CELEX: 51978PC0516
Language: en
Date: 1978-10-19
Title: DRAFT COMMISSION DECISION CONCERNING COAL AND COKE FOR THE IRON AND STEEL INDUSTRY OF THE COMMUNITY

ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (78) 516
Vol. 1978/0187
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 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                           COM(78)516 final
                                           Brussels . 19 October 1978
                        DRAFT COMMISSION DECISION
                 CONCERNING COAL AND COKE FOR THE IRON AND
                      STEEL INDUSTRY OP THE COMMUNITY
                      V  \    o.
                       v         ^  ■ ■  ,y
 COM (78 ) 516 final
 ---pagebreak---                                 EXPLANATORY MEMORANDUM
                            '                      "    .     •        ' ' i
'1 ,   The current system
       The existing Commission decision no . 73/287/ECSC of 25 July . 1973 concerning
        coal and coke for "the iron and steel industry in the Community1 (coking coal
                                                 .              >                  2
        scheme ) has its roots in the Protocol of an agreement on energy problems
     -adopted "by the former six Member States of the Community on 21 April 1 9^4
        and more specifically in the Protocol of an agreement on coking coal and coke
        destined for the iron and steel industry agreed upon by the governments of the
      ECSC Member States meeting within the Council on 16 February 19^7^* A series
       of Commission decisions with the unanimous endorsement of the Council have firmly
       established the coking coal scheme within the ECSC . The basic justification of
       the scheme can be described as follows :           •                  i
      – A large part of Community coal production is in deficit over both the short .
           and the medium term ; heavy cutbacks in production capacity could, therefore ,
           prove necessary .                          -     _    .
       -• Uncertainty exists as to what would be the situation with regard to the
           supply of coking coal from third countries as a result of an excessively .,
           rapid or heavy run–down of the Community's production capacity in this
       ■ - sector .   /                 ,
       -» Ther$ is a traditionally high intra–Community trade with coking
           coal and coke .     ^
        – Keeping the coking coal capacity in production forms an integral part
      . of the Community*s general energy policy to maintain its coal mining
           industry on the level of 1973 for reasons of security of supply.
        «• The factor of security of supply is of particular importance for the           v
           Community steel industry relying heavily on the steelmaking process
           based on pig^-iron from blast furnaces . Community coking coal is of
           high quality which, under normal market conditions , is in short supply
           worldwide .                                             N. v
          0,J . No . L 259, 15.9.1973 , p. 36/42
        2
          O.J. No . 69, 30.4.1964, p. 1099/1100 .
        3O.J. No. 36, 28.2.1967, p. 561 .
 ---pagebreak--- The scheme is to enable the coal producers in the Community to align their
selling prices to world, market levels when their production costs exceed
this level . The Community steel industry, however , remains free to choose
its supplier t>oth within and outside the Community.
The financial mechanism of the scheme provides f.or a "production aid" paid
from the national "budgets of the coal-producing Member States and a "sales
aid" financed "by a special Community fund.
Other important features of the system are special price rules deviating
from the provisions of the ECSC Treaty (art . 60) and the establishment of
a "guide price " "based on running long-term supply contracts for coking
coal from third countries .
The sales aid is of particular importance since its purpose is to make
Community coking coal and coke more competitive against imported coal
when delivered in intra-Community trade . In most cases imported coal is
delivered directly into consumption from marine "bulk carrisrs without
incurring additional costs while Community coal and coke delivered overland
incurs high transportation costs..
The tonnage "benefitting from the sales aid in intra-EC trade is set at a
maximum of 15 million tonnes per year . The average sales aid amounts to
                                   «
2.11 EUA per tonne . Consequently, the special fund amounts to approximately
31 m.EUA. It is financed through contributions from the steel industry
 ( 17 m.EUA « 55$) , the ECSC "budget (6 m.EUA = 20j£) and six Member States
 (8 m.EUA - 25$).
Present market situation
Present problems in the area of coking coal result from the combination
over recent years of three principal elements !      reduction in iron and
steel production , the appreciation of European currencies against the
US dollar ; the varying evolution of maritime freight rates and European
transport costs .
The fall in steel production is reflected- in lower coking coal sales ; ,
blast-furnaces in the Community in fact consumed 44 nut . of coke in 1 977
 compared with 60 m.t . in 1974.
 ---pagebreak--- Trade in coking coal and coke within the Community foil progrecsively from
20 m.t . in 1974 "to 12 m.t . in 1 977 -     •
Coal production capacity has remained practically unchanged and coal
production itself has, not fully reflected the change in demand ; this .
has resulted in increased' coke and coal, stocks .
The production and storage costs of this unsold tonnage remain a charge for
the coal producers .                           ~
In addition to the cost of these stocks proceeds have been reduced as a              \
result of the alignment of sale prices on the world market price level
for coking coal .     The prices for coal traded internationally are expressed
in US dollars whereas production costs for Community coal are in national
currencies .                      :,                         ;;             -
 Intra-Community exchanges of coking coal and coke are represented , as to over
 90$ "by , German deliveries . Accordingly , the following refers to cost develop­
 ments and the market situation as they apply to German "producers .
 The appreciation of the DM against the dollar during 1977 and 1978 has "been
  such that the gap "between world market prices (practically the guide-price
 established "by the Commission ) and production .cost for coking coal has
 widened considerably ( see table A , para . 4) •    For this reason productipn aid
  in Germany increased to 38,40 DM per tonne from 1 January 1978 compared with
  13,50 DM in 1977 ? this is a difference of more than 12 US2>.                     .
                   •  ' · <       ·                * ·               ■   ■       ' ·.
 The recent trend in transport rates             ,                 ,   .
 Three principal points have characterised this trend over recent years :
  (a) the maritime freight element (USA/Australia^-Europe ) incorporated in
       the Commission^ guide' price diminished from * 6 dollars/t ( 15 DM) in
        1974 to ±5 do'llars/t ( 10 DM) in 1977 ?
  (b) there has been some change in transport rates from north sea ports
        to iron and steel industry br mining industry locations in the
        Community but increases have been only of the order of 2 DM t.s
  (c) rail charges on the main intra–Community trading routes have risen
        from 22-23 to 28-30 DM/t , i.e. an increase of 6 to 7 DM/t .
  Element (a) is already included in the guide price trend. As a result
  of elements (b) and ( c) the range of transport costs has , in general ,
  widened in favour of imported third-country coals adding further to the
   Community producers' alignment burden, (see table B , paragraph 4).
 ---pagebreak---                                    -4-
Development of production costs . receipts and alignment margins
Table A summarises the different elements set out in paragraphs 2 and 3
above . The guide–price in US dollars has remained stable over the last
four years (it is practically identical for all coastal steel works in
the E(!). It has declined when converted into DM for comparison with
       !                                          . • •              1
production costs and the corresponding receipts for Community coal .
                                Table A ■
               Guide price               Net receipts           Production.
Year                                    for producers              cost
              US-£      DM/t                 DM/t                  DM/t
1975         * 62       152                  145                   144
1976           63       159                  153                   155
1977           62       144                  138                   160
1978           62       127                  119                   168
(estd.)
The net receipts for the producers in the EC shown in the table are
average figures . In practice the receipts vary : they are lower when
         \
deliveries are made to users remote from the coal field (due to transport
costs) and higher for deliveries near to the mine .
Table B below, illustrates the trend of alignment margins t i.e. the
differences in price (in US dollars per tonne ) between imported and
Community coking coals between the years 1972 and 1978 taking German coal
as an example . Five typical points of consumption are shown ; 4 located
in regions remote from the production area and for which sales aid is
payable (2 on the coast and 2 inland) and the fifth – by way of comparison
situated close to the production area*
 Average value of the dollar in DM:
 1974            2.604 - 100
'1975 •           2.452      94
 1976             2.526      97
 1977            2.33        89
 1978 (I-IX)     2.05        79
 ---pagebreak---                                                        -5-
                                                     Table B
                                             1.7.72           1.1.78
                  Genoa (it)                  13               35
                 Rotterdam (NL) .             10               31
                  Liège j(B)      •            g               26
                 Thionville (P)                ^               24
                         i
                         I
                                    •  –:              i–;           -
                 Duisburg (D)                  5               22 .
                 In 1973 the rate of sales aid for intrar-Community trade was fixed at an        •
                 average of 2 UA per tonne i.e. approximately 2.65/0; which, at that time ,
                 varied according to case from about one fifth to 2 fifths of the alignment
                 margin. (The average rate of aid was increased to 2.22 EUA/t in 1976 ). -
. . . ...... _ .   m   x
              .On average , alignment margins have ' since tripled, so considerably reducing
                the effectiveness of the aid; the revision of the rate of aid would, therefore , '
        ,__ seem justifiable .,                         . ' :
                 The new proposal
                 There is no question of using a new aid to completely cover the current levels
                 of alignment margins . It is , however , necessary to maintain a high level of
                 Community production capacity for the products concerned which are extensively
                 traded within the Community. To this end the principles and methods already
                 established and proven should be retained:                                '   -
                 •■ production " aids and sales aids ;
                - publication of a guide price serving as a reference for the calculation
                     of alignment margins ;                                                  ,
                 - long-term contracts between producers and consumers ;
                     Community financing of sales aid in respect of intra^-Communi.ty trade for
                     a total of 15 million tonnes .                                    "■
                 Considering the present economic situation (see paragraph 4 above) it is
                 proposed to increase the average per tonne rate of sales aid from 2.11 to 4.67 EtJA
                 for 3 years (1979-1 981 ) and the provision of the special fund, from 31 to 70
                 B EUA . '                                                   ■ ••
                                <
 ---pagebreak---                                               -6-
6.   Financing the new scheme
     The contributors to the special fund will continue to "be as at present : i.e.
     the iron and steel industry, the EOSC budget and the Member States .
    The- advantage^ derived from the system "by "blast furnace operators in the steel
     industry justify their participation in the finance arrangements . In the
           '                                           •
     present situation the operators could not tie expected to increase their
     contributions ;  these , therefore , are maintained at the maximum 1978 level
     of 17 m EUA and as previously, apportioned on a pro–rata "basis according to "
    "blast-furnace consumption . The contribution of the UK iron and steel industry
    will continue to "be treated as 'at present .                                _
                                                         i
    The Community contribution will also "be maintained at the 1978 level , i.e.
    6 m. EUA. '!
                              .            .    .
   The balance of the finance is 70 *" (1 7 + 6) = 47 m. EUA (rounded figures )
    and comprises the Member State contributions apportioned according to the
   following considerations .
   Given the interest of the system for Member States participating in intra/–
    Community trade their current contribution is maintained unchanged at
   8 m. EUA as an integral part of the scheme and apportioned on the existing
   soalet
   i° B 13       P   28 ; 0     31    I      12   L 10   N   6
   The balance ( 47 - 8 = 39 in EUA ). is to be shared according to a scale . which
   reflects the economic capacities of the Member States expressed by their . GDP
   on the one hand, and, on the other by the shares of the Member States in exchanges
   of cokinq coal and coke , which aooears to be an enuitable solution. This results
   in the following average oercentaqes indicated in the Decision.
   B 8 %     OK 2 %  0 30 % UK 15 %
   IRL U IT 12 X L *2 % NL 1(T%                     \
 ---pagebreak---                                   -7-
Other amendments
The scope of the system is extended, to include coals and cokes intended
for the sintering of minerals * These have "been excluded until now "because
in the past the traded volume of classic coking coals has continually equalled
or exceeded the finance ceiling* This is no longer a problem *
The general and final provisions of decision 73/287/ECSC are integrally maintained.
The operative period of the decision is limited to three years ( 1579-1980–1981 )
sinoe changes are possible in "bpth the industries concerned*  :
 ---pagebreak---                                             DRAFT
                                      COMMISSION DECISION
                                             " of ,
          concerning coal and coke for the iron and steel industry in the Community
                                      SECTION 1
                               Aids by Member States
                                       Article 1
  The Member States are authorized to grant to coal undertakings under their juris­
  diction which supply coking coal and blast-furnace coke to the Community iron and
  steel industry aids to facilitate production , marketing in regions far away from the
  production areas and intrar-Community trade , and the conclusion and implementation of
  long-term contracts for supply and collection. To this end the following aids may be
  granted s                                               ^
(a) a production aid , for which the governments shall each year determine a rate
      per coalfield , while taking particular' account of the average costs of "production
      in that coalfield , the price of coking coal referred to in article 5 » delivered in
      its principal sales area and the long-term supply conditions ;
(b) a sales aid applying to deliveries to areas remote from the coalfield or effected
      by way of intra-Community trade . The rate of any such aid may not exceed seven
      units of account per tonne of coking coal in the case of deliveries to installation
      which can be supplied direct via maritime' transport or where in the case of intra-
      Community trade , supply via maritime transport is necessary and four units of
      account per tonne of coal in all other case's . No scale adopted by a government
      shall, introduce any element of discrimination into the aids delating to the de- ■
      l'iveries made by the coal, undertakings . When intra-Cominunity~ trade does not attain
      the tonnage specified in. article 8.1 , the above rates are increased by the same pei
      centage _in . order to . take up the special funds available#
                                     Article 2
1 . Where a Member State makes use of it's option under Article 1 , the following rules :
8hall apply |
(a) the aids shall be paid to the coking-coal producer undertakings in respect of their
     disposals of their own coal }
(b) the aids may be paid only where the coal is used for coking and the coke in
     question is actually consumed in the blast ■ furnaces of the Community iron and steel
     industry ;                   ••
 ---pagebreak--- (o) -the aids may be paid only where deliveries of coking coal and blast-furnace
      coke are made under a long–"term contract#
2 * The production aids referred to in Article 1 (a) of this. Decision may be paid
ftnly after the rates , thereof have been authorized by the Commission* The authori­
zation shall be given by the Commission with due regard to     the criteria referred to
in Article 1 (a ). For this 'purpose Member States -shall , by 1st Upvember Of each
year, submit their applications for the following calendar     year , together with
supporting documents * The Commission shall give its ruling
                          r                '
                                                               within two months after
receipt of the application *.
3 . The sales aid referred to in Article 1 (b ) may be granted only if it is passed
on in the form of price rebate to the purchaser of coking coal or 'blast-furnace
coke * When a coal undertaking passes the production aid on to his buyers , this shali
                                                           t
not give rise to discrimination between the various long-term contracts to. be per­
formed by that undertaking.
   .                         .   SECTION II
                          ■    Pricing rules                          ■ ,     -■ • , ■
                                 Article 3
1*   Coal undertakings are authorized , where necessary, to grant rebates on their
list prices , for disposals of coking coal and blast-furnace coke for the Community
iron and steel industry under long-term contract , even where there is no actual
competition from coal or coke from non-member countries at the point of consumption .
2 * The rebates allowed under (l ) above shall not cause the delivered prices of
Community coal and coke to work out lower than those which would be charged for
coking coal from non-member countries and coke made from non-member country coking
coal *                                                            -:        •
3* All other provisions concerning the alignment provided for by Article 60 2 (b )
 last subparagraph of the Treaty, and decisions in implementation thereof, shall
apply to the transactions referred to in (l ) above , in particular those which allow
 the Commission, in the event of abuse , to abrogate or restrict the right of the
undertakings concerned to grant such rebates *
 ---pagebreak---                                  Article 4
 Should an undertaking infringe the rules laid down in Article 3 » the provisions
 of Article 64 of the Treaty shall apply.
                                 Article 5                                             !i
                                                                                       a
 1.  The delivered prices of coking coal from non-member countries referred to in
 articles 1 a ) and 3 (2 ) shall be calculated from the prices cif Community ports for 1
                                                                                        f
 comparable transactions . For this purpose the Commission fixes guide cif prices .      j
 2.  The delivered prices of blast-furnace coke from non–member countries referred
 to in Article 3 (2 ) shall be calculated from the cif prices for coking coal re­
 ferred to in (l ) above in such a way as to cover in full the net coking costs of the ;
 supplying coking plants .                                                              I
                                SECTION' III
                             Sintering coals
                                 Article 6
 1.  The aids granted by the Member States and the rules referred to in section I
 above apply equally to deliveries of coal and coke made voider long-term contract
 and intended for the sintering of minerals for the blast–furnaces of the Community
 iron and steel industry.                                                               j
2 . The provisions in respect of price , applicable to these transactions are those
provided for by. article 60 , in. particular paragraph 2 b ) of the Treaty , and de- '
cisions in. implementation thereof.      ■
                       •  .    SECTION IV
                     Community financing arrangements                       *
                                Article 7
Community financing arrangements shall be set up for :
- sales aids paid in pursuance of sections I and III of this Decision in respect
    of intra–Community trade ,
""      amount of the contributions by the iroa and steel industries of member         w
    countries not engaged in intra-Community trade, insofar as their production of
    ooking coal oovers at least 75$ of the requirements of their blast-furnaces .
 ---pagebreak---                                -4-
A special fund administered by the Commission shall "be. instituted for this
purpose *
                               Article 8
1« The Community financing arrangements shall cover an annual quantity of cokxng
coal amounting to 15 million tonnes and an amount of ^0 million EUA per year.
2 . The Bpecial fund shall be financed annually ^ follows :
(a) The contribution of the European Coal and Steel Community shall be 6 million EU.2
     i.e. 0,40 EUA per tonne of coal ;
(b ) The Member States shall provide an overall contribution of 47 million EUA,
     i.e. 3«133 EUA^ per tonne of coalj this amount shall be contributed on the
     following scale :      *                    l                    \
     B 8% DK 2% D 30^5 F 20# IRL 1# It 12# L 2% NL 10# GB 15#;
(o) The overall contribution pf the iron and steel industries not referred to in
     the second indent of article 7 shall be 17 million EUA, i.e. 1.133 EUA per
     tonne of coal } this amount shall be apportioned among the iron and steel under­
     takings on the basis of their consumption of blast-furnace coke and sinter coals
     and cokes . ~                       ,
     The contribution of the iron and steel industries referred to in the second in­
     dent of article 7 is calculated on the basis of the rate per tonne of con­
     sumption applicable to the other undertakings .
                              Article 9
1 . The supplier States may apply for reimbursement from the special fund of
aids actually paid.                                                ' >; v. \
2 . The Commission shall check the applications and determine the amounts to be
reimbursed from the special fund to the Member States concerned. If the tonnages •
or amounts of aid concerned exceed the limits fixed in Article 8 (l ), the reimburse­
ments shall correspondingly reduced. The percentage of the reduction is the same
for each of the supplier States *
 ---pagebreak---                                     - 5 -
 3.   The Commission shall fix the contributions to be paid into the special
 fund .
 4*   To speed up Community financing, the supplier countries shall notify the
 Commission of the deliveries of coal qualifying for aid made during the pre­
 ceding quarter Under Article 7 » On the basis of these notifications , the
 Commission shall request the Member States to pay tfce corresponding amounts .
 The Commission shall forthwith apportion these amounts between the supplier
 States , at the same time as the corresponding contribution of the European
 Coal and Steel Community. The Commission' shall call for contributions from the
 stealmaking undertakings and immediately apportion the payments among the States
 concerned .
5.    The final accounts shall be settled at the beginning of each calendar year in
respect of the preceding year .
                                    SECTION' V
                         • General and final provisions
                                    Article 10
1«   The Commission shall take into account the aids provided for in this Decision
in assessing whether the aids referred to in Articles 6 to 12 of Decision
No 528/76/ECSC of 22 December 1970 a-re liable to interfere with the proper functio­
ning of the Common Market .
2. The Commission shall also ensure that the aids provided for in this Decision
do not have the effect of distorting conditions of competition between coal , coke
and iron or steel undertakings .
                                   Article 11
1 . In an emergency, the Commission may, by decisions taken after consultation with
the Consultative Committee and after the unanmimous assent of the Council has been
given , amend t                                                                     *
–    the rate of the sales aids ,
–    the ceiling to intra–Community trade ,
~    tiie rules governing the financing of the special fund,
     the seals referred to ia Article 8 , paragraph 2 (0 )
 ---pagebreak--- These amendments shall take account of the long-term trend of supply conditions
and the supply pattern within the Community.
2 . If at 'the request of a Member State or on its own initiative the Commission
finds , that :                                                   ~
(a ) the implementation of this Decision is liable to give rise to serious distur­
     bances in the common market for coal and steel , or "to difficulties which may
     result in a deterioration in the regional economy, or that
(b ) appreciable changes aire taking place in the conditions , volume or pattern of
     intrar-Community trade , thus altering the economic conditions prompting the .
     adoption of this Decision, it may suspend application of this Decision . It shall
     refer the matter to the Council and the European Parliament forthwith .
3.   If at the request of a Member State or acting on its own initiative , the Commissi
finds that performance of the long-term contracts is jeopardizing the attainment of
the objectives of this Decision , it may* in respect of the undertakings in question ,
limit or abolish the benefits deriving from the application of Article 1 .
4* As an emergency, the Commission shall , on the request of a Member State ,, lay dowi
without delay the necessary safeguarding measures , notify the other Member States
accordingly and refer the matter to the Council forthwith .
                                  Article 12
Hie Commission shall periodically report to the Council and the European Parliament
on the application of this Decision and on developments in the supply situation, in
particular in connection with intra–Community trade# '
                      -           Article 13
After consulting the Council and the Consultative Committee, the Commission shall
take all measures necessary for the application of this Decision.
                                  Article 14.
Shis Decision cancels and replaces deoision 73/287/ECSC of 25 July 1973, most
reoently modified ty deoision 1613/77/ECSC of 15 July 1977. It shali enter into
force on the day of its publication in the Official Journal of the European
Communities and shall take effect from 1 January 1979. It shall cease to have effect
 on 31 December 1981 .            •
 ---pagebreak---                                 - 7 -
This Decision shall be binding in its entirety and directy applicable in
all Member States .
                                  Done at Brussels
 ---pagebreak---                                   The new decision on " coal and coke for the
                                  iron and steel industry" ; commentary on new
                       '          or modified provisions in relation to Decision
                                              73/ 287 / ECSC
\rticle 11 i aa ))
Article              :       In referring to article 5 , the price criterion which is used
           j                 in the determination of production aid is linked directly to
                          . the guide cif price referred to in articles 3.2 and 5 .
Article 11 bb ?)
Article              :       The rates per tonne increase from 3.165 to 7 EUA and from
                             1.688 to 4 EUA ( the average increases from 2.11 to
                             4.67 EUA ) reflecting present economic conditions more adequa­
                             tely .                                                         •' .
                             - The 7 EUA rate will apply not only to coastal installations
                                but also to inland installations for which deliveries of
                                non-national Community coal involve    the use of maritime
                                transport ( as in the case of the United Kingdom taking
                                supplies from the continent ) . '
                       'v. • » The rates wilt be increased in the event of deliveries falling
                                short of the stipulated tonnage ( 15 mt , art . 8 ). Such a short­
                                fall is in effect usually accompanied by a softening of world
                                market prices . Conversely , deliveries in excess of 15 mt would
                                 lead to a reduction in the aid payments and hence , in effect ,
                                in the rates ( art . 9.2 ).
                                                                            /                    '
Article 2.2 :                The date of submission of dossiers will be the same as that
                             provided in Decision 528 / 76 regarding measures to assist the
                              coal-mining industry ( 1st November instead of 30th September ).
Article 5.1
Article   5.1      :         The new text formalizes the practice followed since 1970 and
                             defines the role of the guide price as a floor price for alignment
                             calculations .
Article 5.2 and These provisions might be cancelled . The Commission does not
5«3                          envisage the publication of standard values or criteria in
                              the areas referred to .
 ---pagebreak--- Section III :       Set of provisions relating to sinter fuels .
Article 6 :         Coals and cokes used for sintering minerals and coking coals
  ( hew )           and blast-furnace cokes are treated alike under this article in
                    respect of aids .
                    However , because only small ^quantities of sinter fuels are
                     »
                    traded on the world market , the publication of a guide price
                    is not envisaged . For this reason' and particularly in respect
                    of alignment , the provisions of article 60 are referred to ;
                    this also avoids confusion with the specific rules on coking
                    coal under section II .
Article 8.1 :       The tonnage of 15 mt determines the fixed amount of overall -
                    contributions , ie 70 mEUA per annum .                ;
Article 8.2 :       The percentage apportionment between the ECSC , the iron and
                    steel industry and Member States is : 9    -  24  -  67 % respec­
                    tively .
Articles , 9 , 10 and 11 :   straight forward technical amendments .
Article 14 :        In replacing decision 73/ 287 the new decision takes the same
                    duration .