2007/414/EC: Commission Decision of 21 February 2007 on State aid — C 36/2004 (ex N 220/2004) — Portugal — Foreign direct investment aid for CORDEX, Companhia Industrial Têxtil S.A. (notified under document number C(2007) 474) (Text with EEA relevance)
Date: 2007-02-21
Institutions: European Commission
Subjects: Portugal, State aid, control of State aid, direct investment, investment abroad, investment aid

16.6.2007

EN

Official Journal of the European Union

L 156/23

(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

II

DECISIONS

COMMISSION

COMMISSION DECISION

of 21 February 2007
on State aid — C 36/2004 (ex N 220/2004) — Portugal — Foreign direct investment aid for
CORDEX, Companhia Industrial Têxtil S.A.

(notified under document number C(2007) 474)

(Only the Portuguese text is authentic)

(Text with EEA relevance)

(2007/414/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty
establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
to those provisions (1) and having regard to their
pursuant
comments,

Whereas:

I. PROCEDURE

(1)

By letter of 5 May 2004 (registered as received on 19
May), Portugal notified the Commission of its intention
to provide aid to CORDEX, Companhia Industrial Têxtil
S.A. (hereinafter CORDEX) in order to help finance an
investment
the
company
Commission’s request, Portugal provided further infor-
mation by letters of 31 August 2004 (registered as
received on 6 September) and 13 September 2004
(registered as received on 16 September).

in Brazil. At

the

by

(2)

(3)

(4)

(5)

(6)

the Commission
By letter of 19 November 2004,
informed Portugal
it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty
in respect of the aid.

that

By letter of 7 January 2005 (registered as received on 11
authorities presented their
January),
comments
abovementioned
procedure.

the Portuguese

context of

in the

the

The Commission decision to initiate the procedure was
published in the Official Journal of the European Union (2).
The Commission called on interested parties to submit
their comments.

The Commission received comments from interested
parties. It forwarded them to Portugal, which was given
the opportunity to react; its comments were received by
letter of 20 May 2005 (registered as received on 25 May).

information from
The Commission requested further
Portugal by letter of 26 September 2005,
to which
Portugal replied by letter of 9 November 2005 (registered
as received on 10 November). The Portuguese authorities
provided the final additional information by letter of 22
December 2005 (registered as received on 23 December).

(1) OJ C 35, 10.2.2005, p. 2.

(2) See footnote 1.

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Official Journal of the European Union

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(7)

(8)

II. DETAILED DESCRIPTION OF THE AID

The recipient

CORDEX is a producer of ropes located in Ovar, a region
falling under Article 87(3)(a) of the Treaty. It was set up
in 1969 and specialises in the production of synthetic
fibre ropes (polypropylene and polyethylene) as well as
binder and baler twine and other sisal products. At the
notified, CORDEX had 259
the
time
aid was
employees.
Its turnover in the same year (2004) was
some EUR 25 million. CORDEX is affiliated to two
other companies
located in the same region: FLEX
2000, set up in 2001, and CORDENET, set up in
companies have 415
three
2003. Together,
employees (3).

the

The project

The project consists in the establishment of a new
company in Brazil — Cordebrás Lda. — that will be
engaged exclusively in producing baler twine, which is
investment,
used mainly in agriculture. With this
CORDEX expects to step up its production of sisal
products and to take advantage of the lower costs and
availability of
the raw material and labour in Brazil,
which is considered to be the world’s leading producer
of the raw material (sisal fibre) and labour costs there are
about 1/3 of those in Portugal.

(9) With this project, CORDEX is also planning to gain a
foothold on new markets,
in particular in the United
States, Canada and the Mercosur countries. In addition,
some of the sisal produced in Brazil will be imported
semi-finished
into Portugal either as a finished or
product (4).
the product will be
subject to oil-based processing as well as to rewinding
and packaging before being sold on the market.

In the latter case,

(10)

The eligible costs of this investment amount to EUR
2 678 630, which is equivalent to the nominal capital
the new company, Cordebrás Lda. The project was
of
completed in 2002 and is now operational.

The aid

(11)

CORDEX applied for aid from the Portuguese authorities
under a Portuguese scheme that aims to promote the
internationalisation of Portuguese companies (5). Under
the scheme, aid to large companies must be notified to
the Commission. Although CORDEX requested the aid in
2000 before initiating the project, internal delays meant

that Portugal notified the aid to the Commission only in
January 2004.

(12)

The notified measure consists of a tax incentive of EUR
401 795, representing 15 % of eligible investment costs.

(13)

(14)

(15)

(16)

III. GROUNDS FOR INITIATING THE PROCEDURE

The Commission, in its decision to initiate the procedure
in the present case, stated that it would examine the
measure in the light of Article 87(3)(c) of the Treaty in
order to determine whether the aid would facilitate the
development of an economic activity without adversely
affecting trading conditions to an extent contrary to the
common interest.

to

direct

foreign

finance

The Commission also considered the following criteria,
which have been applied in previous cases of aid to large
investment
companies
projects (6): whether the aid contains disguised export
elements; any effects on employment in the country of
origin and in the host country; the risk of relocation; the
impact of
the measure on the region where the aid
including
recipient is located; the necessity of the aid,
the envisaged aid intensity, given the international
competitiveness of the EU industry and/or in view of
the risks associated with investment projects in certain
third countries.

The Commission concluded in this connection that the
aid was granted for initial productive investment and did
not contain disguised export elements. Nor would it lead
to the relocation of jobs from Portugal to Brazil in so far
as CORDEX intended to maintain employment levels in
Portugal. The fact that the new company in Brazil was
equipped with new production plant and that labour was
recruited locally further limited the risk of relocation.

the
The Commission also noted the arguments of
Portuguese authorities that this is the first internationali-
sation experience of CORDEX, which is not familiar with
the Brazilian market and that investing in an unknown
It can be reasonably
market may entail high risks.
assumed that,
if the project failed, this would have a
significant financial impact on the company, given that
the investment costs accounted for some 12 % of its
turnover. Moreover, the company applied for aid before
initiating the project, and this would seem to indicate
that
as
normally
the Guidelines on national
regional aid (7).

the measure

required by

‘incentive

criteria’

fulfils

the

(3) Figure for 2005.
(4) Portugal explained that the baler twine produced in Brazil can be used
either as a finished or semi-finished product for further processing
into other products such as carpets or decorative objects or in the
traditional packaging sector.

(5) N 96/99 (OJ C 375, 24.12.1999, p. 4).

(6) See Case C 77/97, Austrian LiftGmbH — Doppelmayr, Austria,
(OJ L 142, 5.6.1999, p. 32) and Case C 47/02, Vila Galé-Cintra
(OJ L 61, 27.2.2004, p. 76).

(7) See point 4.2 of the Guidelines in force at the time the measure was
‘an application for aid must be submitted before work is

notified:
started on the projects’; OJ C 74, 10.3.1998, p. 13.

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(17) However, the Commission expressed doubts regarding
the impact of the aid on the overall competitiveness of
the EU industry concerned. It noted that some of the
products produced in Brazil would be
to
compete with products on the EU market and that it
had no information on the relative size of the recipient
or the market. Nor did it have any information on the
impact of the measure in the region where CORDEX is
located. Therefore,
it could not conclude at that stage
the aid was in conformity with the exception
that
under Article 87(3)(c) of the Treaty.

likely

Comments from interested parties

(18) One French company, BIHR, claimed that the investment
by CORDEX in Brazil followed that of other Portuguese
producers and that these companies, together with other
Brazilian and American competitors, were threatening
BIHR’s production of
It was also
concerned that the aid would strengthen the position
of CORDEX in the synthetic fibres sector.

in Europe.

sisal

(19)

Similar concerns were expressed by Saint Germaine,
to produce
another French producer, which claims
synthetic products in Europe and to have transferred its
sisal activities
to Brazil. Saint Germaine stated that
Portuguese companies had advantages when investing
in Brazil because they could subsequently import the
product in Europe at lower rates of duty.

(20) Another company that wished to remain anonymous
comments
competitive
to
the aid would confer on CORDEX in

the

as

made
similar
advantage that
the rope sector.

(21)

Comments from Portugal

Portugal noted that the investment in Brazil is part of a
strategy on the part of CORDEX for maintaining a wide
range of activities in Portugal, while at the same time
maintaining its current levels of employment. CORDEX
will continue to produce sisal products in Portugal with
raw material imported from Brazil, while also importing
from Cordebrás Lda either
semi-finished
finished or
it will process into sisal products with
products that
higher
also include
activities
added. These
value
adapting the packaging of the imported baler twine to
customers demands (for example, with regard to size
and
to
employment
in the packaging industry in the region
where CORDEX is located.

also contribute

and will

labelling)

thus

(22)

Following the investment in Brazil, CORDEX has created
two new companies in Ovar (FLEX and CORDENET,

led to some

which produce foam-based products and nets respec-
shifts of personnel
tively). This has
between these companies and to a slight
increase in
the overall employment levels of the three companies
from 358 employees in 2000 to 415 in
in Ovar:
2005. The newly
established Brazilian company,
Cordebrás Lda., has about 145 employees.

(23) According to the Portuguese authorities,

the diversifi-
cation strategy of CORDEX,
including the investment
in Brazil, is thus conducive to maintaining employment
in a region (Ovar)
that already suffers from unem-
ployment levels well above the national average. It also
contributes to creating employment in the State of Bahia
(Brazil), where Cordebrás Lda is located.

(24)

Concerning the comments made by interested parties, the
Portuguese authorities noted that CORDEX is subject to
the same conditions and the same import duties as any
other EU producer when importing sisal products from
the small amount of aid which it is
Brazil and that
planning to grant CORDEX is unlikely to have any
significant impact on the Community market. From the
viewpoint of the Portuguese authorities, the investment
by CORDEX in Brazil was necessary in order to counter
increasing exports from countries with
the effects of
advantages in the form of
lower costs (countries in
Africa and Brazil) (8).

(25)

Finally, Portugal stated that the fact that the investment
went ahead without public financing cannot be imputed
to the company, which carried out this investment with
in the expectation of
bank loans and own capital
obtaining the state aid it applied for under the relevant
national scheme (9).

IV. ASSESSMENT

Presence of aid within the meaning of Article 87(1)
of the EC Treaty

(26) Under Article 87(1) of the EC Treaty, any aid granted by
a Member State or through state resources in any form
whatsoever which distorts or threatens to distort compe-
the
certain
favouring
tition
undertakings
in so far as it affects
production of certain goods is,
trade between Member States,
incompatible with the
common market.

by

or

In its decision to initiate the procedure in the present
case, the Commission concluded that the aid measure fell
within the scope of Article 87(1) of the EC Treaty for the
following reasons:

(8) According to the Portuguese authorities, sales of Portuguese sisal in
the EU decreased by 12,3 % between 1999 and 2004 mainly
because of an increase in imports.

(9) See footnote 5.

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— By providing assistance for the setting-up of a new
production unit in the context of the internationali-
sation initiative of a Portuguese company in Brazil,
the notified measure favours a certain undertaking or
the production of certain goods. The Commission
considers that aid granted to undertakings in the
European Union in support of
foreign direct
investment
is comparable to aid for undertakings
that export almost all their production outside the
Community. In such cases, given the interdependence
between the markets on which Community under-
takings operate, it is possible that aid might distort
competition within the Community (10).

— Portugal stated that the investment is intended also to
benefit the activities of the recipient in Portugal (as
well as in the country where the investment is carried
thereby potentially affecting intra-Community
out,)
trade.

the measure in the region where CORDEX is located (see
paragraph 17).

(30)

Necessity of the aid

the aid. Otherwise,

State aid legislation lays down as a general principle that,
in order for the aid to be compatible with the common
market, it must be demonstrated that it leads to an addi-
tional activity by the recipient which would not be
carried out without
the aid is
simply creating a distortion without having any positive
counter-effect. The Commission noted that, since the
company applied for aid before initiating the project,
there appeared to be some indication that the measure
fulfilled the ‘incentive criteria’ as normally required by the
regional state aid rules (11). However, this does not fully
show whether the aid was really necessary in view of the
international competitiveness of the EU industry and/or
in view of the risks involved for investment projects in
certain third countries.

— The aid is financed through state resources. These
conclusions have not been contested by Portugal
and are hereby confirmed.

(31)

Compatibility of the aid with the EC Treaty

(27) Given the fact

that

the aid could not be found
compatible under any existing guidelines or frameworks,
the Commission indicated that it would assess whether
the aid could be found compatible with the EC Treaty on
the basis of the exception under Article 87(3)(c) of the
Treaty, which allows for aid to facilitate the development
of an economic activity if it does not adversely affect
to the
trading
to an extent
common interest. The Commission must,
therefore,
assess whether the aid will contribute to the development
of sisal production and/or other economic activities in
the European Union without adversely affecting trading
conditions between Member States.

conditions

contrary

(28)

foreign direct

In the decision to initiate the procedure, the Commission
also noted that it would take into account certain criteria
which it used in previous cases of aid to large companies
in respect of
investment projects (see
paragraph 14) designed to strike a balance between the
benefits of the aid in terms of contributing to the inter-
national competitiveness of the EU industry concerned
(e.g. whether the aid is necessary, taking into account
the risks involved with the project in the third country)
and its possible negative effects on the EU market.

(29)

In this respect, the Commission had doubts as to the
impact of the measure on the common market and on
the overall competitiveness of the EU industry concerned;
nor did it have any information on the importance of the
recipient vis-à-vis EU competitors or on the impact of

The Commission, in its decision of 19 November 2004,
noted the argument of the Portuguese authorities that,
for CORDEX, an investment in Brazil may involve higher
risks than an investment in the European Union owing
to the unpredictability of the Brazilian currency, espe-
cially since this is the first internationalisation experience
of CORDEX and the company had no experience of the
Brazilian market (12).

(32) However, the information submitted to the Commission
following the initiation of the procedure indicates that
other producers who are competitors of CORDEX had
invested in Brazil (despite the apparent unpredictability of
the Brazilian currency). In particular, Quintas & Quintas
S.A., a Portuguese company competing with CORDEX,
had, according to the information provided by the
Portuguese authorities,
in
Brazil (Brascorda) without requesting any aid from the
Portuguese authorities. There is thus no evidence of any
general market deficiency associated with this type of
project that would prevent CORDEX or its competitors
from investing in Brazil without state support.

installed a production unit

any particular difficulties

(33) Although this was the first internationalisation experience
of CORDEX, the Portuguese authorities were also unable
to demonstrate
faced by
CORDEX in carrying out the investment concerned. For
example, despite the relative small size of CORDEX in
terms of turnover (below the SME threshold), there was
no indication from the Portuguese authorities of any
deficiencies with regard to the possibility of CORDEX
obtaining financing from commercial banks; on the
the company was able to
contrary,
finance the investment out of own resources and by
recourse to commercial loans.

it appears that

(10) Case C-142/87 Tubermeuse [1990] ECR I-959, at 35.

(11) See footnote 7.
(12) See in this connection case C 47/02, Vila Galé Cintra.

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(34)

The Commission therefore considers on the basis of the
above information that Portugal has not managed to
demonstrate that, without the aid, CORDEX would not
have carried out the investment concerned in Brazil and
that the aid was necessary in view of the risks involved
with its project in Brazil. The Commission notes that the
fact that CORDEX has so far conducted all these activities
without receiving state aid appears to show that the aid
was not necessary.

The impact of the aid on the Community market

(35) According to the information available, there are about a
dozen EU producers of sisal on the Community market.
Five of them are located in Portugal and account for
some 81 % of EU production (13). All these companies
produce synthetic products and sisal ropes and twine.
The synthetic fibre production appears to be the core
business for most of them. This is also the case with
CORDEX (sisal accounts for only about 20 % of
its
capacity). Sisal and synthetic fibres have a certain
degree of substitutability for uses in agriculture.

(36)

In 2003 the market share of CORDEX for sisal products
in the EU was about 6,6 %. However, if sales of products
the
from Cordebrás Lda are also taken into account,
market
to
EU rises
17,7 % (14). The Portuguese authorities indicated in this
connection that about 47 % of Cordebrás exports (some
2 210 tonnes in 2003) were directed to the EU market.

share of CORDEX in the

(37) Given the significant percentage of sisal produced by
Codebras Lda and imported (via CORDEX) into the EU,
the Commission concludes that the aid appears to have a
significant impact on competition in the EU market. In
addition, the aid also appears to strengthen the overall
thereby potentially
position of CORDEX in the EU,
affecting other market segments where CORDEX and
its competitors operate. This finding is corroborated by
the comments submitted by competitors, pointing to
serious distortions of competition created by the aid on
the markets for sisal ropes and twine as well as for
synthetic fibre.

(38) When assessing the

compatibility of

the
Commission must assess carefully the balance between
the negative and positive effects of the measure inside the
EU and determine whether its beneficial effects for the
Community outweigh its negative effects on competition
and trade on the Community market. On the basis of the

aid,

the

its investment

above information, the Commission concludes that there
is no evidence to suggest that the granting of aid to
CORDEX in respect of
in Brazil may
help to improve the competitiveness of the European
industry concerned. The aid would probably strengthen
the position of the recipient but to the detriment of its
competitors not receiving state aid. It is thus not demon-
strated that
the aid has any positive effects for the
Community that would outweigh its negative impact
on competition and trade in the Community market.

Conclusion

(39) Accordingly, the Commission concludes that there is no
evidence that the aid is necessary for CORDEX to carry
out the investment concerned in Brazil. The aid is also
likely to have a significant distorting effect on compe-
tition in the Community market. The Commission thus
concludes that the planned state aid for CORDEX in
connection with its foreign direct investment in Brazil
does not contribute to the development of certain
economic
activities within the meaning of Article
87(3)(c) without adversely affecting trading conditions
to an extent contrary to the common interest and is
therefore incompatible with the common market,

HAS ADOPTED THIS DECISION:

Article 1

is
The notified tax incentive of EUR 401 795 that Portugal
preparing to grant to CORDEX, Companhia Industrial Têxtil
S.A., for the purpose of financing its foreign direct investment
in Brazil is incompatible with the common market since it does
not fulfil the criteria laid down in Article 87(3)(c) of the EC
Treaty.

Article 2

This Decision is addressed to the Portuguese Republic.

Done at Brussels, 21 February 2007.

For the Commission

Neelie KROES
Member of the Commission

(13) Figures for 2003.
(14) Figures provided by Portugal and based on apparent consumption

in the EU 15 in 2003.