Explanatory Memorandum to COM(2000)205 - Eighth survey on State aid in the EU

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dossier COM(2000)205 - Eighth survey on State aid in the EU.
source COM(2000)205 EN
date 11-04-2000
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52000DC0205

Eighth survey on State aid in the European Union /* COM/2000/0205 final */


Contents

1.

EIGHTH SURVEY ON STATE AID IN THE EUROPEAN UNION



(presented by the Commission)


CONTENTS

INTRODUCTION

Background

Conceptual remarks


Part I - AID TO THE MANUFACTURING SECTOR

Volume and trend of aid

Community totals

Comparisons between Member States

Aid objectives

Aid to other sectors and objectives

Shipbuilding

The steel industry

The motor vehicle industry

Foreign direct investment

CO2 Emission taxes .......

2.

Types of aid instruments


State aid given on an ad-hoc basis

German State aid to the new Länder


Part II - Aid to Agriculture

Part III - Aid to Fisheries

Part IV - Aid to Coal mining

Part V - Aid to Transport

Part VI - Aid to the Financial services sector

Part VII - Aid to Tourism, Media and Culture

Part VIII - Aid for Employment and Training

Part IX - Volume of overall national aid in the Community


RESULTS


CONCLUSIONS


ANNEX I: TECHNICAL ANNEX


ANNEX II: STATISTICAL ANNEX - National State Aid


ANNEX III: STATISTICAL ANNEX - Community funds and instruments


TABLES AND FIGURES


Table 1 State aid to the manufacturing sector in the Community

- annual values 1994 -1998 in constant prices

Table 2 State aid to the manufacturing sector in the Community

- annual values 1994 - 1998 in percent of value added

Table 3 State aid to the manufacturing sector in the Community

- annual averages 1994 - 1996 and 1996-1998

Table 4 State aid to the manufacturing sector 1996-1998 - breakdown according to sector and function

Table 5 State aid to the manufacturing sector 1994-1996 and 1996-1998

breakdown by main objectives

Table 6 Aid to shipbuilding in 1996-1998 in percent of contract values of ships

Table 7 Shipbuilding development aid as decided upon by EC 1994-1998

Table 8 Shipbuilding - Total new building supported by State aid

Table 9 State aid approved to the motor vehicle sector in the years 1994-1998

Table 10 Foreign Direct Investment in the years 1994- 1998

Table 11 CO2 Emissiontaxes

Table 12 State aid to the manufacturing sector 1996-1998 - breakdown according to type of aid

Table 13 State aid on an ad-hoc basis and Treuhand aid awarded in the manufacturing,

3.

financial services and air transport sectors in the Member States in the years 1994 - 1998


Table 14 State aid on an ad-hoc basis and Treuhand aid awarded in the manufacturing, financial services and air transport sectors in the Member States - annual averages 1994-1996 and 1994-1998

Table 15 National budget outlays on Agriculture

Table 16 State aid to fisheries in per cent of gross valued added in this sector

Table 17 Community interventions in the fisheries sector

Table 18 State aid to Coal mining

Table 19 State aid to Railways

Table 20 State aid to the Transport Sector

Table 21 State aid toTourism, Media and Culture 1994-1996, 1996-1998

Table 22 State aid for Employment and Training 1994-1996, 1996-1998

Table 23 Overall national aid in the Member States

Table 24 Overall national aid in the Member States in per cent of GDP,

4.

in euro per person employed and in per cent of Government expenditure


Table 25 Overall national aid in the Member States broken into main sectors

Table 26 State aid per capita


Statistical Annex


Table A 1 State aid to the manufacturing sector in current prices 1994-1998 (in national currency)

Table A 2 State aid to the manufacturing sector in current prices 1994-1998 (in euro)

Table A 3 State aid to the manufacturing sector in constant prices 1994-1998 (in euro)

Table A 4 German State aid to the new Länder - yearly average 1996-1998

Table A 5-1/15 Total State aid by Member State - annual average 1996-1998

Table A 5-16 Total State aid in the EU - annual average 1996-1998

Table A 6-1/15 Total State aid by Member State - annual average 1996-1998

Table A 6-16 Total State aid by Member State - annual average 1996-1998

Community funds and instruments


Table A Annual Community Expenditure

Table B Other Community Instruments

Table C1 Community Average Annual Expenditure by Member State

Table C2 Community Average Annual Expenditure by Member State


Figures


Figure 1 State aid to the manufacturing sector as percentage of value added

Figure 2 Aid for R &D, SMEs, Environmental Protection and Energy Saving as a Percentage of aid to Manufacturing

Figure 3 State aid to the manufacturing sector: Distribution by budgetary expenditure and tax foregone..


5.

INTRODUCTION


Background


1. The need to maintain free and undistorted competition is recognised as being one of the basic principles upon which the European Union is built. By way of Community Competition policy the Commission aims to help strengthen the competitiveness of European industry, ensure effective competition in the internal market and create the conditions for markets to function well whilst accounting for Europe's particular social market economy. A key element of Competition policy is Community State aid control, the benefits of which are clear. State aid can frustrate free competition by preventing the most efficient allocation of resources and pose a threat to the unity of the single market. In many cases the grant of State aid reduces economic welfare and weakens the incentives for firms to improve their efficiency. Aid also enables the less efficient to survive at the expense of the more efficient. The resulting distortions of the market can lead to frictions between Governments and sometimes to retaliatory measures by third countries, which may be a source of further inefficiency. The unique system of control that exists throughout the European Union and indeed the European Economic Area is aimed at attenuating these inefficiencies. Based on an agreed set of fundamental principles firmly anchored in the European Treaties, this system of control makes an important contribution towards fully realising the benefits of the internal market and single currency.


2. However in order to ensure that State aid policy remains fair and equitable, the practical application of its basic principles must evolve to keep pace with economic and technological change and with the emergence of new political priorities. Since the previous Survey was published, the Amsterdam Treaty has been ratified and increased emphasis has been placed on, for example, environmental protection and employment. It is recognised that Community or government intervention is justified in certain circumstances in order to redress the effects of market failures and moreover to reinforce policies that would not be sustained by market forces alone. However the distortive effects on competition of such interventions must be minimised. Member States have at their disposal a number of instruments and it is essential that the economically most efficient be used to achieve the objective at hand. And in the event that State aid is demonstrated as being the most efficient instrument, its award must still respect the continually evolving Community State aid rules.


3. Monitoring and follow-up of national State aid expenditure are essential parts of the Commission's State aid policy that is accompanied by a policy of transparency in the control and use of State aid. The publication of this Eighth Survey underlines the continued commitment of the Commission and all Member States to this policy. Compiling and publishing data on the amounts of compatible aid that are awarded is one primary means by which the Commission demonstrates that it is constantly keeping a close watch on the results of its control policy. And given the large measure of control that is exercised on Governments through this policy, it is essential that these results are known and are subject to scrutiny within the Union. Thus the Survey is already a good basis for orientating the Commission's State aid control policy even though and with the exception of aid that is not yet reimbursed, it does not analyse aid that because of its incompatibility with the Common Market was not approved by the Commission. When in the future the new instruments of State aid register and scoreboard are set up, the Commission would then have at its disposal a set of tools that will allow continued fine-tuning of its State aid policy.


4. As State aid policy in the European Union evolves, it has to account for the international context and in particular the multi-lateral obligations imposed by WTO rules. For example aid to agriculture is entirely subject to the WTO Agreement on Agriculture whilst aid that benefits non-agricultural goods and products is subject to the WTO Agreement on Subsidies and Countervailing measures.


5. Bilateral obligations have been established by way of the Europe Agreements concluded with the Central and East European Countries that are now candidates to become members of the EU. These agreements contain a clear obligation to follow the EU rules on State aid and full compliance with these rules is still needed with transparency being the first step that should be taken to enforce them. Bilateral agreements have been signed with other countries and in most cases a State aid control dimension has been included. The provisions on transparency are essential and should therefore be implemented at an early stage. This Survey therefore provides an example of what we should expect in terms of transparency from all of our trading partners.

6.

Conceptual remarks



6. Since 1988 the Commission has regularly published State aid Surveys. The First Survey covered the period 1981-1986 and subsequent Surveys were updated every two years i. In order to further enhance transparency, provide more timely information and enable the Commission to detect at an early stage new trends in the award of state aid and therefore respond more rapidly to changing circumstances, the Commission decided in 1998 to publish these Surveys on an annual basis. The Eighth Survey, which covers the period from 1994 to 1998, is the second annually published survey.


7. Commission departments in close co-operation with the Member States drew up the figures used for this Survey. Historical data, upon which previous Surveys were based, have been up-dated with figures for 1998. Moreover historical data have been updated to include figures on public support that after investigation by the Commission has been deemed as constituting 'non-notified' aid. Data are also modified if aid is reimbursed. Lastly, Member States have continued to verify and, if necessary, modify a small fraction of historical data thus ensuring that a relatively high degree of reliance can be placed on the figures.


8. If the Commission, taking account of changing circumstances, decides on the state aid character of a measure that was previously considered as not constituting State aid, the aid amount is fully integrated in the Survey. For example following an examination of Irish Corporation tax, the Commission decided in December 1998 that this existing regime constitutes State aid. As a result of this decision, levels of State aid in Ireland have markedly increased when the period 1996-1998 is compared with 1994-1996 although this increase does not represent any voluntary change in the Irish Government's state aid policy.


9. This Survey covers national State aid as defined under article 87 EC Treaty that is granted by the fifteen Member States and has been examined by the Commission. General measures, public subsidies that either do not affect trade and distort competition or are granted according to article 86 i [2] EC Treaty are not dealt with in the Survey. The Survey encompasses State aid that is granted to the manufacturing, agriculture, fisheries, coal, transport - railways, inland waterways, maritime and airline -, and financial services sectors. In keeping with improvements already incorporated in previous Surveys, sectorial coverage has been widened further. Data on aid granted specifically for tourism, media and culture have been analysed for the first time. Moreover, given the growing importance of aid granted to encourage reductions in CO2 and other emission gases, aid for this purpose has also been highlighted. Lastly, data on aid for employment and training in all sectors of the economy have been included in the Survey for the first time.


10. When comparing the trends and patterns of national State aid between each Member State, the analysis concentrates on the annual average over the three-year-period 1996-1998. Where appropriate, the annual averages for the period 1994-1996 are given by way of comparison i. Given that annual figures do not always allow for reliable conclusions to be drawn on changing medium and long trends, these data are not generally used for purposes of comparison. In regard to the three new Member States, Finland, Sweden and Austria, who acceded to the Community in 1995, comparisons between the period 1994-1996 and 1996-1998 are made with 2 and 3 year averages respectively. This will no longer be necessary from the Ninth Survey onwards. In order to make the averages for the two periods comparable, all figures are expressed in constant 1997 prices i.


11. General explanations of the methodology used are given in the Technical Annex (Annex I). The Statistical Annex (Annex II) contains basic statistical data on national State aid to the manufacturing sector and overall national State aid. Community Funds and Instruments are therefore not included in national State aid figures. Information on these Funds and Instruments and the respective data are given in Annex III.


7.

PART I - AID TO THE MANUFACTURING SECTOR



Volume and trend of aid


12. State aid to the manufacturing sector accounts for 35% of the total volume of aid granted in the Community thereby continuing to attract more aid than any other sector. The analysis of this aid therefore remains the centrepiece of the Survey.


8.

Community totals



13. Table 1 shows the annual amounts of aid to the manufacturing sector in the Community in the years 1994 to 1998.


9.

Table 1



State aid to the manufacturing sector in the Community 1994-1998

Annual values in constant prices (1997)

Million euro


>TABLE POSITION>

The figures above confirm that the trend in aid granted in the Union has continued on the gradual downward path observed since 1993 i.


A downward trend is also seen when, as in Table 2, aid to the manufacturing sector is expressed as a percentage of value added and per person employed in this sector i.

10.

Table 2



State aid to the manufacturing sector in the Community

Annual values 1994 to 1998*

>TABLE POSITION>


* at constant 1997 prices ** estimated EUR 15


Expressed in per cent of value added in the manufacturing sector, aid levels have dropped continuously from 1994.

The average amount of aid per person employed in the manufacturing sector dropped each year from EUR1357 in 1994 to EUR1007 in 1998.

11.

Comparisons between Member States



14. Table 3 compares the average annual levels of aid in the manufacturing sector for each Member State i for the periods 1994-1996 i and 1996-1998, expressed in per cent of gross value added and aid amounts per person employed in this sector. Absolute amounts of aid are also given.


12.

Table 3



>TABLE POSITION>


13.

Averages in 1997 prices



15. Annual average aid for the manufacturing sector in the EU during the period 1996-1998 is about 33 billion euro representing a decrease of 15% in comparison with 1994-1996. This decrease is almost exactly the same as that reported in the previous Survey. It is evident from Table 3 that the overall reduction of aid in absolute terms in the Community is almost entirely due to the continued decreases in aid granted in the new German Länder and Italy. Whilst reductions are also seen in Belgium, Spain and Portugal, aid levels in the ten other Member States have increased. Of these ten Member States, there appears to be a gradual long-term upward trend in aid levels in Austria, Denmark, Ireland, Luxembourg and Sweden. Differences in the absolute levels of aid granted by Member States to their manufacturing industries therefore remain considerable.


16. When considering the overall differences in the Community under the aspect of cohesion, Table 3 shows that the volume of aid in the four cohesion countries has increased from 8 to over 9% of total aid to the manufacturing sector in the Community. The share of the four big economies has decreased from 84% during the previous period to 80% during the period under review. In this context it should also be noted that in addition to national state aid, the manufacturing sector benefits from Community interventions via the Structural Funds (see Annex III). In relative terms, the largest beneficiaries of this expenditure are the four cohesion countries, which see their relative aid position improved to a level that better reflects their weaker socio-economic situation. However, the effectiveness of these Community instruments in reducing disparities depends crucially on their not being outweighed by an unbalanced development in the use of state aid measures in other Member States.


17. Expressed as a percentage of value added, the highest levels of aid granted to the manufacturing sector in 1996-1998 are to be found in Greece and Italy (See Figure 1). Both these countries rank high above Community average, although the long-term decreasing trend in Italy continues. Whilst the increase seen in Ireland is due in large part to the inclusion for the first time of figures on an Irish tax scheme that is now being phased out, levels of national State aid in Ireland remain below the Community average.


14.

Figure 1


State aid to the manufacturing sector

As percentage of value added (annual averages 1994-1996 and 1996-1998)


>REFERENCE TO A GRAPHIC>


18. In spite of a continued strong reduction, aid per person employed in Italy is the highest of all Member States during the period 1996-1998. Italy is followed by Luxembourg, Ireland, Denmark and Germany. The high but decreasing figure for the new German Länder is due both to the high level of aid granted and a sharp decline in the number of employees engaged in manufacturing in this part of Germany. The continued decrease reflects that the peak of the restructuring process following German reunification in 1990 was already reached during earlier review periods. At the same time, aid per person employed in the old Länder is among the lowest in the Community. The group of low aid givers comprises, in descending order, Portugal, the United Kingdom and Sweden.


15.

Aid Objectives



19. Aid to the manufacturing sector is classified according to the principal purposes for which it is given or the sector to which it is directed, as follows:


16.

Horizontal objectives


- Research and Development

- Environment

- Small and medium-sized enterprises

- Trade

- Energy saving

- Other objectives (mainly rescue and restructuring)


Particular sectors

- Shipbuilding

- Steel

- Other sectors


Regional objectives

- Regions falling under Article 87(3)a

- Regions falling under Article 87(3)c


However in some Member States, aid classified under research and development or small and medium-sized enterprises is administered through sector specific R&D and SME programmes. Furthermore aid classified under the primary objective of regional aid and approved according to the regional aid guidelines may in fact be paid to small and medium-sized enterprises, for research and development, training and employment.


Consequently, conclusions about changes from one objective to another over time and, notably, conclusions about differences in objectives between Member States can only be drawn with caution. Table 4 gives the breakdown of aid to the manufacturing sector according to objectives during the period 1994-1998, and Table 5 indicates the changes over time for the three main objectives pursued.


20. Table 4 shows that during the period under review, 57% of manufacturing aid in the Union is spent on regional objectives with most being targeted at the least prosperous areas, the so-called Article 87(3)a regions i. The figures include aid amounting to an average of 3514 million euro per year that is granted to the new German Länder by way of the Treuhandanstalt (THA) and its successors. If no account were taken of this exceptional aid, aid for regional purposes would represent 52% of total aid to manufacturing, (up from an equivalent 47% during the previous reporting period).


21. Aid granted for horizontal objectives is ranked second with 35%. Amongst these, support for research and development i is given highest priority followed by support of small and medium sized enterprises. However the category of aid for horizontal objectives also includes 8% for rescue and restructuring aid to manufacturing. In contrast with the above-mentioned objectives, the highly distortive effects of this latter type of aid are normally not matched by important positive externalities. Such aid has, therefore, to be very strictly controlled. It is discussed further under point 38, ad-hoc aid.
R&D figures contained in Table 4 may be underestimated.


22. Only some 8% of industrial aid in the Community is spent on particular sectors with over two thirds going to shipbuilding and steel. (See Table A5/16.) Given that these sectors are often found in regions that qualify for regional assistance, aid to these sectors also contributes to more general regional support policies.


17.

Table 4



>TABLE POSITION>


18.

Table 5



>TABLE POSITION>

23. As regards the development over time of the distribution of the manufacturing sector aid between the different main objectives, overall regional aid levels have remained fairly constant. Apart from Greece none of the other Member States with shares of regional aid to manufacturing that are above the EU average, are cohesion countries.


Levels of aid granted to particular sectors are, for the first time, dropping not only throughout the EU but also in almost every Member State. The apparent increase in Finland is due to the fact that shipbuilding aid was first reported for the period 1996-1998. On a year-on-year basis, sectorial aid is decreasing in this country too. The reason for this across-the board reduction is the strong decrease in aid to the steel industry and decreases in most countries in aid to shipbuilding. The relatively high, but decreasing, level in Spain is due the restructuring aid that has been granted to the shipbuilding industry.

In contrast with the downward overall trend in aid granted to particular sectors, the increasing overall trend in aid granted for horizontal objectives is not reflected in all Member States. Whilst the share of this type of aid has risen in eight countries, it has dropped in the other seven and remains well above the EU average in Denmark, Finland and the Netherlands.


24. However, if rescue and restructuring aid which is an important part of horizontal aid is taken out - it will be analyzed below under ad-hoc aid - an analysis of the remaining important part of horizontal aid, namely aid that supports R & D, SMEs, environmental protection and energy saving shows a slightly different picture: now increases are being seen in 9 Member States. Figure 2 clearly shows the vast disparities between Member States in respect to the level of State aid for these four objectives which are generally agreed to generate important externalities. Whilst figures, particularly for Greece, hide the fact that some aid classified as regional aid also supports horizontal objectives, it cannot be ignored that in many Member States, State aid policy has been more clearly directed towards these objectives since 1994-1996.


19.

Figure 2


Aid for R & D, SMEs, Environmental Protection and Energy Saving as a Percentage of aid to Manufacturing

>REFERENCE TO A GRAPHIC>

25. The trends and patterns of aid that is granted to the manufacturing sector in each Member State is as follows:


- In Austria, overall increases are due to a rise in R & D and regional aid levels. Along with Denmark, Finland, and the Netherlands, horizontal aid in Austria accounts for the largest share of aid to manufacturing with R&D, environment and SMEs being the main beneficiaries. Sector specific spending, most of which is granted to the steel industry, is low.


- In Belgium, the downward trend in levels of aid is due to a single sectorial scheme being abolished in 1996 whilst in absolute terms aid has remained fairly constant in all other areas. As a result the fraction of aid granted for horizontal and regional objectives has increased.


- In Denmark, 90% of all aid to manufacturing is granted to support horizontal objectives. The absolute increase in the level of State aid to manufacturing is due to the greater level of support afforded to energy saving and environmental protection, mainly in the form of exemptions from energy/CO2 taxes. Decreasing levels of sector specific aid (9%) reflect reductions in aid to shipbuilding. Regional aid in Denmark is the lowest in the Community.


- In Germany, the proportion of horizontal aid is gradually increasing as regional aid levels drop. Accounting for 27%, which is low compared with the average in the European Union, more than two thirds of this aid is spent on R & D and on SMEs. Sector specific aid (5%) continues to decrease. The most important item is regional aid (68%), less than half of which comprises Treuhand aid for the New Länder. This aid has decreased considerably in absolute terms over the reporting periods.


- In Greece, most aid is classified as regional aid that has increased over the two periods.


- In Spain, 33% of the aid is directed towards horizontal objectives and mainly for SMEs and R & D where support increased since 1994-1996. Sector specific aid amounts to 52% of all aid to the manufacturing sector and reflects continued support to the shipbuilding industry. The overall decrease in sectorial aid is due to substantial reductions in aid to steel.


- In Finland, 72% of the aid is spent on horizontal objectives, mainly on R&D and SMEs. The increase in the absolute level of aid is due to aid for shipbuilding that was recorded for the first time in 1997.


- In France, aid directed to the horizontal objectives R & D, environment, energy saving and SMEs has in absolute terms remained fairly stable. The overall increase in manufacturing is due to a significant increase in regional aid, together with an increase in aid to shipbuilding and a single ad-hoc case.


- In Ireland, with the exception of aid for specific sectors, there have been increases in absolute terms across many objectives and sectors. However the largest increase is due entirely to the inclusion of data on ICT for the period 1996-1998.


- In Italy, absolute aid levels have decreased in all sectors and objectives. However as the decrease in regional aid is proportionately less than in other areas, its share has increased over the two reporting periods.


- In Luxembourg, the most important item is regional aid (67%) which has increased slightly over the two periods. Spending in all other areas is fairly steady.


- In the Netherlands, horizontal aid (82%) is by far the biggest item and considerably higher than most countries except Denmark. The absolute increase in aid is due to the growing resources that are being directed towards environmental protection and energy saving to a large extent due to exemptions from energy/CO2 taxes.


- In Portugal, the small increases in levels of spending for SMEs and energy saving were completely offset by the considerable reduction in aid granted to the steel industry sector. Whilst overall manufacturing aid has decreased, the share of horizontal and regional aid increased.


- In Sweden, 44% of the aid is spent on horizontal objectives, mainly on SMEs and R&D. The increase in absolute levels of aid is due to the increase in environmental aid that was only partly offset by a small reduction in regional aid.


- In the United Kingdom, regional aid (60%), over a quarter of which is spent in Northern Ireland, accounts for the greatest share of manufacturing support. The absolute increase in UK aid levels is due to a 6% rise in regional aid spending. Horizontal aid accounts for 39% of which aid to R&D and SMEs are the main items.


The above analysis only considers patterns and trends in national State aid expenditure. A part of this expenditure is cofinanced by Community funding that also benefits the manufacturing industry in the EU. Figures on Community funding are provided separately in Annex III.


20.

Aid to other Sectors and objectives


Shipbuilding


26. In shipbuilding, a sub-sector of the manufacturing sector, the grant of aid was governed during the reporting period by the Seventh Shipbuilding Directive i, which applied from the 01/01/1991 until the 31/12/1998. It was then replaced by Council Regulation 1540/98.


Table 6 shows contract related operating aid covering new constructions, conversions and fishing vessels and thus reflects the aid intensities for which the Commission sets ceilings when implementing the shipbuilding directive. The aid ceilings under the Directive prevailing during the reporting period were 4,5% of contract value both for ships with a contract value of less than EUR10 million and for conversions and, 9,0% of contract value for ships with a contract value of more than EUR10 million.


In addition to operating aid, the shipbuilding sector also received aid for restructuring. During the period 1996-1998 restructuring aid averaged 903 million euro per year and was given in Germany (EUR200 million), Greece (EUR8 million), Spain (EUR594 million), France (EUR90 million) and Portugal (EUR11 million). This is a sharp increase on the EUR655 million granted during the period 1994-1996 in the following countries: Belgium (EUR27 million), Germany (EUR292 million), Greece (EUR10 million), Spain (EUR326 million),


Given decreases in operating aid in all countries except France, the overall average annual level of all aid granted to this sector marginally decreased from EUR1.551 million in 1994-1996 to EUR1.549 million in 1996-1998. When relating shipbuilding aid to the sector's value added, the high level of support afforded to the sector can be observed. According to Table 3, aid for the manufacturing sector amounts to 2.3% of the sector's value added. In contrast, for shipbuilding, aid represented some 22% of the sector's value added at factor cost during 1996-1998.


21.

Table 6


Aid to shipbuilding in 1996-1998 in per cent of contract values of ships

>TABLE POSITION>

* Small ships are those with a contract value of less than EUR10 million. For these the maximum aid intensity allowed by the 7th Shipbuilding Directive is 4,5 % of contract value.

**Large ships are those with a contract value of more than EUR10 million. For these the maximum aid intensity allowed by the 7th Shipbuilding Directive is 9,0 % of contract value.

- Note that a dash indicates missing information, whereas a zero indicates no aid.


27. The annual average level of State aid granted to European shipyards during the period 1996-1998 for the construction of ships for developing countries dropped to EUR72 million. This represents a reduction of 65% when compared with the annual average of EUR203 million granted during the period 1994-1996. The distribution by country is given in Table 7.


22.

Table 7



Shipbuilding development aid - as decided upon by EC

Million euro


>TABLE POSITION>

28. In order to put the above aid figures into context, Table 8 presents information on the total number of ships for which aid was granted during the period 1994-1998. As would be expected the 1995 peak in building corresponds with the 1995 peak in operating and development aid granted to Europe's shipbuilders.

23.

Table 8


Shipbuilding - Total new building supported by State aid


>TABLE POSITION>


24.

The steel industry



29. In the steel sub-sector of the manufacturing sector, the bulk of the aid granted during the period covered by this Survey was for restructuring and derives from eight cases that were approved on the basis of Article 95 ECSC Treaty. State aid that benefited ECSC products in the period under review was also granted according to the fifth and sixth Steel Aid Codes of 1991 and 1996 i respectively. Aid granted outside the ECSC steel sector was regulated under the 1988 Framework for certain steel sectors not covered by the ECSC Treaty i.

Together these aids amounted to an annual average of around EUR260 million in 1996-1998, reflecting a significant decrease of over 80% compared with the previous period 1994-1996 when the annual average was EUR1530 million. These figures do not include the marginal amounts of aid granted to this sector in the context of schemes supporting the objectives of R & D and environmental protection. However they do show that the major restructuring and concomitant capacity reductions that were undertaken since 1994 in the new German Länder, Spain, Italy, Portugal, Ireland, and Austria are now almost complete.

25.

The motor vehicle industry



30. Whilst there are no aid schemes in the EU that are specific to this sub-sector, State aid is granted to the sector, mainly by way of regional, rescue and restructuring and training aid. The award of this type of aid by Member States remains within tight limits that are imposed by a specific motor vehicle framework.

It is quite difficult at present to draw any conclusions as regards the general trend because of the very small number of cases. A comparison of the two periods shows an 18% decrease from EUR581 million to EUR477 million.


26.

Table 9



State aid approved to the motor vehicle sector in the years 1994-1998

(Not including cases below the notification ceilings)

Million euro


>TABLE POSITION>

27.

Foreign Direct Investment



31. Government support measures to Foreign Direct Investment outside the EU may constitute State aid. Nevertheless they may also be compatible with the common interest if they promote the competitiveness of European Industry, e.g. by assisting the development of SME's, or contribute to other Community objectives such as the adjustment of the economies in transition or economic development in the Third World. Since 1993 a small number of schemes have been proposed by Member States specifically for this objective and subsequently approved by the Commission. A gradually developing body of information is being provided by Member States and a provisional overview of EU-wide State aid devoted to this theme is presented hereunder. The programmes concerned are only available to SME's however their geographical coverage is world wide thus responding to a need not only to reinforce support to the major sources of employment in the Union but also to facilitate the widening of their horizons.


28.

Table 10


State aid for Foreign Direct Investment carried out by SME's

Million euro


>TABLE POSITION>

29.

CO2 Emission Tax Schemes



32. Included in the category 'aid for environmental protection' is a sub-category of schemes that have been established by some Member States to encourage a reduction in emissions of CO2 and other gases resulting from the combustion of fossil fuels and to support the use of renewable sources of energy. The principle rationale for such schemes is the need for the EU and the individual Member States to meet the commitments they entered into under the terms of the Kyoto agreement and the more general policy aim of achieving sustainable development.

Two types of state aid instrument are used and often in combination: tax exemptions and grants. In general the Member States concerned have established schemes that levy taxes on energy or on CO2, NOx and SOx emissions. Given that very few countries have as yet set up such measures, a concern expressed by Member States is that the extra tax burden may result in their industries' competitive position being undermined. Therefore the tax schemes have been introduced in a progressive way with energy-intensive industries being granted temporary exemptions.


The second element of many of the State aid schemes in question is the extra incentive provided to industry by way of grants for the adoption of modern technology that will increase the use of renewable energies and contribute to energy saving and reductions in the level of emissions. The grants are paid from emission tax receipts or from the general budget.


Currently Denmark, which accounts for the bulk of this aid, the Netherlands, Germany, Sweden and the UK use such measures. In the near future many other Member States are expected to do likewise.


30.

Table 11



State aid for CO2 emission tax schemes

Million euro


>TABLE POSITION>

31.

Types of aid instruments



33. Table 12 gives an overview of the use of the various types of aid instruments in the Member States.


32.

Table 12



>TABLE POSITION>

The overall situation in the period 1996-1998 is very similar compared with that presented in the Sixth Survey for the period 1994-1996. Grants, interest rate subsidies and tax exemptions, which are classified as group A forms of intervention, are still by far the most frequently used form of aid in the Community. Within this group and with the exception of France, direct grants are more often employed than tax exemptions.


34. Aid in the form of state equity participation, classified under group B, represents only 4% of all aid to the manufacturing sector granted in the European Union. However in one Member State, France, equity participation is relatively important.


35. Aid classified in group C encompasses loans at reduced interest rates and tax deferrals. Whereas tax deferrals - mainly accelerated depreciation and the constitution of tax-free reserves - is the form that is least used in the Community, with the exception of the Netherlands, where it accounts for 8% of all manufacturing aid, soft loans are an important instrument in Germany, Austria, Sweden and Finland.


36. The share of guarantees in overall levels of aid, group D, continues to be relatively limited in all Member States.


33.

Figure 3



State aid to the manufacturing sector

Distribution by budgetary expenditure and tax foregone 1996-1998


>REFERENCE TO A GRAPHIC>


37. Figure 3 gives a breakdown of aid to the manufacturing sector according to the mode of financing. Budgetary expenditure, which is composed of grants, equity participation, soft loans, and guarantees, is the preferred way of financing aid in the European Union. This holds particularly for Austria and Spain, where all or virtually all aid is financed through the budget, and Finland, Luxembourg and the United Kingdom, where more than 90% is financed through the budget. In contrast, tax foregone, i.e. tax rebates and tax deferrals, is used to the largest extent in Belgium, Denmark, France, Ireland and Italy.


34.

State aid given on an ad-hoc basis



38. The foregoing analysis of State aid data attempts to identify the medium- and long-term tendencies in the EU Member States. However these data do not only relate to State aid given by way of schemes that promote horizontal, sectorial or regional objectives, but also comprise State aid that is granted ad-hoc, i.e. outside such schemes. Since an analysis of the resort by the aid awarding authorities to financial mechanisms that are not pre-established sheds an interesting light on the more short-term necessities of national state aid policy, ad-hoc aid is presented below. This allows a clearer picture of both the current situation and the underlying trends in the Union. For completeness reference is also made to ad-hoc aid in the Air Transport and Financial Services sectors.


39. The bulk of ad-hoc aid is given for rescuing or restructuring companies. The sectorial distribution of aid given for this objective is uneven and often reflects important structural changes in certain areas of the EU economy. For example in manufacturing, slightly more than 50% of ad-hoc aid granted during 1994-1996 and 42% of ad-hoc aid granted during 1996-1998 supported the restructuring of companies in the steel and shipbuilding sectors. The remainder has contributed almost exclusively to rescue or restructure about 55 companies. In contrast, ad-hoc aid granted in the new German Länder for restructuring purposes benefits thousands of companies operating in a vast variety of sub-sectors. The distribution of this latter type of ad-hoc aid within the manufacturing sector is therefore more even.


40. Data presented in the Sixth and Seventh Surveys suggested that the level of ad-hoc aid, which had been granted to the EU's manufacturing sector, passed its peak in 1993/94. Current data confirm this trend. As shown in Table 13, ad-hoc aid decreased from 11% of manufacturing aid in 1994 to 4% in 1998. If the above mentioned aid to the new German Länder is added, the drop is slightly greater, falling from 37% in 1994 to 12% in 1998. Total ad-hoc aid has decreased from 18 billion euro to 7 billion euro. In contrast with this tendency ad-hoc aid in the financial services sector has continued to increase.


35.

Table 13



State aid on an ad-hoc basis and Treuhand aid awarded in the manufacturing, financial services and air transport sectors in the Community in the years 1992 to 1998

>TABLE POSITION>


* aid in Germany given via the Treuhandanstalt (THA) or the Bundesanstalt für vereinigungsbedingte Sonderaufgaben (BvS) ** mfr: manufacturing

41. Table 14 below compares the annual averages of ad-hoc aid, including aid for restructuring the industry in the new German Länder (Treuhand), in the periods 1994-1996 and 1996-1998 in manufacturing, financial services and air transport. Compared with EUR11 billion of aid to manufacturing in the previous period, the overall amount has come down to a little more than EUR6 billion, which is a considerable decrease at Community level. On the level of the Member States, increases are seen only for France and the Netherlands. The others have all reported decreasing levels of ad-hoc aid awards with Germany enjoying the most important fall. Indeed with a decrease of more than EUR4 billion, this country accounts for the bulk of the overall reduction of ad-hoc aid observed in the Community. However levels remain relatively high in Germany, France, Italy and Spain.


42. As regards the different aid forms used when awarding ad-hoc aid in the manufacturing sector, grants make up half of all such aid, soft loans and equity participation/capital injection account for 28 and 18% respectively whilst the use of guarantees appears to be low at about 5%.

43. When comparing Table 14 with Table 3, the importance of ad-hoc aid on the overall trends in aid to manufacturing can be seen. Of the overall 5.5 billion decrease seen in Table 3, almost 5 billion is due to the reduction in ad-hoc aid.


44. In the service sectors ad-hoc aid is decreasing in all Member States concerned except France and Italy. In these two countries the recent strong rise in ad-hoc aid that was granted to their respective financial services sectors have contributed to the overall increase. However it is expected that the peak has been reached and that the structural adjustments are almost complete in this sector and that, as in the case of airlines, ad-hoc aid to services will fall in future.


36.

Table 14


State aid granted on an ad-hoc basis in the manufacturing sector,

Treuhand included and, financial and air transport services.

37.

Annual averages 1994-1996 and 1996-1998



>TABLE POSITION>


Averages in 1997 prices *including one ad-hoc case in the media sector.


38.

German State aid to the new Länder



45. During the period under review, the process of reorganising the economy of the new Länder of Germany continued. The reunification of Germany is of particular importance for Community State aid policy. In 1996-1998, a yearly average volume of EUR8.6 billion was granted in aid to manufacturing in the new Länder. This, although on a high level, is a considerable decline in comparison with 1994-1996, when EUR13 billion were spent. In addition, this reduction is accompanied by a decrease in aid to the old German Länder, which has fallen from EUR3 billion during 1994-1996 to EUR2.8 billion in 1996-1998. The breakdown into the different aid instruments used in the new Länder is given in Table A4 in Annex II.


In the context of privatising the former state-owned companies, aid during the period under review was also granted via the Treuhandanstalt (THA), the State holding company set up to administer, adapt, and privatise former East German public undertakings, and its successor, the Bundesanstalt für vereinigungsbedingte Sonderaufgaben (BvS). As laid down in the Commission's decisions of 1991, 1992 and 1995 on the interventions of the THA, some of these interventions constituted aid. This was usually the case where the THA issued guarantees for loans granted by the banking sector at market rate to its generally poor-ranking undertakings. Equally, the THA itself borrowed at market rate and then awarded loans to its undertakings at the same rate.


With the exception of some specific aspects of the Rescue and Restructuring guidelines i, in the period 1996-1998 normal state aid rules applied to the new German Länder. Guarantees averaging EUR1.456 million per year and loans averaging EUR8.581 million per year were given by THA/BvS. Based on its previous experience, the Commission is of the opinion that 20% of these amounts can be regarded as aid, which is included in the Survey. During the same period grants were used for expenditure amounting to an annual average of EUR1.507 million.


39.

PART II - AID TO AGRICULTURE



46. In sectors such as agriculture where a highly developed Community policy is in operation, the limits for granting State aid are, to a greater extent, determined by this common policy. Thus, although Articles 87-89 of the EC Treaty apply in principle to agriculture as to other sectors of the economy, Article 36 specifies that the extent to which these articles apply to agriculture should be decided by the Council. Hence the Council has limited Member States' freedom to grant State aid in certain areas of policy:


(i) Support of markets in most agricultural products (Council Regulations governing the common market organisations).


Aid, using Community (i.e. EAGGF) resources, is payable only on the basis of Council rules which provide inter alia for a common system of intervention buying and export refunds and, further to the reform decisions of May 1992, compensatory aid in the various sectors for price reductions in conjunction with compulsory set-aside.

(ii) Support for improving farm structure (Council Regulation (EEC) No 950/97).


Aid concerning productive investments on agricultural holdings is determined to a large extent by the provisions of the above-mentioned Council Regulation and partly Community co-financed.


47. Table 15 presents average annual budget outlays including direct payments, reduction of input costs and general services at the Community level.


40.

Table 15



>TABLE POSITION>


48. It may be noted that the concept of total national expenditure encompasses individual categories of aid, which may present differing levels of relevance in terms of competition policy. Therefore, it may be argued that aid for measures such as productive investment and publicity is more likely to potentially have an effect upon trade than aid which is destined simply to compensate operators for services rendered, for example, access to the countryside and aid to offset the financial burden of natural disasters. A broadly similar argument might apply to aid financed by certain parafiscal taxes where, though such aid from a legal viewpoint is considered as State aid, the economic burden falls exclusively upon the beneficiaries themselves.


For detailed information on the nature and patterns of overall support granted to agriculture in the Community, the annual publication by the Commission entitled 'The Agricultural Situation in the Community' should be consulted.

41.

PART III - AID TO FISHERIES



49. In the fisheries sector, the grant of national aid closely follows the development of and the limits imposed by the Common Fisheries Policy (CFP) thereby contributing to the realisation of common objectives. Any conclusion to be drawn from the quantification of national aid has, therefore, not only to take account of its impact on competition but also of its impact on attaining the common aim to establish the conditions necessary for ensuring the viability and future of the fisheries sector.


50. The fisheries market is therefore organised to stabilise prices and unify the Community market. The rules of fishing provide for the best possible use of available stocks and their optimum conservation whilst ensuring relative stability of access for fishermen. In addition to these measures, durable links have been established at international level with a view to maintaining or developing access to stocks outside Community waters. Moreover, the incorporation of the structural aspect of fisheries within the framework of the Structural Funds seeks to ensure the structural adaptation necessary to attain the objectives of the common fisheries policy. This requires that action in the sector comply with the objective of establishing a balance between stocks and their exploitation. State aid is only justified, therefore, if it is in accordance with the objectives of this policy.


51. State aid rules in this sector result from the development of the Common Fisheries Policy. The criteria and arrangements regarding Community structural assistance in the fisheries and aquaculture sector and the processing and marketing of its products have been laid down lastly in Council Regulation 2468/98 i. In parallel with the development of the common fisheries policy, guidelines for the examination of State aid to fisheries have been developed i. It is within the framework established by them that the Commission administers the derogation's to the principle of incompatibility of State aid with the common market (Article 87 i of the EC Treaty) provided for in Article 87 i and i of the Treaty and in its implementing instruments. Given the current review of the Community's Structural Funds, including the Financial Instrument for Fisheries Guidance (FIFG), the Guidelines will also be subject to review in future.


These rules relate to all measures entailing a financial advantage in any form whatsoever funded directly or indirectly from the budgets of public authorities (national, regional, provincial, departmental or local). State aid may be granted only if it is consistent with the objectives of the common policy. Aid may not be protective in its effect: it must serve to promote the rationalisation and efficiency of the production and marketing of fishery products in a way which encourages and accelerates the adaptation of the industry to the new situation it faces.


In more practical terms, aid must provide incentives for development and adaptation that cannot be undertaken under normal market circumstances because of insufficient flexibility in the sector and the limited financial capacity of those employed in it. It must yield lasting improvements so that the industry can continue to develop solely on the basis of market earnings. Its duration must therefore be limited to the time needed to achieve the desired improvements and adaptations.


Consequently the following principles apply:

- State aid must not impede the application of the rules of the common fisheries policy. In particular, aid to the export of or to trade in fishery products within the Community is incompatible with the common market.

- Whenever relevant regulations allow, in particular as regards structural policy, Member States may grant State aid provided such aid complies with the objectives of the common rules so as not to jeopardise or risk distorting the full effect of these rules; this is why it must, where relevant, be included in the various programming instruments provided for under Community rules.

- State aid which is granted without imposing any obligation on the part of recipients and which is intended to improve the situation of undertakings and increase their business liquidity or is calculated on the quantity produced or marketed, product prices, units produced or the means of production, and which has the effect of reducing the recipient's production costs or improving the recipient's income is, as operating aid, incompatible with the common market. The Commission examines such aid on a case-by-case basis where it is directly linked to a restructuring plan considered to be compatible with the common market.


52. Table 16 provides an overview of the average levels of aid granted by Member States to this sector during the two periods 1994-1996 and 1996-1998. Table 16 also presents the same figures as a percentage of value added calculated on the basis of quantities landed and average prices, whilst Table 17 shows Community intervention in favour of the Community's fishing fleet, the commercialisation, and first-stage processing of the products.


42.

Table 16


State aid to fisheries in per cent of gross value added* in this sector, calculated on the basis of quantities landed and average prices, and absolute amounts. Annual averages 1994 - 1996 and 1996 - 1998

>TABLE POSITION>


43.

Averages in 1997 prices


* Value added figures used exclude transformation industry and on-shore production.


Table 17 Community interventions in the fisheries sector in the framework of the CTTTABLEommon organisation of the market and structural policy 1994-1998.

44.

PART IV - AID TO COAL MINING



53. During the two periods covered by this Survey aid to the coal industry, in so far as ECSC coal products were concerned, was regulated by Commission Decision 3632/93/ECSC adopted under Article 95 ECSC. This Decision will expire on the 23/07/2002, the date of expiry of the ECSC Treaty.

Under the terms of the previous Commission Decision, 2064/86/ECSC, operating aid, inherited liabilities and social welfare schemes were notified to the Commission. However neither inherited liabilities nor social welfare schemes were subject to an official authorisation in the relevant State aid decisions if:

- for inherited liabilities, the amounts granted 'did not exceed the actual amount of the inherited liabilities';

- for social welfare schemes, the amounts granted brought 'the ratio between the burden per mineworker in employment and the benefits per person in receipt of benefit in line with the corresponding ration in other industries'. Where this condition was not adhered to, then the amounts exceeding the ceiling were then explicitly authorised in Decisions.


Under the terms of the 1993 Decision, inherited liabilities became an intrinsic part of the authorisation process and appear in the text of the various Commission Decisions authorizing aid. Social welfare schemes continue to be treated as before and do not normally appear in the Decisions. Therefore since 1994 inherited liabilities are included in the Commission's annual reports on coal aid whereas social aid is not.

Decision 3632/93/ECSC on State aid to the coal industry also tightened the definition of aid within this sector to cover:

- any direct or indirect measure or support by public authorities linked to production, marketing and external trade which, even if it is not a burden on public budgets, gives an economic advantage to coal undertakings by reducing the costs which they would normally have to bear;

- the allocation, for the direct or indirect benefit of the coal industry, of the charges rendered compulsory as a result of State intervention;

- aid elements contained in financing measures taken by Member States in respect of coal undertakings, which are not regarded as risk capital, provided to a company under standard market-economy practice.


To increase transparency, Member States were also required, by 31 December 1996 at the latest, to enter aid in their 'national, regional or local budgets or to channel it through strictly equivalent mechanisms'. Moreover all aid received by coal undertakings has to be shown together with their profit and loss accounts 'as a separate item of revenue, distinct from turnover'.


Finally, operating aid was defined as 'the difference between production costs and the selling price freely agreed between the contracting parties in the light of the conditions prevailing on the world market'. Decision 3632/93/ECSC also stipulates that 'arrangements existing at 31 December 1993, under which aid was granted in conformity with the provisions of Decision 2064/86/ECSC and which are linked to agreements between producers and consumers, exempted under Article 85 i of the EC Treaty and/or authorised under Article 65 of the ECSC Treaty, must be modified by 31 December 1996' to bring them into line with the provisions of the new Decision 3632/93/ECSC. For Germany and Spain this has resulted in an increase in the aid amounts from the public budget as their coal reference price systems have been abolished.


54. Both Commission Decisions enabled aid to be given for further restructuring, modernisation and rationalisation to take place in the coal industry with a view to increasing competitiveness. However most coal production in the Community remains, and will continue to remain, uncompetitive vis à vis imports from third countries, despite some increase in productivity and a major reduction in the numbers of employees. Given that the world market in coal is stable with abundant supplies from a wide variety of sources and that, even in the long term and with an increased demand for coal, the risk of a persistent interruption of supply is minimal, further restructuring and closures in the Community coal sector are inevitable.


55. Table 18 presents figures on aid to coal mining not related with current production and aid that is granted for current production. The latter is expressed in euro per person employed in the coal sector and as the share of the total aid to the sector. Overall the trend in aid amounts to current production per person employed decreased slightly from EUR46.656 in the previous period to EUR44.173 in the current reporting period. However this decrease is partly due to the fact that aid notified by France in 1997 and 1998 is still under examination by the Commission and therefore is not included. Nevertheless it should be noted that indigenous coal production in France is being reduced and it is expected to cease by 2005. In Germany due to the decrease in aid to current production, absolute aid levels continue to decrease in conformity with the 1997 'Kohlekompromiss', whilst aid levels per employee and in absolute terms have increased in Spain. An analysis of the evolution of the level of State aid in France, Germany and Spain should take into account that from 1996, all State aid must be entered in national, regional or local budgets. As a result, statistics before 1996 should be adapted in order to make them comparable. After halting all aid to current production during the period 1990-1994, the United Kingdom granted a small amount of aid to current production in 1993 and a considerable amount in 1994 as a draconian restructuring of the coal industry took place prior to privatisation. In Portugal the last colliery closed at the end of 1994.


56. Aid granted for purposes other than current production also fell from a yearly average of EUR2.241 million per year during the first period to EUR1.657 million during the second. The above averages may change depending upon the Commission decision in regard to aid granted by France in 1997 and 1998. Included in these amounts is an annual average of EUR2.3 million that was spent in France on aid to coal R&D during the period 1994-1996 and, an annual average of EUR0.6 million that was devoted to R&D and environmental protection in Spain during the same period.


In the case of Spain a coal reference price system was in operation for a number of years which kept domestic prices net of subsidies considerably above world market prices. Although having an effect equivalent to an aid, the usual indicators that are shown in Table 18 cannot reflect this. However, the abolition of this reference price system is one of the explanations for the apparent recent increase in aid to Spanish production. Coal-purchasing contracts, for example, for electricity generation, with local suppliers included a premium above the world market price for the security and the flexibility offered. However, there may also arguably be an aid element that is not reflected in the table.


57. For coal the observed aid amounts are high. While competition is essentially with imported coal, possible distortive impact of these aids cannot be ignored, as the Community market becomes increasingly integrated and competitive. The declared will of the Community to open up the energy market renders a strict aid control policy by the Commission in this sector more and more important.


58. The Commission is fully aware that, in the absence of substantial financial assistance, the coal industries of France, Germany and Spain would be forced to close almost immediately. However the Commission is also aware that, while financial assistance is necessary to mitigate the social and regional consequences of the restructuring of the sector, it has in general not helped to secure the medium-term prospects for the industry. Whilst in the past, security of supply and diversity of sources have been ensured, as noted in a recent Commission report i: 'state aid given to coal production in the EU has not been capable of providing an answer in economic terms to the structural crisis facing the European coal industry. In practice, aid has often only provided a relatively slight improvement in production costs in the light of coal prices on the world market. This is largely due to the progressive deterioration in production conditions brought about by increasingly difficult geological conditions and often the lack of structural change in the coal-producing firms resulting from the absence of competitive pressure'.


45.

Table 18



>TABLE POSITION>


* in 1997 prices

** The 1994 figures for aid to current production for Germany include an exceptional financial measure of DM 5 350 million to clear the debts of the compensation fund as they stood at the end of 1993.

*** 1997 and 1998 aid has been notified by the French Government but is still being examined by the Commission.


46.

PART V - AID TO THE TRANSPORT SECTOR


59. Although the Transport sector is not exempted from the general provision on state aid, the Treaty contains special rules for this sector (Articles 73 and 76). In addition, to reinforce the internal market and economic and social cohesion, Article 154 EC Treaty provides for Community support, in the context of open and competitive markets, of trans-European networks.

60. A key part of the Union's strategy is to open up access to transport markets in taking into account the particular characteristics of each transport mode. Community air, ship, and road haulage operators now have complete freedom to provide services, cabotage is already free on inland waterways and road haulage and, since January 1999, ferry operators are enjoying steadily increasing rights. The opportunities for rail operators are more limited, although the Commission is seeking to extend them.

61. Open and competitive markets do, however, not preclude public intervention, in particular when it is deemed to be in the general interest or is aimed to achieve objectives of the Common Transport policy. Because public intervention, or more particularly, State aid, can be abused to protect enterprises from market forces and undermine the goal of better, cheaper services that the liberalisation of transport markets is meant to promote, a strict control of such aid is called for. It is, on the other hand, also necessary to ensure that such control does not inadvertently frustrate the objectives of the Common Transport Policy.

62. The Commission's state aid control in the transport sector is more complex than in some other sectors. The complexity arises from the need to take into account not only the general state aid requirements of the Treaty, but also the Treaty articles dealing specifically with transport aids. In doing this, the Commission takes into consideration the degree of liberalisation achieved by the different transport modes, the growth in the number of competitors who can be adversely affected by unfair state aid, the strategic and economic importance of the market concerned and, last but not least, the enterprises' need for clarity and legal certainty.

63. To strengthen its control, in 1994 the Commission adopted strict guidelines i on State aid to the air transport sector that reinforce in particular the one time last time principle. Further improvements of state aid control are being prepared. Following approval of revised State aid guidelines in the maritime sector, the Commission is now considering how to revise the secondary Community law relating to state aid in the land transport sector (Regulation (EEC) 1107/70 and Regulation (EEC) 1191/90) to make these clearer and more systematic.


The situation in each of the very different European transport modes is presented below and a summary of the decreasing level of State aid, the bulk of which is given to railways, that has been granted to this sector since 1994 is given in Table 20.


47.

Air transport sector



64. Previously enjoying protection, this sector has gone through a process of gradual liberalisation, achieved since April 1997, when the last restrictions on cabotage traffic were removed. In order to adapt to this new context, many airline companies have set major restructuring programmes. Aid, mostly ad-hoc, that was granted to the air transport sector increased up to 1994 and then dropped back. The average yearly amount for 1994 -1996 was EUR2064 million and for the latest reporting period, 1996-1998, the average is EUR1110 million as anticipated in the previous Survey. From 1999 a significant decrease is expected due to the completion of the restructuring process that has been carried out by most of the airline companies concerned. These figures confirm the transient nature of support to airlines as stated in previous Surveys. Given decreases elsewhere, the level of aid in this sector still represents only 1% of overall aid or 3% of aid to the manufacturing sector.

48.

Railways



65. In 1996 the Commission adopted a white paper on a strategy for revitalising the Community's railways which deals also with financing of the railways and sets out, in general terms, the approach the Commission will follow when analysing aid in this sector. It has to be noted that the amounts railway companies receive have so far barely been assessed under State aid principles. This fact is due to the low level of liberalisation and the high amount of public service compensation, which is exempted from notification in land transport. The Commission's aim is gradually to arrive at a system where the only public financing of railways will be in the form of financing for infrastructure or compensation for public service obligations, or where it is part of an overall restructuring plan aimed at restoring the financial viability of railway companies. For the other issues increased transparency is the foremost objective. Table 19 shows aid and other compensations to railways as a percentage of value added in this sector.


66. Aid levels have dropped in thirteen Member States with the largest decrease being seen in Luxembourg. Note that as recent figures for value added were not always available estimates were used, comparisons between Member States should therefore be made with caution. In all Member States the railway sector has been confronted with far-reaching restructuring, which to a large extent changed also the financing methods. The Commission has a positive attitude towards public and private investments in infrastructure in order to develop the trans-European transport network. To this end, the Commission approved public support measures related to the realisation of the Paris-Brussels-Cologne-Amsterdam-London high-speed rail line, one of the 14 projects recognised as having priority in the development of the trans-European networks.


49.

Table 19



>TABLE POSITION>

*Aid figures expressed as a percentage of value added in inland transport services as no separate figures are available for railways.

**Figures from Italy have not been received for 1998 and 1997 figures were estimated to equal those of 1996.

*** A considerable part of the expenditure in this Member State is for pensions.


50.

Maritime transport



67. Total annual aid authorised by the Commission under the previous guidelines and during the period under review was EUR1428 million. From time to time over the period under examination the Commission has been confronted with untypical large-scale cases which have resulted in a significant increase in the total aid figure for the year in question. One example of such a case is the French rescue and restructuring aid for the company CGM (EUR514 million) in 1995. Nevertheless total average aid authorised per year has recently dropped and is around EUR200 million.


68. In mid-1997 a new State aid discipline was introduced for maritime transport i. These guidelines continue to recognise, as did those of 1989, that EU shipping policy operates in a global arena characterised by competition from low cost flags of convenience and fiscal jurisdictions. However, the new guidelines establish a more restrictive line on aid that interferes with normal business decision making in shipping companies, in particular with regard to investment in vessels. Another key element relates to State financing of losses attributable to the fulfilment of public service obligations especially on thinly served routes. Here the Commission seeks to ensure fair access of all EU shipping companies to such State assisted business in accordance, in particular, with the terms of the Council Regulation 3577/92 on maritime cabotage rights. In the field of seaports, the Commission continues to treat public financing to port undertakings under Articles 87-89 of the Treaty.


51.

Inland waterways



69. Most aid is aimed at the restructuring of the inland waterways sector in the context of its progressive liberalisation starting in the year 2000. Thus it supports measures that accompany the process of structural reorganisation of this sector (reduction of overcapacity by a Community wide co-ordinated scrapping of vessels, technical modernisation of the fleet, encouragement of trade associations, vocational training, support for retirement, promotion of waterways etc.)

Moreover during the period 1996-1999, the inland waterways sector can exploit a regulation (Council Regulation 2255/96) that allows under certain conditions, aid if it concerns investment in infrastructure of inland waterway terminals or in fixed or mobile equipment for transshipment from and to waterways. To this end the Commission approved for example an aid for a firm in Luxembourg for the acquisition of two cranes for the handling of containers for inland water transport.


Concentrated in six Member States, (Austria, Belgium, France, Germany, the Netherlands and Luxembourg, aid in this sector is extremely low averaging some EUR30 million per year during the period 1996-1998.


52.

Combined Transport



70. Art. 3(1)(e) of Regulation 1107/70, allowed, until 31 December 1997, State aid for combined transport equipment and infrastructures. Council Regulation (EC) 543/97 exempted the Member States, from 1 January 1996 to 31 December 1997, from notifying State aid to this sector. Since 1 January 1998, the general State aid rules of the Treaty apply for aid to combined transport. This applies both to the notification obligation and the substantive assessment of aid.

During the survey period, notifications were received from Austria, the Netherlands, the UK and Italy, relating to aid for combined transport and transshipment equipment and to aid for construction of terminals. The amounts given were relatively small. However, the actual amount given for combined transport may be larger, as the notification obligation did not apply for a part of the survey period.

Further, some Member States give aid to promote combined transport under Regulation 1191/69. For instance, it is estimated that Austria paid the Austrian Railways ÖBB from 1994 to 1998 ca. 80 million ECU/year for its services rendered in the field of combined transport. Other Member States considered, in the survey period, that State grants for the construction of privately operated combined transport terminals were public measures in the field of publicly accessible infrastructure funding and thus no aid, which had to be notified. For example, Germany provided a budget, as of 1998, amounting to 20 million ECU in that year, for the construction of privately owned and run combined transport terminals.


53.

Road Transport



71. Since 1993 when the opening up of the road transport market began, the Commission increased its monitoring of aid that could unfairly benefit particular operators. Competition in this sector has noticeably increased and the strict line followed by the Commission has found expression in a number of negative or partially negative decisions, where the Commission strictly applied the principle that operating aid is in general incompatible with the Treaty. By way of example, the Commission adopted a negative decision concerning two schemes introducing tax credits for professional road hauliers. Aid expenditure, as indeed the overall number of cases, remains comparatively low and no particular trends can be identified from the data at hand.


54.

Table 20 State aid to the Transport Sector Annual values 1994 to 1998


Million euro


>TABLE POSITION>

55.

PART VI - AID TO THE FINANCIAL SERVICES SECTOR



72. Amounts of aid granted to the financial services sector are relatively small when compared with overall aid figures, although a constant increasing trend has been observed since 1994. Aid was granted to the financial services sector in France and to a lesser extent in Germany, Ireland, Italy and Portugal. Its level has risen from an annual average of EUR1959 million in 1994-1996 to EUR3283 million during the current reporting period. Detailed figures for these five countries are provided in Annex A5 and A6.


With the exception of Germany, Ireland and Portugal, this aid is almost entirely destined for major restructuring and is contingent upon, inter alia, reductions in the market shares of the companies' concerned. Moreover the restructuring of the companies concerned is often a precursor to their subsequent privatisation. Given that the bulk of the ad-hoc aid granted in this sector only benefits a small number of companies, government support to this sector must be kept under constant watch and all current restructuring operations will continue to be closely monitored. This is particularly important in the banking sector where capital injections or equivalent forms of aid have a direct impact on the beneficiaries' operations and may distort competition far beyond what would be expected if only the nominal value of the aid were taken into consideration.

56.

PART VII - AID TO TOURISM, MEDIA AND CULTURE



73. Member States provide support to the tourism, media and culture sectors by way of multi-sectorial SME and regional aid schemes and specific programmes that are targeted exclusively to one of these sectors. The Commission has generally approved these specific programmes either under the SME or regional guidelines. Although representing only a very small fraction of total aid - and not considering the total support given to these sectors by way of multi-sectorial SME and regional aid programmes -, information on the aid levels of such specific programmes and the development of Member States' spending patterns in this field is given below in Table 21.


74. Italy maintains a large number of specific programmes that support tourism and account for about 40% of the total expenditure in this sector. Five other Member States each maintain specific programmes that account for 10-15% of this total.


75. Some Member States also maintain specific programmes that provide support either to the media or to culture, all of which have also been approved either under the SME or regional frameworks or under general State aid rules. The relatively high figures for France are due to support given to culture, whereas the UK data reflect aid given for television.


57.

Table 21


State Aid granted to the tourism, media and culture by way of specific programmes during the periods 1994 - 1996 and 1996 - 1998.


>TABLE POSITION>

58.

PART VIII - AID FOR EMPLOYMENT and TRAINING



76. Incentive schemes exist in all Member States to stimulate or facilitate employment and training. In so far as such schemes are generally available and therefore are not specific to any one sector, and in fact genuinely constitute part of a general system of employment measures, they are not considered as State aid. In contrast, schemes that are not generally available are more likely to be considered by the Commission as containing elements of State aid. In order to clarify the distinction between measures involving State aid and general measures, the Commission adopted guidelines on employment and a framework on training aid in 1995 i and 1998 i respectively. State aid measures for employment notified since 1995 have therefore been assessed on the basis of the former and, from the year 2000 onwards, State aid for training is assessed on the basis of the latter framework.


Data pertaining to employment and training schemes that contain State aid are presented in Table 22 below. It has to be pointed out that the figures for the period 1994-1996 are incomplete for several countries and are, therefore, indicative only. In future Surveys this situation will improve.


The figures in Table 22 provide a first indication of the great diversity in using state aid as an instrument to support employment and to increase training. Whilst two Member States do not award state aid for these objectives at all, two of the other Member States are only supporting training and four are only supporting employment. Of course, it can be taken for granted that all Member States foster employment through general labour market measures and training through general measures.


59.

Table 22


State Aid granted to support employment and training during the periods 1994-1996 and 1996-1998


>TABLE POSITION>


60.

PART IX - OVERALL VOLUME OF NATIONAL AID IN THE COMMUNITY


77. The overall volume of National State aid granted in the EU to the sectors covered by this Survey is presented in Table 23 and amounts to an annual average of 93 billion euro during the period under review. In comparison with the 104 billion euro spent in the previous period, this is a perceptible decline in the overall levels of State aid. If this overall figure is broken down, the corresponding figures for each sector - with the exception of financial and other services, Media and Culture - are equally decreasing. For employment and training, a reliable comparison cannot yet be made for the reasons given under point 76 above.


61.

Table 23



Overall average annual national aid in the Community 1994-1996 and 1996-1998


Million euro


>TABLE POSITION>


* 1998 total partially estimated

** 1997 and 1998 data for French coal mining are not included

78. Table 24 shows Member States' total aid expenditure as a percentage of gross domestic product, per person employed, and relative to total government expenditure.


>TABLE POSITION>


* in 1997 prices

** not including Agriculture


In spite of the convergence, which is stronger in terms of aid as a percentage of GDP and euro per person employed than in per cent of total government expenditure, disparities between Member States in the grant of State aid in each main sector are reflected here. In terms of all three indicators, the difference between the lowest and highest figure is a factor of three.


79. Table 25 shows a breakdown of overall national aid into the main sectors covered by the Survey i. Between the two periods covered by the Survey, the share of aid granted in each sector has remained fairly constant at the EU level. On the national level shares are less stable. In particular a high level of regional aid to services other than tourism, media and culture in Portugal explains this Member State's overall aid increase, as shown in Table 24, whilst the trends in the other sectors in this country, in particular manufacturing, are decreasing.


62.

Table 25



>TABLE POSITION>


* Agriculture and Fisheries account for a further 14% during each reporting period. ** For Portugal only: the amounts shown in this column also include services other than tourism, media and culture that are supported by regional aid amounting to 21% and 53% of total Portuguese State aid during the two reporting periods respectively.


63.

Aid per head of population



80. Table 26 shows, in terms of both overall national aid and aid to the manufacturing sector, the aid per capita in the European Union.

64.

Table 26


State Aid per capita in the European Union Annual averages during the period 1996-1998


>TABLE POSITION>


65.

1997 prices


* Not including Agriculture

81. As in the above Tables 24 and 25, Table 26 reflects the continued disparities between Member States. In terms of euro per capita there is a threefold difference between the UK and Germany in the grant of overall State aid. When aid to manufacturing is considered, there is a seven-fold difference between the Portugal and Italy.

66.

RESULTS



82. The aid awarded to the manufacturing sector in the European Union during the period under review 1996-1998 amounts to an annual average of some 33 billion euro. Compared with the average 38 billion euro of aid awarded annually during the previous period 1994-1996, this represents a decrease of 15%. However it is important to underline that once again the overall drop in the volume of aid is almost exclusively the result of the decreases in the aid levels in Germany and Italy of almost 5 billion euro and 2 billion euro respectively. Smaller decreases were also seen in Belgium, Spain and Portugal.


83. Large disparities remain between Member States in their award of aid. The spread is sizeable when aid to the manufacturing sector is expressed in per cent of value added: the 4.9% aid level observed in Greece is seven times the lowest aid level, 0.7% observed in the UK. The Member States with the lowest levels of aid for manufacturing are the United Kingdom, Sweden and Portugal which all enjoy levels that are well below the EU average.


84. When disparities between the Member States are considered in regard to cohesion, it appears that the share of aid in the four cohesion countries - Greece, Ireland, Portugal and Spain - has increased from 7.8 % of total aid to the manufacturing sector during the previous period to approximately 9.3% in 1996-1998. By way of comparison, the share of the four big economies - Germany, Italy, France and the UK - in manufacturing aid has decreased from 84 to 80 percent. (Germany accounts for 35%, Italy for 27%, France for 14% and the UK for 4% of the total.) Although still at a very high level, the relative importance of these countries has diminished to the advantage of the cohesion countries.


85. In so far as the objectives pursued are concerned, the largest share of manufacturing aid in the Union, 57%, is spent on regional objectives most of which is targeted to the least developed regions, i.e. areas qualifying for regional aid under Article 87(3)a of the EC Treaty. This share drops to 52% when the exceptional aid granted by THA and its successors to the new German Länder is not accounted for. Aid granted for horizontal objectives, inter alia for the promotion of research and development, for environmental protection as well as for small and medium-sized enterprises, accounts for 35%. The share of sectorial aid in overall manufacturing aid has dropped to 8%.


86. As to the form by which the aid is given, at Community level, budgetary expenditure is the preferred form to award State aid and its share in manufacturing aid is around 73%. In comparison with tax foregone, the preference for the former, more transparent form of state intervention is, however, unequally distributed amongst the Member States. Whereas in some countries practically all of the aid, more than 90%, is given in the form of budgetary expenditure, in other countries, such as Denmark, France and Italy over 30% of all aid to manufacturing is given in the form of tax breaks.


87. As witnessed in the previous surveys a relatively large but continually decreasing volume of aid falling outside schemes promoting horizontal, sectorial or regional objectives is granted on an ad hoc basis to individual enterprises. In the manufacturing, financial services and air transport sectors, a limited number of large individual aids account for a disproportionate part of total aid granted. Ad hoc aid which is granted mainly for rescue and restructuring of companies is most prone to distort competition. In the manufacturing sector it increased in volume from 6% of total aid to this sectors in 1992 to 12% in 1993 before dropping back to 4% in 1998. If aid granted to the new German Länder via the Treuhandanstalt/BvS is added - such aid can be considered similar to ad hoc aid - the share in overall aid to manufacturing increased from 19% in 1992, to 37% in 1994 and has subsequently fallen back to 12% in 1998.


88. Overall national aid in all sectors covered by the Survey in the EU has continued on its downward path dropping from an annual average of EUR104 billion during 1994-1996, to EUR93 billion during 1996-1998. Aid has, with the exception of financial and other services, media and culture, decreased across the board. A full series of data from 1994-1998 is not available for employment and training, therefore a comparison between the two periods cannot be made. However between 1996 and 1998 aid for these objectives accounted for about 2.5% of total aid.


89. Although the overall level of State aid has decreased in each Member State with the exception of France, Ireland and Portugal, large disparities in aid volumes continue to exist between Member States. The two Member States that have contributed most to the EUR11 billion decrease are, as in previous periods, Germany and Italy with reductions of over EUR8 billion and EUR2 billion respectively. However it is not only the volume but also the composition of State aid that influences its impact on competition in the internal market. In the period 1996-1998 sector specific aid is still relatively high in Belgium (railways), Germany (coal and railways but declining in absolute terms), Greece (railways and airlines, where a large reduction is now seen), Spain (railways, coal and shipbuilding) and France (railways and financial services). In Portugal non-manufacturing regional aid accounts for about one half of all national aid.

67.

CONCLUSIONS



90. The successful launch of the euro strongly reinforced the Single Market. However in order to ensure lasting success of EMU, a continued budget discipline is an indispensable requirement for virtually all Member States. This is required to provide the conditions for a strong and durable expansion of investment, output and employment. During the period covered by this Survey, the need to remain within the convergence criteria and comply with the Stability and Growth Pact has provided the necessary focus for the budgetary discipline of Member States. Whilst the declining amounts of State aid in most Member States presented in this Survey are certainly also a reflection of this discipline, the levels of aid reported are still high and represent a significant margin for manoeuvre in regard to further efforts to improve the efficiency of public finance. The continued rigorous enforcement of the Community State aid rules will support this consolidation process.


91. Furthermore, so as to reap the benefits of the internal market under a common currency, the European industry is already engaged in substantial efforts to reorganise its production and distribution activities at the European level. State aid control has a pivotal role to play in facilitating this structural change in the European economy by helping to remove publicly induced obstacles for industrial restructuring. It thus contributes to the long-term improvement in the competitiveness of European businesses and in so doing paves the way for the creation of viable jobs.


92. When controlling State aid, the Commission, of course, approves aid for many purposes where these are considered to be in the common interest. Examples of such aid for which the Commission clearly has a favourable view include research and development, SME's, environmental protection, training, employment and regional aid. However the continuing high levels of aid provide strong reasons for the Commission to maintain its pressure on state aid in the Community and particularly in the manufacturing sector. Therefore not only does the level of State aid need to be firmly kept under control, but before aid is provided, it is incumbent upon Member States to establish whether this instrument is indeed the most appropriate.


93. The Commission, in its report of 26 January 2000 on economic reform, stressed the importance of maintaining the current overall downward trend in the volume of State aids. It also recommended that Member States make additional efforts to avoid sector specific and especially ad hoc aids. In its conclusions on the Cardiff economic reform process of 16 March 2000, the Internal Market Council called for strategies to be developed for an overall reduction in State aids in the Member States and the Community as a whole, with a focus on monitoring their level and evaluation their economic effects, notably through statistical data. Aid should be oriented towards horizontal goals and should only be granted where it can be justified on primary economic grounds and provides a clear welfare gain in the common interest, for purposes such as regional development, environmental protection, R&D and innovation. The Council encouraged the Commission to pursue vigorous action against those State aids likely to distort competition. The Lisbon European Council of March 2000 called on the Member States and the Commission to further their efforts to promote competition and reduce the general level of State aids, shifting the emphasis from supporting individual companies or sectors towards tackling horizontal objectives of Community interest, such as employment, regional development, environment and training or research.


94. The ongoing refinement of state aid control finds expression in a number of ways. New Community guidelines and frameworks are being drawn up not only to address developing market needs, but also to fine-tune existing Community State aid control rules. In the coming months a new environmental protection framework will be published and the employment guidelines will be revised. A revision of the current R&D guidelines will take place at the beginning of next year. Venture capital markets provide an important boost to the development of companies and employment. The Commission is therefore examining the role of State aid and the conditions under which it may be granted in this area. Work will also be continued on identifying harmful tax measures in the form of State aid.


95. Aid granted in the area of SMEs and training and responding to strict criteria currently being drawn up by the Commission will be exempted from notification requirements. Such group exemptions should ensure a reduced level of administrative effort on the part of Member States and the Commission prior to implementation of aid targeted towards these objectives thereby allowing a greater focus on monitoring the effectiveness of such aid. Moreover resources should be released in order to deal with more complex areas of State aid control.


96. In July 2002 the ECSC Treaty will expire and with it the State aid rules that currently regulate the grant of State aid to ECSC coal and steel products. As reported in the Survey the level of State aid granted in these two areas has dropped, particularly in the case of ECSC steel products. Based not least on this tendency but also other considerations, a decision will have to be taken in the near future as to what rules will apply to these sectors once they are subject to State aid control under the EC Treaty.


97. The Commission will also continue to monitor developments in newly liberalised sectors so that the long-term competitive advantages gained from liberalisation will not be lost by the grant of subsidies to prop up loss-making activities. In the energy sector particular attention is being paid to costs borne by electricity producers under the regulated conditions that cannot now be recovered in the liberalised market, i.e. so called stranded costs.


98. A key aspect of a European State aid control policy that impacts so strongly upon the single market and therefore must be subject to scrutiny is increased transparency. In this respect during the coming months the Commission will be laying the foundations for a State aid register and Scoreboard. Both instruments should facilitate greater openness by providing interested parties with more detailed and consolidated information on various aspects of State aid control policy and the implementation of Commission State aid decisions in Member States.


99. An essential accompanying measure to transparency is the need for continued improvement in the data that is collected by the Commission on National State aid expenditure. Member States have pursued with their efforts to take steps to improve the quality and reliability of information forwarded to the Commission, nevertheless further improvements are necessary.


100. Results from this Survey show that the level of aid granted by Member States to restructure their manufacturing industries and airline services is now decreasing. In the next two to three years the same trend should be seen as regards restructuring of financial services. However the continued award of relatively high amounts of ad-hoc aid in some Member States reinforces the importance of the new Commission Guidelines on aid for rescue and restructuring. Even aid intended to restore the viability of companies or to attenuate the social consequences of the adjustment process in certain sectors can impose a heavy cost in terms of forgone opportunities to use resources efficiently. The Commission will therefore maintain its position that rescue and restructuring aid cannot be allowed as a pretext to protect troubled industries or ailing companies.


101. In regard to cohesion within the European Union, the findings of the Survey indicate that the gap between the level of State aid granted in the richest Member States and in the four cohesion countries continues to diminish slowly. With a view to correcting regional disparities financial assistance is vital and its effectiveness must not be compromised by the grant of disproportionate National State aid elsewhere. The Commission will, in so far as is possible under current State aid control rules, continue to reduce the cohesion gap.


102. The process of enlargement has continued apace. This process was recently modified with all candidate countries being brought into a single negotiation process. The establishment in these countries of a competitive environment similar to that of the Community has therefore become urgent. In view of their future aspirations, compliance with the State aid 'community acquis' well in advance of accession proper is essential in meeting the accession criteria in the competition area, as established in 1993 at the Copenhagen European Council. The Commission therefore continues to follow closely the developments in State aid in these countries and by way of the Survey, provides an effective benchmark, on the basis of which the necessary degree of comparability and transparency can be achieved.


103. Headway is also being made to fully implement the various provisions of Co-operation Agreements that were signed with Russia, the Newly Independent States and other countries. To guarantee free and fair competitive conditions throughout this nascent free trade area, State aid provisions were brought in to the heart of all these agreements. Inspired by the Union's model, their implementation poses a challenge of paramount importance and the Commission's priority task is to continue providing assistance to these countries in order that they create a credible State aid control system. Only in this way will competitive conditions similar to that of the Community be established in these countries.

68.

ANNEXES


ANNEX I


TECHNICAL ANNEX


The purpose of this annex is to provide background information on the methodologies and sources of data that were used in order to produce this Survey on State aid, notably with regard to:


69.

I. Scope of the study


Fields excluded

II. Categories, forms and objectives of aid

III. Type of data, sources and methods of assessing the aid element

IV. Specific issues

- Research and Development (R&D)

- Accession of the three new Member States

I. Scope of the Study

Fields excluded


1. This Technical Annex explains the methodological background and the statistical techniques used. It updates the technical annex in the preceding Survey.


The Survey focuses on State aid to enterprises falling within the scope of Articles 87 and 88 EC Treaty and Article 95 ECSC Treaty. Accordingly, general measures (which, if they distort competition, would be dealt with under Article 96 of the EC Treaty) are not included in the figures.

2. The following measures or areas are not dealt with:


70.

2.1. Aid whose recipients are not enterprises



- Aid to households

- Aid to the handicapped

- Aid for infrastructure

- Aid for educational institutes, hospitals, public housing

- Aid for public vocational training centres

- Aid given directly to developing countries

71.

2.2. General measures and other measures



- Differences between the various tax systems and general social security systems in Member States (depreciation, social security deficit, etc.)

- Quotas, public procurement, market restrictions, technical standards

- Tax schemes that account for the specific nature of some economic activities (co-operatives, owner enterprises, self-employed, etc.) i

- General reduction in VAT (for example, foodstuffs in the United Kingdom)


72.

2.3. Aid granted by supranational and multinational organisations



- Community funds (ERDF, EAGGF, etc.)

- Financing by EIB and EBRD

- Support to the European Space Agency


73.

2.4. Individual types of aid



- Defence (see point 11.1 of this annex)

- Public works

II. Categories, forms and objectives of aid

74.

3. Categories of aid



All aid represents a cost or a loss of revenue to the public authorities and a benefit to recipients. However, the 'aid element', i.e. the ultimate financial benefit contained in the nominal amount transferred depends to a large extent on the form in which the aid is provided. Aid should therefore be subdivided in accordance with the form in which it is provided. Four categories have been identified for this purpose. Each category is represented by the letter A, B, C, or D, followed either by the number 1 or 2, meaning respectively budgetary aid (i.e. aid provided through the central government budget) or tax relief (i.e. aid granted via the tax system), plus an A if the aid element is known; for example, C1A refers to the aid element (A) of a soft loan (C1).

4. Group A (A1+A2)


4.1. The first category (A) comprises aid that is transferred in full to the recipient. In other words, the aid element is equal to the capital value of the aid. This first category has been subdivided into two groups depending on whether the aid was granted through the budget (A1) or through the tax or social security system (A2).


75.

4.2. List of aid instruments coming under categories A1 and A2



- Grants

- Interest subsidies received directly by the recipient

- Tax credits and other tax measures, where the benefit is not dependent on having a tax liability (i.e. if the tax credit exceeds the tax due, the excess amount is repaid)

- Tax allowances, exemptions, and rate relieves where the benefit is dependent on having a tax liability

- Reduction in social security contributions

- Grant equivalents e.g. sale or rental of public land or property at prices below market value


76.

5. Group B1



5.1. It is necessary to determine whether a financial transfer by the public authorities in the form of equity participation is an aid to the recipient or a matter of the public sector engaging in a commercial activity and operating like a private investor under normal market conditions. Consequently, although equity participation, in their various forms, could have been included in the first category, they have been grouped together under a separate category (B1).


77.

5.2. List of aid instruments coming under category B1



- Equity participation in whatever form (including debt conversion)

6. Group C (C1+C2)


6.1. The third category (C) covers transfers in which the aid element is the interest saved by the recipient during the period for which the capital transferred is at his disposal. The financial transfer takes the form of a soft loan (C1) or tax deferral (C2). The aid elements (C1A/C2A) in this category are much lower than the capital values of the transfers.


78.

6.2. List of aid instruments coming under categories C1 or C2



- Soft loans whether from public or private sources. (Interest rate subsidies are categorised under A1)

- Participatory loans from public or private sources

- Advances repayable in the event of success

- Deferred tax provisions (reserves, free or accelerated depreciation, etc.)

79.

7. Group D1



7.1. The last category (D1) covers guarantees, expressed in nominal amounts guaranteed. The aid elements (D1A) are normally much lower than the nominal amounts, since they correspond to the benefit which the recipient receives free of charge or at lower than market rate if a premium is paid to cover the risk. However, if losses are incurred under the guarantee scheme, the total loss, net of any premiums paid, is included under D1A, since it can be considered as a definitive transfer to the recipient. The nominal amounts of these guarantees are shown under D1 to give an indication of the contingent liability.


80.

7.2. List of aid instruments coming under category D1



- Amounts covered under guarantee schemes (D1)

- Losses arising from guarantee schemes, net of premiums paid (D1A)


81.

8. Objectives of aid



The aid schemes have been broken down into 21 headings according to their sectorial or functional objectives. Employment and training aid have been included for the first time:


82.

1. - Agriculture and Fisheries



83.

1.1. - Agriculture



84.

1.2. - Fisheries



85.

2. - Manufacturing/Services



86.

2.1. - Horizontal objectives



- Research and Development

- Environment

- Small and Medium Enterprises

- Trade

- Energy saving

- Employment Aid

- Training Aid

- Other objectives


87.

2.2. -Particular sectors



- Steel

- Shipbuilding

-Transport (Rail, Airlines, Inland Waterways and Maritime)

- Coal (Current Production)

- Coal (Other Aid)

- Other Manufacturing Sectors

- Media, Culture and other Services

- Tourism

- Financial services


88.

3. -Regional aid



89.

3.1. - Regions under 87(3)a



90.

3.2. - Regions under 87(3)c



9. List of regions within the meaning of Article 87(3)(a) valid until 31/12/1999 i


91.

Member State Regions



Greece all regions

Ireland all regions

Portugal all regions


Austria Burgenland


Germany Berlin (Eastern Part)

Brandenburg

Mecklenburg-Vorpommern

Sachsen

Sachsen-Anhalt

Thüringen


Spain Galicia

Asturias

Cantabria

Castilla-Leon

Castilla-La Mancha

Extremadura

Comunidad Valenciana

Andalucia

Murcia

Ceuta y Melilla

Canarias


France Guadeloupe Martinique Guyane Reunion


Italy Campania

Sicilia

Sardegna Puglia Basilicata Calabria


United Kingdom Northern Ireland

III. Sources of data and methods of

assessing the aid element

10. As a general rule, the figures have been expressed in terms of actual expenditure (or actual revenue foregone in the case of tax expenditure). i Where this was not possible, budget appropriations or the amounts that were provided for in planning programmes were used after consultation with the Member States concerned. Where figures were not available figures from previous years have, unless otherwise stated, been used as estimates.


10.1. All the figures have been compiled in current national currency and have been converted into constant 1997 euro.


The following statistical data used in the Survey have been obtained from EUROSTAT (New Cronos database).


- gross domestic product (GDP) at market price

- implicit deflator of GDP

- general government total expenditure

- gross value added at market price for manufactured products, agriculture and transport

- value added at factor cost for shipbuilding

- occupied population, total employment

- employment by branch for manufactured products and coal


The gross value added for fisheries has been calculated on the basis of the quantities landed and average prices.

A small number of statistics that were unavailable have been completed with statistics from the AMECO database managed by the Commission's Directorate General for Economic and Financial Affairs, DG ECFIN.


10.2. The Commission's departments have provided figures for their respective sectors in accordance with the following.


For agriculture, in order to meet the current reporting obligations for both the OECD and WTO, data on all support granted at both national and sub-national levels have to be provided to the Commission by Member States. Data comprise direct payments, reduction of input costs and general services as well as transfers that support of the multifunctional nature of agriculture. Assistance towards the creation and preservation of employment in rural areas, agro-environmental programmes leading to the balanced use of land, the conservation and renewal of natural resources, are also included as well as certain social security programmes and exceptional payments resulting from the BSE crisis.


For fisheries data were submitted in accordance with the procedure emanating from the resolution of the Representatives of the Governments of the Member States, during the 306th Session of the Council on the 2 October 1974. At the time of writing 1998 data were available from Belgium, Denmark, Germany, Greece, Spain, Finland, Netherlands, Portugal and the U.K.


For coal the figures are those submitted by the Member States in accordance with Commission Decision Nos. 528/76/ECSC, 2064/86/ECSC and 3632/93/ECSC and summarised in the Commission's Annual Communication to the Council on aids in this sector. These figures are broken down into aid for current production and those not relating to current production (i.e. special social security measures for miners and aid to cover inherited liabilities).

For rail transport the figures are those submitted by the Member States. For the vast majority, the amounts are not subject to prior notification. In addition, but shown separately, are the aids given for railways within the framework of Council Regulation 1191/69 as amended by Regulation 1893/91 for the maintenance of public service obligations.

92.

10.3. Manufacturing


In the case of aid to the manufacturing sector, the figures have almost exclusively all been submitted by Member States according to the standardised annual reporting procedure. This procedure was set out in the Commission letter of 22.02.1994 to the Member States and up-dated by the Commission letter of 02.08.1995 to the Member States. Data are also checked against Commission Decisions, national publications on the award of aid, national accounts, draft budgets and other available sources.


93.

10.4. Steel and Shipbuilding


The figures presented in the study have been compiled from the monitoring reports prepared by the Commission for the Council.


94.

10.5. Methods of assessing the aid element



10.5.1. Group A - where A1A represents grants & interest rate subsidies; A2A, relief from taxes and social charges, etc.

No calculation of the aid element is necessary, as the amount of aid is equal to the grant or its equivalent.


10.5.2. Group B - equity (including debt conversion).

In line with established Commission policy, such interventions constitute aid when a private investor operating under normal market conditions would not have undertaken such an investment. See Commission communication 'Application of Articles 87 and 88 of the EEC Treaty and of Article 5 of Commission Directive 80/723/EEC to public undertakings in the manufacturing sector', OJ No C 307 of 13.11.1993, p3. This method is based on calculating the benefit of the intervention to the recipient.


10.5.3. Group C - where C1 represents soft loans and C2, tax deferrals.

The aid elements (C1A/C2A) in this category are much lower than the capital values of the aid. From 1995, where a Member State fails to provide data on the aid element, 15% of the total amount lent by the government is taken as a proxy, compared with 33% for previous years. This downward adjustment is explained by the lower level of the aid element that results from generally lower rates of interest in the Member States when compared with periods covered by previous surveys.


In the case of reimbursable advances, where a Member State does not indicate the reimbursement ratio, the aid element is taken to be 90% of all advances as the re-payment ratio has shown to be very low on average.


10.5.4. Group D - guarantees.

The aid element (D1A) is much lower than the capital value guaranteed. Where this information on the exact amount of the aid element is not available, the losses to the Government are taken as an approximation. Where Member State data only contain figures on the capital value guaranteed, then the aid element is taken to be 10% of this figure.


95.

IV. Specific problems


11. Research and Development (R&D)

11.1. R&D procurement contracts


Research and development procurement contracts have not been found to comprise State aid. Furthermore, sources of information do not permit research and development contracts intended specifically for military purposes to be isolated and the impact on the market of such contracts to be evaluated i.


96.

11.2. Public Research



No figures are given for any aid element contained in the intramural funding of government or public research establishments or research carried out by institutes of higher education. Public financing of R&D activities by public non-profit-making higher education or research establishments is normally not covered by article 87 i of the EC Treaty i.


97.

11.3. Nuclear energy



The Commission is not aware of any non-notified aid that has been granted to the Nuclear power industry. However Member States may provide support to the nuclear energy sector through the intermediary of their public undertakings or through the intermediary of R&D financing (mainly in the form of R&D procurement contracts and public research). Only some of this financing is included in the figures for R&D. Therefore the figures on nuclear energy contained in R&D figures may well be underestimated. The aid situation in the energy sector is under review particularly in the context of its liberalisation and concomitant stranded costs.

98.

12. Accession of the three new Member States



When comparing the levels of aid granted by Member States, the analysis of the aid figures concentrates on the annual averages of the two three-year-periods 1994-1996 and 1996-1998. As the three new Member States only acceded in 1995, comparisons are made between the 1995-1996 two-year average and the 1996-1998 three-year average.


99.

ANNEX II



STATISTICAL ANNEX


Table A1 State aid to the manufacturing sector. Annual amounts of aid 1994-1998 in current prices and national currencies.


Table A2 State aid to the manufacturing sector. Annual amounts of aid 1994-1998 in current prices and euro.


Table A3 State aid to the manufacturing sector. Annual amounts of aid 1994-1998 in constant prices and euro.


Table A4 State aid to the new German Länder.

Annual averages 1994-1998 in constant prices and euro.


100.

Tables A5/1-15


Total State aid - annual average 1996-1998 by Member State in constant prices and euro.


101.

Tables A5/16


Total State aid - annual average 1996-1998 in the EU in constant prices and euro.


102.

Tables A6/1-15


Total annual State aid 1994-1998 by Member State in constant prices and euro.


103.

Tables A6/16


Total annual State aid 1994-1998 in the EU in constant prices and euro.


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During the years of 1996 to 1998 aid totalling a yearly average of EUR8.607 million was granted to the new Länder. This volume represents 75% of all German aid to the manufacturing sector that has continued to decrease since 1993 and includes the yearly average of EUR3.514 million 'Treuhand' aid.


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104.

ANNEX III



COMMUNITY FUNDS AND INSTRUMENTS


I. Community Funds, Instruments and Programmes and ECSC operations


Tables are presented in this annex in order to show the volume of support granted by way of the main Community and ECSC operations during the period from 1994 to 1998. Community-wide support for general infrastructure granted by way of the ERDF, support for External policies and the administrative costs of the Institutions are not included.


As the economic effect resulting from the grant of National State aid described earlier in this Survey, (i.e. aid financed by national budgets and tax systems) is not necessarily the same as that of Community interventions, a direct comparison between the two cannot always be made.

In the agricultural sector for example, making comparisons could result in erroneous conclusions being drawn owing to the fact that those who benefit from Community intervention are for the most part not firms. As regards comparison between the different Member States, the benefits of Community intervention are felt by all operators in the Union irrespective of where the expenditure (i.e. export refunds or intervention buying) took place. As to comparison between Community and national expenditure, expenditure by the Union is strongly influenced by the differences between fluctuating world prices and Community prices for agricultural products, which is not the case with most national expenditure.

For the first time since 1988, when the First Survey on State aid was published, the gradually decreasing total of National State aid notified to and approved by the Commission dropped below the level of the Community's own budget in 1998.


A brief description of the main ECSC operations and Community funds, instruments and programmes that account for about two-thirds of the Community budget is given below. Detailed information is available in the respective annual reports published by the European Commission and listed under point 5.

105.

Structural Operations



In July 1993 the second reform of the Structural Funds (EAGGF-Guidance, ERDF, Social Fund, FIFG) was agreed upon. In accordance with the conclusions of the Edinburgh European Council, the resources of the Structural Funds allocated to four Member States eligible for assistance from the Cohesion Fund (Greece, Spain, Ireland and Portugal) were doubled in real terms between 1992 and 1999 and total funding for the Structural Funds over the period 1994-99 increased to EUR 141 471 million (at 1992 prices). A new instrument was also introduced with the entry into operation in 1994 of the FIFG to provide support for the restructuring of the fisheries sector.

The Commission's proposal for regulations governing the Structural Funds for the period 2000-2006 have now been accepted. These proposals set out in detail the guidelines that the Commission unveiled in its strategy document 'Agenda 2000 - for a stronger and wider Union', published in July 1997. The proposed reform of the Structural Funds is centred on three priorities: a greater concentration of assistance, a decentralised and simplified implementation of the Structural Funds and a strengthening of their efficiency and control.

106.

-EAGGF Guarantee


The Guarantee Section of the European Agricultural Guidance and Guarantee Fund finances market-support and price-support operations under the common agricultural policy (CAP) and a number of other agricultural measures. It represents the most important sector in terms of budget expenditure ( 40 440 million euro in 1999, or 49% of the general budget of the European Union).

Between its establishment and until 1992, the CAP provided a straightforward general system of support for the main agricultural sectors, for which common market organisations were set up. In most cases, the legal framework for each common market organisation provided indirect income support for producers by maintaining market prices through:

- protection at the Community's external frontiers [threshold prices and other minimum import prices, backed up by differing levels of import levies for non-Community products with what were, generally speaking, much lower (world) prices];

- payment of export refunds for products exported to third-country markets, their purpose being to narrow the gap between the Community market price and the external market price, which was normally lower;

- adoption of public storage measures, with the Community undertaking to purchase unsold surpluses at a pre-determined intervention price and thereby setting a genuine minimum market price.

In the absence of self-sufficiency, this system of indirect support proved to be less complex and burdensome than a system of direct aid for producers since payments were made only to traders that exported or sold at the intervention price, covering only that part of total production that could not be sold within the Community at the market price. Even better, if production could be disposed of on the internal market at a price higher than the intervention price, there was no need for any refunds or intervention by the authorities.


The 1983-86 budget crisis (expenditure covered by the EAGGF Guarantee Fund having increased from 3 927 million euro in 1973 to 15 786 million euro in 1983 before surging by another 40% to 22 119 million euro in 1986) was caused by the growing gap between the consumption and supply of agricultural products, which widened further under the impact of modernisation and technological progress, but also by the accession of six new Member States and the setting-up of new common market organisations. It made essential the adoption of stabilisation mechanisms and put an end to unlimited support for the main agricultural sectors.


The 1992 CAP reform was a very important turning-point as regards the type of assistance provided by the EAGGF Guarantee Fund: in part, support was no longer linked to production in certain important agricultural sectors (cereals and beef). The traditional market-support operations were relaxed by reducing institutional prices and, as a result, bringing about lower prices on the internal market, with these being offset by the introduction of direct payments to producers - subject to ceilings - according to the areas under cultivation or the number of head of livestock being reared or fattened. In addition, accompanying measures (afforestation, early retirement and agri-environment) were introduced; these measures are financed by the EAGGF Guarantee Fund.


The 'Agenda 2000' decision represents a continuation and deepening after 1999 of the reform set in train in 1992. The accession of new Member States whose wealth is relative but whose agricultural sector is quite large, coupled with the need to make European agriculture more competitive (particularly as regards arable crops and livestock production), if only in response to the pressure being exerted by the Community's trading partners within the World Trade Organisation, makes it urgent to reduce traditional support (especially export refunds and intervention buying) by way of a further reduction in prices accompanied once again by some measure of compensation in the form of direct payments to producers. Lastly, in line with the accompanying measures introduced in 1992, all rural development measures not covered by Objective 1 programmes will be brought together within a single framework and their financing transferred to the EAGGF Guarantee Fund. Such a transfer will reinforce the multifunctional nature of agriculture and of its financing by the EAGGF Guarantee Fund.


107.

-EAGGF-Guidance



The EAGFF-Guidance intervenes by co-financing structural measures in the framework of programmes, which have been established with the Member States and Regional authorities for:


- the strengthening and reorganisation of agricultural and forestry structures, including those for the processing and marketing of products;


- compensation for the effects of natural handicaps on agriculture;


- the re-conversion of agricultural production and the development of additional activities for farmers;


- the development of the social fabric of rural areas and the conservation of natural resources.


The actions co-financed in areas covered by objectives 1 and 5b relate in particular to:


- the conversion, diversification, reorientation and adjustment of the agricultural production potential;


- the promotion, labelling and investment of quality products for local or regional agricultural and forestry;


- the development of structures and rural infrastructures;


- measures to achieve diversification, especially those providing for farmers to develop multiple activities;


- the renovation and development of villages and the protection and conservation of the rural heritage;


- encouragement for tourist and craft investment;


- the introduction of appropriate preventive instruments in the case of natural catastrophes (in particular in objective 1 regions) restoring agricultural and forestry production potential damaged by natural disasters;


- the irrigation, protection of the environment, and restoration of landscapes;


- exploiting the full value of forests;


- development of agricultural and forestry advisory services and vocational training.


108.

-FIFG



Structural assistance for the fishing industry was first granted as far back as 1971, the year in which it was agreed to use funds from the Guidance Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) to encourage the construction and modernisation of inshore and pelagic fishing vessels together with the processing and marketing of fish. In 1978 the original rules were replaced by a series of annual interim measures widened in scope to encompass the restructuring of the inshore fleet and the development of aquaculture.


In 1983 a comprehensive system of multi-annual programmes was put into effect, based around schemes under which aid could be granted for restructuring the industry and conversion of fishing activities. In 1986 the need to reinforce this approach resulted in the whole range of structural measures for modernisation of the fleet and marine aquaculture being grouped together in a single regulatory framework.


Schemes designed to assist the processing and marketing of fishery products developed from a different source, which was shared with the structural policy for processing and marketing of agricultural products. For a long time, one and the same Regulation covered the processing and marketing of both types of products. However, in order to ensure that better account was taken of the specific requirements of the fisheries sector, the two were split in 1989; assistance for the processing and marketing of fishery products has since had its own rules, integrated from that date into the Community's Structural Funds arrangements.


In 1993 the structural elements of the Common Fisheries Policy (CFP) were overhauled and three major changes were introduced. This ensured greater coherence between different aspects of the policy, removed the partition which had divided the CFP from other Community activities and, took account of the changes affecting the sector. The CFP's structural measures were integrated into the Community's system of structural funds when these were reformed in 1993. Moreover the different finances available for fisheries were regrouped in one fund known as the Financial Instrument for Fisheries Guidance (FIFG). This Instrument had to combine two objectives: to contribute to the aims of the CFP while playing its part in strengthening economic and social cohesion. Under the FIFG financing was made available for structural measures in catching, marketing, processing and aquaculture sectors, the creation of protected marine zones in coastal waters and the development of port facilities. Modernisation and the elimination of excess capacity went hand in hand. Other activities such as the promotion and identification of new markets and social measures also benefit from support.


A proposal for a new Council Regulation about the structural interventions in the fisheries sector (COM (1998) 728 of 16 December 1998) has been discussed three times at the level of Ministers.

The debate is now mature for a political decision to be taken.


109.

-Social Fund



The objectives of the Social Fund are to improve employment opportunities for young people (under the age of 25) and for other groups deemed to be in need of support (long-term unemployed, the handicapped, migrant workers and other socially disadvantaged groups). The Fund therefore contributes to the financing of operations carried out by the public or private operators in the following areas:


- the prevention of long term unemployment;

- vocational training;

- technical advice concerned with job creation;

- facilitate the adaptation of workers to industrial changes and changes in production system.


All applications for assistance are submitted through the Member States.

Money from the Social Fund is paid out on a horizontal and not on a sectorial basis, so an extrapolation corresponding to the concept of aid within the meaning of Article 87 of the Treaty is not possible.


110.

-Regional Fund



The European Regional Development Fund (ERDF) aims to reduce disparities within the Community by providing financial support to:


- regions whose development is lagging behind (Objective 1);

- regions in industrial decline (Objective 2);

- rural problem areas (Objective 5b);

- the development of regions with an extremely low population density (Objective 6).


This support is focused mainly on infrastructure, human resources and productive investment.


As ERDF aid is generally paid out on a horizontal and not on a sectorial basis, identification of expenditure which corresponds to the concept of State aid within the meaning of Article 87 of the Treaty is not always possible. As an alternative, figures relating to the manufacturing sector and services and, economic development have been retained; the data obtained by using this approach therefore only provide an idea of the scale of ERDF aid involved.


111.

-Cohesion Financial Instrument - Cohesion Fund



After the principle of the Cohesion Fund had been incorporated into the Maastricht Treaty, the Edinburgh European Council decided to establish the Cohesion Financial Instrument. This instrument provided Community financial support to the beneficiary Member States from 1993 prior to entry into force of the Treaty which then permitted the establishment of the Cohesion Fund in May 1994.


The Commission adopted the proposal for a Regulation establishing the cohesion financial instrument based on Article 308 of the Treaty which was subsequently adopted by Council on 30/04/1993 and extended until the end of 1994.


The Cohesion Fund was established by Article 161 of the EC Treaty and represented a further stage in the policy of solidarity initiated mainly through the Structural Funds. This Fund makes its own specific and complementary contribution since it is grounded principally in the requirements stemming from the prospect of economic and monetary union (which is already starting to become a reality). From the outset the Fund has created its own identity on the basis of three major principles.


The first is its limited field of implementation: the protocol on economic and social cohesion states that the Cohesion Fund 'will provide Community financial contributions to Member States with a per capita GNP of less than 90% of the Community average.'


Secondly, assistance is restricted to the part financing of projects in the fields of the environment and Trans-European transport networks.


Thirdly, as a result of its links with the implementation of economic and monetary union, the Fund assists Member States which have drawn up a programme complying with the conditions on excessive public deficits as laid down in Article 104.


In addition the Cohesion financial instrument and later (from May 1994) Cohesion Fund, contributed towards the objective of cohesion. However given that most of the credits available were devoted to infrastructure projects and not productive investment, the figures are only presented for information below in Table B.

112.

Community Research and Technological Development (RTD)



The 4th Framework Programme for Research and technological development and demonstration (FP4) was adopted in April 1994 for the period 1994-1998. This Framework Programme includes all the Community activities in the field of research, technological development and demonstration. Its budget is 13,215 billion euro. It has three major objectives overall:


- strengthening Europe's scientific and technological base and thereby contribute to the development of international competitiveness of Community industry and promote the quality of the Community citizens' life.

- promote research activities deemed necessary for other Community policies.

- further cooperation and improve the co-ordination and exploitation of Community research.


Community research activities are conducted essentially at two levels:


(I) by shared cost actions with third parties ( including RTD projects and thematic networks) and concerted actions (Indirect actions).

(II) at the Joint Research Centre (Direct actions).


The Research DG administers the indirect actions of the Framework Programme together with Enterprise DG, Agriculture DG, Energy and Transport DG, Information Society DG and Fisheries DG. The main participants in the RTD activities are from universities, research centres and the manufacturing sector (including SMEs). Slightly more than EUR950 million are allocated to support the Joint Research Centre.

113.

ECSC financial operations



Financial assistance is provided by the ECSC in the form of loans and grants. The loans fall into three main categories:


- industrial loans;

- conversion loans;

- loans for workers' housing


The fact that the financial institutions, which distribute the loans, are non-profit making could be advantageous to the recipient of the loan but this advantage is not considered as aid for the purposes of the Treaties. The situation with regard to grants is different. Whilst interest subsidies (on loans) would normally be considered as constituting aid, other measures, notably payments of a social nature to former steel and coal sector workers, are less likely to be considered as such.


In June 1994, in view of the expiry of the ECSC Treaty in July 2002, the Commission readjusted its borrowing/lending policy under the Treaty. The granting of new loans out of borrowed funds was gradually reduced and was virtually nil in 1997 (except for certain exceptional cases covered by government guarantees).


The financing of workers' housing came to an end in 1998.

114.

European Investment Bank



The mission of the Bank is to further the objectives of the European Union by making long-term finance available for sound investment. Created by the Treaty of Rome, shareholders are the Member States and the Board of Governors is composed of the Finance Ministers of these States. To receive support, projects and programmes must be viable in four fundamental areas: economic, technical, environmental and financial. Through the Bank's own lending operations and ability to attract other financing, the range of funding possibilities is widened. Through the borrowing activities, the Bank contributes to the development of capital markets throughout the Union. The Bank's policies are established in close cooperation with the Member States and the other Institutions of the European Union. There is also close cooperation with the business and banking sectors and the main international organisations in the field.

115.

European Investment Fund



The European Investment Fund is a financial agency set up to provide guarantees to support medium and long-term investment in two crucial areas for the development of the European economy; Trans-European Networks (TEN) and Small and Medium-Sized Enterprises. Established in June 1994, the Fund is a new and unique partnership in which the European Investment Bank and the European Union, through the Commission, cooperate with the banks and financial institutions of the Member States. By Commission Directive dated 15 March 1994, it was granted Multilateral Development Bank status.


The fundamental objective of the Fund is to draw more private capital into infrastructure finance and to improve the flow of financial resources to the small and medium business sector. It will do this by developing mechanisms to transfer and share financial risk and will concentrate on the provision of financial guarantees on medium and long-term lending by banks and other financial institutions.


In addition to senior long-term debt for TEN projects it will be able to cover private placements, bond issues, revenue or asset backed securities and subordinated debt. For SME finance it can cover portfolios of loans, credit lines and secured assets.


The EIF can also take equity participations in venture capital funds.


In fulfilling its mission the EIF acts, on a commercial basis, as a complement to the banking sector and in co-ordination with other EU financial institutions and instruments.

116.

II. Statistical Data



1. Table A sets out in global terms the financial intervention of the Community for the years 1994 to 1998.


2. Table B shows other Community instruments granted for the years 1994 to 1998.


3. Tables C1 and C2 indicate, for the periods 1994-1996 and 1996-1998 respectively, the average annual volume of Community intervention broken down by Member State wherever possible.


4. Further details of Community Funds are given in the Technical Annex.


5. Further detailed information on Community Programmes, Funds and Instruments can be found in the following documents:


-The Agricultural Situation in the European Union.

117.

1996 Report ISBN 92-827-9008-8


118.

1997 Report ISBN 92-828-2420-9


119.

1998 Report ISBN 92-828-5731-X



- Research and Technological Development Activities of the EU

Annual report 1995 ISBN 92-77-93761-0

Annual report 1996 ISBN 92-78-08603-7

Annual report 1997 ISBN 92-78-23634-9

Annual report 1998 ISBN 92-78-38078-4


- The Structural Funds

Annual report 1995 ISBN 92-78-10829-4

Annual report 1996 ISBN 92-78-26044-4

Annual report 1997 ISBN 92-78-39641-9

Annual report 1998 ISSN 0254-1491

- Cohesion Financial Instrument Cohesion Fund

Combined report 1993-1994 ISBN 92-827-5739-0

Annual report 1995 ISBN 92-827-9688-4

Annual report 1996 ISBN 92-827-8877-6

Annual report 1997 ISBN 92-78-39497-1

Annual report 1998 CB-CO-99-480 EN C


- ECSC Financial Report 1995 ISBN 92-827-7933-5

ECSC Financial Report 1996 ISBN 92-828-0908-0

ECSC Financial Report 1997 ISBN 92-828-3852-8

ECSC Financial Report 1998 ISBN 92-828-7230-0


- European Investment Bank

Annual report 1995 ISBN 92-827-6303

Annual report 1996 ISBN 92-827-9943-3

Annual report 1997 ISBN 92-828-3197-3

Annual report 1998 ISBN 92-828-5975-4


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* It is not possible to effect a breakdown by Member State