2008/718/EC: Commission Decision of 16 April 2008 on the measure C 29/07 (ex N 310/06) which Hungary is planning to implement in the form of a short-term export-credit guarantee for SMEs with limited export turnover (notified under document number C(2008) 1332) (Text with EEA relevance)
Date: 2008-03-16
Institutions: European Commission
Subjects: Hungary, State aid, control of State aid, credit guarantee, export aid, export credit, small and medium-sized enterprises

L 239/26

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Official Journal of the European Union

6.9.2008

COMMISSION DECISION

of 16 April 2008

on the measure C 29/07 (ex N 310/06) which Hungary is planning to implement in the form of a
short-term export-credit guarantee for SMEs with limited export turnover

(notified under document number C(2008) 1332)

(Only the Hungarian version is authentic)

(Text with EEA relevance)

(2008/718/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(5)

The Commission received no comments from interested
third parties. The comments of the Hungarian authorities
were received by letter dated 21 September 2007.

Having regard to the Treaty
Community,
and in particular
Article 88(2) thereof,

establishing the European
subparagraph of
the

first

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

(6)

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

Whereas:

1. PROCEDURE

2. DESCRIPTION OF THE MEASURE

2.1. Objective

The objective of the measure is to provide short-term
export-credit guarantees to finance export transactions
by SMEs (3) with an annual
turnover not
export
exceeding EUR 2 million (hereinafter
referred to as
SMEs with limited export turnover). Hungary wishes to
implement the measure under point 2.5 of the Commu­
the Commission to the Member States
nication of
pursuant
the EC Treaty applying
Articles 92 and 93 of the Treaty to short-term export-
credit
the
(hereinafter
‘Communication on short-term export-credit insurance’
or ‘Communication’).

to Article 93(1) of

referred to as

insurance (4)

(1)

(2)

(3)

(4)

the
By electronic notification dated 17 May 2006,
above-mentioned
Hungarian authorities notified the
measure
the measure)
pursuant to Article 88(3) of the EC Treaty. The notifi­
cation was supplemented by letter dated 21 June 2006,
registered at the Commission on 22 June 2006.

referred to as

(hereinafter

By letters dated 1 August 2006, 30 October 2006 and
30 April 2007,
the Commission requested additional
information, which was provided by Hungary by letters
dated 12 September 2006, 21 March 2007 and 30 May
2007, registered at the Commission on the same days.

By letter dated 18 July 2007 (hereinafter referred to as
the decision initiating proceedings),
the Commission
informed Hungary that
it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty
in respect of the measure.

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

(1) OJ C 234, 6.10.2007, p. 18.
(2) Idem.

2.2. Terms and conditions of the guarantee

(7)

The guarantee in relation to the repayment of a loan to
finance export transactions can be given:

(a)

to an exporting domestic SME with limited export
turnover in order to enhance its ability to take out
a loan from a commercial bank. In such a case, the
risks may be associated directly with the seller (i.e.
the exporting SME), and indirectly with the buyer;

(b) to a foreign buyer purchasing goods and services
from a domestic SME with limited export turnover,
in order to enhance the ability of the buyer to take
out a loan from a commercial bank. In such a case,
the risks are associated directly with the buyer. There
is no restriction as to the country of the buyer, i.e.
the buyer can be located either
the
countries listed in the Annex to the Communication
or in another country. Nor is there any restriction as
regards the size of the foreign buyer (i.e. it can be a
large enterprise).

in one of

is

(3) As defined in the Hungarian Act XXXIV of 2004. This definition of
SMEs
in line with the relevant criteria contained in the
Commission Recommendation of 6 May 2003 concerning the defi­
nition of micro, small and medium-sized enterprises (OJ L 124,
20.5.2003, p. 36).
(4) OJ C 281, 17.9.1997.

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Official Journal of the European Union

L 239/27

(8)

(9)

(10)

(11)

(12)

The Hungarian authorities state that in both the above
cases the guarantee must finance an export transaction.
The maximum maturity of the guarantee is two years.

The amount of the guarantee may not exceed 70 % of
the value of the export contract (reduced by an advance
payment of at least 15 %) or 70 % of the underlying
loan.

turnover are not
Exporting SMEs with limited export
eligible for the guarantee if they are involved in bank­
ruptcy or liquidation proceedings or are in receivership.
No information has been submitted as to the existence of
any such restrictions
regarding guarantees given to
foreign buyers.

Risk assessment

In case of guarantees covering domestic risks
(i.e.
guarantee for the exporting SME), the fee depends on
the credit-worthiness of the exporting SME and is set
on the basis of a five-grade rating system based on
objective criteria as well as subjective evaluation, carried
out in line with commercial bank practice.

In the case of guarantees covering foreign risks (i.e.
guarantee
are
assigned to risk categories on the basis of their countries.

foreign buyer),

the buyers

the

for

Guarantee fee

(13) As for

the guarantee fee,

the Hungarian authorities
specified that it would be in the range of 0,5 %-2,0 %
annually.

background stating that guarantee provision to finance
export activities of SMEs with limited export turnover
the market activity of commercial
does not distort
banks and enhances
to take risks.
Moreover, Hungary also submitted declarations by two
large international export-credit insurers and one national
credit insurer confirming the market gap and stating that
they are not active in this segment of the market.

their willingness

2.3. Implementing body

(17)

The guarantee is issued by the Hungarian Export-Import
Bank (hereinafter referred to as Eximbank), a fully state-
owned export-credit agency.

(18)

Eximbank benefits from state support in the form of a
guarantee covering any liability resulting from the imple­
mentation of the measure.

2.4. Legal basis

(19)

The measure is based on Article 6(1)(b) of Act XLII of
1994 on the Hungarian Export-Import Bank Corporation
and the Hungarian Export Credit Insurance Corporation
as well as on Articles 1(2) and 11/A(13) of Government
Decree 85/1998 (V.6.).

2.5. Budget

(20)

The total amount of guarantee cover to be given by
Eximbank over the two-year period of the measure is
HUF 15 billion (EUR 60 million).

(14)

In addition to the above, a one-off management fee of
0,1 % of the guaranteed amount is also payable.

2.6. Duration

(21)

The duration of the measure is limited to two years after
its approval by the Commission.

(15)

The Hungarian authorities claim that revenues from the
fees will cover the operating costs of the scheme and the
guarantee claims. The fees are subject to quarterly review.

(16)

The Hungarian authorities have also indicated that
guarantee cover for the type of risks in question is not
available on the Hungarian market.
to
substantiate this, Hungary submitted declarations by
two Hungarian commercial banks having an international

In order

(22)

In the decision initiating proceedings the Commission
considered that
the measure raised doubts since the
export guarantee to be given by Eximbank and the
export-credit insurance covered by the Communication
appeared to differ in a number of respects, in particular:

2.7. Grounds for initiating the formal investigation
procedure

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(a)

the

to be

supplier),

they cover different types of risk. While export-credit
insurance always covers risks associated with the
buyer (i.e. the risk that the buyer might not pay
the
given by
guarantee
Eximbank to an exporting SME with limited export
turnover covers the risks of non-repayment of a loan
by the exporter itself, which is in fact a support for
export activities of SMEs with limited export turnover
not exclusively linked to the risks of the buyer. The
Eximbank guarantee can also be provided for the
(including large companies), covering risks
buyer
these risks
associated with the buyer. However,
loan
involve the non-repayment of a commercial
by
insurance
the purchased
covers
goods and services by the foreign buyer. It follows
the guarantee given to the foreign buyer
that
loans on more
enhances its ability to take out
insurance
favourable terms, whereas export-credit
has no such effect;

export-credit
for

risks of non-payment

the buyer, whereas

financial

fact might

falling under

the scope of

(b) in Hungary the legal bases of
defined

are well
is

the two activities
a
different:
and
concerned
service which can be
guarantee
a
provided solely by financial
institutions whereas
insurance activity can only be performed by an
insurer
the Insurance
Act. This
explain the declarations
submitted by the export-credit insurers stating that
they do not operate in the segment of export-credit
guarantees (in fact, they cannot do so under the law).
The declarations made by two Hungarian banks are
also ambiguous since the guarantee by Eximbank
would decrease the risks they would have to bear
without it and thus they seem to benefit from such
a measure.

In so far as the Communication is not applicable, the
measure might rank as State aid directly linked to export
(within as well as outside the Community), which is
incompatible with the common market. The Commission
has always
strictly condemned export aid in intra-
Community trade, and support for export outside the
Community can also affect competition within the
Community.

two state-supported export-credit agencies to provide
services and establish their client base in this segment
might defer the entry of potential market players.

3. COMMENTS FROM HUNGARY

(25) No third parties commented on the Commission decision
initiating proceedings. The comments submitted by the
Hungarian authorities can be summarised as follows:

(a) Hungary agrees that, whereas insurance always covers
risks associated with the buyer, the guarantee to be
given by Eximbank to an exporting SME with limited
export turnover covers the risks of non-repayment of
a loan by the exporter itself. However, Hungary
that even in that case the risks are
considers
primarily associated with the buyer,
the
repayment of the loan taken out by the exporting
SME depends primarily on the buyer paying for the
purchased goods;

since

(b) Hungary agrees that

and

those

the risks covered by export-
the
covered
credit
insurance
is given to the foreign
Eximbank guarantee that
buyer are different. Moreover, Hungary also refers
to commercial bank practice which appraises guar­
antees more favourably than insurance as
loan
collateral since insurers often refuse to pay by desig­
nating the case as a commercial dispute;

by

(c) Hungary points to the fact

by

that

insurers, which

it submitted the
declarations made
the
Commission had already accepted for measure N
488/06. Hungary
the
furthermore
guarantee given by Eximbank would decrease the
risks commercial banks would have to bear without
it, which is why the banks provided their declarations
as interested parties;

agrees

that

Finally, even if export-credit insurance and the Eximbank
guarantee were equivalent and the Communication was
some concerns would remain. Since the
applicable,
Commission’s approval on 22 January 2007 of
the
measure N 488/06 — ‘Export credit
insurance for
SMEs with limited export turnover’ for a period of two
years, MEHIB (the other Hungarian state-owned export-
credit agency) has already been providing short-term
export-credit insurance for the risks incurred by SMEs
with limited export
is
already available on the market. Moreover, allowing

turnover, so that such cover

the scheme would not be
(d) Hungary indicates that
applied in parallel
to the already existing export-
credit insurance scheme N 488/06 with regard to
the same transaction. Hungary also emphasises that
a single export-credit agency cannot cover all SMEs
with limited export turnover and this may lead to
harmful selection among them. Hungary also claims
that the Eximbank guarantee scheme would allow
commercial banks to gather experience concerning
the risks involved and to build up a commercial
export-credit guarantee market over a period of 2-3
years;

(23)

(24)

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it

(e) Hungary claims that the rules concerning medium
and long-term export-credit (1) apply to export-
credit insurance, guarantees and refinancing as well.
Therefore,
the
Communication setting out the rules on short-term
export-credit
covers
insurance and leaves out other short-term trans­
actions,
against
export-credit guarantee institutions.

is not appropriate to interpret

that would

discriminate

insurance

so that

it only

since

4. ASSESSMENT OF THE MEASURE

(26)

The notification concerns only one part of the public
activities of Eximbank, namely the guarantee scheme
for export contracts. Therefore, the assessment of this
any
is without
guarantee
Commission position on the overall relation between
the State and Eximbank and on any other product of
Eximbank.

prejudice

scheme

to

they are not allowed to grant guarantees by law. In
case N 488/06 the same declarations were relevant,
since that measure concerned short-term export-
credit insurance;

the

two

(guarantee

instruments

(d) the decision initiating proceedings stated that even
and
though
insurance) would not be applied for the same trans­
action, a second measure might provide further
benefits to Hungarian exporting SMEs with limited
export turnover. This seems to be confirmed since
the Hungarian authorities indicated that commercial
banks are in general more willing to accept a
guarantee as collateral, which means that the availa­
bility of such guarantees entails additional benefits
for the SMEs;

4.1. Applicability of the Communication on short-
term export-credit insurance

(27)

The arguments put forward by the Hungarian authorities
(summarised in paragraph 25 above) do not dispel the
Commission’s initial doubts. In particular:

(a)

the decision initiating proceedings stated that,
in
contrast to export-credit insurance, Eximbank guar­
antees given to exporting SMEs with limited export
turnover are not exclusively linked to the risks of the
buyer. This difference seems to be confirmed by the
Hungarian authorities, since according to them the
risk of non-repayment of a loan by the exporting
SME is not exclusively but only primarily linked to
the buyer;

(28)

referred

by Hungary,

(e) as regards the rules on medium- and long-term
export-credit
those
to
provisions are based on Treaty provisions relating
to external trade (Article 132 of the Treaty). As the
Court of Justice has confirmed, they can therefore not
preclude the application of the State aid provisions of
the EC Treaty (2). Moreover, the Communication on
short-term export-credit insurance has the declared
aim of removing distortion of competition due to
insurance
State aid in the sector of export-credit
business where there is competition between public
and private export-credit insurers, i.e. the Communi­
cation refers and is applicable only to insurance.

out

set
that

The comments of the Hungarian authorities confirm the
initiating
decision
the
in
interpretation
proceedings
to be granted by
the guarantee
Eximbank differs in important respects from export-
credit
the measure cannot be
the Communication on short-term
assessed under
export-credit insurance.

insurance. Therefore,

(b) the decision initiating proceedings also indicated that
the risks covered by the Eximbank guarantee given to
the foreign buyer and the risks covered by export-
credit
insurance are different. The arguments put
forward by Hungary do not refute this;

(c)

the
the decision initiating proceedings stated that
declarations
insurers
by
confirming that they do not operate in this specific
segment of the guarantee market are irrelevant, since

commercial

submitted

(1) Council Directive 98/29/EC of 7 May 1998 on harmonisation of the
main provisions concerning export-credit insurance for transactions
with medium and long-term cover.

4.2. Presence of State aid

(29)

Since the measure cannot be assessed under the Commu­
nication on short-term export-credit insurance, it has to
be established whether it can be considered State aid
within the meaning of Article 87(1) of the EC Treaty (3).

(2) Case C-142/87 Belgium v Commission (‘Tubemeuse’), [1990] ECR I-

959, paragraph 32.

(3) The Commission notes that the scheme also does not fall under the
‘guarantee notice’ (OJ C 71, 11.3.2000). Point 1.2 of the guarantee
notice states that it does not apply to export-credit guarantees. Since
the measure provides guarantee against the non-repayment of loans
which have been contracted to finance an export transaction, the
Commission considers that the guarantee notice is not applicable.

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(30)

In order for a measure to fall within the scope of
Article 87(1) of the EC Treaty, four criteria must all be
met:

measure at hand provides an economic advantage also
through the provision of guarantee cover which would
otherwise not be available on the market.

— the measure must involve the use of State resources,

(36)

— the measure must confer a selective advantage on the

beneficiary,

— the measure must affect

trade between Member

(37)

States,

— the measure must threaten to distort competition.

The Hungarian authorities have not provided comments
on these aspects. The Commission therefore considers
that
the measure confers an economic advantage on
the beneficiaries.

Selectivity

The measure is selective since it concerns only export
transactions carried out by SMEs with limited export
turnover and because the annual Budget Act sets an
overall
to the amount of guarantee given by
Eximbank and counter-guaranteed by the State.

limit

Transfer of State resources

(31)

The measure is imputable to the State since it is im­
plemented by a fully state-owned export agency set up
with the funds of the State, carrying out transactions as
required by State regulations and benefiting from a state
counter-guarantee for the types of risks in question.

(32)

(33)

Economic advantage

The guarantee fee is set on the basis of a risk-rating
in a higher fee
system which should normally result
for riskier clients.
It should be noted in this respect
that the risk rating system takes into account a wide
range of factors as regards domestic risks but relies on
only one criterion (i.e.
the buyer) as
regards foreign risks.

the country of

the fees to be
The Hungarian authorities claim that
charged are in line with the market fee charged by inter­
national commercial insurers or guarantors for the type
of risks in question. However, Hungary has not demon­
strated (e.g. through independent data or an independent
study) that the fees resulting from the risk assessment are
in fact aligned with the market level.

(34)

The claim that the guarantee fees cover the operating
costs of the scheme and the guarantee claims must be
viewed as a positive aspect. However,
this claim by
Hungary has not been substantiated with data.

Effect on competition and trade

(38)

The measure has a potential effect on competition and
trade between Member States since it is directly linked to
export transactions of SMEs with limited export turnover.
In addition, intra-Community export is not excluded.

(39)

Consequently, the measure is to be considered State aid
within the meaning of Article 87(1) of the EC Treaty.

4.3. Compatibility of the measure

(40)

State aid can be declared compatible with the common
market if it complies with one of the exceptions provided
for in the EC Treaty. Article 87(2) provides for automatic
exemptions from the general ban on State aid; however,
it
these
is clear that
exemptions apply.

in the case at hand none of

the

conditions of

(41) Article 87(3) specifies four types of cases in which State
aid can be considered compatible with the common
market. Article 87(3)(a) covers aid to promote the
economic development of disadvantaged regions.
It
in the case at
should be noted in this respect
hand,
are not
the
modulated according to the level of backwardness of
the region where the exporting SME operates. Also, the
scheme covers the whole territory of Hungary whereas
under the current Hungarian regional aid map 2007-
2013 (1), only part of Hungary is eligible for aid under
Article 87(3)(a). The measure does not
fulfil other
conditions of
the Guidelines on national regional aid
for 2007-2013 (2) either. Consequently, this exemption
does not apply in the present case.

that,
guarantee

(35) Moreover,

the Hungarian authorities argue that no
guarantee cover for the type of risks in question is
the
available on the Hungarian market. Therefore,

(1) N 487/06 — Commission letter of 13.9.2006, OJ C 256,

24.10.2006, p. 7.

(2) OJ C 54, 4.3.2006, p. 13.

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5. CONCLUSION

(46)

For the reasons set out above, the Commission concludes
that the measure entails State aid within the meaning of
Article 87(1) of the EC Treaty. Since it does not facilitate
the development of certain economic activities or of
affecting
areas without
certain economic
trading
to the
to an extent
conditions
common interest, the measure cannot be justified under
Article 87(3)(c) of the EC Treaty and is therefore not
compatible with the
the
measure has not been implemented, there is no need
for recovery of state aid,

adversely
contrary

common market.

Since

HAS ADOPTED THIS DECISION:

Article 1

The state aid which Hungary is planning to implement in the
form of a short-term export-credit guarantee for SMEs with
is incompatible with the common
limited export
market.

turnover

The aid may accordingly not be implemented.

Article 2

Hungary shall inform the Commission, within two months of
notification of this Decision, of the measures taken to comply
with it.

Article 3

This Decision is addressed to the Republic of Hungary.

Done at Brussels, 16 April 2008.

For the Commission

Neelie KROES
Member of the Commission

(42) Article 87(3)(b) provides

of

an

project

important

that aid to promote the
execution
common
European interest or to remedy a serious disturbance in
the economy of a Member State could be considered
compatible with the common market. This provision is
not
does
Article 87(3)(d) covering aid to promote culture and
heritage conservation apply.

at hand. Nor

applicable

in the

case

of

(43) Article 87(3)(c) provides that aid to facilitate the deve­
lopment of certain economic activities or of certain
economic areas can be considered compatible with the
common market, where such aid does not adversely
affect trading conditions to an extent contrary to the
common interest. The Commission has developed
various guidelines and communications setting out how
it intends to implement this article. Since none of these
apply to the present case, any State aid involved in the
measure at hand is
to be assessed directly under
Article 87(3)(c) of the Treaty.

(44)

scheme benefiting export

it should be noted that an export
In this context,
transactions of
insurance
SMEs with limited export
turnover already exists and
has been approved by the Commission (1) in accordance
with the provisions of the Communication on short-term
export-credit insurance. The Commission considers that
Hungary has not demonstrated the necessity of an addi­
tional instrument benefiting export transactions of SMEs
with limited export turnover.

(45) Moreover,

it
strictly

is recalled that

condemned export

the Commission has in
principle
aid in intra-
Community trade, since export subsidies directly affect
competition in the market between rival potential
suppliers of goods and services. Since it is closely and
inseparably linked to the underlying trade transaction,
such export aid is likely to adversely affect
trading
In its previous
conditions
decisions (2) the Commission clearly indicated that guar­
antees offered at below market price in the context of
export contracts within the Community constitute export
aid which is incompatible with the common market.
Moreover, Member States’
their exports
outside the Community can also affect competition
within the Community.

to a considerable extent.

support

for

(1) State aid N 488/06.
(2) Commission Decision of 17 May 1982 concerning the subsidising of
interest rates on credits for exports from France to Greece after the
accession of that country to the European Economic Community
(OJ L 159, 10.6.1982, p. 44); Commission Decision of 27 June
1984 concerning the French Government’s intention to accord
special exchange risk cover to French exporters in respect of a
tender
station in Greece
the
(OJ L 230, 28.8.1984, p. 25).

construction of

a power

for