not concern
capacity in terms of tonnage or power.

(26) Finally,

the vessels have to be registered in the fleet
register and the changes in vessels characteristics must be
communicated to this register. The replacement of fishing
gear shall not be eligible.

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

up to 40 % of the total eligible costs.

Regulation (EC) No 2369/2002

(28) On 1 January 2003 the relevant Articles and Annex of
Regulation (EC) No 2792/1999 were amended by Regu-
lation (EC) No 2369/2002 (8). In addition to the condi-
tions of Regulation (EC) No 2792/1999, the aid for the
modernisation of fishing vessels is further restricted in the
sense that such aid may only be granted provided that the
aid does not serve to increase the effectiveness of the
fishing gear.

(29) As regards the existing condition regarding the fact that
the aid may not concern capacity in terms of tonnage or
of power, the amendment introduced an exemption to
this restriction, allowing such types of aids when they are
in
(EC)
No 2371/2002, which allows capacity increases in case of
modernisations works relating to safety, working condi-
tions, hygiene and product quality.

line with Article

of Regulation

11(5)

Regulation (EC) No 1421/2004

(30) With regard to condition concerning the replacement of
fishing gear the Regulation was once more amended by
Regulation (EC) No 1421/2004 (9), which entered into
force on 26 August 2004. From the entry into force of
that amendment replacement of
fishing gear could be
considered eligible if the vessel is subject to a recovery
plan and is required to end its participation in the fishery
concerned and fish for other species with different fishing
gear. In such a case the Commission may decide that the
first replacement of fishing gear, where fishing possibili-
ties are significantly reduced by a recovery plan may be
considered eligible.

4.2.3. Guidelines of 2004

(31) The 2004 Guidelines should be applied to all existing
schemes as from 1 January 2005. With regard to the aid
for modernisation of fishing vessels these guidelines refer
to the Articles 6, 7, 9 and 10 and Annex III (point 1.4) of
Regulation (EC) No 2792/1999 and thus the same condi-
tions remain to apply.

(8) OJ L 358, 31.12.2002, p. 49.
(9) OJ L 260, 6.8.2004, p. 1.

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4.3. Compatibility

(32) Under the scheme aid could be granted for the modernisa-
tion of fishing vessels, related to a major improvement
like for example better storage of catches, replacement of
the engine,
improvements in working conditions or to
crew safety.

(33) Thus as regards aid granted under the scheme until 1 July
2001, the scheme is in compliance with the conditions of
Regulation (EC) No 3699/93 and of the 1994 and 1997
Guidelines. Furthermore, aid has been granted up to 10 %
of
the improvement project, with a
maximum of GBP 40 000 per vessel. Until 1 July 2001
aid could be granted up to 60 % and after that date up to
40 % of the total eligible costs. The rate aid of the scheme
is therefore considered compatible with the conditions
applicable under both the 1994 and 1997 Guidelines.

the total cost of

(34) Moreover,

the United Kingdom has complied with its
reporting obligations under MAGP IV and with the overall
MAGP IV objectives for its fleet.

(35) However, with regard to the period from 1 July 2001, the
scheme does not seem to comply fully with the conditions
of Article 9 of the Regulations (EC) No 2792/1999, as
applicable under the 2001 Guidelines as from 1 July
2001. According to this provision, aid for modernisation
of fishing vessel may be granted only if the aid does not
concern capacity in terms of tonnage or power.

(36) Under

the scheme replacement of engines has been
financed as well as other types of modernisation that
could concern capacity in terms of tonnage or power (e.g.
better storage of catches). Such types of modernisation aid
can not be considered compatible with the 2001 Guide-
lines. Therefore, at this stage, the Commission seriously
doubts if such aids granted under the scheme from 1 July
2001 could be considered compatible with the common
market.

(37) All other types of aid granted under the scheme from
1 July 2001 that do not concern capacity in terms of
tonnage or power are regarded compatible with the
common market.

4.3. Conclusion

(38) With regard to the above the Commission considers that
the scheme as applied until 1 July 2001 can be considered
to be compatible with the respective Guidelines in force at
the time the aid was granted and thus compatible with
the common market.

(39) However, as regards the application of the scheme after
1 July 2001, the Commission has at this stage, for the
reasons pointed out in points 35 and 36, serious doubts
on its compatibility with common market of aids granted
for types of modernisation that concern capacity in terms
of tonnage or power.

5. DECISION

(40) In view of the foregoing analysis the Commission has
decided not to raise any objections to this aid scheme as
far as it concerns the aid granted before 1 July 2001.

(41) However, with regard to the application of the scheme
after 1 July 2001, the Commission observes that there
exists, 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 scheme with the
Guidelines for the examination of State aid to Fisheries
and aquaculture and, therefore, with the EC Treaty.

(42) 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 further assess
the aid scheme, 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.

(43) 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.

(44) The Commission warns the United Kingdom of Great
Britain and Northern Ireland that it will inform interested
letter and a meaningful
parties by publishing this
summary of it in the Official Journal of the European Union.
It will also inform interested parties in the EFTA countries
which
EEA Agreement,
to
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