Proposal for a Decision of the European Parliament and of the Council on the mobilisation of the European Globalisation Adjustment Fund
Date: 2007-10-11
Institutions: European Commission
Subjects: EU aid, Finland, Germany, commitment of expenditure, dismissal, fund (EU), globalisation, mobile phone, reintegration into working life

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 11.10.2007 
COM(2007) 600 final 

2007/0210 (COD) 

Proposal for a 

DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on the mobilisation of the European Globalisation Adjustment Fund 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

The Interinstitutional Agreement of 17 May 20061 allows for the mobilisation of the European 
Globalisation Adjustment Fund through a flexibility mechanism, within the annual ceiling of 
EUR 500 million over  and  above  the  relevant  headings  of  the  financial  framework.  The 
conditions  of  eligibility  to  the  Fund  are  detailed  in  Regulation  (EC)  No 1927/20062  of  the 
European Parliament and the Council. 

The Commission services have carried out a thorough examination of the two applications by 
Germany and Finland in accordance with Regulation (EC) 1927/2006 and in particular with 
Articles 2, 3, 4, 5 and 6 thereof. 

The most important elements of the assessments can be summarised as follows: 

Case EGF/2007/03/DE/BENQ 

1. 

2. 

3. 

4. 

The  application  was  presented  by  the  German  authorities  to  the  Commission  on 
27 June 2007. It was based upon the specific intervention criteria of Article 2(a) of 
Regulation (EC) No 1927/2006 and was submitted within the deadline of 10 weeks 
referred to in Article 5 of that Regulation.  

The  application  relates  to  redundancies  in  two  German  subsidiaries  of  BenQ,  i.e. 
BenQ Mobile GmbH&Co OHG (production of mobile phones) and Inservio GmbH 
(provision of repair services for Siemens and BenQ mobile phones). It demonstrates 
a  total  of  3 303  redundancies  during  the  4-month  period  of  reference  (from 
22 December  2006  to  21  April  2007),  of  which  2 828  occurred  in  BenQ  Mobile 
GmbH&Co OHG and 475 in Inservio GmbH. The redundancies were caused by the 
withdrawal by BenQ of all financial support to its two German subsidiaries, causing 
their insolvency.  

Analysis  of  the  link  between  the  redundancies  and  the  major  structural  changes  in 
world trade patterns is based on the following information. A general trend amongst 
mobile  phone  manufacturers  towards  a  delocalisation  of  their  production  to  Asia, 
primarily China is shown. The main reasons for this delocalisation to China are in the 
first instance comparative manufacturing cost advantages, but also the proximity of 
technology  partners  and  a  strong  increase  in  local  demand.  According  to  the 
application the assembly costs for a mobile phone amount to about EUR 8 to 10 per 
unit for production in countries with high wages such as Germany, whereas in China 
these costs are about EUR 1.50 per phone. Between 2005 and 2008 the world-wide 
demand for mobile phones is estimated to increase by 9 %, for the same period this 
increase is estimated at around 5 % in Europe and about 13 % in China.  

Between 2001 and 2006 the world production of mobile phones increased from 400 
million up to 991 million units. In 2001 production in China reached 80 million units 
or 20 % of world production. In 2006 China produced 450 million units or 45 % of 
world  production.  In  2002  46 %  of  the  Chinese  mobile  phone  production  was 

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OJ C 139, 14.06.2006, p. 1 
OJ L 406, 30.12.2006, p. 1  

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5. 

6. 

exported, in 2006 the export share increased up to 75 %, i.e. 340 million units out of 
the 450 million produced.  

Before the closure of its German production sites, the production capacity of BenQ 
(in  mobile  phone  units)  was  distributed  as  follows:  China:  30  million,  Taiwan: 
5 million, Brazil: 15 million and Germany: 15 million units. The production capacity 
utilization  was  75 %  in  China,  40 %  in  Taiwan,  45 %  in  Brazil  and  60 %  in 
Germany.  BenQ  has  announced  its  decision  to  shift  production  from  Germany 
towards its manufacturing sites in China, Taiwan and Brazil. From data provided by 
BenQ Corporation3 the trend towards a delocalisation of production is also visible in 
the  employment  figures:  in  2003  Europe  (EU-27  and  former  Soviet  Union) 
represented  31 %  of  the  number  of  employees  and  China  15 %,  in  2006  Europe 
dropped to 24 % and China increased to 18 %. 

As  regards  the fulfilment of  the  criteria set out in Article 6 of Regulation (EC) No 
1927/2006 Germany provided the following elements: Germany has confirmed that 
the  financial  contribution  from  the  EGF  does  not  replace  measures  which  are  the 
responsibility  of  companies  by  virtue  of  national  law  or  collective  agreements.  In 
Germany  enterprises  are  obliged  to  adopt  a  social  plan  in  order  to  attenuate  the 
possible  negative  economic  impact  on  the  workers  of  a  change  in  operations. 
However, this obligation does not apply to new enterprises during the first four years 
following  their  establishment.  This  is  the  case  for  the  two  German  subsidiaries  of 
BenQ.  In  cases  of  restructuring,  German  labour  law  provides  for  transfer 
instruments, such as a transfer company, in order to support redundant workers in a 
structured manner in their search for a new job. However, there is no legal obligation 
to  create  a  transfer  company.  In  order  to  demonstrate  the  complementarity  with 
measures  taken  at  national  or  local  level,  the  application  distinguishes  between  the 
complementary  EGF  package  and  the  initial  package  of  active  labour  market 
measures,  mainly  financed  by  the  national  authorities  and  Siemens  AG.  The  key 
component  of  this  initial  package  was  the  creation  of  a  transfer  company  that  is 
operational  for  one  year  from  1 January  to  31 December  2007.  Germany  has 
confirmed that actions funded under the EGF will not receive assistance from other 
Community financial instruments.  

In  conclusion,  for  the  reasons  set  out  above,  it  is  proposed  to  accept  application 
EGF/2007/03/DE/BENQ  submitted  by  Germany  relating  to  the  redundancies  in  connection 
with  the  insolvency  of  two  BENQ  subsidiaries,  as  evidence  has  been  provided  that  these 
redundancies result from major structural changes in world trade patterns which have led to a 
serious  economic  disruption,  which  affects  the  local  economy.  A  coordinated  package  of 
eligible personalised services for the amount of EUR 25 532 300 has been proposed of which 
the requested contribution of the EGF is EUR 12 766 150.  

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BenQ company factsheet:http://benqu.com/page/?pageld=5 

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Case EGF/2007/04/FI/PERLOS 

1. 

2. 

3. 

4. 

5. 

The  application  was  presented  by  the  Finnish  authorities  to  the  Commission  on 
18 July 2007. It was based upon the specific intervention criteria of Article 2 (c) of 
Regulation  (EC)  No  1927/2006  related  to  small  labour  markets  and  was  submitted 
within the deadline of 10 weeks referred to in Article 5 of that Regulation. 

The application demonstrates a total of 899 redundancies in Perlos during the period 
of  reference  (from  7 March  2007  to  6 July  2007),  plus  another  9  redundancies  in 
subcontractors  and  downstream  operators,  i.e.  a  total  of  908  redundancies  resulting 
from the Perlos factory closures. A further 7 people were given their notice by Perlos 
between  10  and  31  July  and  are  also  eligible  for  the  measures  to  be  implemented. 
The  redundancies  were  caused  by  the  decision  of  Perlos  to  discontinue  production 
activities  in  Finland  and  to  close  down  its  two  factories  located  in  Joensuu  and 
Kontiolahti, Northern Karelia, by September 2007. 

Analysis  of  the  link  between  the  redundancies  and  the  major  structural  changes  in 
world trade patterns is based on the following information. A general trend amongst 
mobile  phone  manufacturers  towards  a  delocalisation  of  their  production  to  Asia, 
primarily China is shown. The main reasons for this delocalisation to China are in the 
first instance comparative manufacturing cost advantages, but also the proximity of 
technology partners and a strong increase in local demand. A key factor determining 
the delocalisation is the speed of the production cycle. Suppliers in the mobile phone 
industry are now expected to respond to orders within 2 hours, "Just In Time" (JIT), 
so as to save storage costs and respond without delay to the demands of the market. 
This necessitates moving manufacturing sites to the immediate vicinity of the large 
brands.  It  also  cuts  transport  costs,  which  is  especially  important  for  the  new 
generation of cheap mobile phones. Between 2005 and 2008 the world-wide demand 
for mobile phones is estimated to increase by 9 %, for the same period this increase 
is estimated at around 5 % in Europe and about 13 % in China.  

Between  2001  and  2006  the  world  production  of  mobile  phones  increased  from 
400 million up to 991 million units. In 2001 production in China reached 80 million 
units  or  20 %  of  world  production.  In  2006  China  produced  450  million  units  or 
45 %  of  world  production.  In  2002  46 %  of  the  Chinese  mobile  phone  production 
was exported, in 2006 the export share increased up to 75 %, i.e. 340 million units 
out of the 450 million produced.  

Before the closure of its Finnish plants, the  staffing of Perlos (including temporary 
workers)  was  distributed  as  follows:  EU  4,207  (Finland,  Sweden  and  Hungary, 
including 1,105 temporary workers), Asia 7,612 (mainly China and India, including 
4,605  temporary  workers),  North  and  South  America  1,125  (mainly  Brazil  and 
Mexico, including 5 temporary workers). Perlos employed 1,600 people in Finland at 
the end of 2006 (with no temporary workers). 

As regards its factory setup, while Finland in the first quarter of 2007 still provided 
26 %  of  the  Perlos  global  factory  space  in  terms  of  square  metres,  with  China  at 
41 %  and  India  at  zero  during  the  same  quarter,  this  changes  drastically  for  the 
second half of 2007, when Finland provides zero factory space, China rises to 58 % 
and India appears for the first time at 12 %. 

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6. 

As  regards the fulfilment of the  criteria set out in Article 6 of Regulation (EC)  No 
1927/2006  Finland  provided  the  following  elements:  Finland  confirmed  inter  alia 
that the financial contribution from the EGF does not replace measures which are the 
responsibility of companies by virtue of national law or collective agreements. These 
concern  in  particular  the  obligations  which  employers,  employees  and  the 
Employment  Office  have  under  the  change  security  operating  model.  The  Finnish 
authorities provided evidence that the actions provide support for individual workers 
and are not used for restructuring of companies or sectors. Finland further confirmed 
that  the  eligible  actions,  referred  to  under  points  15  to  17  in  the  Communication 
(SEC(2007)  1228),  do  not  receive  assistance  from  other  Community  financial 
instruments.  Finland  mentioned  a  regional  ESF  funded  project,  called  "A  Bridge 
Between  Working  Life  Phases",  which  is  different  but  complementary  to  the 
proposed EGF support. The project is being implemented in Northern Karelia since 
1 October 2006. Its aim is to create an operating model for responding to challenges 
posed  by  dismissals,  to  produce  a  guidebook  in  which  information  relevant  to 
dismissals  is  gathered  and  to  seek  out  support  measures  that  are  complementary  to 
those enabled by change security.  

In  conclusion,  for  the  reasons  set  out  above,  it  is  proposed  to  accept  application 
EGF/2007/04/FI/PERLOS  submitted  by  Finland  relating  to  915  redundancies  caused  by  the 
closure of the PERLOS plants and of its subcontractors in Northern Karelia, as evidence has 
been  provided  that  these  redundancies  result  from  major  structural  changes  in  world  trade 
patterns which have led to a serious economic disruption, which affects the local economy. A 
coordinated  package  of  eligible  personalised  services  for  the  amount  of  EUR 4 057 075  has 
been proposed of which the requested contribution of the EGF is EUR 2 028 538.  

Financing 

The  total  annual  budget  available  for  the  European  Globalisation  Adjustment  Fund  is 
EUR 500  million.  In  2007,  EUR 3 816 280  have  already  been  earmarked  for  two  earlier 
applications leaving EUR 496 183 720 available. 

The  Commission's  proposed  allocation  under  the  Fund  is  based  on  the  information  made 
available by the applicant. 

On  the  basis  of  the  two  applications  for  support  from  the  Fund  by  Germany  and  Finland 
where the mobile phone industry was affected by redundancies of BENQ and PERLOS, total 
estimates of the coordinated packages of personalised services to be funded are as follows: 

Germany: BENQ 
03/2007 
Finland: PERLOS 
04/2007 
Total 

Personalised services to be funded (in EUR) 
12 766 150 

2 028 538 

14 794 688 

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In the light of the examination of these applications4, and considering the maximum possible 
grant  from  the  Fund  as  well  as  the  scope  for  reallocating  appropriations,  the  Commission 
proposes to deploy the European Union Globalisation Adjustment Fund for a total amount of 
EUR 14 794 688, to be allocated under heading 1a of the financial framework. 

This amount of support will leave more than 25 % of the European Globalisation Adjustment 
Fund available for allocation during the last four months of the year, as required by Article 12 
(6) of Regulation 1927/2006. 

The Commission will present a transfer request in order to enter in the 2007 budget specific 
commitment  and  payment  appropriations,  as  required  in  Point  28  of  the  Interinstitutional 
Agreement of 17 May 2006. 

4 

Communication  to  the  Commission  on  an  application  to  mobilise  the  European  Globalisation 
Adjustment Fund introduced by Germany in the case of BENQ (SEC(2007) 1142) and Communication 
to  the  Commission  on  an  application  to  mobilise  the  European  Globalisation  Adjustment  Fund 
introduced  by  Finland  in  the  case  of  PERLOS  (SEC(2007)  1228)  setting  out  the  analysis  of  the 
Commission of the requests. 

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2007/0210 (COD) 

Proposal for a 

DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on the mobilisation of the European Globalisation Adjustment Fund 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Inter-institutional  Agreement  of  17 May  2006  between  the  European 
Parliament,  the  Council  and  the  Commission  on  budgetary  discipline  and  sound  financial 
management5, and in particular point 28 thereof, 

Having  regard  to  Regulation  (EC)  No  1927/2006  of  the  European  Parliament  and  of  the 
Council  of  20 December  2006  establishing  the  European  Globalisation  Adjustment  Fund6, 
and in particular Article 12(3) thereof, 

Having regard to the proposal from the Commission7, 

Whereas: 

(1) 

(2) 

(3) 

The European Globalisation Adjustment Fund (the "Fund") was established to provide 
additional  support  to  workers  who  suffer  from  the  consequences  of  major  structural 
changes  in  world  trade  patterns  and  to  assist  them  with  their  reintegration  into  the 
labour market. 

The Interinstitutional Agreement of 17 May 2006 allows the mobilisation of the Fund 
within the annual ceiling of EUR 500 million. 

Germany  and  Finland  submitted  applications  to  deploy  the  Fund,  in  respect  of  two 
cases  concerning  redundancies  in  the  mobile  phone  sector,  specifically  for  workers 
made  redundant  by  BENQ  and  PERLOS.  The  applications  comply  with  the 
requirements for determining the financial contributions as laid down in Article 10 of 
Regulation (EC) No 1927/2006.  

(4) 

The Fund should, therefore, be mobilised in order to provide a financial contribution 
for the two applications, 

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OJ C 139, 14.06.2006, p. 1. 
OJ L 406, 30.12.2006, p. 1. 
OJ C […], […], p. […] 

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HAVE DECIDED AS FOLLOWS: 

Article 1 

For  the  general  budget  of  the  European  Union  for  the  financial  year  2007,  the  European 
Globalisation Adjustment Fund shall be mobilised to provide the sum of EUR 14 794 688 in 
commitment and payment appropriations. 

Article 2 

This Decision shall be published in the Official Journal of the European Union. 

Done at Brussels,  

For the European Parliament 
The President 

For the Council 
The President 

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